e20vf

Ownership by VTL (UK)

Name of Subsidiary

Jurisdiction of Incorporation

Viatel Internet Limited

England and Wales

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

_______________________

FORM 20-F

_______________________

(Mark One)

o REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2004___

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______to ______

Commission File Number: 000-50556

VIATEL HOLDING (BERMUDA) LIMITED

(Exact Name of Registrant as Specified in its Charter)

Not applicable
(Translation of Registrant’s Name Into English)

Bermuda
(Jurisdiction of Incorporation or Organization)

Inbucon House
Wick Road
Egham, Surrey TW20 0HR
United Kingdom
(Address of principal executive offices)

Securities to be registered pursuant to Section 12(b) of the Act:

None

Securities registered or to be registered pursuant to Section 12(g) of the Act:

Common Stock, Par Value US$ 0.01 Per Share
(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

As of December 31, 2004, 10,630,000 shares of the registrant’s common stock were outstanding.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Company was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes ¨ No

Indicate by check mark which financial statement item the registrant has elected to follow. ¨ Item 17 þ Item 18

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. ¨ Yes þ No

the currency of Switzerland, references to “Euros” or “€” are to the European single currency, and references to “Bermuda Dollars” are references to the currency of Bermuda.

The Company prepares its financial statements using accounting principles generally accepted in the United States of America (“U.S. GAAP”).

Predecessor and Successor

References in this Form 20-F to the “Group”, “Viatel”, the “Successor Company”, the “Successor”, the “Company”, “we”, “our” or “us” refer to Viatel Holding (Bermuda) Limited and, to the extent the context allows, its subsidiaries.

References in this Form 20-F to the “Predecessor Company” or the “Predecessor” refer to Viatel, Inc. and, to the extent the context allows, its subsidiaries as at or prior to June 7, 2002 (the “Effective Date”), the effective date of the First Amended Joint Chapter 11 Plan of Reorganization of Viatel, Inc. and Certain of Its Subsidiaries (the “Plan of Reorganization”).

Comparability of Financial Information

As a result of the implementation of the Plan of Reorganization, the associated fundamental differences in the scope and scale of business operations between the Predecessor Company and the Successor Company, the adoption of fresh start reporting and the substantial debt reduction resulting from implementation of the Plan of Reorganization, historical results of operations and balance sheet data for the Predecessor Company are not comparable to those of the Successor Company. See “Item 3. Key Information – Selected financial data”, “Item 5. — Operating and Financial Review and Prospects – General — Fresh Start Reporting” and footnote (3) to our consolidated financial statements included elsewhere in this Form 20-F.

Forward-Looking Statements

The United States Securities and Exchange Commission (the “U.S. SEC”) encourages companies to disclose forward-looking information so that investors can understand a company’s future prospects and make informed investment decisions.

This Form 20-F contains “forward-looking statements” within the meaning of Section 27A of the U.S. Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements in this Form 20-F include, among other things, statements about:

• the beliefs and expectations of management;

• our business plan, its advantages and our strategy for implementing the business plan;

• our expectations as to future revenues, margins, expenses and capital requirements;

• our ability to raise additional cash from borrowings or other financings to fund operations;

• our ability to maintain a viable cash and balance sheet position or to become cash flow positive in our operations with additional funding;

• our ability to control costs and become profitable;

• our ability to generate revenues or positive cash flows;

• the composition of revenues and cost of sales, including operating margins and the use of professional, consultancy and/or contractor services provided by third parties.

Words such as “anticipate”, “estimate”, “expect”, “project”, “intend”, “plan”, “believe”, “could”, “may” and words and terms of similar substance used in connection with any discussion of operating or financial performance, transactions or business initiatives, identify forward-looking statements.

Although the Company believes that these forward-looking statements are reasonable, it can give no assurance that its expectations will prove to be correct. Forward-looking statements are based on the Company’s present expectations of future events. They are not guarantees of future performance. As such, you should not place undue reliance on any forward-looking statements.

Forward-looking statements speak only as of the date they are made. The Company is under no obligation, and expressly disclaims any obligation, to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise. Forward-looking statements are subject, among other things, to the risks and uncertainties set out in “Item 3. Key Information — Risk Factors” and other financial, regulatory, and industry growth trends, any or all of which could cause actual results to differ materially from the results contemplated and/or implied by the forward-looking statements.

The most important factors affecting whether we will be able to achieve our stated goals include, but are not limited to:

• our ability to obtain financing on acceptable terms and sufficiently to fund our working capital requirements and business plan;

• our vulnerability to adverse general economic and industry conditions;

• the adverse effect of a highly competitive market for our products and services; and

• our ability to retain the services of key management personnel.

For additional information about factors that could affect future financial and operating results, see Viatel’s other filings with the U.S. SEC, including the factors set forth from time to time in reports on Form 20-F, Form 8-K and Form 6-K.

PART I

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3. KEY INFORMATION

Selected financial data

The following tables present our selected historical consolidated financial data (including selected historical financial data for the Predecessor for the period prior to the Effective Date). You should read the following financial data in conjunction with “Item 5. Operating and Financial Review and Prospects”, our consolidated financial statements, including the related footnotes, and the other financial and operating data included elsewhere in this Form 20-F. The selected historical consolidated financial data included in the following tables are derived from the audited consolidated financial statements of the Successor Company and the Predecessor Company for the relevant periods. The audited financial statements at December 31, 2004 and 2003 and for the years ended December 31, 2004 and 2003 and for the periods from January 1, 2002 to June 7, 2002 and from June 7, 2002 to December 31, 2002 were audited by Deloitte & Touche LLP, Independent Registered Public Accounting Firm, as indicated in their report included in this Form 20-F. The consolidated statement of operations data, other consolidated financial data and consolidated balance sheet data as of and for the years ended December 31, 2000 and 2001 are derived from the consolidated financial statements of the Predecessor, which have been audited by KPMG LLP.

The selected financial data should be read in conjunction with the consolidated financial statements for the year ended December 31, 2004, the related notes, and the Report of Independent Registered Public Accounting Firm, which contains an explanatory paragraph stating that the Company’s recurring net losses and its difficulty in generating sufficient cash flow to meet its obligations and sustain its operations raise substantial doubt about the Company’s ability to continue as a going concern, included in this Form 20-F. The consolidated financial statements and the selected financial data do not include any adjustments that might result from the outcome of that uncertainty.

The Successor succeeded to certain business operations and assets of the Predecessor Company as a consequence of the Plan of Reorganization. See “Item 4. Information on the Company — Chapter 11 Reorganization” and “- Emergence from Chapter 11”.

We adopted “fresh-start reporting” in accordance with American Institute of Certified Public Accountants Statement of Position 90-7 (“SOP 90-7”), “Financial Reporting By Entities in Reorganization Under the Bankruptcy Code.” Under fresh start reporting, a new entity is deemed created for financial reporting purposes on the Effective Date and the consolidated financial statements have been prepared on that basis. As a result of the implementation of the Plan of Reorganization, the associated fundamental differences in the scope and scale of business operations between the Predecessor Company and the Successor Company, the adoption of fresh start reporting and the substantial debt reduction resulting from implementation of the Plan of Reorganization, historical results of operations

and balance sheet data for the Predecessor Company are not comparable to those of the Successor Company presented in its financial statements contained in this Form 20-F.

The consolidated financial statements in this Form 20-F are reported in United States Dollars (thousands of).


