##### 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 1934ORx
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2002 ______________________________ORo
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For 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:  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:  As of December 31, 2002, 10,560,000 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.  o Yes  x No Indicate by check mark which financial statement item the registrant has
elected to follow.  o Item 17  x 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.  o Yes  x No




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TABLE OF CONTENTS PagePART I
    
    
    4Item 1.
    
    Identity of Directors, Senior Management and Advisers
    
    
    4Item 2.
    
    Offer Statistics and Expected Timetable
    
    
    4Item 3.
    
    Key Information
    
    
    4Item 4.
    
    Information on the Company
    
    
    14Item 5.
    
    Operating and Financial Review and Prospects
    
    
    37Item 6.
    
    Directors, Senior Management and Employees
    
    
    52Item 7.
    
    Major Shareholders and Related Party Transactions
    
    
    58Item 8.
    
    Financial Information
    
    
    60Item 9.
    
    The Listing
    
    
    61Item 10.
    
    Additional Information
    
    
    62Item 11.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    77PART II
    
    
    80Item 12.
    
    Description of Securities other than   Equity Securities
    
    
    80Item 13.
    
    Defaults, Dividend Arrearages and Delinquencies
    
    
    80Item 14.
    
    Material Modifications to the Rights of Security Holders and Use of Proceeds
    
    
    80Item 15.
    
    Controls and Procedures
    
    
    80Item 16.
    
    Reserved
    
    
    82PART III
    
    
    83Item 17.
    
    Financial Statements
    
    
    83Item 18.
    
    Financial Statements
    
    
    83Item 19.
    
    Exhibits
    
    
    83Index To Financial Statements
    
    
    F-1Exhibit 1.1Exhibit 1.2Exhibit 1.3Exhibit 2Exhibit 8Exhibit 11Exhibit 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 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. 1




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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;
    
    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 likely growth in revenues attributable to recent acquisitions;
    
    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. 2




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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 future 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 8-K and
Form 6-K. 3




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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, 2002
and 2001 and for the year ended December 31, 2001 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 Auditors, 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, 1999 and 1998 are derived from
the consolidated financial statements of the Predecessor, which have been
audited by KPMG LLP, independent certified public accountants. The consolidated
statements of operations, comprehensive loss, shareholders deficiency and cash
flows for the year ended December 31, 2000 and the report of KPMG LLP thereon,
are included in this Form 20-F. The selected financial data should be read in conjunction with the
consolidated financial statements for the year ended December 31, 2000, the
related notes, and the independent auditors report which contains an
explanatory paragraph stating that Predecessors recurring net losses and net
operating cash deficiencies, significant working capital deficiency and a
significant shareholders deficiency and insufficient funds on hand to meet its
current debt obligations raised substantial doubt about the Predecessor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 4




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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 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. Successor Company
    
    Predecessor CompanyFrom June 7,
    
    From January 1,2002 to
    
    2002 to
    
    Year Ended
    
    Year Ended
    
    Year Ended
    
    Year EndedDecember 31,
    
    June 7,
    
    December 31,
    
    December 31,
    
    December 31,
    
    December 31,2002
    
    2002
    
    2001
    
    2000
    
    1999
    
    1998(United States Dollars in thousands, except per share data)Consolidated Statements of Operations Data:Revenue:Communication services revenue
    
    $
    2,793
    
    
    $
    1,216
    
    
    $
    240,092
    
    
    $
    646,470
    
    
    $
    248,600
    
    
    $
    131,938Operations and maintenance fee revenue
    
    
    1,371
    
    
    
    1,451
    
    
    
    4,239
    
    
    
    4,455
    
    
    
    
    
    
    
    Capacity sales
    
    
    
    
    
    
    
    
    
    
    12,298
    
    
    
    102,983
    
    
    
    84,501
    
    
    
    3,250Total revenue
    
    
    4,164
    
    
    
    2,667
    
    
    
    256,629
    
    
    
    753,908
    
    
    
    333,101
    
    
    
    135,188Operating expenses:Cost of services and sales
    
    
    (1,506
    )
    
    
    (1,518
    )
    
    
    (170,463
    )
    
    
    (552,110
    )
    
    
    (250,574
    )
    
    
    (122,109
    )Selling, general and administrative
    
    
    (30,840
    )
    
    
    (26,502
    )
    
    
    (115,245
    )
    
    
    (358,729
    )
    
    
    (100,559
    )
    
    
    (73,197
    )Gain on amounts due from bankruptcy
estates
    
    
    25,003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Restructuring and impairment
    
    
    
    
    
    
    (908
    )
    
    
    (1,278,640
    )
    
    
    (899,999
    )
    
    
    (13,206
    )
    
    
    Depreciation and amortization
    
    
    (2,458
    )
    
    
    (1,736
    )
    
    
    (119,920
    )
    
    
    (303,168
    )
    
    
    (75,911
    )
    
    
    (16,268
    )Total operating expenses
    
    
    (9,801
    )
    
    
    (30,664
    )
    
    
    (1,684,268
    )
    
    
    (2,114,006
    )
    
    
    (440,250
    )
    
    
    (211,574
    )Operating loss before reorganization items
    
    
    (5,637
    )
    
    
    (27,997
    )
    
    
    (1,427,639
    )
    
    
    (1,360,098
    )
    
    
    (107,149
    )
    
    
    (76,386
    )Reorganization Items
    
    
    
    
    
    
    2,662,669
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating (loss) income
    
    
    (5,637
    )
    
    
    2,634,672
    
    
    
    (1,427,639
    )
    
    
    (1,360,098
    )
    
    
    (107,149
    )
    
    
    (76,386
    )Interest income
    
    
    986
    
    
    
    1,007
    
    
    
    8,019
    
    
    
    31,981
    
    
    
    26,722
    
    
    
    28,259Interest expense
    
    
    (11
    )
    
    
    (63
    )
    
    
    (83,965
    )
    
    
    (212,630
    )
    
    
    (137,409
    )
    
    
    (79,177
    )Net (loss) income
    
    
    (4,662
    )
    
    
    2,635,616
    
    
    
    (1,503,585
    )
    
    
    (1,540,747
    )
    
    
    (217,836
    )
    
    
    (127,304
    )Dividends on redeemable convertible
preferred securities
    
    
    
    
    
    
    
    
    
    
    (14,293
    )
    
    
    (32,954
    )
    
    
    (1,341
    )
    
    
    (3,301
    )Net (loss) income attributable to common
stockholders
    
    
    (4,662
    )
    
    
    2,635,616
    
    
    
    (1,517,878
    )
    
    
    (1,573,701
    )
    
    
    (219,177
    )
    
    
    (130,605
    )Net (loss) income per common share
attributable to common stockholders,
basic and diluted
    
    
    (0.44
    )
    
    
    51.72
    
    
    
    (29.72
    )
    
    
    (31.53
    )
    
    
    (7.43
    )
    
    
    (5.67
    )Weighted average common shares
outstanding, basic and diluted
    
    
    10,560
    
    
    
    50,963
    
    
    
    51,072
    
    
    
    49,905
    
    
    
    29,518
    
    
    
    23,054Other Consolidated Financial Data:Net cash (used in) provided by operating
activities
    
    
    (13,765
    )
    
    
    7,856
    
    
    
    (219,854
    )
    
    
    (271,698
    )
    
    
    (134,825
    )
    
    
    (60,318
    )Net cash (used in) provided by investing
activities
    
    
    (1,667
    )
    
    
    (6,670
    )
    
    
    65,408
    
    
    
    (565,332
    )
    
    
    (405,971
    )
    
    
    (349,992
    )Net cash (used in) provided by financing
activities
    
    
    
    
    
    
    
    
    
    
    (73,300
    )
    
    
    762,765
    
    
    
    589,391
    
    
    
    729,035
 5




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Successor Company
    
    Predecessor CompanyAt December 31,
    
    At December 31,2002
    
    2001
    
    2000
    
    1999
    
    1998Consolidated Balance Sheet Data:Cash and cash equivalents
    
    $
    53,408
    
    
    $
    65,933
    
    
    $
    305,293
    
    
    $
    373,044
    
    
    $
    329,511Restricted cash equivalents and
restricted marketable
securities, current and
non-current
    
    
    
    
    
    
    
    
    
    
    61,936
    
    
    
    197,760
    
    
    
    144,523Cash securing letters of credit
for network construction
    
    
    
    
    
    
    
    
    
    
    29,728
    
    
    
    50,165
    
    
    
    Other current assets
    
    
    22,766
    
    
    
    43,541
    
    
    
    239,890
    
    
    
    169,759
    
    
    
    216,109Property and equipment, net
    
    
    37,947
    
    
    
    30,774
    
    
    
    1,385,917
    
    
    
    884,328
    
    
    
    267,316Intangible assets, net
    
    
    
    
    
    
    61,865
    
    
    
    120,692
    
    
    
    1,011,659
    
    
    
    45,908Other assets
    
    
    6,930
    
    
    
    776
    
    
    
    11,931
    
    
    
    17,382
    
    
    
    5,744Total assets
    
    
    121,051
    
    
    
    202,889
    
    
    
    2,155,387
    
    
    
    2,704,097
    
    
    
    1,009,111Total current liabilities
    
    
    12,691
    
    
    
    2,411,059
    
    
    
    2,611,633
    
    
    
    399,158
    
    
    
    178,143Total long-term liabilities
    
    
    10,676
    
    
    
    
    
    
    
    91,860
    
    
    
    1,767,548
    
    
    
    921,139Series A redeemable convertible
preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    47,121Series B mandatorily redeemable
(in 2015) cumulative convertible
preferred stock
    
    
    
    
    
    
    338,259
    
    
    
    328,616
    
    
    
    
    
    
    
    Predecessor-obligated
mandatorily redeemable (in 2015)
convertible preferred securities
of subsidiary grantor trust
whose sole assets are junior
subordinated debentures of
Predecessor
    
    
    
    
    
    
    
    
    
    
    180,000
    
    
    
    
    
    
    
    Stockholders equity (deficiency)
    
    
    97,864
    
    
    
    (2,546,429
    )
    
    
    (1,056,722
    )
    
    
    537,391
    
    
    
    (137,292
    )
 Capitalization and indebtedness Not applicable. Reasons for the offer and use of proceeds Not applicable. 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 through and beyond the second quarter of 2004. As of February 29, 2004, we had approximately US$24.4 million of
unrestricted cash available to
fund future operations. Given projected exceptional expenditure and the
need to maintain sufficient cash reserves so as to ensure compliance with
applicable solvency law requirements, we believe that such amount will provide
us with sufficient liquidity to fund our operations into the second quarter of
2004. 6




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Our ability to fund our operations through and beyond the second quarter
of 2004, however, is subject to a number of uncertainties beyond our control.
It is currently estimated that we will require at least US$50 million of
additional outside funding to support our business operations and the
implementation of our most recently adopted business plan (the New Viatel
Business Plan; see Item 4. Information on the Company  New Viatel Business
Plan) until the last quarter of 2005, by which time, assuming successful
implementation of the New Viatel Business Plan, we expect our business
operations to be cash flow positive. On February 9, 2004, the Company entered into a Term Sheet (the Term
Sheet) with respect to a proposed financing of the Company, through the sale
and issuance of convertible senior secured notes (the Proposed Financing).
The Proposed Financing is for an amount of US$50 million, with contemplation
being given to a total investment of up to US$60 million. The Term Sheet is
non-binding, save as to certain matters such as indemnity, confidentiality,
reimbursement of expenses, co-operation and exclusivity. The Proposed
Financing is conditional upon a number of matters, including the passing of
specified resolutions at a Special General Meeting of the Company convened to
take place on April 6, 2004 (the April SGM). The Companys Notice of the April SGM (the April 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. No assurance can be given that the Proposed Financing will be consummated.
In the event that the Proposed Financing were not to be consummated, we would
expect our financial resources to be insufficient to cover our anticipated cash
requirements through and beyond the second quarter of 2004. Accordingly, we
would require immediate additional outside financing to fund ongoing operations
and to prevent the need to begin bankruptcy or other insolvency proceedings.
These or other sources of additional funding may not be available to us on a
timely basis, on acceptable terms or at all. If the Proposed Financing is not consummated and we are unable to obtain
alternative acceptable financing, we would be forced to reduce significantly
our cash requirements or to raise cash, by discontinuing or disposing of
existing product development programs or business operations, by selling assets
or otherwise. If these measures were to be inadequate to cover our cash needs,
we would likely become insolvent. 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 the 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 additional 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. 7




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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;
    
    our ability to introduce new products and services;
    
    our ability to attract and retain customers;
    
    changes in the mix of services sold or channels through which services are sold;
    
    capital expenditure requirements and costs relating to our network; 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 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. New
salespersons have been hired to execute the sales strategy set forth in the New
Viatel Business Plan; no assurances can, however, be made that they will be
able to reach their respective productivity targets. In the last three 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 2004 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. 8




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We may not have the ability to offer new products and services. Our future success will also depend upon our ability to offer products and
services not previously offered by us. Revenues generated from the sale of our
existing products and services, absent a significant improvement in market
conditions, are not expected to generate sufficient net positive cash flow
sufficient to finance our operations for the foreseeable future. Our ability
to offer successfully new products and services will depend upon, among other
things, our ability to:  
    
    identify, develop market and sell services and products for
which we believe there is significant potential demand;
    
    generate customer acceptance of new product and service offerings;
    
    integrate necessary equipment and software into our network; and
    
    enhance our billing, back-office and information systems to
accommodate these new products and services. Our failure to develop, market and sell successfully new products and
services to existing and new customers 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 future success will depend, in part, on our ability to operate our
network without significant interruption or failure. Our network is 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 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. 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. 9




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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. Electronic attack from hackers or computer viruses could disrupt our business. Our network relies 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
enforced 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. 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. 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, 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. 10




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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 & Kempe,
that there is no treaty in effect between the United States and Bermuda
providing for the enforcement in Bermuda of the judgment of a United States
court and that, accordingly, the judgment of a United States court (whether
based upon the civil liability provisions of the US federal securities laws or
otherwise) are enforceable only if the following criteria are met: (1) the
judgment must be for a debt or definite sum of money, not being a sum payable
in respect of taxes or like charge, or in respect of a fine or other penalty,
and must be final and conclusive; (2) the United States court giving the
judgment must have properly taken jurisdiction against the debtor, on the basis
of that debtors presence in the United States or submission to the
jurisdiction of the United States court by voluntary appearance, agreement or a
claim in the U.S. proceedings; and (3) the judgment must not be impeachable by
reason of the United States court not having jurisdiction or competence to give
the judgment, where the judgment was obtained by fraud, where its enforcement
would be contrary to public policy, or if the proceedings in which the judgment
was obtained were contrary to natural justice. 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. Because the statements are summaries, they do
not purport to deal with all aspects of Bermuda law that may be relevant to the
Company and our 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. 11




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In addition, consummation of the Proposed Financing, or the expectation
that the Proposed Financing will be consummated, could have an adverse effect
on the market price, liquidity or saleability of our common shares. This is a
substantive risk given, in particular, that the rights conferred on the
investors in the Proposed Financing, with respect notably to the approval of
corporate actions and the appointment of Directors, will have the effect of
constituting an effective change of control of the Company. See Item 4.
Information on the Company  The Proposed Financing. This should be reviewed
in conjunction with the March 10 6-K including the related exhibits; in
particular, you should give specific attention to the disclosure under the
caption Possible Effects of Proposed Financing in Summary of the Proposed
Financing included as Part II to the April SGM Notice, all of which should be
construed as Risk Factors included in this Form 20-F. 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 or on acceptable terms. 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 incumbents such as British Telecom, France Telecom, KPN,
Deutsche Telekom, Belgacom and SwissCom and alternative operators such as
Global Crossing, LDCom, MCI, COLT Telecom Group, Level 3, Easynet, PSINet
(Europe), VIA NET.WORKS and Claranet. Many 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. Incumbent
telecommunications operators generally have additional competitive advantages,
including controlling access to local networks, economies of scale and
relationships with national
regulatory authorities. 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. We are subject to risks associated with operating in multiple countries. We operate primarily in several jurisdictions across Western Europe, each
of which is subject to special risks, including foreign currency fluctuations,
government regulation, taxation and labor strikes. 12




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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). Our exposure to exchange rate fluctuations may have a material adverse effect
on our ability to meet certain obligations. The majority of our revenues are denominated in U.S. Dollars, Pounds
Sterling and Swiss Francs, while the majority of our expenses are denominated
in Euros. Any appreciation in the Euro relative to the U.S. Dollar, Pound
Sterling or Swiss Franc could have a material adverse effect on our business
margins and our ability to meet ongoing operational expenses. In the future,
we may elect to manage currency exchange rate exposure through the use of
hedging transactions. We cannot provide any assurance that exchange rate
fluctuations will not have a material adverse effect on our ability to meet
ongoing operational expenses. Government regulation could adversely affect our ability to provide services in
markets in which we operate. The telecommunications industry is highly regulated in all the countries
where we provide services. Our ability to continue to operate and develop our
networks depends on complying with the appropriate regulatory regime in each
country, which in some cases will require the local country, on a national
level, to adopt and implement the new regulatory regime brought into effect in
2003 by the package of new European Union (EU) directives (the new
regulatory package) such as the Authorisation Directive (2002/20/EC). We believe that we possess, or are in a position to obtain, all necessary
permits, licenses, and authorizations or to make relevant notifications 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
infrastructure is located which, in turn, could have a material adverse effect
on our business, financial condition and results of operations. The directives in the new regulatory package, 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. Further,
each Member State has achieved a different level of implementation, some having
fully implemented the directives of the new regulatory package, others having
implemented a transition phase
and still others having failed to implement such directives at all. 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. There can be no assurance that:  
    
    we will not be harmed by future regulatory, judicial and legislative changes;
    
    regulators or third parties will not raise material issues
with regard to our compliance with applicable laws and regulations;
or 13




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
    
    other regulatory activities will not harm our business,
financial condition and results of operations. 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.
Such non-compliance has continued through the date of filing of this Form 20-F
by the Company. 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, including by the
filing of this Form 20-F. Notwithstanding the filing of this Form 20-F,
however, 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 & Co., Incorporated (Morgan Stanley), one of our major
shareholders and also a prospective investor in the Proposed Financing. See
Item 4. Information on the Company  The Proposed Financing, 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 have recused
themselves from the Companys decision-making process with respect to our
negotiation and approval of the Proposed 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 the major shareholder. 
 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 small and medium
enterprises (SMEs), carriers, resellers and systems integrators services, and
we operate in a single segment: telecommunications. 14




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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 and
incumbent public telephone operators (PTOs) 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  a new Viatel organization has been
effectively created. Principal among the changes has been the introduction of
a new business plan  the New Viatel Business Plan  and the making of a number
of senior appointments, creating a virtually new senior management team to take
the Company forward in its new direction. 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 is 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 and 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
below for a more detailed description. Successful implementation of the New Viatel Business Plan will be
dependent upon, among other things, successful financing to fund the Company
whilst it is experiencing negative cash flow. The Companys new management has
already undertaken significant work in seeking appropriate funding and in
generally preparing the Company for financing. This activity included
proposing various amendments to the Bye-Laws of the Company (the Bye-Laws)
intended to remove provisions which would have
inhibited the possibility of securing the additional investment required
to support the implementation of the New Viatel Business Plan and the ongoing
development of the Company. These amendments were adopted by shareholders
resolution at the second annual general meeting of the Company on December 29,
2003. As noted above  see Item 3. Key Information  Risk Factors  the
Company has now executed a Term Sheet on February 9, 2004, in connection with a
potentially substantial financing of the Company  the Proposed Financing. 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 evolution following the Effective Date. A detailed description is
also provided as to the scope of, and certain of the conditions attaching to,
the Proposed Financing. 15




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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 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. 16




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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). 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 17




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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 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, 2004 (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 rights 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, the Debtors Property vested in VTL. 18




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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, 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), 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 PlanClass 1  Other Priority Claims
    
    UnimpairedClass 2  Convenience Claims (Unsecured
Claims of Face Amount US$500 or less,
excluding any Intercompany Claims)
    
    UnimpairedClass 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
PlanClass 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. 19




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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 bandwidth
and optical wave or wavelength services; and (2) Internet Protocol (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 20




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EUR
2.7 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, with further deferred consideration
payable in the event that certain positive business performance goals were met.
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 was hived up to its former parent, Net
Access Limited, 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. 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, Lucy Woods has put in place a new
senior management team  see Item 6. Directors, Senior Management and
Employees  and has constructed and developed a new financial model and
business plan. Implementation of the New Viatel Business Plan has begun. Development of the New Viatel Business Plan This plan, based on detailed market analysis, in particular of the
European mid-sized corporate business sector, provides for the roll-out of an
enhanced and attractive range of products we believe to be capable of
commanding improved revenues and profit margins. 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 is to establish Viatel as a
leading pan-European provider of Managed IP Services, through organic growth
and development and possible corporate acquisition, with emphasis on the sale
and provision of IP connectivity and IP value-added services. To the extent
practicable, and assuming the consummation of the Proposed Financing or another
third party financing resulting in sufficient net proceeds to the Company, the
Company intends to explore possible acquisitions of assets or business
operations from third parties so as to expand its presence/product offerings
and/or customer base in territories in Western Europe. Additionally, the New Viatel Business Plan seeks, through the use in
particular of in-house systems engineering, to leverage the capabilities of the
European Network to support new value-added services; such product development
may entail the incurring of further network-related capital expenditure. 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 will, at present, continue to use the Cybernet name and
branding. The rebranding exercise was accompanied by an advertising campaign
which is planned to be continued and extended through 2004. The New Viatel
Business Plan identifies and targets three distinct business markets, being:
(1) Retail; (2) Wholesale; and (3) Cybernet. Each of these business areas is
considered in turn. 21




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Retail The New Viatel Business Plan provides for additional focus on the SME
market, identifying this market as one with significant potential for growth.
The New Viatel Business Plan recognized that Viatels product offering in this
market sector needed significant enhancement and, accordingly, the new product
development team, that was brought into the business to revise our product
portfolio, has to date concentrated on this market sector. Viatel now offers: (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; and (3) managed security services, including the management of
VPNs. 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: a 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 organisations sharing the same bandwidth);
in this way, the customer has effectively its own dedicated
bandwidth, maximising service performance.
    