	Successor			Successor			Successor			Predecessor			Predecessor			Predecessor
				Year			From June			From
	Year Ended			Ended			7, 2002 to			January 1,			Year Ended			Year Ended
	December			December			December			2002 to June			December			December
	31, 2004			31, 2003			31, 2002			7, 2002			31, 2001			31, 2000

Revenue:
Communication services revenues		26,962			17,205			2,793			1,216			240,092			646,470
Operations and maintenance fee revenue		1,828			1,707			1,371			1,451			4,239			4,455
Capacity sales		—			—			—			—			12,298			102,983


Total revenue		28,790			18,912			4,164			2,667			256,629			753,908

Operating expenses:
Cost of services and sales		(16,538	)		(10,015	)		(1,506	)		(1,518	)		(170,463	)		(552,110	)
Selling, general and administrative (including non-cash stock compensation (income) / expense of $(48), $(27), $75 (Successor), $4,567 (Predecessor), 2001 - $(5,819)		(67,797	)		(51,225	)		(30,840	)		(26,502	)		(115,245	)		(358,729)	)
Gain on amounts due from bankruptcy estates		3,105			358			25,003			—			—			—
Restructuring and impairment		—			—			—			(908	)		(1,278,640)	)		(899,999	)
Depreciation and amortization		(9,140	)		(7,181	)		(2,458	)		(1,736	)		(119,920	)		(303,168	)


Total operating expenses (net)		(90,370	)		(68,063	)		(9,801	)		(30,664	)		(1,684,268	)		(2,114,006	)


Other operating income		17,780

Operating loss before reorganization items		(43,800	)		(49,151	)		(5,637	)		(27,997	)		(1,427,639	)		(1,360,098	)

Reorganization items		—			—			—			2,662,669			—			—


Operating (loss) / income		(43,800	)		(49,151	)		(5,637	)		2,634,672			(1,427,639	)		(1,360,098	)

Other income / (expense):
Interest and other income		775			1,557			986			1,007			8,019			31,981
Interest expense		(4,395	)		—			(11	)		(63	)		(83,965	)		(212,630	)


Net (loss) / income before taxation		(47,420	)		(47,594	)		(4,662	)		2,635,616			(1,503,585	)		(1,540,747	)
Taxation		241			217			—			—			—			—


Net (loss) / income		(47,179	)		(47,377	)		(4,662	)		2,635,616			(1,503,585	)		(1,540,747	)

Dividends on convertible preferred securities		—			—			—			—			(14,293	)		(32,954	)


Net (loss) / income attributable to common stockholders		(47,179	)		(47,377	)		(4,662	)		2,635,616			(1,517,878	)		(1,573,701	)


Net (loss) / income per common share attributable to common shareholders, basic and diluted		(4.42	)		(4.43	)		(0.44	)		51.72			(29.72	)		(31.53	)

Weighted average common shares outstanding, basic and diluted		10,680			10,705			10,560			50,963			51,072			49,905

Successor

Predecessor

Year

From June

From

Year Ended

Ended

7, 2002 to

January 1,

Year Ended

December

2002 to June

December

31, 2004

31, 2003

31, 2002

7, 2002

31, 2001

31, 2000

Other Consolidated Financial Data:

Net cash used in operating activities

(48,824

)

(25,116

)

(13,765

)

(7,856

)

(219,854

)

(271,698

)

Net cash provided by (used in) provided by investing activities

(3,847

)

(2,952

)

(1,667

)

(6,670

)

65,408

(565,332

)

Net cash (used in) / financing activities

44,158

—

(73,300

)

762,765


	Successor Company at December 31,				Predecessor Company at December 31,
	2004		2003		2002		2001			2000

Consolidated Balance Sheet Data:
Cash and cash equivalents	$	22,820	$	30,378	$	53,408	$	65,933		$	305,293
Restricted cash equivalents and restricted marketable securities, current and non-current		486		—		—		—			61,936
Cash securing letters of credit for network construction		—		—		—		—			29,728
Other current assets		18,008		21,179		22,766		43,541			239,890
Property and equipment, net		37,986		39,899		37,947		30,774			1,385,917
Intangible assets, net		2,198		3,330		—		61,865			120,692
Other assets		7,630		96		6,930		776			11,931

Total assets		99,680		94,882		121,051		202,889			2,155,387

Total current liabilities		27,671		33,115		12,691		2,411,059			2,611,633
Total long-term liabilities		36,617		304		10,676		—			91,860
Series 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)		35,392		61,463		97,684		(2,546,429	)		(1,056,722	)

Capitalization and indebtedness

Not applicable.

Reasons for the offer and use of proceeds

Not applicable.

Risk Factors

In addition to the other information contained in this Form 20-F, you should carefully consider the following risk factors. If any of the possible events described below occurs, our business, prospects, financial condition or results of operations could be materially and adversely affected.

We cannot assure you that we will be able to fund our operations without further debt financing, which may not be available on attractive terms or at all.

On April 21, 2004 the Company completed financing with a group of eight investors (the “Investors”) under which the Company received an amount of US$52.25 million by way of the sale and issuance of 8% convertible senior secured notes due 2014 (the “April 2004 Financing”). The completion of the April 2004 Financing and related materials were filed as exhibits to the Form 6-K of the Company dated April 28, 2004 (the “April 28 6-K”). Such exhibits to the April 28 6-K are hereby incorporated by reference in this Form 20-F.

As of May 31, 2005, we had approximately US$8.7 million of unrestricted cash available to fund future operations. On June 23, 2005 we executed binding documentation providing for further debt financing in the amount of US$16 million from two of the Investors, Morgan Stanley & Co. Incorporated (“Morgan Stanley”) and Värde Partners, Inc. (“Värde”); this financing is to be placed by way of the purchase by Morgan Stanley and Värde of, respectively, US$12,937,799 million and US$3,062,201 million 12% increasing rate senior secured notes due June 2007 (the “June 2005 Financing”) and is conditional upon the filing of this Form 20-F in a form satisfactory to Morgan Stanley and Värde and other conditions customary for transactions of this nature, in particular, the delivery of local legal opinions. In the event that such conditions are not satisfied and as a result the June 2005 Financing is not consummated, this would have a material adverse effect on our business, financial condition and results of operations. The investment agreement related to the June 2005 Financing is filed as an exhibit to this Form 20-F.

No assurance can be given that the June 2005 Financing, together with existing cash reserves, will provide us with sufficient liquidity to continue to fund our operations until such time as they are cash flow positive. The Company expects to seek refinancing of the June 2005 Financing and to seek additional financing in the fall of 2005 (the “Further Financing”). Morgan Stanley and Värde have advised the Company that they will consider providing such refinancing and/or additional financing. It is currently contemplated that any such Further Financing would involve an investment of an additional US$16 million, with such additional amount to be reduced by the proceeds of any asset sales by the Company entered into prior to the Further Financing, and to be further reduced to the extent that the Company’s then performance against budget does not demonstrate a need for such additional financing. No assurance can be given that the intended Further Financing will be consummated or that alternative sources of financing would be available on attractive terms, or at all. Neither Morgan Stanley nor Värde is under any obligation to participate in the Further Financing or any other financing, other than the June 2005 Financing to the extent contemplated by the terms and conditions thereof.

If the obtaining of Further Financing and/or any additional or alternate financing were not possible, we might have to sell our assets under circumstances that might not yield the highest prices, or default on debt obligations which would permit the holders of our senior secured notes to accelerate their maturity dates and/or enforce their security over the Company. Refinancing on unattractive terms could lead to higher interest rates and a greater use of cash flows and reserves to service the refinancing debt. Ultimately, our inability to raise suitable further debt financing, if required, would likely make the

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Company insolvent. For further details of the April 2004 Financing, the June 2005 Financing and the contemplated Further Financing – see “Item 4. Information on the Company – Description of Certain Indebtedness”.

Our substantial level of debt may adversely affect our operations and financial conditions.

As at December 31, 2004, our total indebtedness under the April 2004 Financing was US$52.2 million of principal plus US$1 million of additional notes issued in satisfaction of accrued interest. Such indebtedness does not appear entirely within liabilities reflected on the Company’s balance sheet due to the requirement to account for the convertible elements of the senior secured notes through reserves. In addition, the Company’s indebtedness will increase through the issue of the US$16 million senior secured notes in connection with the June 2005 Financing.

Our level of indebtedness could affect us in materially adverse ways, such as:

• limiting our ability to obtain additional financing for our capital expenditures, acquisitions, working capital or other general requirements;

• limiting our flexibility in planning for, or reacting to, changes in our business, the competitive environment and the telecommunications industry;

• placing us at a competitive disadvantage to competitors with less debt;

• making us more vulnerable to economic downturns, which could weaken our ability to compete effectively and could reduce our flexibility in responding to changing economic conditions; and

• limiting our ability to take advantage of new business opportunities.

Our debt covenants limit our financing and other activities.

Our senior secured notes contain, and the terms of future indebtedness may also contain, restrictive covenants that significantly limit or prohibit our ability to, among other things:

• incur indebtedness;

• make prepayments of certain indebtedness;

• pay dividends;

• make investments;

• engage in transactions with stockholders and affiliates;

• issue capital stock;

• create liens;

• sell assets;

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• engage in mergers and consolidations;

• change the Chief Executive Officer; and

• increase the size of the Board.

If we fail to comply with the restrictive covenants in these notes our obligations to repay such notes may be accelerated, in which event we would likely become insolvent. In addition, these covenants and related provisions of the Company’s bye-laws (the “Bye-Laws”) may make it impossible for us to obtain any further financing without the approval of a majority in interest of the Investors.

The Investors are holders of the Special Share which provides the Investors with approval rights over material actions by the Company.