    SoHo Business Broadband: a 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 managed hosting and co-location 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. 22




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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.
    
    Site-to-Site IPVPN: An Internet Protocol Virtual Private
Network (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. Wholesale Three types of wholesale customers are identified in the New Viatel
Business Plan: carriers (type 1, 2 and 3), content owners and distributors
(such as ISPs, storage providers, content distributors and co-location
providers) and large network integrators (normally IT consultants or IT
outsourcers). The portfolio of wholesale products provided to such customers is
generally divided between: (i) 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 (ii) 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 transmission technology
(SDH) international private wire service, over varying speeds,
that uses the European Network.
    
    Wavelength: a service offering greater speed, flexibility and
more efficient bandwidth utilisation 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. 23




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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 allow increased security and remote
monitoring of customers applications co-located at the facility. As our business develops, we
intend also to sell our retail portfolio on a white
label basis to resellers at wholesale prices. Cybernet Since its acquisition in March 2003, Cybernet has been a successful
company within the Viatel group, realizing positive operating cash flow in each
quarter. 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 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, it is planned to broaden Cybernets product portfolio and introduce other
hosting and security products to their customer base. Due to the strength of its name-recognition in Switzerland, at this time,
and as noted above, it is intended for Cybernet to continue to trade under the
Cybernet brand. Sales and Service Since September 2003, we have been investing in our sales, marketing and
customer service functions. We have hired new sales teams to address both the
retail and wholesale markets. The new retail team comprises 34 quota-bearing
sales representatives as well as bid management, technical support
and project managers; this team is wholly-focussed on the UK
business-to-business market. The new wholesale team comprises 16 people,
including 14 quota-bearing sales representatives. This team is located across
the markets of Europe, and we have one person based in the United States. We
have also hired a marketing team who are recreating a portfolio of services as
well as researching customer requirements across Europe. The focus of the
business has been adjusted in line with such requirements. This investment in
sales and marketing resource underpins the New Viatel Business Plan and is
critical to the future of Viatel. 24




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In addition to the investment set out above, we have also hired new
management for customer service and undertaken a review of, and started
improvement actions to, our processes and systems supporting customer service.
Our desire is to offer customers a standard of service which becomes a
differentiator between the Company and its competitors. More work will be
required before this will be possible and it is probable that we will need to
make future capital investments in systems to support the service environment. Segmental Revenue The Companys sole operational activity relates to the provision of
telecommunications services enabled by the operation of its European Network.
The Companys management uses financial data internally to make operating
decisions and assess performance based upon this one principal activity of the
Company. As such, the Company has one reportable segment. Accordingly, the
Predecessors segment disclosures have been restated. Revenues for the period from June 7, 2002 to December 31, 2002 from three
principal customers of the European Network represented 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, (United States Dollars, in thousands) generated by geographic location of customers is as follows: Successor
    
    Predecessor
    
    Predecessor
    
    PredecessorFrom June 7,
    
    From January 1,2002 to
    
    2002 to
    
    Year ended
    
    Year endedDecember 31,
    
    June 7,
    
    December 31,
    
    December 31,2002
    
    2002
    
    2001
    
    2000Western Europe
    
    
    2,028
    
    
    
    2,301
    
    
    
    251,463
    
    
    
    458,612North America
    
    
    2,136
    
    
    
    366
    
    
    
    5,166
    
    
    
    288,044Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,252Consolidated
    
    
    4,164
    
    
    
    2,667
    
    
    
    256,629
    
    
    
    753,908
 The European Network The European Network remains our major asset. Our network is a
high-capacity fiber optic network traversing the United Kingdom, The
Netherlands, Belgium, France, Western Germany 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, Lowestoft 
Zaandvoort and Pevensey Bay  Cayeux-sur-Mer). In addition, our European
Network consists of at least one additional spare duct on most terrestrial
routes offering potential additional resale or lease opportunities,
particularly given the current reluctance of government/local authorities to
permit further duct installation. The European Network connects 19 cities, including London, Paris,
Amsterdam, Brussels, Frankfurt, Düsseldorf, Zurich and Geneva and includes the
remaining portion of the German network which was, in part, reacquired through
the insolvency proceedings with respect to certain German Viatel subsidiaries.
In addition, in the principal cities of London, Amsterdam and Frankfurt, we
have dedicated 25




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metropolitan rings that allow us to offer additional services
within these cities. We also have two wavelengths of leased capacity to New
York allowing us to offer transatlantic capacity to our customers. Our European Network employs ring configurations and self-healing SDH to
provide high reliability and redundancy. One of the key features of such
technology is, in the event of any service interruption, the ability for
traffic to be rerouted over an alternative path. We have 4 rings at STM-64 and
8 rings at STM-16. The network is equipped with technologically advanced fiber
and optical transmission systems, and consists of a uniform configuration of
dense wave division multiplexing optronics and Lucent Technologies fiber optic
cable on terrestrial routes. To support the European Network, we lease 18 co-location facilities across
our 6 network countries. These sites are standardly equipped 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 our Network
Operations Centre at Egham, United Kingdom (the NOC), which operates on a 24
hours a day, 7 days a week basis. To maintain our carrier-class quality of services, irrespective of the
types of customer serviced, we have taken a comprehensive approach to network
operations. The NOC is backed up by a Disaster Recovery Centre in Amsterdam
(the DRC), where all the management systems of the NOC are duplicated in
their entirety. Both these centers are equipped to detect and handle incidents
and, where possible, quickly re-route traffic in the event of a significant
interruption. 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. 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. With regard to our retail services, we expect to compete with two main
categories of competitors, being: (1) PTOs such as British Telecom, France
Telecom, Deutsche Telekom, Belgacom, KPN and SwissCom; and (2) traditional
value-added ISPs. Major pan-European business ISPs include Easynet, PSINet
(Europe), VIA NET.WORKS and Claranet. With regard to our wholesale services, we expect to face competition from
companies such as Global Crossing, LDCom, MCI, COLT Telecom Group and Level 3,
each of which currently has broadband networks in operation. 26




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We believe, however, that we have several significant potential advantages
that might allow us to compete effectively. Firstly, our European Network is
complete and, for the key cities of London, Amsterdam, Paris, Brussels,
Frankfurt, Zurich and Geneva, is lit with significant amounts of surplus
capacity. Given the capital and regulatory constraints facing many companies
in the European telecommunications sector, we believe it is unlikely that any
of our potential competitors will light additional fiber strands or engage in
new-dig construction at any time in the foreseeable future. To the extent
that, by virtue of our surplus network capacity, the incremental cost to supply
new customers is extremely low, this may permit us to compete effectively on
price. Secondly, our operative network is substantially an own-build network and,
as such, is physically diverse from our competitors networks, many of which
are based on the same infrastructure as a result of capacity swaps undertaken
over the past several years. This diversity tends to increase network
resilience which is often required by customers, in particular in the context
of the support of mission critical data applications. Finally, we believe we can compete effectively by developing innovative
and fully managed services using existing technology, and focussing on
segments characterised by high market growth such as IPVPN, security and
business xDSL service. Incumbents, in particular, given their concerns as to
product cannibalisation and overall revenue reductions, have less flexibility
to focus resources and priorities in this way. Notwithstanding the foregoing, many of our expected competitors have
substantially greater financial, marketing and other resources than we have.
They may be able to deploy more extensive networks or be better able to
withstand pricing and other market pressures. In addition, incumbent
telecommunications operators generally have additional competitive advantages
such as the control of access to local networks, significant operational
economies and close ties with national regulatory authorities. See Item 3.
Key Information  Risk Factors. The Proposed Financing As noted above, our ability in the short-term to continue operations and,
ultimately, our successful 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. In this
connection, the Company has, since July 2003, been in discussions with
potential investors. Pursuant to this activity, on February 9, 2004, the
Company executed a Term Sheet with each of: (1) Morgan Stanley; (2) Ahab
Capital Management, Inc.; (3) CFSC Wayland Advisers, Inc.; and (4) Värde
Partners, Inc. (collectively, the Investors), with respect to the Proposed
Financing. The Proposed Financing involves the sale and issuance of
convertible senior secured notes (the Notes) to the Investors as contemplated
by the Term Sheet. The Proposed Financing is for an amount of US$50 million,
with contemplation being given to a total investment of up to US$60 million.
The Proposed Financing was agreed by a special committee of the Board (the
Financing Committee) and is conditional upon a number of matters, including
the passing of specified resolutions (the Resolutions) at the April SGM. The
Company has convened the April SGM for 11:00 am, Bermuda time, on April 6,
2004. The record date for the April SGM is February 19, 2004. The Term Sheet is non-binding, except as to matters such as indemnity,
confidentiality, reimbursement of expenses, cooperation and exclusivity. The
Company and the Investors are currently 27




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in the process of preparing definitive
documentation relating to the Proposed Financing. The Proposed Financing is
currently expected to close in the second quarter of 2004. The Term Sheet and a related press release announcing the signing of the
Term Sheet were furnished to the U.S. SEC on a Form 6-K of the Company dated
February 9, 2004 (the February 9 6-K). The April SGM Notice together with a
letter from the Chairman of the Company (the Chairmans Letter) and related
documentation, were furnished to the U.S. SEC on the March 10 6-K. Both the
February 9 6-K and March 10 6-K and the related exhibits are hereby
incorporated herein by reference. You should review the February 9 6-K and
March 10 6-K and the related exhibits carefully in conjunction with this Form
20-F. 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. A detailed summary of the provisions of the
Term Sheet, the Proposed Financing and related matters  including a
description of some of the likely effects of the Proposed Financing on
Shareholders, notably the extent to which control of the Company will pass to
the Investors or their transferees  is included in the Notice
Part II  Summary of the Proposed Financing. We urge you to read this summary
carefully. As currently contemplated under the Term Sheet, the Company would receive
US$50 million at closing in consideration of its issuance of Notes to the
Investors with the possibility of a total investment of up to US$60 million.
Interest on the Notes is currently expected to be 8% per annum, and to be
compounded and payable semi-annually by way of additional Notes or, at the
Companys option, in cash. The Notes are expected to have a 10 year maturity,
and to be convertible, at the option of the Noteholder, 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. Upon conversion of the Notes, persons previously holding Notes would hold
a significant majority of our common shares. Both prior to and following
conversion, material corporate actions will effectively require the consent of
the Investors or their transferees. At the time of closing, Morgan Stanley is
expected to be the majority investor and, as such, at that time to be in a
position to determine the outcome of any vote that is required of the
Noteholders. It is a condition of the Proposed Financing that our Chief Executive
Officer, Lucy Woods, should, as at closing, enter into an employment agreement
on terms satisfactory to the Investors. It is also contemplated that, as at or
shortly after closing, there will be established an equity compensation plan
(separate and apart from the Equity Incentive Plan) for the benefit of senior
management. While the terms of such plan are yet to be finalized, it is
contemplated that this plan will provide for a variable range of ownership of
the Company by participants in the plan, with a potential maximum aggregate
ownership by plan participants of 10% of the Companys equity, where the value
of the Company is US$350 million or more. Additionally, it is now expected
that Lucy Woods will, as a requirement of the Investors, herself participate in
the Proposed Financing through the purchase of Notes in aggregate principal
amount of up to US$600,000, with a minimum aggregate principal amount of
US$250,000. Binding provision is made in the Term Sheet for the Company to negotiate
exclusively with the Investors through May 9, 2004, but provision is included
to enable the Company to engage in negotiations with potential third party
investors in response to any unsolicited bona fide offer of 28




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investment which
the Financing Committee, in conjunction with the Companys financial/legal
advisers, considers to be more favourable to the Company and our shareholders
than the terms of the Proposed Financing. As of the date of this Form 20-F,
the Company has not received any such subsequent financing proposals. The Investors comprise a group of U.S. financial institutions including
Morgan Stanley which itself beneficially owns approximately 12.4% 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 are not members of the Financing Committee and have recused
themselves from any involvement on behalf of the Company in connection with the
Proposed Financing. Upon or shortly after closing, the size of the Board is expected to be
increased from six (including the one executive Director, Lucy Woods) to nine,
through the appointment by the Investors of three new Directors. It is
contemplated that two of these new Directors, while selected by the Investors,
will be independent and not affiliates of any of the Investors. The Investors
(and their transferees) will thereafter 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). Through a combination of these rights to appoint, remove and replace
Directors, and their rights to approve/veto material corporate decisions, the
Investors (and their transferees) will, under the terms of the Proposed
Financing, effectively acquire control of the Company. Since the terms of the Term Sheet related to the proposed sale of the
Notes are non-binding, no assurance can be given that the Proposed Financing
will be consummated, even if all of the Resolutions are adopted by the
Shareholders. However, as noted under the item Approval of the Resolutions
in the Chairmans Letter, the Resolutions, if approved, will not be considered
effective until and upon closing of the Proposed Financing. Regulation Telecommunications is also subject to the new regulatory package and any
rules and regulations in the European Union countries that have been or are in
the future made or passed to implement such framework. 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 national regulatory
authority 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 other
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 significant market
power and are not therefore generally subject to the more stringent regulations
that may be applied by national regulatory authorities to companies with such
power. 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 29




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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, the regulations of the Federal Communications
Commission, as well as the applicable laws and regulations of any states in
which we operate. 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, or OFCOM, in the United Kingdom; (2) the
Autorité de Regulation des Télécommunications, or ART, the French Regulatory
Authority for Telecommunications, in France; (3) the Regulierungsbehörde für
Telekommunikation und Post,or Regulatory Authority for Telecommunications and
Post, in Germany; (4) the Onafhankelijke Post en Telecommunicatie Autoriteit,
or OPTA, in the Netherlands; and (5) the Belgian Institute of Postal and
Telecommunications Services, or BIPT, in Belgium. In Switzerland, there is no
specific regulatory body; however, telecommunications regulation is determined
by the provisions of the Telecommunications Act (Fernmeldegesetz), or FMG and
is overseen by the Federal Office of Communication. In addition to telecommunications licenses, permits and authorizations, we
may also be required to obtain additional construction, zoning, environmental
and other permits, licenses and authorizations. Organizational Structure Commencing on the Effective Date, a series of share transfers were made
whereby the European Subsidiaries became wholly-owned, direct or indirect,
subsidiaries of the Company. The following tables set out our active subsidiaries as at December 31, 2002: Ownership by Viatel HoldingName of Subsidiary
    
    Jurisdiction of Incorporation
    
    (Bermuda) LimitedVTL-TP (Bermuda) Limited
    
    Bermuda
    
    100%Viatel Holding (Europe) Limited
    
    England and Wales
    
    100%Viaphone AG
    
    Switzerland
    
    100%Viatel AG
    
    Switzerland
    
    100%Viatel Operations SA(1),
    
    France
    
    100%Viaphone NV
    
    Belgium
    
    100%Viatel Belgium NV
    
    Belgium
    
    100%VTL, Inc.(2),
    
    US
    
    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%Viatel Global Communications B.V.
    
    Netherlands
    
    100%Viafoperations Communications B.V.
    
    Netherlands
    
    100%
 30




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##### Table of Contents



Ownership by Viatel HoldingName of Subsidiary
    
    Jurisdiction of Incorporation
    
    (Europe) LimitedViatel Equipment Limited
    
    England and Wales
    
    100%Viatel Gateway Limited
    
    England and Wales
    
    100%Viatel German Asset GmbH
    
    Germany
    
    100%VTL Telecom GmbH
    
    Germany
    
    100%
   (1)
    
    It is a requirement of French law that there be 7 shareholders of a
corporation organised as a société anonyme(SA). The minority shares in Viatel
Operations SA are held by each of 7 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. The European Network itself
is predominantly own-build, such own-build segments comprising approximately
4,370 route kilometers. In addition, we lease, in relation to certain portions of the European
Network, various assets including duct (leased duct totaling approximately 790
route kilometers, the main part of which relates to our German backbone), fiber
(fiber subject to an IRU totaling approximately 935 route kilometers), fiber
and duct on a synthetic ownership basis (totaling approximately 680 route
kilometers), a duct on a synthetic ownership basis (totaling approximately 360
route kilometers) and a short section in Switzerland where we lease a
section
of fiber to take us into each of Zurich and Basle totalling approximately 112
route kilometers. The duct and fiber leases were in general acquired for a one-off payment
and for separate periods of 20 years. In order to keep the European Network and its related facilities fully
operational and functional, we have additionally entered into various
maintenance agreements. Our maintenance charges for the calendar year 2002 were
approximately US$7.7 million. 31




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##### Table of Contents



We maintain telecommunications facilities in certain premises in which
many telecommunications companies also lease facilities (carrier hotels).
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, which can be activated in the event that an emergency situation
develops at the NOC. Both the NOC and the DRC have been equipped with
sophisticated surveillance and control capability, fraud detection and real
time transmission quality enhancements and the NOC is capable of remotely
monitoring, testing and performing diagnostics on key elements of the European
Network. 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. Set forth in the table below are details of the various leasehold
interests held by the Company as at February 29, 2004. 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 sqmLIEGE
    
    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 sqm
 32




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##### Table of Contents



Total Equipment or Facility AreaProperty name
    
    Site Type
    
    (leased total area may be larger)ANTOING
    
    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 sqmCAZAN (VERMEGUES)
    
    MOR
    
    25 sqmCHAROLLES (LP2) (VENDENESSE)
    
    MOR
    
    25 sqmCONDE-SUR-MARNE
    
    REGEN
    
    25 sqmCORBEIL (ESSONNES) (LP7)
    
    MOR
    
    25 sqmCOURRIERES
    
    MOR
    
    703 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 sqm
 33




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##### Table of Contents



Total Equipment or Facility AreaProperty name
    
    Site Type
    
    (leased total area may be larger)LAVOURS (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)
    
    REGEN
    
    25 sqmREVIGNY-SUR-ORNAIN (CONTRISSON)
    
    MOR
    
    25 sqmSAULT BRENAZ (LG1)
    
    MOR
    
    25 sqmSETE (MONTPELLIER)
    
    REGEN
    
    25 sqmAMIENS (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
    
    95 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 sqm
 34




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##### Table of Contents



Total Equipment or Facility AreaProperty name
    
    Site Type
    
    (leased total area may be larger)PARIS 35 RUE DES JEUNEURS  2ND
FLR (BASTILLE)
    
    POP/OFFICE
    
    327 sqmVERETZ (TOURS)
    
    MINI-POP
    
    25 sqmPARIS 38 RUE DES JEUNEURS  4TH
FLR
    
    COLO
    
    7 RACKSPARIS 35 RUE DES JEUNEURS  3RD
FLR (BASTILLE)
    
    POP/OFFICE
    
    330 sqmTROUSSEY (VILLOROY SUR MEHOLLE)
    
    MOR
    
    25 sqmDUSSELDORF IN DER STEELE 29
    
    COLO
    
    1 600 x 800 CabinetDERNBACH
    
    MOR
    
    25 sqmDUSSELDORF HALLE CONNECTAPARK
    
    POP
    
    1400 sqm equipment room plus officeELTEN
    
    MOR
    
    25 sqmERG VERBUNGEMEINDE HAGENBACH
    
    MOR
    
    25 sqmMANNHEIM
    
    POP
    
    1119 sqmNAUROD
    
    MOR
    
    25 sqmLINZ
    
    REGEN
    
    25 sqmBERG GEWERBEGEIT (NL3)
    
    REGEN
    
    1,390 sqmBESTONEE (DB2)
    
    MOR
    
    25 sqmFRANKFURT 19 WEISSMULLERSTRASSE
    
    COLO
    
    1 600 x 800 CabinetBERG LANGWIESE (GASLINE)
    
    MOR
    
    25 sqmKAPPELLA (KAPPELLEN)
    
    MOR
    
    25 sqmPORZ
    
    MOR
    
    25 sqmFRANKFURT KASTOR
    
    OFFICE
    
    2 desks (4 desk office)FRANKFURT 90 KLEYERSTRASSE
    
    MINI-POP/OFFICE
    
    75 sqmAMSTERDAM SCHIPLUIDENLAAN
(DELFLANDLAAN)
    
    POP/OFFICE
    
    695 sqm, 7 car park spaces (basement)AMSTERDAM NIKHEF BUILDING
    
    REGEN
    
    1 rackAMSTERDAM WORLD TRADE CENTRE
    
    POP/OFFICE
    
    182 sqm
 35




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##### Table of Contents



Total Equipment or Facility AreaProperty name
    
    Site Type
    
    (leased total area may be larger)AMSTERDAM HALFWEG
    
    POP/COLO
    
    1728 sqmAMSTERDAM 144 GYROKOOPWEG
    
    COLO
    
    3 racksAMSTERDAM 58 GYROKOOPWEG
    
    UNDETERMINED
    
    1 rackAMSTERDAM INTERXION
    
    COLO
    
    1 600 x 600 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 sqmGENEVA
    
    POP
    
    77 sqmLONDON 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
    
    REGEN
    
    1 rack 1 ductEGHAM BLAYS BASEMENT
    
    WAREHOUSE
    
    257 sqmEGHAM INBUCON HOUSE
    
    POP/OFFICE/NOC
    
    1405 sqmLONDON 8 HARBOUR EXCHANGE
(TELECITY 2)
    
    MOR
    
    1 rack  ref 1 Z 18LONDON TELEHOUSE NORTH (NETCOM)
    
    POP
    
    3 racks
 36




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##### Table of Contents



Total Equipment or Facility AreaProperty name
    
    Site Type
    
    (leased total area may be larger)LONDON BRICK LANE (INTERXION)
    
    COLO
    
    1 x 600 x 600 rackLONDON TELEHOUSE EAST
    
    POP
    
    3 rackLONDON HOSTING CENTRE (PSINET)
    
    REGEN
    
    3 racksLOWESTOFT
    
    REGEN
    
    25 sqmBRACKNELL
    
    OFFICE
    
    2,240 sqmLONDON 7 HARBOUR EXCHANGE
(REDBUS)
    
    REGEN
    
    1 rack 8th floorLONDON BONNINGTON HOUSE
(TELECITY 1)
    
    REGEN
    
    4 racksSTAMFORD CONNECTICUT
    
    OFFICE
    
    Suite 406NEW YORK PARK AVENUE
    
    REGUS OFFICES
    
    RegusNEW YORK 60 HUDSON
    
    POP
    
    550 sqm
 Aggregated rental payments for the calendar year 2002 and fiscal year
2003 were approximately US$10.7 million and US$6.5 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 report comprises the audited
consolidated financial information of: (1) the Company as at December 31, 2002
and for the period from June 7, 2002 to December 31, 2002; (2) the Predecessor
as at and for the years ended December 31, 2001 and 2000 and for the period
from January 1, 2002 to June 7, 2002; and (3) 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. The audited consolidated financial statements of the Company for the
period from June 7, 2002 to December 31, 2002 were previously included in a
Report to Shareholders which was provided to the Companys shareholders prior
to the Annual General Meeting on December 29, 2003 and was filed on Form 6-K
with the U.S. SEC. The audited consolidated financial statements included in
this Form 20-F differ from those previously filed due to the recognition of a
French Value Added Tax liability in the amount of US$6.1 million which was
notified to the Company in February 2004. This item constitutes an adjusting
post balance sheet event and, as such, has been recorded in the statement of
operations for the period ended December 31, 2002 and in the balance sheet as
at that date. 37




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##### Table of Contents



On May 2, 2001, the Predecessor, on behalf of itself and the 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. 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 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. 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. 38




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##### Table of Contents



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, such as that
for VAT in France, 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 Services and Sales Capacity sales made by the Predecessor mainly represented indefeasible
rights of use for sales of portions of the network that qualify for sales-type
lease accounting. Revenue for capacity sales is recognized when capacity is
delivered to the purchaser. Such revenues were recognized in accordance with
Interpretation No. 43 of the Financial Accounting Standards Board (FASB),
Real Estate Sales, an interpretation of FASB Statement No. 66 (FIN 43) and
the SEC Staff Accounting Bulletin No. 101, Revenue Recognition in Financial
Statements. Transactions not meeting the criteria for sales-type lease
accounting were accounted for as operating leases, with revenue being
recognized over the term of the lease and included in communications services
revenue. 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. Annual operating and maintenance charges are invoiced separately from
capacity sales. Revenues relating to such 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. Predecessors cost of capacity in any period is determined based upon the
ratio of total capacity sold and total anticipated capacity to be utilized
multiplied by the related costs of the relevant portion of Predecessors
network. 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 periodically reviews events and changes in circumstances to
determine whether the recoverability of the carrying value of long-lived assets
should be reassessed. 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. 39




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##### Table of Contents



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. As at December 31, 2001 we considered our entire network infrastructure to
be impaired. We determined the impairment by reference to the Reorganization
Value agreed as part of the confirmation of our Plan of Reorganization, as the
Reorganization Value represents the value of the business as a going concern. 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 have been
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, 2000 includes a full year of operations of all of the
Predecessors businesses; 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
    
    Predecessor
    
    
    
    
    
    
    
    
    
    PredecessorJun. 7Dec. 31, 2002
    
    Jan. 1Jun. 7, 2002
    
    Total(1)
    
    
    
    
    
    Year Ended December 31,(A)
    
    (B)
    
    (A+B)
    
    
    
    
    
    2001
    
    2000US$
    
    US$
    
    US$
    
    %of revenue
    
    US$
    
    % of revenue
    
    US$
    
    % of revenueRevenue
    
    
    4,164
    
    
    
    2,667
    
    
    
    6,831
    
    
    
    100
    
    
    
    256,629
    
    
    
    100
    
    
    
    753,908
    
    
    
    100Cost of service & sales
    
    
    (1,506
    )
    
    
    (1,518
    )
    
    
    (3,024
    )
    
    
    (44
    )
    
    
    (170,463
    )
    
    
    (66
    )
    
    
    (552,110
    )
    
    
    (73
    )Selling, general & administrative
    
    
    (30,840
    )
    
    
    (26,502
    )
    
    
    (57,342
    )
    
    
    (839
    )
    
    
    (115,245
    )
    
    
    (45
    )
    
    
    (358,729
    )
    
    
    (48
    )Gains on amounts due from
bankruptcy estates
    
    
    25,003
    
    
    
    
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Restructuring and impairment
    
    
    
    
    
    
    (908
    )
    
    
    (908
    )
    
    
    (13
    )
    
    
    (1,278,640
    )
    
    
    (498
    )
    
    
    (899,999
    )
    
    
    (119
    )Depreciation and amortization
    
    
    (2,458
    )
    
    
    (1,736
    )
    
    
    (4,194
    )
    
    
    (61
    )
    
    
    (119,920
    )
    
    
    (47
    )
    
    
    (303,168
    )
    
    
    (40
    )
 40




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##### Table of Contents



Successor
    
    Predecessor
    
    
    
    
    
    
    
    
    
    PredecessorJun. 7Dec. 31, 2002
    
    Jan. 1Jun. 7, 2002
    
    Total(1)
    
    
    
    
    
    Year Ended December 31,(A)
    
    (B)
    
    (A+B)
    
    
    
    
    
    2001
    
    2000US$
    
    US$
    
    US$
    
    %of revenue
    
    US$
    
    % of revenue
    
    US$
    
    % of revenueOperating loss before
reorganization items
    
    
    (5,637
    )
    
    
    (27,997
    )
    
    
    N/A
    
    
    
    N/A
    
    
    
    (1,427,639
    )
    
    
    (556
    )
    
    
    (1,360,098
    )
    
    
    (180
    )Reorganization items
    
    
    
    
    
    
    2,662,669
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating (loss) / income
    
    
    (5,637
    )
    
    
    2,634,672
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    (1,427,639
    )
    
    
    (556
    )
    
    
    (1,360,098
    )
    
    
    (180
    )Interest and other income
    
    
    986
    
    
    
    1,007
    
    
    
    1,993
    
    
    
    29
    
    
    
    8,019
    
    
    
    3
    
    
    
    31,981
    
    
    
    4Interest expense
    
    
    (11
    )
    
    
    (63
    )
    
    
    (74
    )
    
    
    (1
    )
    
    
    (83,965
    )
    
    
    (33
    )
    
    
    (212,630
    )
    
    
    (28
    )Net (loss) / income
    
    
    (4,662
    )
    
    
    2,635,616
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    (1,503,585
    )
    
    
    (586
    )
    
    
    (1,540,747
    )
    
    
    (204
    )
   (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 Euros. To hedge against this risk, upon emergence from Chapter 11, 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, 2002 as compared with the
year ended December 31, 2001 The following discussion provides a comparison of the results of
operations of the Company and the Predecessor on a combined basis for the year
ended December 31, 2002 with the historical results of operations of the
Predecessor for the year ended December 31, 2001. The discussion is provided
for comparative purposes only. Please note that the value of such a comparison
may be limited. The 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
formaeffect 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. 41




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##### Table of Contents



Revenue For the period from January 1, 2002 to June 7, 2002, we recognized
revenues of US$2.7 million compared to US$256.6 million for the year ended
December 31, 2001. For the period from June 7, 2002 to December 31, 2002,
revenue was US$4.2 million. For the year ended December 31, 2002, total revenue
on a combined basis was US$6.8 million, a decrease of 97% over the fiscal year
ended December 31, 2001. This decrease is primarily due to exiting from the
Predecessors voice businesses and enterprise businesses in multiple
jurisdictions during 2001. Additionally, during 2001, a number of customers
ceased using the service that we were providing due to their own insolvencies. 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 a 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. A significant proportion of the Predecessors revenues were billed on a
usage basis, in particular on minutes of voice telecommunications traffic. The
Predecessor sold such services to other carriers, to SME customers and also to
private individuals. Revenue from communications services in the period from January 1, 2002 to
June 7, 2002 was US$1.2 million, while communications services revenues in the
period from June 7, 2002 to December 31, 2002 was US$2.8 million, comprising
46% and 67%, respectively, of the revenues recognized in the respective period.
The reason for the increase from the first to the second period in 2002 was due
to the Companys sales activities increasing following emergence from
bankruptcy protection. For the fiscal year ended December 31, 2001, revenues from such
communications services amounted to US$240.1 million, or 94% of total revenues
for that period. For the year ended December 31, 2002, total communications
services revenue on a combined basis was US$4.0 million, a decrease of 98% over
the fiscal year ended December 31, 2001. The reason for this decrease is
primarily due to exiting from the Predecessors voice businesses and enterprise
businesses in multiple jurisdictions during 2001 and due to a number of our
customers ceasing to use the service that we were providing due to their own
insolvencies. 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 period from January 1,
2002 to June 7, 2002 was US$1.5 million, while operations and maintenance fee
revenues in the period from June 7, 2002 to December 31, 2002 was US$1.4
million, comprising 54% and 33%, respectively, of the revenues recognized in
the respective period. This revenue has remained generally consistent between
the two periods, as we have retained the customers with long-term interests in
network capacity. 42




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For the fiscal year ended December 31, 2001, such operations and
maintenance fee revenues amounted to US$4.3 million, or 2% of total revenues
for that period. For the year ended December 31, 2002, total operations and
maintenance fee revenue on a combined basis was US$2.8 million, a decrease of
33% over the fiscal year ended December 31, 2001. This decrease was due to a
suspension of such services to certain customers while their insolvency
proceedings were in progress. The Predecessors revenues in the past have also included revenues from
capacity sales. Capacity sales mainly represent indefeasible rights of use for
sales of portions of our network that qualify for sales-type lease accounting.
Transactions that do not meet the criteria for sales-type lease accounting are
accounted for as operating leases and revenue is recognized over the term of
the lease and is included in communications services revenue. For the fiscal
year ended December 31, 2001, capacity sales revenues amounted to US$12.3
million, or 5% of total revenues for that period. No such revenues were
recognized in the year ended December 31, 2002. This 100% decrease was due
principally to the change in market conditions and demand for such services. Each revenue source has a different impact on our results of operations.
As a consequence of our substantial network assets, the costs of which are not
generally included in costs 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 Services and Sales Our cost of services and sales can be classified into three general
categories: access costs, backbone network costs and cost of capacity sales.
Access costs generally represent the costs associated with connecting a
customers premises to the closest access point on our network. Access costs
vary depending upon the distance from our network to the customers premises
and from country-to-country. Backbone network costs represent the third party costs of providing
connectivity to locations where we do not own our own network infrastructure.
Cost of capacity sales reflect the carrying book value of any network assets
which are sold subject to sales-type lease accounting. For the period from January 1, 2002 to June 7, 2002, we incurred costs of
services and sales of US$1.5 million, or 57% of total revenue for such period,
compared to US$170.5 million for the year ended December 31, 2001, or 66% of
total revenue for such period. For the period from June 7, 2002 to December 31,
2002, costs of services and sales were US$1.5 million, or 36% of total revenue
for such period. For the year ended December 31, 2002, total costs of services
and sales on a combined basis were US$3.0 million, or 44% of total revenues for
such period, a decrease of 98% over the fiscal year ended December 31, 2001. The gross margin generated by the revenues and related costs of services
and sales for the period from January 1, 2002 to June 7, 2002 was 43%, while
for the period from June 7, 2002 to December 31, 2002 it was 64%, giving rise
to a gross margin on a combined basis for the year ended December 31, 2002 of
56% compared with a gross margin for the fiscal year ended December 31, 2001 of
34%. The principal reason for the significantly improved margin percentage in
2002 is due to the fact that the Company was no longer operating in the retail
voice or wholesale voice markets, which typically have low gross margin
percentages. Additionally, the gross margin percentage in fiscal 2001 was
depressed by 43




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the rapid shut-down of the Predecessors voice switching capabilities in
certain countries, giving rise to items which could not be invoiced. Selling, General and Administrative Expenses Our selling, general and administrative expenses include network property
lease and related costs, periodic right of way and wayleave costs, repair and
maintenance costs, advertising and promotional costs; commissions paid to sales
representatives; bad debt expense; and overhead costs associated with our
headquarters, back-office, network operations center 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. As a result the
selling, general and administrative expenses to revenue ratio is significantly
higher in 2002 than 2001 or 2000. For the period from January 1, 2002 to June 7, 2002, we incurred selling,
general and administrative expenses of US$26.5 million compared to US$115.2
million for the year ended December 31, 2001. For the period from June 7, 2002
to December 31, 2002, selling, general and administrative expenses were US$30.8
million. For the year ended December 31, 2002, total selling, general and
administrative expenses on a combined basis were US$57.3 million, a decrease of
50% over the fiscal year ended December 31, 2001. This reduction arose from the
cost-cutting measures implemented both before and during Predecessors
bankruptcy proceedings, and the filing for insolvency of a number of
Predecessors European subsidiaries. Additionally, certain network segments
were abandoned because their costs exceeded any projected benefits from their
continued ownership. These included the transatlantic cable and a significant
portion of the German network (see Item 4  Information on the Company). As a
consequence, we no longer bear any of the costs associated with those network
segments. The principal reason for the increase in selling, general and
administrative expenses from the first to the second period in 2002 was due to
a charge incurred in the period from June 7, 2002 to December 31, 2002 for a
repayment due to the French VAT authorities in the amount of US$6.1 million. Gains on amounts due
from bankruptcy estates  Successor only For the period from June 7, 2002 to December 31, 2002, we recognized gains
on amounts due from bankruptcy estates of US$25.0 million, or 600% of revenues
for that period. This item has arisen due to Predecessors position as a
significant creditor in the estates of several of its subsidiaries which were
forced to enter bankruptcy proceedings and significantly greater receipts than
were forecast at the time of our emergence from Chapter 11 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  Accounting for Pre-confirmation
Contingencies in Fresh Start Reporting. Subsequent revisions to the
pre-confirmation contingencies are reported in the statement of operations. As
this item results from the adoption of fresh start reporting, Predecessor had
no such gains in its statements of operations. 44




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Gains on amounts due from bankruptcy estates will continue to occur until
such bankruptcy estates are finally liquidated, which is anticipated during
2004. Due to their nature, such gains are unpredictable in size and timing and
are only recognised when confirmation is received from the liquidator; however,
management currently believes that the amount recognized in 2002 will be the
largest such gain recognized. Restructuring and Impairment For the period from January 1, 2002 to June 7, 2002, we incurred an
expense of US$0.9 million for restructuring and impairment compared with an
expense of US$1,278.6 million for the year ended December 31, 2001. For the
period from June 7, 2002 to December 31, 2002, we incurred no restructuring or
impairment charges; therefore on a combined basis for the year ended December
31, 2002, the restructuring and impairment expense was US$0.9 million. The
expense incurred in fiscal year ended December 31, 2001 was principally as a
result of writing down the value of network assets as well as the goodwill
associated with the acquisition of the Viatel Global Communications Limited
business in 2000 from AT&T. 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 one
to seven years. For the period from January 1, 2002 to June 7, 2002, we recorded
depreciation and amortization expense of US$1.7 million compared to US$119.9
million for the year ended December 31, 2001. For the period from June 7, 2002
to December 31, 2002, depreciation and amortization expenses amounted to US$2.5
million. For the year ended December 31, 2002, total depreciation and
amortization expense on a combined basis was US$4.2 million, a decrease of 97%
over the fiscal year ended December 31, 2001. This reduction is due to the
lower carrying value of the assets in question, following the significant
write-downs referred to in the discussion on restructuring and impairment
above. Operating loss before reorganization items For the period from January 1, 2002 to June 7, 2002, we recorded an
operating loss before reorganization items of US$28.0 million (or 1,049% of
revenue) compared to an operating loss of US$1,427.6 million (or 556% of
revenue) for the year ended December 31, 2001. For the period from June 7, 2002
to December 31, 2002, we recorded an operating loss before reorganization items
of US$5.6 million (or 135% of revenue). The lower level of operating loss before reorganization items for the
period from June 7, 2002 to December 31, 2002 arose not as a consequence of the
underlying business activities of Successor, but as a consequence of the gains
recognized on the amounts due from bankruptcy estates. In the absence of such
gains of US$25.0 million, the underlying operating loss before reorganization
items for that period would have been US$30.6 million, which would lead the
underlying operating loss before reorganization 45




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##### Table of Contents



items on a combined basis for the year ended December 31, 2002 to be
US$58.6 million, a reduction of 96% on the operating loss before reorganization
items for the year ended December 31, 2001. Reorganization Items
 Predecessor only For the period from January 1, 2002 to June 7, 2002, we recorded fresh
start adjustment income of US$2,662.7 million as a consequence of the adoption
of fresh start reporting. This income arises principally from a gain on debt
discharge and equity restructuring of Predecessor. 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 period from January 1, 2002 to June 7, 2002, we recognized
interest income of US$1.0 million compared to US$8.0 million for the year ended
December 31, 2001. For the period from June 7, 2002 to December 31, 2002, we
recorded interest income of US$1.0 million. For the year ended December 31,
2002, the interest income on a combined basis was US$2.0 million, a decrease of
75% over the fiscal year ended December 31, 2001. The interest income decrease
was due to the lower cash balances being held by the group in 2002 compared
with 2001 and the lower interest rates available in the market. Interest Expense For the period from January 1, 2002 to June 7, 2002, we recorded interest
expense of US$0.1 million compared to US$84.0 million for the year ended
December 31, 2001. For the period from June 7, 2002 to December 31, 2002,
interest expenses amounted to US$0.0 million. For the year ended December 31,
2002, total interest expense on a combined basis was US$0.1 million, a decrease
of 99% over the fiscal year ended December 31, 2001. Prior to the filing for protection under Chapter 11 of the Bankruptcy
Code, the Predecessor had significant amounts of interest-bearing indebtedness.
From the date of the filing, no further interest was accrued and, following
application of the fresh start adjustments, all the indebtedness of the
Predecessor was converted to equity of the Successor. As a consequence,
interest expense has been virtually eliminated between the fiscal year ended
December 31, 2001 and year ended December 31, 2002. Net (loss)/income For the period from January 1, 2002 to June 7, 2002, we recorded net
income of US$2,635.6 million compared to a net loss of US$1,503.6 million for
the year ended December 31, 2001. For the period from June 7, 2002 to December
31, 2002, we recorded a net loss of US$4.6 million. The net income recorded in the period from January 1, 2002 to June 7,
2002, and on a combined basis for the year ended December 31,
2002, was not as
a consequence of the underlying operating activities of Predecessors business,
but arose as a consequence of the effect of the application of fresh start
accounting. 46