With respect to the taking of any material actions that will require the approval of the Investors, to the extent that any such actions may, under Bermuda law, require the approval of the Company’s shareholders in general meeting, (one common share of the Company designated a special share, the “Special Share”) has been granted weighted voting rights (nine votes for every one vote cast by other Shareholders) to ensure it can carry any relevant vote; to the extent that a vote of the shareholders is required by Bermuda law, such actions are able to be taken with the consent alone of the holder of the Special Share. See “ Item 10. Additional Information. ” Since the Investors are the holders of the Special Share, such approval rights may make it impossible for us to obtain any further financing without the approval of a majority in interest of the Investors.

We have a history of operating losses and expect these losses to continue.

We have incurred operating losses and negative cash flows from operations since the Effective Date. The Predecessor also incurred significant losses prior to its filing for bankruptcy protection under Chapter 11 (“Chapter 11”) of the U.S. Bankruptcy Code (the “Bankruptcy Code”). We expect to continue to incur significant operating losses and negative cash flows while we implement our business plan (the “New Viatel Business Plan”) – see “Item 4. Information on the Company – New Viatel Business Plan”. No assurance can be given that our operations will ever become profitable or that we will ever have positive cash flows. If we cannot raise alternative capital, grow revenues, sustain profitability and begin to generate positive cash flows, we will probably not be able to meet our ongoing operating costs. If this happens, then we would likely become insolvent.

Our future operating results may be subject to significant fluctuation.

Our future operating results may be subject to substantial fluctuations as a result of any of a number of factors, including:

• our ability to raise additional financing;

• general economic conditions;

• the conditions of the European telecommunications industry in general;

• further price decreases in the European telecommunications industry;

• continuing overcapacity leading to a reduction in demand for, in particular, our wholesale

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products and services;

• our ability to introduce new products and services;

• our ability to attract and retain customers;

• our ability to operate and develop in new markets, in particular that for consumer broadband and Voice over IP (“VoIP”);

• changes in the mix of services sold or channels through which services are sold;

• capital expenditure requirements and costs relating to our network;

• the outcome of legal proceedings; and

• the effects of government regulation and regulatory changes.

Fluctuations in our future operating results could have a material adverse effect on our business, financial condition and results of operations.

We cannot assure you that we will be able to retain or find qualified replacements for members of our senior management team and other key personnel.

Our operations and business prospects will depend, in large part, on the performance of our senior management team and other key personnel. There can be no assurance that we will be able to retain our senior management team or other key personnel or find qualified replacements for any of these individuals if their services were no longer available. The loss of one or more members of our senior management team or other key personnel could have a material adverse effect on our business, financial condition and results of operations.

Our exposure to exchange rate fluctuations may have a material adverse effect on our ability to meet certain obligations.

The majority of our operating revenues are denominated in Pounds Sterling and Swiss Francs, while the majority of our operating expenses are denominated in Pounds Sterling and Euros. Any appreciation in the Euro relative to the Pound Sterling or Swiss Franc could have a material adverse effect on our business margins and our ability to meet ongoing operational expenses. Our debt financing may also expose us to exchange rate fluctuations because payment of principal and interest will be made and/or calculated in U.S. Dollars while part of our future cash flows used to service these payments will be denominated in other currencies. In the past, we have sought to manage currency exchange rate exposure through the use of hedging transactions and natural hedging strategies through our treasury planning function, and it is anticipated that we will continue to do so. We cannot, however, provide any assurance that exchange rate fluctuations will not have a material adverse effect on our ability to meet ongoing operational expenses and/or to service our debt payments and obligations.

We are subject to risks associated with operating in multiple countries.

We operate in several jurisdictions across Western Europe, each of which is subject to special

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risks, including foreign currency fluctuations, government regulation, taxation and labor strikes.

These, and other risks outside our control, may limit or disrupt our operations in some or all of these jurisdictions, which could result in our loss of contract rights, increased taxation or our inability to continue operations in such jurisdiction(s).

We cannot assure you that we will be able to enter into sales contracts sufficient to meet our working capital requirements.

Our ability to achieve our future business objectives will depend, in significant part, upon our ability to enter into new contracts. In the last four years, the market for telecommunications services and capacity has experienced a significant slow-down and significant price declines. If these market conditions continue or worsen, we may not be able to meet our sales projections for 2005 or beyond. Furthermore, even if our sales projections are realized, additional declines in market demand for our products and services may result in further price decreases which would limit our operating profitability and ability to generate sufficient cash flow to meet our working capital needs. Our failure to sell services or capacity on our network in sufficient quantities and at sufficient prices could have a material adverse effect on our business, financial condition and results of operations.

We cannot assure you that we will be able to retain or expand our existing customer base.

Our future success will depend, in large part, on our ability to retain a significant portion of our existing customer base and expand our business relationships with such customers. We cannot assure you that we will be able to achieve these objectives. Our failure to retain a significant portion of our existing customer base or to grow our existing customer base could have a material adverse effect on our business, financial condition and results of operations.

We may not have the ability to support and develop new services and product lines.

Over the last year we have developed new services and product lines not previously offered by us, in particular with respect to the provision of MPLS enabled Virtual Private Networks (“MPLS VPN”), Ethernet, VoIP and the provision of a broadband service to the consumer market through sporting organizations which effectively act as virtual Internet service providers (“VISP”). (See “Item 4. Information on the Company – New Viatel Business Plan”). The development and success of these and/or other new services and product lines is critical to our ability ultimately to generate sufficient net positive cash flow to finance our operations for the foreseeable future, absent a significant improvement in market conditions surrounding the sale of our pre-existing products and services. Our ability successfully to develop and market such new services and products will depend upon, among other things, our ability to:

• generate customer acceptance of such new services and product offerings;

• integrate necessary equipment and software into our network;

• enhance our billing, back-office and information systems required to accommodate these new services and products; and

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• identify and sell other services and products for which we believe there is a significant potential demand.

Our failure to develop, market and sell successfully these new services and products to existing and new customers, in particular with respect to both the provision of our VISP service where we have committed certain minimum revenue guarantees, and the provision of VoIP which is a new technology in the market and therefore potentially subject to consumer inertia in favour of more traditional voice telephony services, could have a material adverse effect on our business, financial condition and results of operations.

System disruptions or failures could have a material adverse effect on our business.

Our network and other operational systems are subject to several risks that are outside our control, such as the risk of damage to software and hardware resulting from:

• fire and flood;

• power loss;

• natural disasters; and

• general transmission failures caused by a number of additional factors.

Any failure of our network or other operational systems or hardware that results in significant interruptions to our operations could have a material adverse effect on our business, financial condition and results of operations.

Failure of key suppliers could affect our ability to operate our business.

We are reliant on a consistent and effective supply chain to meet our business plan commitments and to continue to maintain our network. The economic scenario that both telecommunications service providers and equipment suppliers presently face has led to a heightened risk of:

• delays in new products and features from suppliers, impacting our product development programs;

• discontinuance of products or services, impacting our ability to deliver our products and services;

• deteriorating support quality, affecting operational and customer service; and

• higher volatility with regard to our demands on suppliers, and in stock levels affected by customer returned equipment.

Although we do not rely on any one supplier for a significant portion of our equipment needs and believe that we could find other suppliers of similar pricing and quality to replace existing suppliers, no assurance can be made that a broad economic failure or decline in quality of equipment suppliers in our industry will not occur; any such occurrence could have a material adverse effect on our business,

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financial condition and results of operations.

Electronic attack from hackers or computer viruses could disrupt our business.

Our network and other operational systems rely heavily on the operation and efficiency of our computer systems. Although our systems are protected by firewalls, there is a risk that our business could be disrupted by hackers or viruses gaining access to our systems. Our exposure to liabilities from our customers, particularly with respect to our provision of Internet service, where case law is developing quickly, is generally risk-managed through contract conditions. No assurance can be made that these contract conditions will be enforced or found to be enforceable or that such contract conditions, if capable of enforcement, would be sufficient to protect the Company from any liabilities arising in such circumstances; any such liabilities could have a material adverse effect on our business, financial condition and results of operations.

Rapid technological changes.

The telecommunications industry is subject to rapid and significant changes in technology. The introduction of new products or technologies may reduce the cost or increase the supply of certain products or services that we provide or result in changes to the rates at which we depreciate equipment. As a result, we may be required to accelerate the write down of equipment to the extent rendered obsolete by changes in technology. Similarly, our competitors may be able to develop or deploy technologies that provide them with lower costs or other competitive and operating advantages relative to the Company. Furthermore, we cannot predict the extent to which technological changes, such as changes relating to emerging wireline and wireless transmission technologies, may impact on our ability to sell our products. Technological changes and the resulting competition could have a material adverse effect on our business, financial condition and results of operations.