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Results of Operations for the year ended December 31, 2001 as compared with the
year ended December 31, 2000 Revenue For the fiscal year ended December 31, 2001, revenues were US$256.6
million compared with US$753.9 million for fiscal year ended December 31, 2000,
a decline of 66%. This was principally as a consequence of the Predecessor
exiting the majority of its businesses either at the point of filing for
bankruptcy protection or as part of the restructuring plan that Predecessor had
announced in January 2001. Revenue from communications services was US$240.1 million or 94% of total
revenues in 2001 compared with US$646.5 million or 85% of total revenues in
2000, a decrease of 63%, as a consequence of the factors disclosed above. Revenue from operations and maintenance fees was US$4.2 million or 2% of
total revenues in 2001 compared with US$4.5 million or 1% of total revenues in
2000, a decrease of 5%, as a consequence of certain customers no longer taking
long-term capacity services from Predecessor due to their insolvency
proceedings. Revenue from capacity sales fell from US$103.0 million or 14% of total
revenues in fiscal 2000 to US$12.3 million, or 5% of total revenues in fiscal
2001. As previously indicated, this decline was partly a result of the
difficult market conditions for the telecommunications industry, giving rise to
a significant decline in the demand for such products. Cost of Services and Sales For the fiscal year ended December 31, 2001, costs of services and sales
were US$170.5 million compared with US$552.1 million for fiscal year ended
December 31, 2000, a decline of 69%. This level of costs of services and sales led to a gross margin percentage
in 2001 of 34% compared with a gross margin percentage of 27% in fiscal 2000,
being an increase of 7 percentage points. The gross margin percentage in fiscal
2001 was improved by the shut-down of the Predecessors low-margin wholesale
voice switching capabilities in certain countries early in 2001. This offset
the impact from the mix of revenues, with higher-margin capacity sales falling
as a percentage of revenues from 14% in fiscal 2000 to 5% in fiscal 2001. Selling, General and Administrative Expenses Selling general and administrative expenses for the fiscal year ended
December 31, 2001 were US$115.2 million compared with US$358.7 million in the
fiscal year ended December 31, 2000, a decrease of US$243.5 million, or 68%.
This was due to the fact that Predecessor was only undertaking its full
business activities up to its filing for bankruptcy protection in May 2001.
Additionally, the previously-announced cost cutting activities also came into
effect during the first half of 2001. 47




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##### Table of Contents



Restructuring and Impairment For the year ended December 31, 2001, restructuring and impairment charges
were US$1,278.6 million compared with US$900.0 million in the year ended
December 31, 2000, an increase of 42%. The expense incurred in fiscal year ended December 31, 2001 was
principally as a result of writing down of the value of network assets as well
as the goodwill associated with the acquisition of the Viatel Global
Communications Ltd. business in 2000 from AT&T. In the fiscal year ended
December 31, 2000, restructuring and impairment charges arose from writing down
the goodwill associated with the acquisitions of Flat Rate and Destia in 1999. Depreciation and Amortization For the year ended December 31, 2001, depreciation and amortization
charges were US$119.8 million compared with US$303.2 million in the year ended
December 31, 2000, a decrease of 60%. The reason for the decrease in this
charge is the reduction in the carrying value of the assets being depreciated,
principally as a consequence of the charges taken to restructuring and
impairment in the two years in question. Operating loss For the year ended December 31, 2001, the Predecessor recorded an
operating loss of US$1,427.6 million compared with an operating loss of
US$1,360.1 million for the year ended December 31, 2000, an increase of 5%. Interest and Other Income For the year ended December 31, 2001, the Predecessor recognized interest
income of US$8.0 million compared to US$32.0 million for the year ended
December 31, 2000, a decrease of 75%. The interest income decrease was
principally due to the lower cash balances being held by Predecessor in fiscal
2001 compared with 2000. Interest Expense For the year ended December 31, 2001 the Predecessor recorded interest
expense of US$84.0 million compared to US$212.6 million for the year ended
December 31, 2000, a decrease of 60%. Prior to the filing for protection under
Chapter 11 of the Bankruptcy Code, the Predecessor had significant amounts of
interest-bearing indebtedness. From the date of the filing, no further interest
was accrued, leading to this reduction in interest expense. Net loss For the year ended December 31, 2001 the Predecessor recorded a net loss
of US$1,503.6 million compared to US$1,540.7 million for the year ended
December 31, 2000, a decrease of 2%. 48




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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 2004 and expect to continue to do so until the last quarter
of 2005 as we continue to implement the New Viatel Business Plan and expand our
business. As of February 29, 2004, our available cash amounted to US$22.4 million.
As of December 31, 2003, our available cash amounted to US$27.2 million and as
of December 31, 2002, our available cash amounted to US$53.4 million. Since the
Effective Date, we have met our cash requirements through the cash transferred
to us from Predecessor, from recoveries from the bankruptcy proceedings of
certain subsidiaries of the Predecessor and interest income on short-term
investments. We currently have very 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. We are now in the process
of reviewing our operating budgets and financial forecasts for the current year
and later periods. Even if we are successful in implementing all of our planned initiatives
in a timely manner, however, our projections would indicate that we will not
generate positive cash flows on a monthly basis until into the last quarter of
2005. 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. Subject to such uncertainties, we currently believe that our existing
capital resources and cash from operations will be insufficient to enable us to
satisfy our expected cash funding and working capital requirements through and
beyond the second quarter of 2004. See Item 3. Key Information  Risk Factors
in this Form 20-F. As
disclosed above  see in particular Item 3. Key Information  Risk
Factors and Item 4. Information on the Company  Introduction and Basic
Overview and  Proposed Financing, on February 9, 2004, the Company executed
a Term Sheet with a group of investors for the proposed issuance of US$50
million of senior convertible debt securities, with consideration being given
to a total investment of up to US$60 million. The Company currently anticipates
the conclusion of the financing within the second quarter of 2004. The Term
Sheet is, however, non-binding and therefore no assurance can be given that the
Proposed Financing will be consummated then, or at all. If the Company cannot
obtain acceptable financing, we will be forced to dramatically reduce cash
requirements or to raise cash, by discontinuing or disposing of existing
development programs or business operations, by selling assets or otherwise.
If these measures were to be inadequate, we would likely become insolvent. 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, 2002: 49




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##### Table of Contents



Contractual Obligations Less than
    
    
    
    
    
    
    
    
    
    More thanTOTAL
    
    1 year
    
    1-3 years
    
    3-5 years
    
    5 years(United States Dollars in thousands)Standby maintenance contracts
    
    
    8,242
    
    
    
    565
    
    
    
    1,069
    
    
    
    990
    
    
    
    5,618Operating leases
    
    
    52,821
    
    
    
    4,541
    
    
    
    8,330
    
    
    
    7,198
    
    
    
    32,752Total contractual cash commitments
    
    
    61,063
    
    
    
    5,106
    
    
    
    9,399
    
    
    
    8,188
    
    
    
    38,370
 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. Research and Development and Capital Expenditures The following table summarizes our capital expenditure from the 2000
fiscal year through to December 31, 2002. We do not engage in any significant
research and development activity. Successor
    
    
    
    
    
    PredecessorFrom June 7, 2002
    
    From January 1,
    
    Year ended
    
    Year endedto December 31,
    
    2002 to June 7,
    
    December 31,
    
    December 31,2002
    
    2002
    
    2001
    
    2000(United States Dollars in thousands)Capital expenditure
    
    
    1,667
    
    
    
    8,721
    
    
    
    21,851
    
    
    
    574,712Research and development
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 Recent Accounting Pronouncements In May 2003 the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity.
SFAS No. 150 modifies the accounting for certain financial instruments that,
under previous guidance, issuers could account for as equity. The Statement
requires that those instruments be classified as liabilities in statements of
financial position. SFAS No. 150 affects an issuers accounting for three types
of freestanding financial instruments, namely:  
    
    mandatorily redeemable shares, which the issuing company is
obligated to buy back in exchange for cash or other assets;
    
    instruments, other than outstanding shares, that do or may
require the issuer to buy back some of its shares in exchange for
cash or other assets. These instruments include put options and
forward purchase contracts; and
    
    obligations that can be settled with shares, the monetary
value of which is fixed, tied solely or predominantly to a variable
such as a market index, or varies inversely with the value of the
issuers shares. SFAS No. 150 does not apply to features embedded in financial instruments
that are not derivatives in their entirety. In addition to its requirements
for the classification and measurement of financial instruments within its
scope, SFAS No. 150 also requires disclosures about alternative ways of
settling those instruments and the capital structure of entities, all of whose
shares are mandatorily redeemable. SFAS No. 150 is effective for financial
instruments entered into or modified after May 31, 2003, and otherwise is
effective at the beginning of the first interim period beginning after June 15,
2003. 50




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It is to be implemented by reporting the cumulative effect of a change in
an accounting principle for financial instruments created before the issuance
date of the Statement and still existing at the beginning of the interim period
of adoption. Restatement is not permitted. The Company is currently evaluating
the impact of SFAS No. 150 on its consolidated results of operations, financial
position and cash flows but believes that SFAS No. 150 will not have a
significant impact, if any, to its financial position. In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities, (FIN 46) which addresses the financial reporting
by enterprises involved with variable interest entities. FIN 46 addresses both
unconsolidated variable interest entities and any new variable interest
entities that are created subsequent to the issuance of the interpretation. As
of December 31, 2002, the Company did not have any unconsolidated variable
interest entities. Any future variable interest entities will be accounted for
in accordance with FIN 46. In December 2003, the FASB issued a revision to Interpretation No. 46,
Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51
(FIN 46R or the Interpretation). FIN 46R clarifies the application of ARB
No. 51, Consolidated Financial Statements, to certain entities in which
equity investors do not have the characteristics of a controlling financial
interest or do not have sufficient equity at risk for the entity to finance its
activities without additional subordinated financial support. FIN 46R requires
the consolidation of these entities, known as variable interest entities
(VIEs), by the primary beneficiary of the entity. The primary beneficiary is
the entity, if any, that will absorb a majority of the entitys expected
losses, receive a majority of the entitys expected residual returns, or both. Among other changes, the revisions of FIN 46R: (1) clarified some requirements
of the original FIN 46, which had been issued in January 2003, (2) eased some
implementation problems, and (3) added new scope exceptions. FIN 46R deferred
the effective date of the Interpretation for public companies, to the end of
the first reporting period ending after March 15, 2004, except that all public
companies must at a minimum apply the provisions of the Interpretation to
entities that were previously considered special-purpose entities under the
FASB literature prior to the issuance of FIN 46R by the end of the first
reporting period ending after December 15, 2003. The Company does not
anticipate that the adoption of FIN 46 will have a material impact on its
financial position, cash flows and results of operations. In November 2002, the FASB issued Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others (FIN 45). FIN 45 elaborates on the
existing disclosure requirements for most guarantees, including loan guarantees
such as standby letters of credit. It also clarifies that at the time a company
issues a guarantee, the company must recognize an initial liability for the
fair market value of the obligations it assumes under that guarantee and must
disclose that information in its interim and annual financial statements. The
initial recognition and measurement provisions of FIN 45 apply on a prospective
basis to guarantees issued or modified after December 31, 2002. The Company
adopted this standard in accordance with SOP 90-7. We do not expect the
adoption of FIN 45 to have a material effect on our financial position, results
of operations, or cash flows. In November 2002, the EITF reached a consensus on Issue No. 02-16,
Accounting for Consideration Received from a Vendor by a Customer (Including a
Reseller of the Vendors Products) (EITF 02-16). This Issue addresses the
treatment of cash consideration received by a reseller, raised as a response to
EITF Issue No. 01-9, Accounting for Consideration Given by a Vendor to a
Customer (Including a Reseller of the Vendors Products) (EITF 01-9). EITF
Issue No. 02-16 addresses the 51




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income statement classification of consideration from a vendor, as well as
the appropriate timing and method of recognition. This issue is effective for
the Companys consolidated financial statements for the period beginning
January 1, 2003. The Company has not yet determined the effect that adoption of
EITF Issue 02-16 will have on its results of operations and financial
condition. In November 2002, the EITF reached a consensus on Issue No. 00-21,
Revenue Arrangements with Multiple Deliverables. EITF Issue No. 00-21
provides guidance on how to account for arrangements that involve the delivery
or performance of multiple products, services and/or rights to use assets. The
provisions of EITF Issue No. 00-21 will apply to revenue arrangements entered
into in fiscal periods beginning after June 15, 2003. The Company is currently
evaluating the effect that the adoption of EITF Issue No. 00-21 will have on
its results of operations and financial condition but does not expect it to
have a material effect on our financial position, results of operations or 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 February 29, 2004: Name
    
    Age
    
    Date of Appointment
    
    PositionLeslie Goodman
    
    
    58
    
    
    July 24, 2002
    
    Chairman of the Board (1), (2)Lucy Woods
    
    
    45
    
    
    May 9, 2003
    
    Chief Executive Officer and Director (1)S. Dennis Belcher
    
    
    63
    
    
    August 8, 2002
    
    Director (1), (2), (3)Kevin Power
    
    
    50
    
    
    October 25, 2002
    
    Director (1), (2), (3)Edward Greenberg
    
    
    52
    
    
    March 31, 2003
    
    Director (3), (4)Thomas Doster
    
    
    35
    
    
    August 8, 2002
    
    Director (4)Stephen Grist
    
    
    37
    
    
    May 6, 2002
    
    Chief Financial Officer (5)Luke Mann
    
    
    37
    
    
    August 11, 2003
    
    Senior Vice President, Sales and ServiceRoberto Bonanzinga
    
    
    33
    
    
    September 15, 2003
    
    Senior Vice President, MarketingStuart Blythe
    
    
    39
    
    
    September 29, 2003
    
    Senior Vice President and General Counsel (5)
   (1)
    
    Member of Financing Committee(2)
    
    Member of the Audit Committee.(3)
    
    Member of the Compensation Committee(4)
    
    Serves as representative of Morgan Stanley(5)
    
    Member of the Disclosure Committee Leslie Goodman.Mr. Goodman has served as our Chairman since March 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, the Bermuda-based, NYSE-listed insurance group. 52




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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. 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., Rand McNally and Company, Richtree Inc. and Slater Steel, Inc. 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 18 years 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 was Director of Telecom Research at
Morgan Stanley for four years. For the last 5 years, Mr. Greenberg was 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 Doster.Mr. Doster has served as a Director of the Company since
August 2002. He is a Managing Director in the Distressed Research department
at Morgan Stanley and was the Chairman of the Viatel, Inc. creditors
committee. Mr. Doster has 12 years experience in the fields of High Yield and
Distressed Debt at Morgan Stanley and Goldman, Sachs & Co. Stephen Grist.Mr. Grist has served as our Chief Financial Officer since
June 2002. Prior to assuming such position, Mr. Grist served as Chief
Financial Officer of the Predecessor since June 2001. Prior to that, Mr. Grist
held a number of senior financial positions at the Predecessor since February
1998. Prior to joining the Predecessor, Mr. Grist was employed by Mincom Pty
Ltd. from October 1994 to February 1998, most recently as UK/Europe Financial
Controller. From January 1989 to July 1994, Mr. Grist was employed by Coopers
& Lybrand, Independent Certified Public Accountants, most recently as a Senior
Audit Manager. Mr. Grist is a member of the Institute of Chartered Accountants
in England and Wales. Luke Mann.Mr. Mann has served as our Senior Vice President, Sales and
Service since August 2003. Prior to joining Viatel, Mr. Mann was the Chief
Operating Officer of IP Powerhouse, a pan-European data center and managed
application service provider. He was part of the IP Powerhouse 53




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executive team
and was specifically responsible for the development and management of the
groups products and services. Prior to IP Powerhouse he held senior positions
at BT Ignite and Concert Communications, BTs global joint venture with AT&T.
Mr. Mann has a broad business management background coupled with strong sales
and service creation experience. 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 a first class understanding 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. 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. 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 installments. Chairmen of Committees
of the Board receive an additional US$10,000 per year per chairmanship, paid in
quarterly installments. 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 2002 was
US$90,000. The total aggregate compensation of all executive officers of the
Company as a group for 2002 was US$2.79 million. During 2002, an aggregate of
744,000 options to purchase 744,000 ordinary shares were granted to executive
officers under the Companys Equity Incentive Plan. Such options had a weighted
average exercise price of $5.65 and expiry dates of May 20, 2012. Included in
the total aggregate compensation for our Board and executive officers for 2002
was US$50,000 to provide for pension and other retirement benefits. On May 21, 2002, we executed new employment agreements with Messrs.
Michael Mahoney, James Prenetta, Stephen Grist and Mark Harrison pursuant to
which Mr. Mahoney agreed to serve as our 54




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Chairman of the Board and Chief
Executive Officer, Mr. Prenetta agreed to serve as our Senior Vice President
and General Counsel, Mr. Grist agreed to serve as our Chief Financial Officer
and Mr. Harrison agreed to serve as our Senior Vice President, Sales. The term
of these employment agreements was to extend for a period of two years unless
earlier terminated in accordance with the terms therein. The employment
agreements provided for annual base salaries and various incentive bonuses
including (1) a bonus pool of US$1.0 million to be divided on a pro rata by
salary basis, assuming the Company were to meet a specified cash target, which
bonus pool could have been increased by up to an additional US$500,000 if the
Company were to have substantially exceeded such target during their first year
of employment; and (2) a successful sale bonus equal in the aggregate to 3%
of the total consideration received in a sale of the Company in excess of
US$175 million, subject to a cap on such consideration of US$750 million. The
employment agreements also provided for change in control benefits equal to
US$2.5 million in the aggregate to be divided on a pro rata by salary basis if
there has occurred a change in control (as defined therein) during the terms
thereof. In addition, Messrs. Mahoney and Prenetta executed Expatriate
Agreements, which provide for certain tax and relocation benefits. Mr. Mahoney resigned on April 1, 2003 and was replaced by Mrs. Woods; Mr.
Prenetta resigned on May 2, 2003 and was replaced by Mr. Blythe; Mr. Harrison
resigned on August 6, 2003 and was replaced by Mr. Mann. Upon the effectiveness
of such resignations, the respective contracts of employment and expatriate
agreements between the Company and these former executive officers were
terminated. Board Practices Board of Directors Our Board is currently comprised of six Directorships. 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. In connection with the Proposed Financing, various changes are proposed to
be made by way of resolution at the April SGM; such changes, if approved and
adopted, would have a material impact on the powers and procedures relating to
the appointment and removal of Directors. Effectively, the Investors would,
under the proposed changes, have the power to appoint a majority of the Board
at any one time. See Item 4. Information on the Company  Proposed
Financing. We have not entered into any service agreements providing for benefits to
our Directors upon termination of their Directorships. 55




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Committees of the Board of Directors Our Board has established three standing committees, a Compensation
Committee, an Audit Committee and a Financing Committee. The current members
of the Compensation 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 Financing Committee are Mrs. Woods and Messrs
Belcher, Goodman and Power. The Compensation Committee reviews general policy matters relating to
compensation and benefits of our employees and officers and administers our
Equity Incentive Plan (as to which see Equity Incentive Plan below). None of
our executive officers currently serves on the compensation committee of
another entity or any other committee of the board of another entity performing
functions similar to the Compensation Committee. No interlocking relationships
exist between our Board or our Compensation 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 Financing Committee was established by written Directors resolutions
dated November 5, 2003, in order, among other things, to take such steps as it
considered necessary to prepare the Company for financing, to authorize the
Companys senior management to negotiate with any potential investor, and to
approve the final terms of any financing. No member of the Financing Committee
has any relationship with any potential investor (whether an existing
shareholder or otherwise). Employees The following table sets forth the number of full-time employees on a
functional basis at the end of each of 2002, and 2001: 2002
    
    2001Engineering and Operations
    
    
    43
    
    
    
    35Sales and Service
    
    
    22
    
    
    
    9Finance
    
    
    7
    
    
    
    11Management Information Systems
    
    
    5
    
    
    
    3Legal
    
    
    1
    
    
    
    2Other
    
    
    5
    
    
    
    10Total
    
    
    83
    
    
    
    70
 Prior
to fiscal 2001, the Company did not maintain detailed functional
basis information on its employees. As at December 31, 2000 there was a total
of 2,058 employees in the Company, with 1,039 of these employed within Sales
and Service. As at February 29, 2004, we had 175 full-time employees, due to
the acquisitions of Netcom and Cybernet during the year and the implementation
of the New Viatel Business Plan. Of these employees, 42 are engaged in
Engineering and Operations, 100 in Sales & Service, 9 in Marketing, 11 in
Finance, 5 in Management Information Systems, 2 in Human Resources and 2 in
Legal. The remaining four employees were the Chief Executive Officer, Chief
Financial Officer 56




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and two administrative assistants. None of the foregoing employees,
including those referred in the table set out above, is or was represented by a
labour union or covered by a collective agreement. Share Ownership Beneficial Ownership of Executive Officers and Directors The following table sets forth certain information regarding the
beneficial ownership of our common shares, as of February 29, 2004, by each of
our executive officers and directors and all of our executive officers and
directors, as a group. All information with respect to beneficial ownership
has been furnished to us by the respective shareholders. Number /percentageName of Beneficial Owner
    
    of common shares(1)
    
    Nature of interest(1)Lucy Woods, Chief Executive Officer
    
    
    Stephen Grist, Chief Financial Officer
    
    
    150,000/1.4
    %
    
    Exercisable optionsLuke Mann Senior Vice President, Sales and Service
    
    
    Roberto Bonanzinga, Senior Vice President, Marketing
    
    
    Stuart Blythe, Senior Vice President and General Counsel
    
    
    Leslie Goodman, Chairman of the Board
    
    
    Dennis Belcher, Director
    
    
    Kevin Power, Director
    
    
    Edward Greenberg(2), Director
    
    
    Thomas Doster(3), Director
    
    
    All directors and executive officers as a group (10 persons)
    
    
    150,000/1.4
    %
   Except for Mr. Grists interests, all interests reflected above represent
beneficial ownership of less than 1% of our outstanding common shares. (1) 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. Except as indicated in the footnotes to this table, the
shareholder named in the table has sole voting and investment power with
respect to the common shares set forth opposite such shareholders name.
Except as otherwise indicated, the address of each person listed in the table
is c/o VTL (UK) Limited, Inbucon House, Wick Road, Egham, Surrey TW20 0HR
United Kingdom. (2) Mr. Edward Greenberg, a Director of the Company, is an Advisory Director
of Morgan Stanley and therefore he may be deemed to own beneficially the
common shares owned by Morgan Stanley. Mr. Greenberg disclaims any beneficial
interest in the common shares owned by Morgan Stanley. See Item 4.
Information on the Company  The Proposed Financing and Item 7. Major
Shareholders and Related Party Transactions for details of Morgan Stanleys
ownership. (3) Mr. Thomas
Doster, a Director of the Company, is a Managing Director in the
Distressed Research Department of Morgan Stanley and therefore he may be deemed
to own beneficially the common shares owned by Morgan Stanley. Mr. Doster
disclaims any beneficial interest in the common shares owned by Morgan Stanley.
See Item 4. Information on the Company  The Proposed Financing and Item 7.
Major Shareholders and Related Party Transactions for details of Morgan
Stanleys ownership. Equity Incentive Plan 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 57




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that grants under the Equity
Incentive Plan would be made to certain levels of management of the Company. 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 Compensation
Committee. The Equity 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, 2002. Prior to the Effective Date, the Company issued
744,000 options as described below. During the period from June 7, 2002 to
December 31, 2002, no options were issued or exercised. The exercise price of
the share covered by each non-qualified stock option shall be as determined by
the Compensation 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, 2002, no stock options had been granted to non-employees Each of Mrs. Woods, Mr. Mann, Mr. Bonanzinga and Mr. Blythe were given a
contractual commitment upon joining the Company in 2003 as to the grant of
share options. No such options have been issued or the requisite Board approval
given; it is expected that each of these individuals will be given share
options pursuant to the equity compensation plan contemplated under the
Proposed Financing, which will supersede and extinguish the referenced current
contractual commitment; see Item 4. Information on the
Company  Proposed
Financing. 
 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 February 29, 2004, 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 58




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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. Name and Address of Beneficial
    
    Amount and Nature ofOwner(1)
    
    Beneficial Ownership(1),
    
    Percentage of Outstanding Shares(2),Morgan Stanley & Co.,
Incorporated(3),
1585 Broadway, New York, NY 10036
    
    1,329,689 common shares
    
    
    12.4
    %Aspen Partners Series A(4),
c/o Aspen Advisors LLC
152 West 57th Street, New York,
NY 10019
    
    1,355,373 common shares
    
    
    12.6
    %The Värde Fund L.P.(5)
8500 Normande Lake Blvd. #1570
Minneapolis MN 55437.
    