The European telecommunications industry is highly competitive. Our market share, net sales or net income could decline due to vigorous price and other competition.

The European telecommunications industry is highly competitive and significantly affected by regulatory changes, marketing and pricing decisions of the larger industry participants and the introduction of new services and transmission methods made possible by technological advances. Our future success depends on our ability to compete with a variety of communications providers including: (1) incumbent public telephone operators (“PTOs”) such as British Telecom and SwissCom; (2) alternative operators such as Global Crossing, Cable & Wireless, Energis, MCI, COLT Telecom Group and Level 3; (3) Internet service providers (“ISPs”) such as Easynet, PipeX, Bulldog, Tiscali and Yahoo; and (4) providers of VoIP such as Telappliant, Voipfone, Inclarity, alwaysON, Vonage and Gradwell.

Most of our competitors have greater financial, marketing and other resources than we do and may be able to deploy more extensive networks and withstand pricing and other market pressures better than we can. PTOs generally have additional competitive advantages, including controlling access to local networks, economies of scale and relationships with national regulatory authorities (“NRAs”). In addition, certain competitors may be willing to reduce prices and accept lower profit margins to compete with us. As a result, we may be unable to gain sufficient market share to support our working capital needs, which would have a material adverse effect on our business, financial condition and results of operations.

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Government regulation could adversely affect our ability to provide services in markets in which we operate.

The telecommunications industry is still regulated in all the countries where we provide services. Our ability to continue to carry on our business and operate our networks depends on complying with the appropriate regulatory regime in each country, and in particular our ongoing ability to obtain, maintain or renew all necessary permits, licenses and authorizations and/or to make relevant notifications.

To the extent that we are unable to comply with the applicable regulatory regimes, obtain and maintain all such permits, licenses and authorizations or to make relevant notifications, this may have a material impact on our ability to continue to operate in certain of the countries in which our infrastructure is located and/or where we currently provide services, which, in turn, could have a material adverse effect on our business, financial condition and results of operations.

We may be subject to burdensome regulatory requirements placed on us by regulatory authorities and/or governments, such as the obligations to contribute to universal service funds, and other regulatory fees and taxes associated with the use of our network or with rights of way (“ROW”). In particular, it is possible that government regulations in France may adversely impact on our interests in current litigation where we are disputing the amount of rights of way fees to be paid to certain public and other bodies. In the event that we were to lose all, or any of, such proceedings, it is likely that we would be required to continue to pay fees which could make our future operation of all, or any part of, our French network uneconomical.

To the extent that we rely on the utilization of the networks and services of operators who retain market power, we are reliant on appropriate and fair regulation, and adequate enforcement thereof, to ensure the availability of such services on fair and reasonable terms.

In March 2002, the European Parliament and Council adopted the main elements of a new regulatory framework for converging electronic communications technologies designed to increase harmonisation across European Union Member States (“EU Member States”) and to improve competitiveness. The directives concerned (the “EU Directives”) were required to be transposed into national law not later than July 24, 2003. Some EU Member States have yet fully to adopt and implement this new regulatory framework. The EU Directives, to be effective, need to be implemented in each country at a local legislative level. This is significantly changing the regulatory regime in all EU Member States. Moreover, in line with the principle of subsidiarity, there is a degree of inconsistency in the way in which individual EU Member States are transposing the EU Directives and the way in which the individual NRAs are interpreting and applying the regulations. This regulatory framework is due to be reviewed in 2006.

Switzerland is not required to follow the EU Directives, but has implemented a broadly similar legal and regulatory framework for telecommunications.

Our business may suffer as a result of regulatory uncertainties and possible delays, inconsistencies and adverse changes relating to the implementation of the new regulatory package.

Changes in the regulation of Voice over IP could adversely affect our ability to meet some obligations.

One specific area of regulation which is still developing in a number of European jurisdictions is the regulation of VoIP services. Under the European regulatory framework, ordinary voice services

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provided to end users are required to comply with a number of obligations, including the obligation to maintain secure access to emergency calls and, in some cases, to provide interception capabilities. This presents complex problems for VoIP services due to their nomadic nature, difficulties in providing caller line identification and the fact that calls are generally provided over a non-powered connection. A number of NRAs, including the UK regulator, are therefore considering their approach to these issues. To the extent that our VoIP services are provided to the public, we may be required in the future to comply with relevant end user obligations. This may materially affect our ability to continue to provide certain customer services or may require the modification of our network and/or services in order for us to be able to comply.

Because we are a Bermuda holding company and a “foreign private issuer” for purposes of U.S. securities laws, persons who own our common shares may have more difficulty in protecting their interests than persons who are shareholders of a U.S. corporation.

The Predecessor was a Delaware corporation subject to the filing and reporting requirements of the Securities Act and the Exchange Act and the rules and regulations promulgated thereunder as well as the Delaware General Corporation Law. We emerged from bankruptcy under the Plan of Reorganization as a Bermuda company. The Companies Act 1981 of Bermuda (the “Bermuda Act”), which applies to us, differs in certain material respects from laws generally applicable to U.S. corporations and their shareholders.

We have been advised by our Bermuda counsel, Appleby Spurling Hunter, that there is currently no treaty in force between the United States and Bermuda providing for the reciprocal recognition and enforcement of judgments in civil and commercial matters. Therefore, a final judgment for the payment of money rendered by any federal or state court in the United States based on civil liability, whether or not based solely on United States federal or state securities laws, would not automatically be enforceable in Bermuda. A final and conclusive judgment obtained in a court of competent jurisdiction in the United States under which a sum of money is payable as compensatory damages may be the subject of an action in the Bermuda court under the common law doctrine of obligation, by action on the debt evidenced by the United States’ court judgment without examination of the merits of the underlying claim. In order to maintain an action in debt evidenced by the United States’ court judgment, the judgment creditor must establish that: (i) the court that gave the judgment over the defendant was competent to hear the claim in accordance with private international law principles as applied in the court of Bermuda; and (ii) the judgment is not contrary to public policy in Bermuda, has not been obtained by fraud or in proceedings contrary to the rules of natural justice in Bermuda and is not based on an error in Bermuda law.

The majority of our directors and officers reside outside the United States, and all or a substantial portion of their assets and our assets may be located in jurisdictions outside the United States. Therefore, it may be difficult for investors to effect service of process within the United States upon non-U.S. directors and officers or to recover against our company, or non-U.S. directors and officers, on judgments of U.S. courts, including judgments predicated upon the civil liability provisions of the U.S. federal securities laws.

Set forth in “Item 10. Additional Information” in this Form 20-F is a summary of certain additional significant provisions of the Bermuda Act applicable to us, which differ in certain respects from provisions of the Delaware General Corporation Law; being a summary, the information provided does not purport to deal with all aspects of Bermuda law that may be relevant to the Company and our

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shareholders.

We cannot assure you that an active trading market will develop or continue for our common shares.

Our common stock, US$0.01 par value per share, referred to throughout this Form 20-F as our “common shares” or our “ordinary shares”, is currently traded on the over-the-counter market under the symbol “VTLAF.PK”. We can make no assurances regarding the continued existence of an active market for our common shares, price volatility with respect to our common shares, the liquidity of the market for our common shares or the price at which any sales may occur.

The conversion, or even the prospect of conversion, of our convertible debt securities could have a depressive effect on the trading activity of our common shares.

If all, or a large portion, of our convertible notes are converted in accordance with their terms, the number of our common shares will increase substantially, significantly diluting the proportionate ownership interests and voting power of the existing holders of common shares who do not own any convertible notes. Adjustments to the conversion price of any issued notes, or payments of interest on any such notes in the form of additional notes, would further dilute the proportionate ownership interests and voting power of the existing holders of common shares who do not own any convertible notes.

Holders of the Company’s convertible notes will become significant holders of the Company’s common shares upon conversion of all, or a large portion of, such notes and as such will, in principle, have significant voting power with respect to their common shares.

In this regard it should be noted that under the terms of the June 2005 Financing, and more specifically under the terms of a letter agreement entered into by the Investors as a condition to the June 2005 Financing dated June 23, 2005 (the “Letter Agreement”), if so requested by the holders of a majority of the Existing Notes, the Investors will convert their notes issued in connection with the April 2004 Financing into common shares of the Company, par value US$0.01 per share, at the then applicable conversion price as determined by reference to the April 2004 Financing documentation. Any such conversion will take place on a date to be selected by the holders of a majority of the Existing Notes. The Letter Agreement is filed as an exhibit to this Form 20-F within the June 2005 Financing exhibits.