    767,569 common shares
    
    
    7.2
    %
   (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 10,730,000 common shares outstanding as of February 29, 2004.(3)
    
    Information based on the Schedule 13D, dated January 9, 2004, of Morgan
Stanley and Morgan Stanley & Co., Incorporated.(4)
    
    Information based on the Schedule 13G, dated February 17, 2004, of Aspen
Partners Series A, Aspen Capital LLC and Aspen Advisors LLC.(5)
    
    Information based on the Schedule 13G, dated February 10, 2004, 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. The address for The Värde Fund (Cayman) Limited is 2nd Floor
Harbour Centre, P.O. Box 896, George Town BWI. All other entities can be
contacted at the address listed in the table. Related Party Transactions Except as disclosed in the preceding pages in relation to employment
agreements and share option agreements, there were no transactions with related
parties during the period ending December 31, 2002. 59




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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-30. 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 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 GBP 6.9 million (US$13 million approximately), payable in two equal
installments as of March 1, 2004 and September 1, 2004. The second installment
amount will accrue interest at an annual rate of 4%. This settlement also
served to dismiss certain related counterclaims brought by Easynet against the
Company. The consolidated financial statements presented in this Form 20-F do
not include any adjustment to reflect the outcome of this litigation. In September 2003, the Company filed a claim for approximately 7.7
million (US$9.5 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$2.5
million approximately) annually for right of way expenses. The claim asserts
that the charges for such rights of way are discriminatory and should conform
to the charges levied by the highway and roads authorities in France. The Company, as part of a consortium with LDCom and Alcatel (on behalf of
I-21), are claiming against certain Swiss cantons in relation to the build of
each consortium partners respective Swiss network. The claim is being led by
Fibrelac who was the consortiums build partner and there are certain
protective agreements in place to allow the consortium to recover, on a pro
rata (by duct) basis, the benefits of any judgment recovered by Fibrelac
against the cantons. 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 60




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being based
on certain anti-trust provisions of Swiss telecommunications law. The
consortium members are also seeking a declaration that they are the holders of
title to the ducts rather than the owners of indefeasible rights of use
agreements. Claims have been filed against all 3 cantons. Were the consortium
to succeed with its claims, Viaphone AG (the Companys Swiss subsidiary) would
be entitled, on a pro rata basis (allocated pro rata by duct) to approximately
CHF 10,000,000 (US$8 million approximately) together with interest at 5% per
annum from late 2000. The Company believes that any adverse outcome from litigation would not
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 or on its behalf or that of 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 operations. 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 is expected to occur
before March 31, 2004. 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. 61




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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. Prior to December 2002, we
are 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
    
    
    
    0.50July 2003
    
    
    1.25
    
    
    
    0.50August 2003
    
    
    0.90
    
    
    
    0.50September 2003
    
    
    4.25
    
    
    
    0.50October 2003
    
    
    6.50
    
    
    
    3.75November 2003
    
    
    8.00
    
    
    
    2.20December 2003
    
    
    4.00
    
    
    
    2.20January 2004
    
    
    2.20
    
    
    
    2.00February 2004
    
    
    2.25
    
    
    
    1.40March 2004
    
    
    1.90
    
    
    
    0.75(through March 15)
 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. 
 ITEM 10. ADDITIONAL INFORMATION Description of Share Capital 62




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The authorized share capital of the Company is US$1,000,000 divided into
100,000,000 common shares of US$0.01 each (common shares). As of February
29, 2004 there were 10,730,000 fully paid common shares issued and outstanding.
As of February 29, 2004 the Company had granted options to purchase up to
190,000 additional common shares which remained to be exercised. 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. As of December 31, 2002, there were 10,560,000 fully paid common shares
issued and outstanding. As of December 31, 2002, the Company had granted the
Officers Options to the directors and senior management, none of which had
been exercised. 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 dated March 24, 2003, and a stock exchange agreement
between the Company and Michael Mahoney dated April 1, 2003. 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. 63




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The Bye-Laws were amended pursuant to a resolution of our shareholders
passed at the annual general meeting of the Company held on December 29, 2003.
It is a condition to the closing of the Proposed Financing that certain further
amendments be made to the Bye-Laws so as to give effect to the various rights
that are contemplated as being conferred on the Investors. Such rights relate
in particular to the ability of the Investors under the Proposed Financing to
appoint new Directors and to approve/veto the taking of certain material
actions by the Company. In order to give effect to these proposed rights under Bermuda law, it is
proposed that a new special share (the Special Share) be issued with the
Notes either to a trustee or a special purpose vehicle, acting on behalf of the
Investors (and their transferees). The Special Share would be issued with such
rights as are required to enable the Investors (and their transferees) to
exercise the various Investor rights contemplated under the Term Sheet. 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 would be granted weighted voting rights to ensure it
could carry any relevant vote; to the extent that a vote of the shareholders is required by Bermuda law, such actions would be able to be taken with the
consent alone of the holder of the Special Share. Upon the adoption of such amendments and the closing of the Proposed
Financing, the Investors will effectively acquire control of the Company. Further reference is made below to these and other amendments proposed for
adoption at the April SGM; this is not intended however to be a comprehensive
summary of such proposed amendments. Full details of the proposed Bye-Law
amendments are set out in the documents accompanying the April SGM Notice; see
in particular the Chairmans Letter and Part III of the April SGM Notice. The following is a summary of the material provisions of Bermuda law and
our organizational documents as were in effect as of February 29, 2004. 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; 64




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
    
    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 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 provided that the Director may only vote
with the consent of a majority of the other Directors present. One of the Bye-Law amendments proposed for adoption at the April SGM is
the removal of the requirement that a Director interested in a transaction or
arrangement obtain the consent of a majority of the other Directors before
voting on any such transaction or arrangement. Under the proposed amendment, a
Director would be entitled to vote subject only to the disclosure of his
interest. 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 second annual general meeting of the
Company held on December 29, 2003, further authorized the Directors to
determine and approve the remuneration of each Director. Directors Borrowing Powers Our Bye-Laws provide that 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 Under Bermuda law and our Bye-Laws, 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. Our Bye-Laws further
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 65




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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. No person other than a Director who retires by rotation, may be appointed
a Director unless he is either recommended by our Board or 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 ten nor more than twenty-five clear days before the date
appointed for the general meeting. Without prejudice to the Companys power to appoint Directors, our
Bye-Laws grant the Board power to appoint individuals to fill casual vacancies
among its members. A 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 appointment of another Director in his or her place or, in the
absence of any such appointment, by our Board. As
noted in Item 4. Information on the Company  Proposed Financing and
Item 6. Directors, Senior Management and Employees  Board Practices under
the Bye-Law amendments proposed for adoption at the April SGM, significant
changes are proposed with respect to the mechanism for the appointment and
removal of Directors. Effectively, the Investors would, under the proposed
changes, have the power to appoint a majority of the Board at any time. Please
refer in particular to the Chairmans Letter and to Part III of the April SGM
Notice. Common Shares 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 may from time to time determine. 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 preemptive rights and are not
subject to conversion or redemption. There are no sinking fund provisions applicable to our common shares. As noted above, in connection with the Proposed Financing and the April
SGM, it is proposed that a Special Share be issued to a trustee or special
purpose vehicle acting on behalf of the Investors (and their transferees). The
rights that are proposed to be attached to the Special Share are set out in the
April SGM Notice  see in particular Part III of the April SGM Notice and the
Chairmans Letter. 66




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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, 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 would
thereby be less than the aggregate of its liabilities and issued share capital
and share premium accounts. 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. 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. 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. 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 67




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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 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 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 constitutes a quorum, except
in certain exceptional cases. 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. 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. One of the Bye-Law amendments proposed for adoption at the April SGM is to
reduce the notice period required for the convening of special general meetings
to 10 days. The required period for annual general meetings would remain at 21
days. 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. 68




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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 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. 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. 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. 69




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Business Combination Restrictions Pursuant to a resolution to amend the Bye-Laws of the Company passed by
shareholders at the second annual general meeting of the Company held on
December 29, 2003, Bye-Laws 155 to 163 inclusive (collectively known as the
Business Combination Restrictions) were deleted. These provisions imposed a
number of restrictions with respect to the operation of the Company. The Business Combination Restrictions operated so as to impose additional
voting procedures with respect to a wide range of corporate matters which are
with, proposed by or on behalf of or deemed to have been proposed by or on
behalf of an Interested Shareholder (being in principle any shareholder holding
10% or more of the Companys voting stock). Broadly the Business Combination Restrictions had the effect of
potentially excluding all Interested Shareholders from voting on such matters
and requiring the affirmative vote of not less than two-thirds of the votes
entitled to be cast by the other holders of the Companys voting stock. Material Contracts Not Applicable. 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 creditworthiness. Accordingly, in
giving such consent or permission, the Bermuda Monetary Authority disclaims any
liability for the financial soundness, performance or default of our business
or for the correctness of any opinions or statements 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. Since we have been designated as non-resident of
Bermuda for exchange control purposes, there are no restrictions on our ability
to transfer funds in and out of Bermuda or to pay dividends to non-Bermuda
residents who are holders of our common shares, other than with respect to
local Bermuda currency. In the case of an applicant acting in a special
capacity, for example, as trustee, the share register may not record the
capacity in which the applicant is acting. We are not bound to recognize or
investigate or incur any responsibility with respect to the proper
administration of any such 70




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trust. We will not take notice of any trust applicable to any of our
common shares whether or not we have notice of such trust. As a non-resident Bermuda company, we are exempt from Bermuda laws which
restrict the percentage of share capital that may be held by non-Bermudians.
However, we may not, as an exempted company, except with the express
authorization of the Bermuda legislature or under a license granted by the
Minister of Finance of Bermuda, participate in certain business transactions
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 to secure an
amount in excess of 50,000 Bermuda Dollars without the consent of
the Minister of Finance;  
    
    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 71




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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;  
    
    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
tax treaty between 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 at 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 will
not be subject to stamp duty on the issue or transfer of our shares. We have obtained from the Minister of Finance of Bermuda under the
Exempted Undertakings Tax Protection Act 1966, as amended, an undertaking that,
in the event of there being enacted in Bermuda any legislation imposing tax
computed on profits or income, or computed on any capital assets, gain or
appreciation or any tax in the nature of estate duty or inheritance tax, such
tax shall not, until March 28, 2016, be applicable to us or to any of our
operations, or to our shares, except in so far as such 72




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tax applies to persons ordinarily resident in Bermuda and holding such
shares or holding any land leased or let 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 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. 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: 73




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
    
    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 our taxable year ending December 31, 2002, we satisfied the Asset
Test. However, we will not constitute a PFIC for that year if we qualify for
the start-up year exception (described below). If we do not qualify for the
start-up year exception, we generally will be considered a PFIC for our 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 if:  
    
    a predecessor corporation was not a PFIC;  
    
    we establish to the satisfaction of the Internal
Revenue Service that we will 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. Based on our current and projected income, assets and activities, we
believe that we will not be classified as a PFIC, for our taxable years ending
December 31, 2003 and 2004. 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 74




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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 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. 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 75




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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 includible 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. Possible Application of the Foreign Personal Holding Company Rules If we are classified as a foreign personal holding company (an FPHC),
each U.S. Holder (including indirect holders), regardless of its percentage
ownership, will be required to include in income, as a dividend, its pro rata
share of our undistributed FPHC income (generally, taxable income with certain
adjustments) if such U.S. Holder owns any of our common shares on the last day
of our taxable year. In general, we will be classified as an FPHC if (1) at
any time during our taxable year, five or fewer individuals, who are U.S.
citizens or residents, directly or indirectly own more than 50% of our common
shares; and (2) at least 60% of our gross income (50% after the initial year in
which we are classified as an FPHC), is passive income, including interest
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. 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. 76




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ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Foreign Currency Exchange Risks Viatel is an international company that at the end of December 2002 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). 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. 77




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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 loss
reflected in the consolidated statement of operations of $1,421 for the period
from June 7, 2002 to December 31, 2002, and a gain of US$441 for the
Predecessor period from January 1, 2002 to June 7, 2002. For the year ended
December 31, 2001 the Predecessor experienced a foreign currency loss of
US$455. For the year ended December 31, 2000, the Predecessor experienced a
foreign currency gain of US$87. 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 $3,635 for the period from June 7, 2002 to
December 31, 2002, US$7,009 for the period from January 1, 2002 to June 7, 2002
and US$6,899 for the year ended December 31, 2001 and a loss of US$57,397 for
the year ended December 31, 2000. Exchange rates can vary significantly. The Euro high and low rates varied
by approximately 27% in relation to the U.S. dollar during the year ended
December 31, 2002. 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, 2002, the Euro to U.S. dollar
exchange rate was approximately 20% above where it was at the beginning of the
year. 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 We do not actively manage our exposure to foreign currency translation
risks that affect our reported results. We currently have no hedging
arrangements or derivatives in place to address translation risk. We have exposure to financial market risks, including changes in interest
rates and foreign exchange rates. At December 31, 2002 and 2001, the Companys
financial instruments consisted of short-term investments and money market
deposits. At December 31, 2002 and 2001 all of our investments were due to
mature within three months and the carrying value of such investments
approximates fair value. 78




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Sensitivity analysis As mentioned above, at December 31, 2002 and 2001, 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, 2002, a 10
percent weakening of the dollar against all other currencies in which the
Groups net earnings are denominated would have resulted in a decreased loss of
$2.7 million (2001  $1.9 million). A 10 percent strengthening of the dollar
against all other currencies in which the Groups net earnings are denominated
would have resulted in a further loss of $2.7 million (2001  $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. 79




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PART II 
  ITEM 12.
    
    DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES Not applicable. 
  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  Chapter 11 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 80




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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;
    
    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. Within the 90-day period prior to the date of this Form 20-F, 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,
2002, 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, 2002
our disclosure controls and procedures required significant improvement. Since
this time, there have been significant changes in our senior management and
other personnel. These changes included the appointment of Lucy Woods as our
new Chief Executive Officer. Under this new management, we believe that a
number of actions have been taken which have resulted in our disclosure
controls and procedures now being 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 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 initial
members of the Disclosure Committee are General Counsel Stuart
Blythe, Chief Financial Officer Stephen Grist 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. 81




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
    
    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. The principles set forth in of 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. The Code of Ethics has been filed as Exhibit 11
to this Form 20-F. 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 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 that could significantly affect our
internal controls subsequent to the date of our evaluation of our disclosure
controls and procedures. Notwithstanding our conclusions referred to above, the effectiveness of
any system of disclosure controls and procedures, including ours, is subject to
many inherent limitations, including cost limitations, judgments used in
decision-making, assumptions regarding the likelihood of future events,
soundness of internal controls and fraud. Due to such inherent limitations, we
cannot assure that any system of disclosure controls and procedures will be
successful in preventing all errors or fraud, or in making all material
information known in a timely manner to management. 
  ITEM 16:
    
    RESERVED 82




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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 ExhibitNumber
    
    
    
    Description of Exhibit1.1
    
    -
    
    Certificate of Incorporation of Viatel Holding (Bermuda) Limited.1.2
    
    -
    
    Memorandum of Association of Viatel Holding (Bermuda) Limited.1.3
    
    -
    
    Amendment to Memorandum of Association of Viatel Holding (Bermuda) Limited.1.4
    
    -
    
    Bye-laws of Viatel Holding (Bermuda) Limited. (Previously filed
as Exhibit 99.2 to the Companys Form 6-K dated February 5, 2004
and incorporated by reference herein.)2
    
    -
    
    Form of Registration Rights Agreement, among Viatel Holding
(Bermuda) Limited and the other parties thereto.8
    
    -
    
    List of subsidiaries of Viatel Holding (Bermuda) Limited.11
    
    -
    
    Code of Ethics.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 2002.14.1
    
    -
    
    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.)
 83




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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 Woods
Lucy Woods
Chief Executive OfficerDate: March 22, 2004
 84




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INDEX TO FINANCIAL STATEMENTS PageIndependent Auditors Report (Deloitte & Touche LLP)
    
    
    F-2Independent Auditors Report (KPMG LLP)
    
    
    F-4Consolidated Balance Sheets as of December 31, 2002 and December 31, 2001
    
    
    F-5Consolidated Statements of Operations for the period ended December 31,
2002, the period ended June 7, 2002 and the years ended December 31,
2001 and December 31, 2000
    
    
    F-6Consolidated Statements of Comprehensive (Loss) / Income for the period
ended December 31, 2002, the period ended June 7, 2002 and the years
ended December 31, 2001 and December 31, 2000
    
    
    F-7Consolidated Statements of Shareholders Equity for the period ended
December 31, 2002, the period ended June 7, 2002 and the years ended
December 31, 2001 and December 31, 2000
    
    
    F-8Consolidated Statements of Cash Flows for the period ended December 31,
2002, the period ended June 7, 2002 and the years ended December 31,
2001 and December 31, 2000
    
    
    F-10Notes to the Consolidated Financial Statements
    
    
    F-12
 F-1




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INDEPENDENT AUDITORS REPORT (DELOITTE & TOUCHE LLP) 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, 2002 (Successor Company balance sheet), and the consolidated
balance sheet of Viatel, Inc., the predecessor to the Company as of December
31, 2001 (Predecessor Company balance sheet) and the related consolidated
statements of operations, comprehensive (loss)/income, shareholders equity and
cash flows for the periods from June 7, 2002 to December 31, 2002 (Successor
Company operations), January 1, 2002 to June 7, 2002 and for the year ended
December 31, 2001 (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. The Companys consolidated financial statements for the year ended
December 31, 2000 were audited by other auditors whose attached report
expressed an unqualified opinion on those statements and included an
explanatory paragraph about the Predecessors ability to continue as a going
concern. We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion. 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 December 31, 2002 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 financial position of the
Predecessor Company as of December 31, 2001 and the consolidated results of
their operations and their consolidated cash flows for the period from January
1, 2002 to June 7, 2002 and the year ended F-2




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##### Table of Contents



December 31, 2001, in conformity with accounting principles generally
accepted in the United States of America. /s/ DELOITTE & TOUCHE LLP London, England March 22, 2004 F-3




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##### Table of Contents



INDEPENDENT AUDITORS REPORT (KPMG LLP) The Board of Directors and Stockholders
Viatel Holding (Bermuda) Limited: We have audited the accompanying consolidated statements of operations,
shareholders deficiency, comprehensive loss, and cash flows of Viatel, Inc.
and subsidiaries for the year ended December 31, 2000. These consolidated
financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit. We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and the
cash flows of Viatel, Inc. and subsidiaries for the year ended December 31,
2000, in conformity with accounting principles generally accepted in the United
States of America. The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. The Company
suffered recurring net losses and net operating cash deficiencies, had a
significant working capital deficiency and a significant shareholders
deficiency and did not have sufficient funds on hand to meet its current debt
obligations. These factors raised substantial doubt about the Companys
ability to continue as a going concern. The consolidated financial statements
do not include any adjustments that might result from the outcome of this
uncertainty. /s/ KPMG LLP New York, New York April 11, 2001 F-4




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VIATEL HOLDING (BERMUDA) LIMITED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (United States Dollars in thousands, except share data) Successor 2002
    
    Predecessor 2001ASSETSCurrent Assets:Cash and cash equivalents
    
    
    53,408
    
    
    
    65,933Accounts receivable (net of allowance for doubtful debts of
$790 (Successor), $0 (Predecessor))
    
    
    4,568
    
    
    
    12,230Amounts receivable from bankruptcy estates within one year
    
    
    14,910
    
    
    
    19,000Prepaid expenses and other current assets
    
    
    3,288
    
    
    
    12,311Total current assets
    
    
    76,174
    
    
    
    109,474Amounts receivable from bankruptcy estates after more than one year
    
    
    5,975
    
    
    
    Property and equipment, net
    
    
    37,947
    
    
    
    30,774Deferred financing costs
    
    
    
    
    
    
    61,865Other assets
    
    
    955
    
    
    
    776Total assets
    
    
    121,051
    
    
    
    202,889LIABILITIES AND SHAREHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    
    3,890
    
    
    
    19,699Accrued administrative and priority claims
    
    
    4,195
    
    
    
    Accrued expenses
    
    
    3,193
    
    
    
    4,818Deferred revenue
    
    
    662
    
    
    
    18,055Other current liabilities
    
    
    751
    
    
    
    10,552Total current liabilities
    
    
    12,691
    
    
    
    53,124Long-term liabilities:Future performance obligations
    
    
    4,600
    
    
    
    Accrual for French VAT payable
    
    
    6,076
    
    
    
    Total long-term liabilities
    
    
    10,676
    
    
    
    Liabilities subject to compromise
    
    
    
    
    
    
    2,357,935Total liabilities
    
    
    23,367
    
    
    
    2,411,059Commitments and contingencies (Note 10)Preferred stock, Series B mandatorily redeemable (in 2015)
cumulative convertible preferred stock, $.01 par value: authorized
650,000 shares; issued and outstanding 325,000 shares
    
    
    
    
    
    
    338,259Shareholders equity:Common
stock, $.01 par value: Successor: 2002  100,000,000
shares authorized; 10,560,000 shares issued and outstanding,
Predecessor: 2001  300,000,000 shares authorized; 50,962,868
shares issued and outstanding
    
    
    106
    
    
    
    510Additional paid-in capital
    
    
    98,788
    
    
    
    1,123,380Accumulated other comprehensive income / (loss)
    
    
    3,635
    
    
    
    (95,962
    )Deferred stock compensation
    
    
    (183
    )
    
    
    (3,966
    )Accumulated deficit
    
    
    (4,662
    )
    
    
    (3,570,391
    )Total shareholders equity / (deficit)
    
    
    97,684
    
    
    
    (2,546,429
    )Total liabilities and shareholders equity
    
    
    121,051
    
    
    
    202,889
 See accompanying notes to consolidated financial statements F-5




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VIATEL HOLDING (BERMUDA) LIMITED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (United States Dollars in thousands, except per share data) Successor
    
    Predecessor
    
    Predecessor
    
    PredecessorFrom June 7, 2002
    
    From January 1,
    
    Year ended
    
    Year endedto December 31,
    
    2002 to June 7,
    
    December 31,
    
    December 31,2002
    
    2002
    
    2001
    
    2000Revenue:Communication services revenues
    
    
    2,793
    
    
    
    1,216
    
    
    
    240,092
    
    
    
    646,470Operations and maintenance fee revenue
    
    
    1,371
    
    
    
    1,451
    
    
    
    4,239
    
    
    
    4,455Capacity sales
    
    
    
    
    
    
    
    
    
    
    12,298
    
    
    
    102,983Total revenue
    
    
    4,164
    
    
    
    2,667
    
    
    
    256,629
    
    
    
    753,908Operating expenses:Cost of services and sales
    
    
    (1,506
    )
    
    
    (1,518
    )
    
    
    (170,463
    )
    
    
    (552,110
    )Selling, general and administrative (including
non-cash stock compensation (expense)/income of
$(75) (Successor), $(4,567) (Predecessor), 2001 
$5,819, 2000  $(15,322))
    
    
    (30,840
    )
    
    
    (26,502
    )
    
    
    (115,245
    )
    
    
    (358,729
    )Gain on amounts due from bankruptcy estates
    
    
    25,003
    
    
    
    
    
    
    
    
    
    
    
    Restructuring and impairment
    
    
    
    
    
    
    (908
    )
    
    
    (1,278,640
    )
    
    
    (899,999
    )Depreciation and amortization
    
    
    (2,458
    )
    
    
    (1,736
    )
    
    
    (119,920
    )
    
    
    (303,168
    )Total operating expenses (net)
    
    
    (9,801
    )
    
    
    (30,664
    )
    
    
    (1,684,268
    )
    
    
    (2,114,006
    )Operating loss before reorganization items
    
    
    (5,637
    )
    
    
    (27,997
    )
    
    
    (1,427,639
    )
    
    
    (1,360,098
    )Reorganization Items
    
    
    
    
    
    
    2,662,669
    
    
    
    
    
    
    
    Operating (loss) / income
    
    
    (5,637
    )
    
    
    2,634,672
    
    
    
    (1,427,639
    )
    
    
    (1,360,098
    )Other income / (expense):Interest and other income
    
    
    986
    
    
    
    1,007
    
    
    
    8,019
    
    
    
    31,981Interest expense
    
    
    (11
    )
    
    
    (63
    )
    
    
    (83,965
    )
    
    
    (212,630
    )Net (loss) / income
    
    
    (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
    
    
    (4,662
    )
    
    
    2,635,616
    
    
    
    (1,517,878
    )
    
    
    (1,573,701
    )Net (loss) / income per common share attributable to
common shareholders, basic and diluted
    
    
    (0.44
    )
    
    
    51.72
    
    
    
    (29.72
    )
    
    
    (31.53
    )Weighted average common shares outstanding, basic and
diluted
    
    
    10,560
    
    
    
    50,963
    
    
    
    51,072
    
    
    
    49,905
 See accompanying notes to consolidated financial statements. F-6




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VIATEL HOLDING (BERMUDA) LIMITED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) / INCOME (United States Dollars in thousands) Successor
    
    Predecessor
    
    Predecessor
    
    PredecessorFrom June 7, 2002
    
    From January 1,
    
    Year ended
    
    Year endedto December 31,
    
    2002 to
    
    December 31,
    
    December 31,2002
    
    June 7, 2002
    
    2001
    
    2000Net (loss) / income
    
    
    (4,662
    )
    
    
    2,635,616
    
    
    
    (1,503,585
    )
    
    
    (1,540,747
    )Foreign currency translation adjustment
    
    
    3,635
    
    
    
    7,009
    
    
    
    6,899
    
    
    
    (57,397
    )Comprehensive (loss) / income
    
    
    (1,027
    )
    
    
    2,642,625
    
    
    
    (1,496,686
    )
    
    
    (1,598,144
    )
 See accompanying notes to consolidated financial statements. F-7




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VIATEL HOLDING (BERMUDA) LIMITED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
(United States Dollars in thousands, except share data) Number of
    
    
    
    
    
    
    
    
    
    
    
    
    
    ForeignShares of
    
    
    
    
    
    Additional
    
    
    
    
    
    CurrencyCommon
    
    Common
    
    Paid-In
    
    Deferred Stock
    
    Translation
    
    AccumulatedStock
    
    Stock
    
    Capital
    
    Compensation
    
    Adjustments
    
    Deficit
    
    TotalPredecessor Company Balance at
December 31, 1999
    
    
    47,093,361
    
    
    
    471
    
    
    
    1,066,964
    
    
    
    (5,768
    )
    
    
    (45,464
    )
    
    
    (478,812
    )
    
    
    537,391Issuance costs of Series B
mandatorily redeemable (in
2015) cumulative convertible
preferred stock
    
    
    
    
    
    
    
    
    
    
    (18,909
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (18,909
    )Issuance costs of
Viatel-obligated mandatorily
redeemable (in 2015)
convertible preferred
securities of subsidiary
grantor trust whose sole
assets are junior subordinated
debentures of Viatel (2015
convertibles)
    
    
    
    
    
    
    
    
    
    
    (8,550
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,550
    )Warrants issued
    
    
    
    
    
    
    
    
    
    
    19,311
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,311Warrants converted
    
    
    27,178
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock options exercised
    
    
    2,740,400
    
    
    
    27
    
    
    
    29,509
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29,536Restricted shares issued
    
    
    1,510,700
    
    
    
    15
    
    
    
    33,107
    
    
    
    (33,122
    )
    
    
    
    
    
    
    
    
    
    
    Restricted shares forfeited
    
    
    (46,000
    )
    
    
    
    
    
    
    (2,218
    )
    
    
    1,776
    
    
    
    
    
    
    
    
    
    
    
    (442
    )Earned compensation
    
    
    
    
    
    
    
    
    
    
    717
    
    
    
    15,322
    
    
    
    
    
    
    
    
    
    
    
    16,039Foreign currency translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (57,397
    )
    
    
    
    
    
    
    (57,397
    )Dividends on Series B
mandatorily redeemable (in
2015) cumulative convertible
preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (22,928
    )
    
    
    (22,928
    )Dividends on 2015 convertibles
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,026
    )
    
    
    (10,026
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,540,747
    )
    
    
    (1,540,747
    )Balance at December 31, 2000
    
    
    51,325,639
    
    
    
    513
    
    
    
    1,119,931
    
    
    
    (21,792
    )
    
    
    (102,861
    )
    
    
    (2,052,513
    )
    
    
    (1,056,722
    )Stock options exercised
    
    
    34,092
    
    
    
    
    
    
    
    (145
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (145
    )Restricted shares issued
    
    
    44,140
    
    
    
    
    
    
    
    505
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    505Restricted shares forfeited
    
    
    (1,139,892
    )
    
    
    (10
    )
    
    
    (23,635
    )
    
    
    12,411
    
    
    
    
    
    
    
    
    
    
    
    (11,234
    )Earned compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,415
    
    
    
    
    
    
    
    
    
    
    
    5,415Issuance of common stock for
employee purchase plan
    
    
    151,624
    
    
    
    2
    
    
    
    619
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    621Conversion of 2015 convertibles
    
    
    547,265
    
    
    
    5
    
    
    
    26,105
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,110Foreign currency translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,899
    
    
    
    
    
    
    
    6,899Dividends on Series B
mandatorily redeemable (in
2015) cumulative convertible
preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,643
    )
    
    
    (9,643
    )Dividends on 2015 convertibles
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,650
    )
    
    
    (4,650
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,503,585
    )
    
    
    (1,503,585
    )Balance at December 31, 2001
    
    
    50,962,868
    
    
    
    510
    
    
    
    1,123,380
    
    
    
    (3,966
    )
    
    
    (95,962
    )
    
    
    (3,570,391
    )
    
    
    (2,546,429
    )
 F-8




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VIATEL HOLDING (BERMUDA) LIMITED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY, continued (United States Dollars in thousands, except share data) Number of
    
    
    
    
    
    
    
    
    
    
    
    
    
    ForeignShares of
    
    
    
    
    
    Additional
    
    
    
    
    
    CurrencyCommon
    
    Common
    
    Paid-In
    
    Deferred Stock
    
    Translation
    
    AccumulatedStock
    
    Stock
    
    Capital
    
    Compensation
    
    Adjustments
    
    Deficit
    
    TotalBalance at December 31, 2001
    
    
    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
    )
    
    
    97,684
 See accompanying notes to consolidated financial statements. F-9




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##### Table of Contents



VIATEL HOLDING (BERMUDA) LIMITED AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (United States Dollars in thousands) Successor
    
    Predecessor
    
    Predecessor
    
    PredecessorFrom June 7, 2002
    
    From January 1,
    
    Year ended
    
    Year endedto December 31,
    
    2002 to June 7,
    
    December 31,
    
    December 31,2002
    
    2002
    
    2001
    
    2000Cash flows from operating activities:Net (loss) / income
    
    
    (4,662
    )
    
    
    2,635,616
    
    
    
    (1,503,585
    )
    
    
    (1,540,747
    )Adjustments to reconcile net (loss) / income to net cash used
in operating activities:Depreciation and amortization
    
    
    2,458
    
    
    
    1,736
    
    
    
    119,920
    
    
    
    303,168Accreted interest expense on long term debt
    
    
    
    
    
    
    
    
    
    
    19,016
    
    
    
    52,955Provision for losses on accounts receivable
    
    
    
    
    
    
    
    
    
    
    Amortisation of deferred financing and registration costs
    
    
    
    
    
    
    
    
    
    
    (9,125
    )
    
    
    81,176Non-cash restructuring and impairment
    
    
    
    
    
    
    
    
    
    
    1,278,640
    
    
    
    899,999Reorganization items, net of cash
    
    
    
    
    
    
    (2,660,786
    )
    
    
    
    
    
    
    Stock based compensation expense/(income)
    
    
    75
    
    
    
    4,567
    
    
    
    (5,819
    )
    
    
    15,322Changes in operating assets and liabilities, net of effect of
acquisitions:(Increase) / decrease in accounts and notes receivable
and accrued interest
    
    
    (540
    )
    
    
    8,200
    
    
    
    12,811
    
    
    
    (67,206
    )(Decrease) / increase in accrued interest expense on
Senior Notes
    
    
    
    
    
    
    
    
    
    
    (830
    )
    
    
    30,735Decrease in prepaid expenses and other receivables
    
    
    2,843
    
    
    
    6,180
    
    
    
    (54,764
    )
    
    
    15,798(Increase) / decrease in amounts receivable from
bankruptcy estates
    
    
    (15,622
    )
    
    
    13,737
    
    
    
    (19,000
    )
    
    
    (Increase) / decrease in other assets
    
    
    (374
    )
    
    
    195
    
    
    
    11,194
    
    
    
    1,831Increase / (decrease) in accrued telecommunications
costs, accounts payable, and other accrued expenses
    
    
    2,057
    
    
    
    (1,589
    )
    
    
    (68,312
    )
    
    
    (64,729
    )Net cash (used in) / provided by operating activities
    
    
    (13,765
    )
    
    
    7,856
    
    
    
    (219,854
    )
    
    
    (271,698
    )Cash flows from investing activities:Capital expenditures
    
    
    (1,667
    )
    
    
    (8,721
    )
    
    
    (21,851
    )
    
    
    (574,712
    )Proceeds from disposal of property and equipment
    
    
    
    
    
    
    2,051
    
    
    
    
    
    
    
    Cash paid for acquisitions, net of cash acquired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (115,408
    )Proceeds from maturity of marketable securities
    
    
    
    
    
    
    
    
    
    
    57,531
    
    
    
    105,574Decrease in cash securing letters of credit for network
construction
    
    
    
    
    
    
    
    
    
    
    29,728
    
    
    
    19,214Net cash (used in) / provided by investing activities
    
    
    (1,667
    )
    
    
    (6,670
    )
    
    
    65,408
    
    
    
    (565,332
    )
 F-10




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##### Table of Contents



VIATEL HOLDING (BERMUDA) LIMITED AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS, continued (United States Dollars in thousands) Successor
    
    Predecessor
    
    Predecessor
    
    PredecessorFrom June 7, 2002
    
    From January 1,
    
    Year ended
    
    Year endedto December 31,
    
    2002 to June 7,
    
    December 31,
    
    December 31,2002
    
    2002
    
    2001
    
    2000Cash flows from financing activities:Proceeds from issuance of senior notes, senior discount
notes and convertible debentures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    281,241Proceeds from issuance of convertible preferred securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    477,541Repayment of senior discount notes
    
    
    
    
    
    
    
    
    
    
    (10,455
    )
    
    
    Deferred financing and registration costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,850
    )Proceeds from exercise of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29,535Proceeds from common stock offering
    
    
    
    
    
    
    
    
    
    
    476
    
    
    
    Proceeds from restricted stock offering
    
    
    
    
    
    
    
    
    
    
    505
    
    
    
    Payments under capital leases and notes payable
    
    
    
    
    
    
    
    
    
    
    (63,826
    )
    
    
    (10,702
    )Net cash (used in) / provided by financing activities
    
    
    
    
    
    
    
    
    
    
    (73,300
    )
    
    
    762,765Effects of exchange rate changes on cash
    
    
    605
    
    
    
    1,116
    
    
    
    (11,696
    )
    
    
    (3,036
    )Net (decrease) / increase in cash and cash equivalents
    
    
    (14,827
    )
    
    
    2,302
    
    
    
    (239,442
    )
    
    
    (77,301
    )Cash and cash equivalents at beginning of period
    
    
    68,235
    
    
    
    65,933
    
    
    
    305,375
    
    
    
    382,676Cash and cash equivalents at end of period
    
    
    53,408
    
    
    
    68,235
    
    
    
    65,933
    
    
    
    305,375Supplemental disclosure of cash flow activityInterest paid
    
    
    8
    
    
    
    63
    
    
    
    93,738
    
    
    
    167,006Interest received
    
    
    906
    
    
    
    1,007
    
    
    
    8,019
    
    
    
    31,014Taxes paid
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Receipts from bankruptcy estates
    
    
    10,030
    
    
    
    13,737
    
    
    
    
    
    
    
    
 See accompanying notes to consolidated financial statements 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) (1) Nature of Business, Background And Basis of Presentation The Company operates a pan-European telecommunications 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
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. 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 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. The
Companys Directors believe existing capital resources and cash from operations
will be insufficient to enable it to satisfy expected cash funding and working
capital requirements beyond the second quarter of 2004. On February 9, 2004, the Company executed a term sheet with a group of
investors for the proposed issuance of US$50-60 million of senior convertible
debt securities (the Notes). Interest, at the rate of 8% per annum, would be
compounded and payable semi-annually by way of additional Notes or, at the
Companys option, in cash; the Notes would be due in 2014. The Notes would, at
the option of the Noteholder, be convertible into ordinary shares upon the
occurrence of certain specified liquidity events, such as a change in control
or initial public offering. The Company anticipates the conclusion of the
financing within the second quarter of 2004. 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) The term sheet is non-binding and therefore no assurance can be given that
the proposed financing will be consummated. If the Company cannot obtain
acceptable financing, the Directors will be forced to reduce dramatically cash
requirements or to raise cash, by discontinuing or disposing of existing
development programs 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. (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 (Dollars). The significant
accounting policies are summarized as follows:  (a)
    Basis of Consolidation The financial statements consolidate the Company and its majority-owned
and controlled subsidiaries from their respective dates of acquisition. All
intercompany balances and transactions have been eliminated in consolidation.
As at December 31, 2002 and 2001, there were no equity method investments.  (b)
    Use of Estimates The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of 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 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) 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, such as that for VAT in France, 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.  (d)
    Revenue and Cost of Services and Sales Capacity sales made by the Predecessor mainly represented indefeasible
rights of use for sales of portions of the network that qualify for sales-type
lease accounting. Revenue for capacity sales is recognized when capacity is
delivered to the purchaser. Such revenues were recognized in accordance with
Interpretation No. 43 of the Financial Accounting Standards Board (FASB),
Real Estate Sales, an interpretation of FASB Statement No. 66 (FIN 43) and
the SEC Staff Accounting Bulletin No. 101, Revenue Recognition in Financial
Statements. Transactions not meeting the criteria for sales-type lease
accounting were accounted for as operating leases, with revenue being
recognized over the term of the lease and included in communications services
revenue. 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. Annual operating and maintenance charges are invoiced separately from
capacity sales. Revenues relating to such 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. Predecessors cost of capacity in any period is determined based upon the
ratio of total capacity sold and total anticipated capacity to be utilized
multiplied by the related costs of the relevant portion of Predecessors
network. 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. 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)  (e)
    Advertising Costs Advertising costs are expensed as incurred. Such costs are included in
sales, general and administrative expenses in the accompanying consolidated
statements of operations and amounted to US$1 for the period from June 7, 2002
to December 31, 2002. For the period from January 1, 2002 to June 7, 2002, and
the years ended December 31, 2001 and December 31, 2000, advertising costs
amounted to US$nil, US$3,675 and US$20,013 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 a realizable amount at the balance sheet
date.  (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 period from June 7, 2002 to December 31, 2002 and from January
1, 2002 to June 7, 2002, and the years ended December 31, 2001 and December 31,
2000, no outstanding stock options have been included in the calculation of
diluted net loss per share as the effect would be anti-dilutive.  (h)
    Property and Equipment At December 31, 2002, 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. At December 31, 2001, property and equipment of the Predecessor
principally comprised telecommunications related equipment such as fiber optic
cable systems, switches, routers and computer hardware. Such equipment is
stated at historical cost, reduced by provisions to recognize impairment in
value. Costs associated directly with network construction, service
installations and development of business support systems, including employee
related costs, and interest expense incurred during the construction period,
were capitalized. Equipment held under capital leases is stated at the lower of the fair
value of the asset or the net present value of the minimum lease payments at
the inception of the lease. Maintenance and repairs are expensed as incurred. 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) 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 depreciation and amortization expense,
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 25 yearsFurniture, office and computer equipment.
    