For the reasons set out above, the actual or potential conversion of our convertible notes could have a depressive effect on the market price of, and reduce trading activity in, our common shares. Such downward pressure could in turn encourage short sales, or similar trading, with respect to the common shares which could in itself place further downward pressure on the market price of our common shares.

We cannot assure you that you will receive dividends on our common shares in the foreseeable future.

We do not anticipate paying dividends on our common shares in the foreseeable future.

Our reputation may be adversely impacted by the Predecessor’s bankruptcy proceeding.

There has been some adverse publicity and coverage regarding the Company and its subsidiaries as a result of the Predecessor’s declaration of bankruptcy and related Chapter 11 proceedings. Such negative publicity could adversely impact our efforts to establish and promote name recognition and a positive image as well as adversely impact our ability to raise additional financing in sufficient amounts

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or on acceptable terms.

The Company may have potential liability with respect to past non-compliance of the Predecessor under the Exchange Act.

The Predecessor ceased preparing and furnishing reports to the U.S. SEC under the Exchange Act prior to its Chapter 11 filing in 2001, although under the Exchange Act and related rules and regulations it was obligated to do so. The Company filed its first Form 20-F on March 22, 2004 with respect to the fiscal year ended December 31, 2002 (the “2002 Form 20-F”). Such filing did not satisfy the non-compliance for the prior period. Under the Exchange Act and related rules and regulations as interpreted by the staff of the U.S. SEC, the Company may be deemed to be subject to the Exchange Act to the same extent as the Predecessor, and has accordingly taken action to comply with such requirements. Notwithstanding, liability for past non-compliance may still arise. Enforcement or civil actions against the Company or certain of its officers and directors relating to this past non-compliance could have a material adverse effect on our business, financial condition and results of operations.

Some members of our Board of Directors may have conflicts of interest with us, and some of these conflicts may be resolved in a manner adverse to us.

Two of the members of our Board of Directors (the “Board”) are affiliated with Morgan Stanley, one of our major shareholders and also the lead Investor in both the April 2004 Financing and the June 2005 Financing. See “Item 4. Information on the Company – Description of Certain Indebtedness”, “Item 6. Directors, Senior Management and Employees” and “Item 7 – Major Shareholders and Related Party Transactions”. Although we believe that these directors have fulfilled, and will continue to be able to fulfil, their fiduciary duties to the Company in their capacities as directors, and note that they recused themselves from the Company’s decision-making process with respect to our negotiation and approval of both the April 2004 Financing and the June 2005 Financing, there could be additional future conflicts of interest when they are faced with decisions that could have different implications for our Company and for Morgan Stanley as the major shareholder and/or majority Investor.

ITEM 4. INFORMATION ON THE COMPANY

Business Overview – New Viatel Organization

The Company, commercially known as Viatel, was incorporated under the laws of Bermuda on January 4, 2002. Our registered office is located at Canon’s Court, 22 Victoria Street, Hamilton HM12 Bermuda. Our principal executive offices are located at Inbucon House, Wick Road, Egham, Surrey TW20 0HR, United Kingdom where the main telephone number is +44 (0) 1784 494 200.

We are a multinational corporate group (see “Item 4. Information on the Company – Organizational Structure”) and operate a pan-European telecommunications network comprised of advanced fiber-optic cable extending over approximately 6,800 kilometres and connecting to 19 principal cities in 6 countries in Western Europe (the “European Network”). We offer data communication services to a range of customers that includes the consumer market, small and medium enterprises (“SMEs”), major corporations, carriers, resellers and systems integrators services, and we operate in a single segment: telecommunications.

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Our business initially developed out of the Plan of Reorganization whereby, and through a series of share and asset transfers following the Effective Date, we became the ultimate parent company of certain European operating subsidiaries (the “European Subsidiaries”) previously held, directly or indirectly by the Predecessor, and became the owner of the property (the “Debtors’ Property”) of the Predecessor and certain of its subsidiaries (the “Debtors”) that had not otherwise been distributed under the Plan of Reorganization.

Our initial business plan included in the Plan of Reorganization focused on the provision of services on a wholesale basis to established carriers, PTOs and ISPs over the European Network – the “carrier’s carrier” model. Although beginning in September 2002, certain efforts were made (both through organic growth and corporate acquisition) to target the retail market, this was effectively the business model which was applied from the Effective Date until May 2003.

Since May 2003, with the appointment of Lucy Woods as our new Chief Executive Officer, a series of changes, both structural and commercial, have been implemented which have fundamentally changed the scope and emphasis of the Viatel organization and business. Principal among the changes was the introduction and adoption of the New Viatel Business Plan and the making of a number of senior appointments, creating a new senior management team.

The New Viatel Business Plan was the product of a detailed commercial and strategic review undertaken by a team headed up by Lucy Woods shortly after her appointment. Its goal was to establish Viatel as a leading pan-European provider of Managed Internet Protocol (“IP”) services, with focus on the sale and provision of IP connectivity and IP value-added services, with particular emphasis on the SME market. The New Viatel Business Plan was adopted by the Board in August 2003. See “Item 4. Information on the Company – New Viatel Business Plan” for a more detailed description.

Implementation of the New Viatel Business Plan was and remains dependent upon, among other things, successful financing to fund the Company whilst it experiences negative cash flow. Since the inception of the New Viatel Business Plan, the Company’s new management has undertaken significant work in seeking and obtaining appropriate funding in this respect. This activity initially included the proposal of various amendments to the Bye-Laws intended to remove provisions which would have inhibited the possibility of securing any additional third party financing. These amendments were adopted by shareholders’ resolution at the second annual general meeting of the Company on December 29, 2003.

Subsequent to the amendment of the Bye-Laws, and following discussions with a wide range of financial institutions (which discussions commenced in July 2003) both in the United Kingdom and the United States, the Company completed the April 2004 Financing under which the Company received an amount of US$52.25 million by way of the sale and issuance of 8% convertible senior secured notes (the “Existing Notes”). Additional funding, in an amount of US$16 million is to be provided by way of the further sale and issuance of 12% increasing rate senior secured notes due 2007 (the “New Notes”) upon completion of the June 2005 Financing; these New Notes initially carry a 12% interest rate rising at 0.5% per annum on each interest payment date, beginning on January 15, 2006. (See Item 4. Information on the Company – Description of Certain Indebtedness – June 2005 Financing and the Proposed Further Financing).

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The Company expects to seek refinancing of the June 2005 Financing and to seek additional financing in the fall of 2005. It is currently contemplated that such Further Financing would involve an investment of an additional US$16 million (such additional amount to be reduced by the proceeds of any asset sales by the Company or any of the group since the June 2005 Financing and to be further reduced to the extent that the Company’s then performance against budget does not demonstrate a need for such additional financing). It is currently contemplated that any such Further Financing would involve rolling the New Notes issued in connection with the June 2005 Financing into a new issue of convertible notes subject to, among other things, prior conversion of the Existing Notes. It is anticipated that such notes issued in connection with such Further Financing would be subject to materially the same terms and conditions as are applicable to the Existing Notes. However, assuming the completion of the Further Financing, no assurance can be made that the Company will then have sufficient funds to become cash flow positive from its ongoing operations. No assurance can be given that the intended Further Financing will be consummated or that alternative sources of financing would be available on attractive terms, or at all.

The following sets out the history of the Predecessor, a description of the Chapter 11 reorganization and its impact upon, in particular, the size and scope of the Predecessor’s business and a more detailed description of our business and its evolution following the Effective Date (including a description of the New Viatel Business Plan). A detailed description is also provided as to the scope of, and certain of the conditions attaching to, both the April 2004 Financing and the June 2005 Financing; additionally, further detail is provided as to the likely scope of any Further Financing, should it be concluded.

History of the Predecessor

The Predecessor was founded as a Delaware corporation in 1991 for the purpose of capitalizing on resale opportunities in the South American international calling card business. It subsequently expanded into the call re-origination business in South America, South Africa, Asia and Europe. By 1993, the Predecessor was engaged in the call re-origination business in over 40 countries worldwide.

From 1993 through 1997, the Predecessor made substantial investments in order to expand its market presence and develop the capacity to provide international communications within and between Western Europe and North America.