    2 to 5 yearsLand.
    
    Not depreciated
  (i)
    Deferred Financing Costs Deferred financing costs represent costs incurred to issue and register
debt that were being amortized over the term of the related debt. As this debt
was extinguished as part of the Plan of Reorganization these deferred financing
costs were written off as part of the Reorganization items.  (j)
    Impairment of Long-lived Assets The Company periodically reviews events and changes in circumstances to
determine whether the recoverability of the carrying value of long-lived assets
should be reassessed. 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. As at December 31, 2001 we considered our entire network infrastructure to
be impaired. We determined the impairment by reference to the Reorganization
Value agreed as part of the confirmation of our Plan of Reorganization, as the
Reorganization Value represents the value of the business as a going concern.  (k)
    Cash and Cash Equivalents Cash equivalents include highly liquid debt instruments purchased with an
original maturity of three months or less. The company has no restricted cash
as at December 31, 2002 and December 31, 2001. 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)  (l)
    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 loss recognized in the
statement of operations and included in Selling, general and administrative
expenses amounted to US$1,421 for the period from June 7, 2002 to December 31,
2002. For the period from January 1, 2002 to June 7, 2002, the Predecessor
experienced exchange transaction gains of US$441. For the year ended December
31, 2001, there was an exchange transaction loss of US$455. For the year ended
December 31, 2000, the Predecessor experienced an exchange transaction gain of
US$87. 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.  (m)
    Financial Instruments, Derivatives and Concentration of Credit Risk At December 31, 2002 the Companys financial instruments included cash and
cash equivalents, accounts receivable, accounts payable and accrued expenses.
The fair values, at December 31, 2002 and at December 31, 2001, 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, 2002
and did not enter into any activities resulting in derivative instruments
during the period then ended. 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 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) 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 result in an inability to
fulfill their obligations to the Company, including payment of amounts owed for
services provided.  (n)
    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, 2002, the Company has one stock-based employee
compensation plan, which is more fully described in Note 8. 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 period. 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 2000: (1) a risk free interest rate
of 6.0%; (2) an expected life of the options of 7 years; (3) volatility of
approximately 113.9%; and (4) an annual dividend yield of 0%. The following
assumptions were applied in calculating the fair value of options awarded by
the Company during 2002 prior to the Consummation 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
    
    Predecessor
    
    Predecessor
    
    PredecessorFrom June 7, 2002
    
    From January 1,to December 31,
    
    2002 to June 7,
    
    Year ended
    
    Year ended2002
    
    2002
    
    December 31, 2001
    
    December 31, 2000Net (loss) / income as reported
    
    
    (4,662
    )
    
    
    2,635,616
    
    
    
    (1,517,878
    )
    
    
    (1,573,701
    )Add: non-cash stock-based
compensation expense/(income)
    
    
    75
    
    
    
    4,567
    
    
    
    (5,819
    )
    
    
    15,322
 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) Successor
    
    Predecessor
    
    Predecessor
    
    PredecessorFrom June 7, 2002
    
    From January 1,to December 31,
    
    2002 to June 7,
    
    Year ended
    
    Year ended2002
    
    2002
    
    December 31, 2001
    
    December 31, 2000Less: SFAS 123 stock-basedcompensation charge / (credit).
    
    
    (106
    )
    
    
    (4,029
    )
    
    
    95,839
    
    
    
    (67,140
    )Pro forma net (loss) / income
    
    
    (4,693
    )
    
    
    2,636,154
    
    
    
    (1,427,858
    )
    
    
    (1,625,519
    )Pro-forma basic and diluted
(loss) / income per share
    
    
    (0.44
    )
    
    
    51.73
    
    
    
    (27.96
    )
    
    
    (32.57
    )Basic and diluted net (loss) /
income per common share, as
reported
    
    
    (0.44
    )
    
    
    51.72
    
    
    
    (29.72
    )
    
    
    (31.53
    )
  (o)
    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.  (p)
    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.  (q)
    Recent Accounting Pronouncements Issued but Not Yet Adopted In May 2003 the FASB issued SFAS 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. SFAS 150
modifies the accounting for certain financial instruments that, under previous
guidance, issuers could account for as equity. The Statement requires that
those instruments be classified as liabilities in statements of financial
position. SFAS 150 affects an issuers accounting for three types of
freestanding financial instruments, namely:  
    
    Mandatorily redeemable shares, which the issuing company is
obligated to buy back in exchange for cash or other assets.  
    
    Instruments, other than outstanding shares, that do or may
require the issuer to buy back some of its shares in exchange for
cash or other assets. These instruments include put options and
forward purchase contracts. 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)  
    
    Obligations that can be settled with shares, the monetary
value of which is fixed, tied solely or predominantly to a variable
such as a market index, or varies inversely with the value of the
issuers shares. SFAS 150 does not apply to features embedded in financial instruments that
are not derivatives in their entirety. In addition to its requirements for the
classification and measurement of financial instruments within its scope, SFAS
150 also requires disclosures about alternative ways of settling those
instruments and the capital structure of entities, all of whose shares are
mandatorily redeemable. SFAS 150 is effective for financial instruments entered
into or modified after May 31, 2003, and otherwise is effective at the
beginning of the first interim period beginning after June 15, 2003. It is to
be implemented by reporting the cumulative effect of a change in an accounting
principle for financial instruments created before the issuance date of the
Statement and still existing at the beginning of the interim period of
adoption. Restatement is not permitted. The Company is currently evaluating the
impact of SFAS 150 on its consolidated results of operations, financial
position and cash flows but believes that SFAS 150 will not have a significant
impact, if any, to its financial position. In January 2003, the FASB issued Interpretation 46, Consolidation of
Variable Interest Entities, (FIN 46) which addresses the financial reporting
by enterprises involved with variable interest entities. FIN 46 addresses both
unconsolidated variable interest entities and any new variable interest
entities that are created subsequent to the issuance of the interpretation. As
of December 31, 2002, the Company did not have any unconsolidated variable
interest entities. Any future variable interest entities will be accounted for
in accordance with FIN 46. In December 2003, the FASB issued a revision to Interpretation No. 46,
Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51
(FIN 46R or the Interpretation). FIN 46R clarifies the application of ARB
No. 51, Consolidated Financial Statements, to certain entities in which
equity investors do not have the characteristics of a controlling financial
interest or do not have sufficient equity at risk for the entity to finance its
activities without additional subordinated financial support. FIN 46R requires
the consolidation of these entities, known as variable interest entities
(VIEs), by the primary beneficiary of the entity. The primary beneficiary is
the entity, if any, that will absorb a majority of the entitys expected
losses, receive a majority of the entitys expected residual returns, or both. Among other changes, the revisions of FIN 46R (a) clarified some
requirements of the original FIN 46, which had been issued in January 2003, (b)
eased some implementation problems, and (c) added new scope exceptions. FIN 46R
deferred the effective date of the Interpretation for public companies, to the
end of the first reporting period ending after March 15, 2004, except that all
public companies must at a minimum apply the provisions of the Interpretation
to entities that were previously considered special-purpose entities under
the FASB literature prior to the issuance of FIN 46R by the end of the first
reporting period ending after December 15, 2003. The Company does not
anticipate that the adoption of FIN 46 will have a material impact on its
financial position, cash flows and results of operations. In November 2002, the FASB issued Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others (FIN 45). FIN 45 elaborates on the
existing disclosure requirements for most guarantees, including loan guarantees
such as standby letters of credit. It also clarifies that at the time a
company issues a guarantee, the company must recognize an initial liability for
the fair market value of the obligations F-20




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VIATEL HOLDING (BERMUDA) LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(United States Dollars, in thousands, unless specifically stated) it assumes under that guarantee and must disclose that information in its
interim and annual financial statements. The initial recognition and
measurement provisions of FIN 45 apply on a prospective basis to guarantees
issued or modified after December 31, 2002. The Company adopted this standard
in accordance with SOP 90-7. We do not expect the adoption of FIN 45 to have a
material effect on our financial position, results of operations, or cash
flows. In November 2002, the EITF reached a consensus on Issue No. 02-16,
Accounting for Consideration Received from a Vendor by a Customer (Including a
Reseller of the Vendors Products) (EITF 02-16). This Issue addresses the
treatment of cash consideration received by a reseller, raised as a response to
EITF Issue No. 01-9, Accounting for Consideration Given by a Vendor to a
Customer (Including a Reseller of the Vendors Products) (EITF 01-9). EITF
Issue No. 02-16 addresses the income statement classification of consideration
from a vendor, as well as the appropriate timing and method of recognition.
This issue is effective for the Companys consolidated financial statements for
the period beginning January 1, 2003. The Company has not yet determined the
effect that adoption of EITF Issue 02-16 will have on its results of operations
and financial condition, but does not expect it to have a material effect on
our financial position, results of operations or cash flows. In November 2002, the EITF reached a consensus on Issue No. 00-21,
Revenue Arrangements with Multiple Deliverables. EITF Issue No. 00-21
provides guidance on how to account for arrangements that involve the delivery
or performance of multiple products, services and/or rights to use assets. The
provisions of EITF Issue No. 00-21 will apply to revenue arrangements entered
into in fiscal periods beginning after June 15, 2003. The Company is currently
evaluating the effect that the adoption of EITF Issue No. 00-21 will have on
its results of operations and financial condition.  (r)
    Reclassification of Prior Period Amounts Certain reclassifications were made to prior period amounts to conform to current period classifications. (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. 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. 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) 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, Debtdischarge andPredecessor Company
    
    Equity
    
    Successor CompanyBalance Sheet
    
    Restructuring
    
    Balance 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
 Fresh start reporting adjustments in the December 31, 2002 consolidated
financial statements result primarily from the following:  
    
    Elimination of the deferred financing costs balance of the
Predecessor relating to the liabilities subject to compromise (Note
6).  
    
    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 liabilities subject to compromise (Note 7).  
    
    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 the latest provisional statement of claims recorded by
the Claims Agent in the Viatel, Inc. bankruptcy and the claims allowed by the
Bankruptcy Court, bondholder claims 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) amounted to US$2,161 million, other allowed claims amounted to US$163
million and pending claims amounted to US$34 million. All these pre-petition
liabilities will be discharged pursuant to the Plan of Reorganization and such
creditors have received or will receive a pro-rata distribution of the
10,560,000 common shares issued by the Company. Additionally, Predecessors
entire deficit was eliminated. There were no other adjustments to individual
assets and liabilities. (4) Prepaid Expenses and Other Current Assets Prepaid expenses and other assets, consist of the following as of December
31: Successor 2002
    
    Predecessor 2001VAT receivable
    
    
    902
    
    
    
    7,212Other receivables
    
    
    
    
    
    
    3,513Prepaid Expenses
    
    
    2,386
    
    
    
    1,5863,288
    
    
    
    12,311
 (5) Property and Equipment Property and equipment consists of the following as of December 31: Successor 2002
    
    Predecessor 2001Land and Buildings
    
    
    3,411
    
    
    
    220Communications systems and network infrastructure
    
    
    35,516
    
    
    
    32,771Furniture, office and computer equipment
    
    
    1,478
    
    
    
    32540,405
    
    
    
    33,316Less accumulated depreciation
    
    
    (2,458
    )
    
    
    (2,542
    )Net Book Value
    
    
    37,947
    
    
    
    30,774
 As a result of the Predecessors assessment of recoverability of its
long-lived assets, it wrote down the carrying value of its property and
equipment by approximately US$1,264 million in 2001 (2000  US$87.7 million).
As at December 31, 2002 and 2001, there were no assets held under capital
leases. Depreciation on property and equipment, and included in depreciation and
amortization in the accompanying consolidated statements of operations,
amounted to US$2,458 for the period from June 7, 2003 to December 31, 2003.
For the period from January 1, 2002 to June 7, 2002, and the years ended
December 31, 2001 and December 31, 2000, Depreciation amounted to US$1,736,
US$115,587 and US$148,098 respectively. (6) Deferred Financing Costs Deferred financing costs consist of the following as of December 31: F-23




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VIATEL HOLDING (BERMUDA) LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(United States Dollars, in thousands, unless specifically stated) Successor 2002
    
    Predecessor 2001Deferred financing
    
    
    
    77,705Less amortization.
    
    
    
    (15,840)Net Book Value
    
    
    
    
    
    
    61,865
 As a result of the extinguishment of the related debt upon implementation
of the Plan of Reorganization, the deferred financing cost has been written off
as a Reorganization item. (7) Liabilities subject to Compromise The Predecessors filing for bankruptcy:  
    
    automatically stayed actions by creditors and other parties
in interest to recover any claim that arose prior to the filing and  
    
    served to accelerate, for purposes of allowance, all
pre-bankruptcy liabilities of the Predecessor Company, whether or
not those liabilities were liquidated or contingent on the petition
for bankruptcy date. Pursuant to SOP 90-7, the Company segregated and classified certain
pre-petition obligations as liabilities subject to compromise. Liabilities
subject to compromise were recorded at the allowed claim amount. The following
table sets forth the liabilities of the Predecessor Company subject to
compromise as of December 31, 2001: Predecessor 200111.25% Senior Notes (a)
    
    
    402,25012.50% Senior Discount Notes, less discount of $105,492 (a)
    
    
    394,78011.50% Senior Notes, less discount of $2,981 (c)
    
    
    269,82911.50% Senior Notes (b)
    
    
    203,06713.50% Senior Notes (e)
    
    
    160,65311.50% Senior Notes (150,000) (b)
    
    
    136,11611.15% Senior Notes (91,010) (a)
    
    
    81,69012.75% Senior Notes (300,000) (d)
    
    
    273,58612.40% Senior Discount Notes (115,552), less discount of
$27,190 (24,241) (a)
    
    
    81,792Obligations under capital leases (f)
    
    
    5,995NTFC note (g)
    
    
    22,121Viatel-obligated mandatorily redeemable (in 2015)
convertible preferred securities of subsidiary grantor
trust whose sole assets are junior subordinated debentures
of Viatel (h)
    
    
    157,468Unsecured creditors (i)
    
    
    168,5882,357,935
  (a)
    On April 8, 1998, the Predecessor completed an offering of
units (the Units Offering) consisting of senior notes and senior
discount notes due 2008 and shares of 10% Series A Redeemable
Convertible Preferred Stock due 2010 (Series A Preferred) $0.01
par value per share, of the Predecessor and units consisting of 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)  senior notes and senior discount notes due 2008 and subordinated
convertible debentures due 2011 (the Subordinated Debentures)
through which it raised approximately US$889.6 million of gross
proceeds (US$856.6 million of net proceeds). The Predecessor
utilized US$118.9 million of the proceeds from the Units Offering
to retire its 15% senior Discount Notes due 2005 resulting in loss
of US$28.3 million. A portion of the proceeds from the senior
notes was used to purchase United States government and German
government securities which were pledged as security for the first
six interest payments on the senior notes due 2008 and four
semi-annual interest payments on the Senior notes due 2009. The
interest on the senior notes was payable in semi-annual
installments. The senior discount notes were to accrete through
April 15, 2003 and interest would have been payable in cash in
semi-annual installments thereafter. The United States Government
and Euro denominated securities were sold during the year ended
December 31, 2001. The Notes were cancelled in accordance with the Plan of Reorganization.  (b)
    On March 19, 1999, Predecessor completed a high yield
offering through which the Predecessor raised approximately US$352.6
million of net proceeds in a combination of senior dollar notes and
senior Euro notes due 2009. A portion of the proceeds from the
senior notes was used to purchase United States Government and Euro
denominated securities which were pledged as security for the first
four interest payments. The United States Government and Euro
denominated securities were sold during the year ended December 31,
2001. The Notes were cancelled in accordance with the Plan of Reorganization.  (c)
    In connection with Predecessors Destia acquisition, the
holders of all of Destias 11% senior discount notes due 2008
(US$213.3 million in accreted principal amount) exchanged their
Destia notes and all accreted principal for US$205.8 million in
aggregate principal amount at maturity of 11.5% senior notes due
2009 from Predecessor. In connection with the exchange offer, the
Predecessor also completed a private placement of US$63.7 million in
gross principal amount of its 11.5% senior dollar notes. A portion
of the proceeds from the private placement was used to purchase U.S.
government securities which were pledged as security for the first
three interest payments. The United States Government securities
were sold during the year ended December 31, 2001. The Notes were cancelled in accordance with Predecessors Plan of
Reorganization.  (d)
    On April 20, 2000, the Predecessor completed a high yield
offering of 300 million (US$281.2 million) principal amount of
12.75% senior Euro notes due 2008 pursuant to a private placement
transaction. In connection therewith, the Predecessor received net
proceeds of approximately US$271.2 million. Interest on these notes
was payable semi-annually in cash on April 15 and October 15. The
notes were not redeemable prior to maturity. On April 11, 2001, the
Predecessor announced that its board of directors had decided not to
pay the April 15, 2001 interest payment on the Predecessors 12.75%
senior notes. The Predecessor had until May 15, 2001 to make such
payment. Non-payment of interest on these notes would have been an
event of 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)  default under the terms of the Predecessors various bond
indentures, the terms of the trust preferred and the terms of the
Predecessors vendor financing facilities. Accordingly, as a
result of the Predecessors decision not to pay the April 15, 2001
interest payment, the Predecessor classified all of its long-term
debt as current.

 

The indentures pursuant to which the 1998, 1999 and 2000 senior
notes and senior discount notes were issued contained certain
covenants that, among other things, limited the ability of the
Predecessor to incur additional indebtedness, pay dividends or make
certain other distributions, enter into transactions with
stockholders and affiliates and create liens on its assets. In
addition, upon a change of control, the Predecessor was required to
make an offer to purchase the senior notes and the senior discount
notes at a purchase price equal to 101% of the principal amount, in
the case of the senior notes, and 101% of the accreted value of the
notes, in the case of the senior discount notes. The Notes were cancelled in accordance with Predecessors Plan of
Reorganization.  (e)
    In conjunction with the Destia acquisition, the Predecessor
assumed Destias 13.5% 1997 notes, which had an aggregate principal
value of US$150.8 million. The Predecessor determined the fair
value of this debt to be US$158.3 million and was amortizing the
premium over the remaining term. These notes were unsecured
obligations of Destia set to mature in 2007. A portion of the
proceeds from the senior notes due 2007 was used by Destia to
purchase United States government securities and cash equivalents,
which were pledged as security for the first six interest payments
on such notes.

 

The indentures pursuant to which the Destia 13.5% notes were issued
contained substantially similar covenants to the ones the
Predecessor had on its senior notes, which among other things
limited the ability of the Predecessor to incur additional
indebtedness, pay dividends or make certain other distributions,
enter into transactions with stockholders and affiliates and create
liens on its assets. In addition, as a result of the acquisition
of Destia, the Predecessor was required to offer to repurchase the
notes at a purchase price equal to 101% of the outstanding
principal amount, together with accrued and unpaid interest. The
Predecessor launched this required offer to purchase on December
22, 1999. In connection therewith, the Predecessor repurchased an
aggregate amount of US$0.6 million. The United States Government
securities were sold during the year ended December 31, 2001. The Notes were cancelled in accordance with Predecessors Plan of
Reorganization.  (f)
    Predecessor had various lease agreements for Indefeasible
Rights of Use and other property.  The lease agreements were cancelled in accordance with
Predecessors Plan of Reorganization.  (g)
    The Predecessors subsidiary, Destia, entered into a credit
facility with NTFC Capital Corporation (NTFC), which provided for
borrowings to fund certain equipment 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)  acquisition costs and related expenses. The facility provided for
an aggregate commitment from NTFC of US$49.0 million. As of
December 31, 2001, the aggregate amount borrowed under the facility
was US$22.1 million. All of the equipment purchased with the
proceeds of the NTFC facility was pledged as security to NTFC. The
terms of the NTFC facility required the Predecessors subsidiary,
Viatel Communications, Inc. (formerly Destia Communications, Inc.),
to maintain certain debt service coverage ratios, certain EBITDA
thresholds (both as defined in the NTFC facility), and minimum cash
balances. As a result of the Predecessors acquisition of Destia,
NTFC had the right to request Destia to repay all outstanding
obligations under the NTFC facility within 90 days following the
acquisition. NTFC extended the date by which it would exercise
this right periodically throughout 2000 and provided a final
extension that expired on January 31, 2001. On February 14, 2001,
NTFC advised the Predecessor that it had concluded its review of
the Predecessors acquisition of Destia and determined that it did
not consent. The Predecessor did not exercise its right to prepay
any amounts outstanding under the facility as requested by NTFC.
 

 


The NTFC facility was cancelled in accordance with Predecessors
Plan of Reorganization.  (h)
    On April 12, 2000, a Delaware trust and a 100%-owned
statutory consolidated subsidiary of Predecessor sold 3,600,000
shares of trust convertible preferred securities, which were
convertible at the holders option into Predecessor common stock, to
certain placement agents, and 111,340 shares of common securities to
the Predecessor. The proceeds from the sale of the trust
convertible preferred securities were invested by the trust in
US$180.0 million aggregate principal amount of the Predecessors
7.75% convertible junior subordinated debentures due 2015 (the
Debentures). Issuance costs of US$8.6 million associated with
these transactions were charged to additional paid-in capital. The
Debentures and the common securities represented the sole assets of
the trust. The Debentures were to mature on April 15, 2015, bearing
interest at the rate of 7.75%, payable quarterly, and were to be
redeemable by the Predecessor beginning in April 2003 at 105.43% of
the principal amount thereof.