Between April 1998 and April 2000, the Predecessor raised approximately US$1.5 billion in the high-yield debt markets and approximately US$700 million in the equity markets to fund: (1) network construction; (2) its purchase of interests in trans-Atlantic cable capacity systems; and (3) operating losses. During this period, the Predecessor also completed two major acquisitions. In December 1999, the Predecessor acquired Viatel Communications, Inc. (formerly known as Destia Communications, Inc. and Econophone, Inc.), a facilities-based provider of domestic and international long distance telecommunications services in North America, Europe and Canada. In February 2000, the Predecessor acquired Viatel Global Communications Limited (formerly known as AT&T Communications (UK) Limited), a provider of voice and data communications services to enterprise level corporate customers located primarily in the United Kingdom.

In January 2001, the deterioration of the telecommunications market, the economy’s impact on customer behavior, significant reductions in prices that telecommunications companies were able to

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charge their customers and lower than anticipated call volume led the Predecessor to restructure its worldwide operations. The announced steps, which were designed to improve the Predecessor’s liquidity, included the closing of its consumer-oriented businesses in France, Germany, The Netherlands, Spain, Austria, Greece and Canada; the closure of its prepaid calling-card business in the United States; the consolidation of certain operating units; the elimination of redundant operating assets; and a 30% reduction in its worldwide workforce. In March 2001, the Predecessor also began exiting its voice business in Germany.

Despite these and other restructuring initiatives, the Predecessor’s cash position continued to deteriorate due to, among other factors: (1) its inability to access further the equity or debt markets; (2) the suspension of its ability to finance necessary equipment under certain financing facilities; (3) its increasing inability to collect amounts owed to it by its customers due to either the customers’ own financial difficulties, or the perceived financial weakness of the Predecessor; (4) its inability to attract new customers due to its financial circumstances; and (5) required interest payments on its high yield debt.

On May 2, 2001 (the “Filing Date”), the Predecessor and the other Debtors filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code.

Chapter 11 Reorganization

Set forth below is a description of the Predecessor’s business and operations and capital structure as at the Filing Date, the various asset disposals effected during the course of the Chapter 11 reorganization and the Plan of Reorganization itself.

Operations of the Predecessor as at the Filing Date

Prior to the Filing Date, the Predecessor was the builder-operator-owner of pan-European, trans-Atlantic and metropolitan fiber-optic networks and a provider of advanced telecommunications products and services, including bandwidth, to corporations, carriers, Internet Service Providers (“ISPs”), applications service providers and storage network providers, primarily in Western Europe and North America.

The Predecessor’s principal asset was its fiber optic network covering approximately 8,800 route kilometers and linking 39 major business centers in Western Europe, the construction of which had been approximately 99% completed as at the Filing Date.

As at the Filing Date, the Predecessor also operated a leased fiber optic network in the United Kingdom that connected an additional 18 cities and owned and/or had rights to: (1) a 25% interest in the Yellow Submarine Cable system, a four fiber pair, 1.28 terabit system, connecting New York to London; and (2) 128 STM-1s of capacity on the Atlantic Crossing 1 cable system.

As at the Filing Date, the Predecessor provided, on both a wholesale and retail basis, a range of products and services including: switched and dedicated long distance, toll-free services, prepaid, postpaid and debit calling cards, conference calling, domestic and international private line services, Internet access, frame relay, asynchronous transfer mode and Internet protocol services, managed bandwidth and capacity sales (dark fiber and leased capacity).

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Capital Structure of Predecessor as at the Filing Date

From October l996 until the Filing Date, the Predecessor’s common stock was actively traded on the Nasdaq National Market (“Nasdaq”) under the symbol “VYTL.” On the Filing Date, Nasdaq suspended trading of the Predecessor’s common stock, which was delisted in July 2001. The Predecessor’s common stock was subsequently traded on the over-the-counter market.

Prior to the Filing Date, the Predecessor issued 1,000 shares of Series A junior participating preferred stock under the terms of a Stockholders Rights Plan adopted effective December 6, 1999 and 325,000 shares of Series B cumulative convertible preferred stock that was sold to Hicks, Muse, Tate & Furst, Chase Capital Partners (now known as JP Morgan Chase & Co.) and The Blackstone Group. As part of the Series B preferred financing, the Predecessor also issued warrants to purchase 753,116 shares of the Predecessor’s common stock, 50% of which was exercisable for five years at a price of US$75 per share, and 50% of which was exercisable for seven and a half years at a price of US$100 per share. In addition, in connection with the Series B preferred financing, the Predecessor issued warrants to purchase 7,532 shares of its Series C preferred stock (each share of which was convertible into 100 shares of the Predecessor’s common stock), 50% of which was exercisable for five years at a price of US$7,500 per share and 50% of which was exercisable for seven and a half years at a price of US$10,000 per share.

Asset/network disposals following the Filing Date

Following the Filing Date, the Predecessor through sale, closure and/or insolvency proceedings exited or lost control of a number of its business assets, including its remaining voice operations in each of the United Kingdom, Switzerland, Greece, Italy, Canada, the United States, France, Spain, Belgium, The Netherlands and Austria. In addition, in June 2001, five of the Predecessor’s UK subsidiaries were placed by the relevant directors into administration, a form of English law insolvency proceeding. It was through three of these subsidiaries, namely Destia Network Services Limited, Viatel Global Communications Limited and Viatel Communications (UK) Limited, that the Predecessor had hitherto operated its voice and enterprise level businesses in the United Kingdom. The UK voice business was sold in June 2001 and the UK enterprise business was sold, together with the UK leased fiber and capacity network, in July 2001 to ntl Group Limited, in each case by the English administrators. From August 2001 onwards, the Directors of certain German subsidiaries of the Predecessor filed such subsidiaries for insolvency proceedings in Germany. These subsidiaries between them held rights of way and legal/contractual rights to use points of presence (“POPs”), facilities and other premises as were together required for the use of, and access to, the majority of the German network. Following the commencement of insolvency proceedings, the Predecessor lost all control or use of such legal and contractual rights.

In August 2001, the Predecessor sold its 25% interest in the Yellow Submarine Cable system and its 128 STM-1s of capacity on the Atlantic Crossing 1 cable system to Level 3.

Plan of Reorganization

The Debtors submitted the Plan of Reorganization as of April 2, 2002 in order to resolve their outstanding creditor claims and stockholder or equity interests. The Plan of Reorganization was

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confirmed by the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”) on May 21, 2002.

The Plan of Reorganization was filed as an exhibit to the Form 8-K of the Company dated January 22, 2002 (the “January 22 8-K”). The January 22 8-K and exhibits are hereby incorporated by reference in this Form 20-F.

The Plan of Reorganization contemplated the dissolution of each of the Debtors and the ultimate transfer of the shares in certain non-Debtor subsidiaries to be held under the Company, a newly formed Bermuda company. Accordingly, commencing as of the Effective Date, a series of share transfers was made whereby the European Subsidiaries became wholly-owned direct or indirect subsidiaries of the Company.

Additionally, under the terms of the Plan of Reorganization, VTL, Inc. (“VTL”), a newly-formed subsidiary of the Predecessor, was authorized to serve as disbursing agent (with the right to designate other disbursing agents) with respect to distributions required under the Plan of Reorganization. Accordingly, on or after the Effective Date, and to the extent not otherwise disposed of pursuant to the Plan of Reorganization, the Debtors’ Property vested in VTL.

Under the Plan of Reorganization, ownership of the Debtors’ Property not otherwise disposed of pursuant to the Plan of Reorganization was intended ultimately to pass to, or remain with, the Company or its direct or indirect subsidiaries. Ownership of VTL was transferred to the Company in January 2003.

Under the Plan of Reorganization, various claims against the Debtors were divided into classes. Holders of certain unclassified claims, including administrative claims and priority tax claims, received payment in cash either on the distribution date, as such claims were liquidated, or in installments over time, as permitted by the Bankruptcy Code, or as agreed with the holders of such claims. All other claims and interests were classified into six classes and received the distributions and recoveries (if any) described in the table below. Under the Plan of Reorganization, equity interests (Class 6) in the Predecessor, including common stock, preferred stock, warrants and options of the Predecessor, were cancelled and the holders of such interests received no distributions.

Under the Plan of Reorganization, the Company transferred 10,560,000 common shares of the Company, (representing 88% of the common shares of the Company issued in connection with the Plan of Reorganization), to VTL, in its capacity as Disbursing Agent, for distribution to holders of allowed general unsecured claims (Class 4). Additionally, under the Plan of Reorganization, 1,440,000 common shares of the Company were reserved for issuance upon exercise of incentive share options issued or issuable under the Company’s 2002 Equity Incentive Plan (the “Equity Incentive Plan”); see “Item 6. Directors, Senior Management and Employees – Equity Incentive Plan.”


Class description		Treatment under the Plan of Reorganization
Class 1 – Other Priority Claims		Unimpaired

Class 2 – Convenience Claims (Unsecured Claims of Face Amount US$500 or less, excluding any Intercompany Claims)		Unimpaired

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Class description		Treatment under the Plan of Reorganization
Class 3.01 – NTFC Secured Claim		Unimpaired

Class 3.02 – Other Secured Claims		Unimpaired

Class 4 – General Unsecured Claims		Pro rata share of 88% of 12,000,000 new common shares of the Company of US$0.01 each, issued in connection with the Plan of Reorganization

Class 5 – Intercompany Claims		Extinguished

Class 6 – Interests		Cancelled

Following the Effective Date, and as contemplated under the Plan of Reorganization, the Board of the Company included the Company’s Chief Executive Officer. Subsequently, three new directors, as nominated by the Creditors’ Committee, were appointed to the Board.

Emergence from Chapter 11

Operations of the Company as at June 7, 2002

As indicated above, during the course of the Chapter 11 reorganization and prior to the Effective Date, the Predecessor closed, disposed of, or due to the institution of bankruptcy related proceedings, lost control and/or disposed of various businesses and assets including: (1) the Company’s voice businesses, which, as at the commencement of the Chapter 11 action, generated approximately 75% of the Predecessor’s consolidated group revenues; (2) material network interests – both metropolitan and backbone; and (3) interests in transatlantic cables.

Ultimately, following the various asset and share transfers described above and, as contemplated under the Plan of Reorganization, and through the development of the Company’s business as contemplated thereby, the Company and its direct or indirect subsidiaries became, or, in the case of certain subsidiaries, remained the owners of the European Subsidiaries and of various operational assets including:

• the European Network;

• leased capacity to a POP in New York;

• several inoperative voice switches; and

• certain receivables and cash-in-hand of the Predecessor.

The Company’s business plan as set forth in the Plan of Reorganization focused on the exploitation of the European Network, and two primary areas of business supporting customers’ international voice and data communications requirements, namely: (1) clear channel broadband, offering managed

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bandwidth and optical wave or “wavelength” services; and (2) IP transit, transport and Virtual Private Networks (“VPNs”).

Evolution of operations of Viatel from June 7, 2002 until May 2003

Following an interim review, several months after the Effective Date, of performance against the business plan set forth in the Plan of Reorganization, we determined that we could realize only limited success by focusing solely on the wholesale bandwidth business given the then current market and economic environment.

Accordingly, in search of expanding our consumer market, in October 2002, we commenced the sale of certain services on a retail basis to SMEs in the United Kingdom through a small in-house telesales organization. We tailored and adapted our products previously offered solely to the wholesale market, to the retail market and introduced certain new products, such as Dedicated Internet Access (“DIA”) and Digital Subscriber Line (“DSL”).

In furtherance of our entry into the retail sector, in March 2003, we acquired two recognized ISPs, Cybernet (Schweiz) AG (“Cybernet”) in Switzerland, and Netcom Internet Limited (“Netcom”) in the United Kingdom. The business and assets of Cybernet were purchased for a total consideration of EUR 2.7 million (approximately US$2.96 million). At acquisition, Cybernet had in excess of 6,500 SME customers. On March 7, 2003, we acquired 100% of the share capital of Netcom for an initial consideration of GBP 450,000 (approximately US$890,000), with further contingent consideration payable in the event that certain positive business performance goals were met. The further consideration of GBP 200,000 (approximately US$370,000) was agreed with the former parent, Net Access Limited (“Net Access”) and an instalment plan for the payment of this sum over a period of 10 months was also agreed.

At acquisition, Netcom had several hundred SME customers to whom it provided primarily leased-line connectivity to the Internet. As part of the Netcom transaction, Netcom’s dial customer base (customers who connect to the Internet using a modem) was transferred to Net Access and Netcom, re-named Viatel Internet Limited (“Viatel Internet”), post-closing, continues to service that customer base through the provision of customer support services for a monthly fee, making Net Access one of Viatel Internet’s largest customers by revenue. We continue to bill Net Access’ dial customers for their periodic subscriptions.

New Viatel Business Plan

Following the resignation in April 2003 of Michael Mahoney as our Chief Executive Officer, in May 2003, Lucy Woods was appointed as the new Chief Executive Officer. Since her appointment, we have put in place a new senior management team – see “Item 6. Directors, Senior Management and Employees” – and have constructed and developed a new financial model and business plan.

Development of the New Viatel Business Plan

The New Viatel Business Plan was presented to members of our Board on July 7, 2003 and formally adopted as the ongoing business plan of the Company on August 11, 2003.

The goal of the New Viatel Business Plan was to establish Viatel as a leading pan-European provider of Managed IP Services with emphasis on the sale and provision of IP connectivity and IP value-added services. During 2004, management focused on developing a full product portfolio for the

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UK, The Netherlands and on supporting Cybernet. Resources required to work on a simultaneous launch in multiple countries were considered however to be a prohibitive constraint on the implementation of our New Viatel Business Plan. As a consequence, no development in other countries has taken place and activity in The Netherlands was focussed principally on the wholesale market. In its place effort has been made to offer a broad portfolio of products in the UK and Switzerland. During late 2004 we also developed the idea of a “branded broadband service”, effectively a wholesale managed broadband business. This has led us into the consumer market which was not envisaged in the New Viatel Business Plan in 2003. In recent months we have refined the retail business model to focus only on Switzerland and the UK until our operations are cash positive. Our wholesale services continue to be available across Europe, as does our Ethernet service.

In connection with the implementation of the New Viatel Business Plan, the Company adopted a new corporate brand as of January 10, 2004. The rebranding has been applied to all Viatel operating companies with the exception of Cybernet which, at present, continues to use the Cybernet name and branding. The New Viatel Business Plan identified and targeted two distinct business markets, being: (1) Retail – including within this the Cybernet business; and (2) Wholesale. Each of these business areas is considered in turn below. Through the introduction of new business opportunities and the further development of the Company’s product portfolio, to include, notably, a branded broadband service, the New Viatel Business Plan has now been extended to cover an additional distinct market, namely the provision of consumer services.

Retail

With respect to the Retail sector, the New Viatel Business Plan initially focused on extending and enhancing the Company’s existing product portfolio and selling, in particular, into the SME market. The enhancement of the product set continued throughout 2004 and 2005, with the following notable product launches:

• Managed IP VPN: Launched in June 2004, this is a managed solution offering a virtual private network, providing a secure, cost effective communications network between a customer’s different sites, remote workers and its business partners.

• Bonded Broadband: Launched in June 2004, this managed service bonds together standard broadband lines into a high-speed service that aggregates bandwidth and offers a competitive alternative to a traditional leased line service.

• Ethernet: Launched in November 2004, this is a high performance national and international connectivity product using a standard local area network (“LAN”) interface common to most businesses, the key advantages being increased flexibility, scalability and cost-effectiveness.

• VoIP: Launched in May 2005, this is a replacement product for traditional voice services which use the public switched telephone network (“PSTN”). The product allows the elimination of traditional circuit activity associated with the PSTN and offers the customer substantial cost savings.

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Viatel is now able to offer the following principal business retail services: (1) managed connectivity services, including DIA and xDSL connectivity, allowing us to offer to our customers a variety of different connection speeds and contention ratios; (2) managed hosting and co-location services allowing customers to outsource the hosting of their websites and IT applications; (3) managed security services, including the management of VPNs; (4) managed Internet Protocol VPN (“IPVPN”) and Ethernet services, providing cost-effective connectivity between customer sites; and (5) VoIP.

A description of the services offered and/or being developed within each of these categories is set out below (in each case, listed by product name):

The Viatel managed connectivity services include:

• Enterprise Business Broadband: an xDSL broadband service, with high performance and reliability, designed for the business user. This service is based on a 1-to-1 contention ratio (contention being defined as the number of organizations sharing the same bandwidth); in this way, the customer has effectively its own dedicated bandwidth, maximising service performance.

• SoHo Business Broadband: an xDSL shared broadband service aimed at small offices and people working from home.

• Dedicated Internet Access: a high bandwidth leased line Internet access utilising our IP Network and worldwide peering agreements.

The Viatel co-location and managed hosting services include:

• Co-location: a managed service offering a flexible and cost-effective alternative to an in-house Internet facility. Dedicated full and half racks are available and located in highly secure and monitored (on a 24 hour, 7 days a week basis) facility.