 

Holders of the trust preferred securities were entitled to
cumulative cash distributions at an annual rate of 7.75% of the
liquidation amount of US$50 per security. For the years ended
December 31, 2001 and December 31, 2000 the Predecessor recorded
US$4.7 million and US$10.0 million in accrued distributions
relating to the trust preferred securities, respectively. Each
trust preferred security was convertible into shares of the
Predecessors common stock at the rate of 1.048 shares of
Predecessor common stock per trust preferred security, subject to
adjustment in certain circumstances. The trust preferred
securities were to be redeemed upon repayment of the Debentures and
were callable by the Predecessor at 105.43% of the liquidation
amount beginning in April 2003.



 

The Predecessor guaranteed, on a subordinated basis, distributions
and other payments due on the preferred securities (the
Guarantee). The Guarantee, when taken together with the
Predecessors obligations under the Debentures, the indenture 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)  pursuant to which the Debentures were issued and the Amended and
Restated Declaration of Trust governing the subsidiary trust,
provided a full and unconditional guarantee of amounts due on the
trust preferred securities. No other subsidiary of Viatel
guaranteed such securities. The Debentures and related trust
investment in the common securities were eliminated in
consolidation and the trust preferred securities have been
reflected as outstanding in these consolidated financial
statements.

 


On April 11, 2001, the Predecessor announced that its board of
directors had decided not to pay the April 15 dividend payment on
the Debentures, which were held by the trust, and as such, the
trust would be unable to make the April 15 dividend payment on its
7.75% trust certificates.

 

During 2001, both before and after the Predecessor entered Chapter
11 protection, holders of US$26.1 million of the convertible
preferred securities of the guarantor trust converted them into
Predecessors common stock.

 

The convertible preferred securities of the guarantor trust were
cancelled in accordance with Predecessors Plan of Reorganization
upon application of fresh start accounting.  (i)
    The Unsecured Creditors claims were settled in accordance
with Predecessors Plan of Reorganization. (8) Preferred Stock On March 9, 2000, Predecessor completed an offering of US$325 million of
Series B cumulative convertible preferred stock for net proceeds of US$306.1
million. Issuance costs of US$18.9 million were charged to additional paid-in
capital. The Series B preferred stock accrued dividends at an annual rate of
7.50% of the then-effective liquidation preference, and were able to be
converted at the option of the holder at a conversion price of US$46.25 per
share and were to be mandatorily redeemable in 2015. Dividends on the Series B
preferred stock were to accumulate until May 31, 2005. Thereafter dividends,
to the extent not paid in full in cash, were to accrue and be added to the
liquidation preference. For the years ended December 31, 2001 and 2000, the
Predecessor recorded US$9.6 million and US$22.9 million in dividends on the
Series B preferred stock, respectively. No further dividends were paid by the
Predecessor on these instruments for the year ended December 31, 2001 and the
period from January 1, 2002 to June 7, 2002. As part of this financing, the Predecessor also issued warrants to
purchase 753,116 shares of the Predecessors common stock, 50% of which were to
be exercisable for 5 years at a price of US$75 per share, and 50% of which were
to be exercisable for 7-1/2 years at a price of US$100 per share. In addition,
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 were to be exercisable for 5 years at
a price of US$7,500 per share and 50% of which were to be exercisable for 7-1/2
years at a price of US$10,000 per share. The warrants, in aggregate, were
valued at US$19.3 million on the date of the issue using the Black-Scholes
option pricing model. 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) Both the Series B Mandatorily Redeemable Cumulative Convertible Preferred
Stock and the Warrants were cancelled in accordance with Predecessors Plan of
Reorganization upon application of fresh start accounting.  (9)
    
    Stock Incentive Plans At the Predecessors 2000 Annual Meeting of Stockholders, its stockholders
approved the Viatel, Inc. 2000 Stock Incentive Plan. The Predecessor had
previously adopted, with stockholder approval, an Amended Stock Incentive
Plan, the Amended and Restated 1999 Flexible Incentive Plan (previously a
Destia plan) and the Amended and Restated 1996 Flexible Incentive Plan
(previously a Destia plan), collectively referred to as the Plans.
Pursuant to the Plans, non-qualified stock options to acquire shares of
common stock were able to be granted to the Predecessors employees, directors
and consultants, and incentive stock options to acquire shares of common
stock were able to be granted to its employees, including employee-directors.
The Plans also provided for the grant of stock appreciation rights and shares
of restricted common stock to the Predecessors employees, directors and
consultants. The Plans were administered by the compensation committee of the
Predecessors Board of Directors. The 2000 Stock Incentive Plan allowed for the
issuance of up to a maximum of 5,200,000 shares of common stock of which
1,487,500 shares remained available for grant at the end of 2000. In addition,
there were 641,222 shares that remained available for grant under the other
Plans. As a result of the Predecessors acquisition of Destia, virtually all
options granted by Destia prior to the merger under either the 1999
Flexible Incentive Plan and the 1996 Flexible Incentive Plan vested and
became exercisable. Any options granted under the 1999 Flexible Incentive Plan
and the 1996 Flexible Incentive Plan after the Predecessors acquisition of
Destia were subject to accelerated vesting only as described below. Under
the Plans, the option price of any incentive stock option could not be less
than the fair market value of a share of common stock on the date on which the
option was granted. The option price of a non-qualified stock option may have
been less than the fair market value on the date the non-qualified stock option
was granted if the Predecessors Board of Directors or the compensation
committee so determined. An incentive stock option may not have been granted
to a ten percent stockholder (as that term is defined in Section 422A of the
Internal Revenue Code of 1986) unless the exercise price was at least 110.0% of
the fair market value of the common stock and the term of the option may not
have exceeded five years from the date of grant. Each option granted
pursuant to the Plans was evidenced by a written agreement, which
contained the terms, provisions and conditions of the grant. Stock options
may not have been assigned or transferred during the lifetime of the holder
except as may have been required by law or pursuant to a qualified domestic
relations order. Common stock subjected to a restricted stock purchase or
bonus agreement was transferable only as provided in that agreement. The
maximum term of each stock option granted to persons other than ten percent
stockholders was ten years from the date of grant. The Plans provided that outstanding options, restricted shares of common
stock or stock appreciation rights vested in their entirety and became
exercisable, or with respect to restricted common stock, were to be
released from restrictions on transfer and repurchase rights, in the event of
a corporate transaction, unless assumed by the successor corporation. For
purposes of the Plans, a corporate transaction included any of the following
stockholder-approved transactions to which the Predecessor was a party: 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)  
    
    a merger or consolidation in which the Predecessor is not the
surviving entity, other than a transaction the principal purpose of
which is to change the state of its incorporation, or a transaction
in which the Predecessors stockholders immediately prior to the
merger or consolidation hold (by virtue of securities received in
exchange for their shares in the Predecessor) securities of the surviving
entity representing more than 50.0% of the total voting power of that
entity immediately after the transaction;
    
    the sale, transfer or other disposition of all or
substantially all of the Predecessors assets unless its
stockholders immediately prior to the sale, transfer or other
disposition hold (by virtue of securities received in exchange
for their shares in the Predecessor) securities of the
purchaser or other transferee representing more than 50.0% of
the total voting power of that entity immediately after the
transaction, or
    
    any reverse merger in which the Predecessor is the surviving
entity but in which its stockholders immediately prior to the merger
do not hold (by virtue of their shares in the Predecessor
held immediately prior to such transaction) securities of the
Predecessor representing more than 50.0% of our total voting power
immediately after the transaction. In 2000 and 2001, the Predecessor granted certain members of senior
management a total of 1,510,700 and 44,140 shares of its common stock,
respectively, subject to certain restrictions on employment and stock
performance (restricted shares). Such shares had been valued at approximately
$33.1 million and $0.5 million, respectively, based on the closing market
prices of the Predecessors common stock on the dates of grant. The entire
amounts were recorded as unearned compensation in the consolidated statement of
stockholders equity and were being amortized as earned over the restricted
period. Until all the restrictions lapsed, the restricted shares were not
deemed to vest other than that restricted shares did give an immediate right to
normal common stock voting rights. As of December 31, 2000 and 2001, none of
the shares of restricted stock had vested. In 2000 and 2001, approximately
US$2.2 million and US$23.6 million of restricted shares were forfeited as a
result of employee terminations, respectively. In 2001, 11,677,411 options of the Predecessor were forfeited as a result
of employee terminations. 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 has 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 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 Compensation 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 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) 31, 2002. Prior to the Consummation Date, the Company issued 744,000
options as described below. During the period from the Consummation Date to
December 31, 2002, no options were issued or exercised. 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, 2002, no stock options had been granted to non-employees. Stock option activity is shown below: Weighted Average
    
    Number of SharesExercise Price
    
    (in thousands)Outstanding at December 31, 1999
    
    $
    13.33
    
    
    
    5,741Granted (at a weighted average fair value of $14.90)
    
    
    16.62
    
    
    
    9,487Forfeited
    
    
    41.12
    
    
    
    (208
    )Expired
    
    
    
    
    
    
    Exercised
    
    
    10.77
    
    
    
    (2,741
    )Outstanding at December 31, 2000
    
    $
    15.97
    
    
    
    12,279Granted
    
    
    
    
    
    
    Forfeited
    
    
    15.56
    
    
    
    (11,678
    )Expired
    
    
    
    
    
    
    Exercised
    
    
    4.25
    
    
    
    (34
    )Outstanding at December 31, 2001
    
    $
    25.11
    
    
    
    567Granted at below market price before Consummation
Date (at a weighted average fair value of $6.02)
    
    
    5.65
    
    
    
    744Forfeited
    
    
    25.11
    
    
    
    (567
    )Expired
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    At June 7, 2002
    
    $
    5.65
    
    
    
    744Granted
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Expired
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Outstanding at December 31, 2002
    
    $
    5.65
    
    
    
    744
 F-31




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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 following tables summarize weighted-average option exercise price
information: For the year ended December 31, 2000: Options Outstanding
    
    Options ExercisableNumber
    
    Weighted
    
    Weighted
    
    Number
    
    WeightedOutstanding at
    
    Average
    
    Average
    
    Exercisable at
    
    AverageDecember 31, 2000
    
    Remaining
    
    Exercise
    
    December 31, 2000
    
    ExerciseRange of Exercise Prices
    
    (in thousands)
    
    Life
    
    Price
    
    (in thousands)
    
    Price$0.15  $5.00
    
    
    6,241
    
    
    9 years
    
    $
    1.74
    
    
    
    121
    
    
    $
    2.735.01  10.00
    
    
    683
    
    
    7 years
    
    
    6.59
    
    
    
    451
    
    
    
    6.9110.01  15.00
    
    
    1,682
    
    
    8 years
    
    
    12.31
    
    
    
    736
    
    
    
    11.4415.01  25.00
    
    
    648
    
    
    8 years
    
    
    22.54
    
    
    
    262
    
    
    
    22.3425.01  55.00
    
    
    2,650
    
    
    9 years
    
    
    46.92
    
    
    
    318
    
    
    
    37.9255.01  85.00
    
    
    375
    
    
    9 years
    
    
    56.31
    
    
    
    
    
    
    
    12,279
    
    
    
    
    
    
    $
    15.97
    
    
    
    1,888
    
    
    $
    15.78
 For the year ended December 31, 2001: Options Outstanding
    
    Options ExercisableNumber
    
    Weighted
    
    Weighted
    
    Number
    
    WeightedOutstanding at
    
    Average
    
    Average
    
    Exercisable at
    
    AverageDecember 31, 2001
    
    Remaining
    
    Exercise
    
    December 31, 2001
    
    ExerciseRange of Exercise Prices
    
    (in thousands)
    
    Life
    
    Price
    
    (in thousands)
    
    Price$0.01  $5.00
    
    
    272
    
    
    1 year
    
    $
    1.63
    
    
    
    
    
    
    $
    25.01  55.00
    
    
    295
    
    
    1 year
    
    
    46.80
    
    
    
    
    
    
    
    567
    
    
    
    
    
    
    $
    25.11
    
    
    
    
    
    
    
    
 For the year ended December 31, 2002: Options Outstanding
    
    Options ExercisableNumber
    
    Weighted
    
    Weighted
    
    Number
    
    WeightedOutstanding at
    
    Average
    
    Average
    
    Exercisable at
    
    AverageDecember 31, 2002
    
    Remaining
    
    Exercise
    
    December 31, 2002
    
    ExerciseExercise Prices
    
    (in thousands)
    
    Life
    
    Price
    
    (in thousands)
    
    Price$0.01
    
    
    240
    
    
    9.4 years
    
    $
    0.01
    
    
    
    240
    
    
    $
    0.01$8.33
    
    
    504
    
    
    9.4 years
    
    $
    8.33
    
    
    
    168
    
    
    $
    8.33744
    
    
    
    
    
    
    $
    5.65
    
    
    
    408
    
    
    $
    3.44
 The vesting of the US$0.01 options was 100% on the earlier of (i) one year
from May 21, 2002 (the date of grant); (ii) a Change of Control as defined in
the underlying employment contract, pursuant to which the options were granted;
(iii) termination of employment of the recipient of the options; and (iv)
consummation of the Plan of Reorganization. Consequently, all such options
vested on June 7, 2002. F-32




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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 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 such Consummation
Date and 33.3% on the second anniversary of such date. Subsequent to the period end, 384,000 of the US$8.33 options were
forfeited and 170,000 of the US$0.01 options were exercised.  (10)
    
    Income Taxes 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 provision for income taxes reflected in the accompanying statement of
operations consists of taxes incurred on the income earned or activities
performed by Group companies in certain jurisdictions, where they are deemed to
have a taxable presence or are otherwise subject to tax. The statutory Bermuda tax rate for the year ended December 31, 2002 was
zero and the statutory rates in the jurisdictions in which the Company operates
range from 23% to 40.2%. The effective tax rate was zero for the year ended
December 31, 2002 due to the Company incurring net taxable losses for which no
tax benefit was recorded. For Predecessor, the statutory Federal tax rate for the years ended
December 31, 2001 and 2000 was 35%. The effective tax rate was zero for the
years ended December 31, 2001 and 2000 due to the Company incurring net
operating losses for which no benefit was recorded. The Company has unused net operating loss carryforwards of approximately
US$154.8 million (2001  US$138.9 million). Of this amount, US$2.1 million
(2001  US$11) represents US net operating losses expiring in 2006 through 2020
and US$61.4 million (2001  US$49.5 million) of these losses represent French
net operating losses which will expire by 2007. Other net operating losses are
generally available in perpetuity. 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. The tax
effect of temporary differences that give rise to significant portions of the
deferred tax assets are as follows as of December 31, 2002 and 2001: 2002
    
    2001US net operating loss carryforwards
    
    
    838
    
    
    
    5Foreign net operating loss carryforwards
    
    
    53,099
    
    
    
    48,575Total gross deferred tax assets.
    
    
    53,937
    
    
    
    48,580Less valuation allowance
    
    
    (53,937
    )
    
    
    (48,580
    )Net deferred tax assets
    
    
    
    
    
    
    
 In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The ultimate realization of deferred
tax assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers the F-33




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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) 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 asset.  (11)
    
    Commitments and Contingencies  (a)
    
    Leases and long term contracts At December 31, 2002, the Company was committed under non-cancelable
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 2012. The Companys future minimum operating lease and long term contract
payments are as follows: Network Locations
    
    Standby Maintenance
    
    Office Space
    
    Motor Vehicles
    
    Total2003
    
    
    3,727
    
    
    
    565
    
    
    
    805
    
    
    
    9
    
    
    
    5,1062004
    
    
    3,516
    
    
    
    545
    
    
    
    766
    
    
    
    9
    
    
    
    4,8362005
    
    
    3,333
    
    
    
    524
    
    
    
    697
    
    
    
    8
    
    
    
    4,5632006
    
    
    3,145
    
    
    
    505
    
    
    
    671
    
    
    
    8
    
    
    
    4,3292007
    
    
    2,832
    
    
    
    485
    
    
    
    538
    
    
    
    5
    
    
    
    3,859Thereafter
    
    
    30,656
    
    
    
    5,618
    
    
    
    2,096
    
    
    
    
    
    
    
    38,370Total minimum payments
    
    
    47,209
    
    
    
    8,242
    
    
    
    5,573
    
    
    
    39
    
    
    
    61,063
 Total rent expense amounted to 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,
US$8.8 million for the year ended December 31, 2001 and US$14.6 million for the
year ended December 31, 2000.  (b)
    
    Litigation 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 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 F-34




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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) 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 GBP 6.9 million (US$13.0 million approximately) to be
payable in two equal instalments as of March 1, 2004 and September 1, 2004. The
second instalment amount will accrue interest at an annual rate of 4%. This
settlement also served to dismiss certain related counterclaims brought by
Easynet against the Company. The consolidated financial statements presented in
this Form 20-F do not include any adjustment to reflect the outcome of this
litigation. In September 2003, the Company filed a claim for approximately 7.7
million (US$9.5 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$2.5
million approximately) annually for right of way expenses. The claim asserts
that the charges for such rights of way are discriminatory and should conform
to the charges levied by the highway and roads authorities in France. The Company, as part of a consortium with LDCom and Alcatel (on behalf of
I-21), are claiming against certain Swiss cantons in relation to the build of
each consortium partners respective Swiss network. The claim is being led by
Fibrelac who was the consortiums build partner and there are certain
protective agreements in place to allow the consortium to recover, on a pro
rata (by duct) basis, the benefits of any judgment recovered by Fibrelac
against the cantons. 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 certain anti-trust
provisions of Swiss telecommunications law. The consortium members are also
seeking a declaration that they are the holders of title to the ducts rather
than the owners of indefeasible rights of use agreements. Claims have been
filed against all 3 cantons. Were the consortium to succeed with its claims,
Viaphone AG (the Companys Swiss subsidiary) would be entitled, on a pro rata
basis (allocated pro rata by duct) to approximately CHF 10,000,000 (US$8
million approximately)together with interest at 5% per annum from late 2000. The Company believes that any adverse outcome from litigation would not
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 or on its behalf or that of 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 operations.  (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 and December 31, 2002, estimates were made as to the expected recoveries
of US$5,300 and US$20,900 respectively based upon all available information.
Actual recoveries will vary depending upon the success of the liquidators in
realizing the value.  (12)
    
    Segment And Geographic Data The Companys sole operational activity relates to the provision of
telecommunications services enabled by the operation of its European Network.
The Companys management uses F-35




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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) financial data internally to make operating decisions and assess
performance based upon this one principal activity of the Company. As such, the
Company has one reportable segment. Accordingly, the Predecessors segment
disclosures have been restated. 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
    
    Predecessor
    
    Predecessor
    
    PredecessorFrom June 7, 2002
    
    From January 1,
    
    Year ended
    
    Year endedto December 31,
    
    2002 to June 7,
    
    December 31,
    
    December 31,2002
    
    2002
    
    2001
    
    2000Western Europe.
    
    
    2,028
    
    
    
    2,301
    
    
    
    251,463
    
    
    
    458,612North America
    
    
    2,136
    
    
    
    366
    
    
    
    5,166
    
    
    
    288,044Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,252Consolidated
    
    
    4,164
    
    
    
    2,667
    
    
    
    256,629
    
    
    
    753,908
 The information below summarizes long-lived assets by geographic area as
of December 31: Successor
    
    Predecessor2002
    
    2001France
    
    
    14,009
    
    
    
    15,095United Kingdom
    
    
    7,420
    
    
    
    343Belgium
    
    
    5,213
    
    
    
    5,376Germany
    
    
    5,022
    
    
    
    5,179Switzerland
    
    
    3,205
    
    
    
    1,586The Netherlands
    
    
    2,844
    
    
    
    2,933United States of America
    
    
    234
    
    
    
    262Consolidated
    
    
    37,947
    
    
    
    30,774
 F-36




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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)
    
    Valuation and Qualifying Accounts Reserves and allowances deducted from asset accounts: Successor
    
    Predecessor
    
    Predecessor
    
    PredecessorFrom June 7, 2002
    
    From January 1,
    
    Year ended
    
    Year endedto December 31,
    
    2002 to June 7,
    
    December 31,
    
    December 31,2002
    
    2002
    
    2001
    
    2000Allowances for uncollectible accounts
receivableBalance at beginning of period
    
    
    
    
    
    
    
    
    
    
    (89,831
    )
    
    
    (10,034
    )Additions charged to costs and expenses
    
    
    (790
    )
    
    
    
    
    
    
    
    
    
    
    (81,176
    )Retirements
    
    
    
    
    
    
    
    
    
    
    89,831
    
    
    
    1,379Reorganization items
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at end of period
    
    
    (790
    )
    
    
    
    
    
    
    
    
    
    
    (89,831
    )Allowances for asset impairmentBalance at beginning of period
    
    
    
    
    
    
    
    
    
    
    (560
    )
    
    
    (560
    )Additions charged to costs and expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Retirements
    
    
    
    
    
    
    
    
    
    
    560
    
    
    
    Reorganization items
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at end of period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (560
    )
 F-37