• Managed Hosting: a service available on RedHat, Linux and Windows operating systems. This service is a managed, dedicated web and Internet applications hosting solution for business customers. Such applications could be a web site, an e-business platform or an SAP application. This service is again located in a highly secure and monitored (on a 24 hour, 7 days a week basis) facility.

The Viatel managed security devices include:

• Managed Firewall: a fully managed and dedicated firewall solution. A firewall is a set of hardware and software components used for the protection of a network from unauthorised access. Firewalls might be located in the customer’s premises for DIA and broadband connectivity or in Viatel’s data centre for managed hosting customers.

• Managed Anti Spam & Anti Virus: an e-mail scanning service based on a three tier architecture that blocks spam and viruses transmitted over the Internet before reaching the customer network.

The Viatel IPVPN and Ethernet services include:

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• Site-to-Site IPVPN: an IPVPN service that allows customers to access private data, such as company information, across a public or shared network. The Viatel IPVPN offering takes advantage of a number of access technologies, such as dial, broadband and DIA. IPSec is currently the security protocol used by Viatel.

• Remote IPVPN: a service that allows customers with a distributed workforce to access company data and systems, such as order entry and work-flow management. An international roaming service option is also available.

• Viatel Managed IPVPN: a secure, cost effective communication service between customer sites, remote workers and business partners over a shared network. If customers wish to manage their own site equipment, they can choose a “wires only” option.

• Viatel Ethernet: a high bandwidth, flexible service to enable customers to run data intensive or real time applications between their sites.

The Viatel VoIP services include:

• Viatel VoIP: comparable to a traditional voice access line service, but routed over cost effective Internet connections such as broadband and leased lines. We provide the Internet connection and a variety of gateways to IP enabled existing customer equipment. Viatel hosted VoIP provides a fully managed, bundled telephony solution, including IP enabled phones, connectivity and private branch exchange “PBX” functionality such as call forwarding and voice mail.

• Viatel VoIP VPN: a single, secure VPN network for integrated voice and data traffic between customer sites and remote workers, helping to reduce costs and improve efficiency.

Significant new customer acquisitions and/or extensions to existing contracts during 2004 and into 2005 include Morse, Penna Consulting, Institute of Electrical Engineers and Vodafone.

Cybernet

Since its acquisition in March 2003, Cybernet has been a successful company within the Viatel group, realizing positive operating cash flow each year. The New Viatel Business Plan envisages building the Cybernet business through the addition of new products to its existing portfolio, but otherwise continuing its operations in much the same way as it has done since acquisition. Cybernet’s customer base is divided into two principal categories: SMEs and third party resellers.

Cybernet’s products, whether offered directly to customers or through third-party channels, have historically principally comprised xDSL products enabling access to the Internet, web-hosting and ancillary services. During 2004 and into 2005, Cybernet’s product portfolio has been broadened with, in particular, the launch of:

• VPN Connect: an MPLS VPN service with ADSL connections;

• Videoconferencing: providing a voice, video and file shared conferencing platform enabling the customer to conduct on-line conferencing;

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• A “white label” web hosting product: enabling wholesale partners to take space on the shared Cybernet hosting platform with a view to offering their own web hosting product; and

• Ethernet Connect: a 2Mb leased line with an Ethernet service, offering connectivity between over 200 Swiss towns.

Given strong brand recognition – the Company won 3 major business awards during 2004 – we currently intend to continue to trade under the Cybernet name in Switzerland.

Significant new customer acquisitions during 2004 and 2005 include Heineken, ViaNetworks, BT, Migros and Clair’s.

Wholesale

The portfolio of wholesale products we provide to customers is generally divided between: (1) connectivity services, providing high quality dedicated point-to-point connection for customers who do not wish to purchase dark (unused) fiber and/or to invest in the optronics and network management systems required to enable fiber to carry traffic; and (2) infrastructure related services, providing customers with high quality dark fiber and co-location services. A description of the services offered within each of these categories is set out below.

The connectivity services include:

• Leased Line: an end-to-end, managed, fully redundant and protected synchronous digital hierarchy (“SDH”) transmission technology international private wire service, over varying speeds, that uses the European Network.

• Wavelength: a service offering greater speed, flexibility and more efficient bandwidth utilization allowing carriers, ISPs and large corporate customers, effectively, to design and operate their own networks.

• IP transit: services where, starting with our own network’s IP backbone and then, by purchasing global IP transit from a number of carefully selected partners, we are able to offer our customers the best available connection routes, thus providing our customers with maximum quality, responsiveness and cost- effectiveness.

The infrastructure services include:

• Dark Fiber: we offer dark fiber to customers that may wish to make the requisite capital investments in order to carry traffic over fiber; however, we do not expect that there will be an active market for dark fiber in the near future. We may also make available to our customers, in selected locations and facilities, certain ducts on either an outright sale or leased basis.

• Co-location: services normally provided as ancillary to the aforementioned connectivity and IP transit services. These services allow our customers, who connect directly to our network, to install and operate their equipment in our co-location facilities. A range of add-on services are also offered such as dedicated racks and secure cages designed to

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allow increased security and remote monitoring of customers’ applications co-located at the facility.

While new customer acquisitions have been made in 2004/2005, the wholesale market remains one which is characterized by a surplus in capacity and corresponding severe price competition.

VISP

In 2005, Viatel launched a branded broadband service with a number of British football clubs enabling the clubs to act as a virtual Internet service provider – or VISP. The underlying service is a high-speed broadband connection (typically 2Mb – but offered at lower speeds where 2Mb is not technically possible due to PTO local line quality), provided together with club-branded email addresses and, where available, club related broadband content. The Company may add additional functionality/content to the service, potentially including a consumer VoIP product.

Viatel commenced a VISP broadband service for Manchester United FC in April 2005, and for each of Motherwell FC, Chelsea FC and Heart of Midlothian FC in May 2005. The Company is currently talking to a number of other football clubs and sporting organizations with a view to launching similar broadband services.

It is anticipated that the service will be actively marketed through the use, in particular, of the relevant clubs’ databases.

Sales and Marketing

As at May 31, 2005, 94 people were employed in the sales, marketing and service teams. Since September 2003, our principal method of selling services has been through our direct sales executives and telesales teams. We market to existing and potential customers on the basis of a number of factors including service quality, product diversity and reliability. We believe we can compete effectively with other operators by deploying innovative and fully managed services, and focusing on segments characterized by high market growth such as IPVPN VoIP, Ethernet, DSL service and hosting services. PTOs in particular, given their concerns as to product cannibalisation and overall revenue reductions, have less flexibility to focus resources on some of the products that Viatel sell.

To complement our direct sales force, in 2004 we began developing an indirect sales channel. This channel will sell with, or through, third parties and management believe this channel has potential to deliver greater productivity than our direct sales force. We currently have agreements with over 30 resellers and have developed a complete product portfolio for this channel. In order to facilitate indirect sales, we have also developed a web extranet so that resellers can access product documentation, sales tools, order status and facilitate on-line delivery.

Segmental Revenue

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For 2004 the revenue for the retail segment was US$24.4 million (2003 – US$14.3 million) and for the wholesale segment was US$4.4 million (2003 – US$4.6 million).

For the years ended December 31, 2004 and 2003, no individual customer accounted for greater than 10% of revenues. Revenues for the period from June 7, 2002 to December 31, 2002 from three principal customers of the Company’s European Network represented approximately 40%, 28% and 16% each of the consolidated revenues. For the period from January 1, 2002 to June 7, 2002, no individual customer accounted for greater than 10% of revenues.

The revenue generated by geographic location of customers is as follows:


US$’000	Successor		Successor		Successor		Predecessor
	Year ended		Year ended		From June 7,		From January
	December 31,		December 31,		2002 to December		1, 2002 to June
	2004		2003		31, 2002		7, 2002

United Kingdom		10,560		7,998		1,497		2,301
Switzerland		15,188		9,041		—		—
Other Western Europe		2,366		397		531		—
North America		676		1,476		2,136		366

Consolidated		28,790		18,912		4,164		2,667

In the year ended December 31, 2004 revenue from customers located in the United Kingdom represented 37% (2003 – 42%) of total revenue, and revenue from customers located in Switzerland represented 53% (2003 – 48%) of total revenue. No other country represented greater than 10% of total revenue.

The European Network

The European Network is a high-capacity fiber optic network connecting 19 cities and traversing the UK, France, Germany, The Netherlands, Belgium and Switzerland. This long-haul network has at least 48 fibers installed throughout, with between 72 and 96 fibers (in most terrestrial segments) and 48 fibers in the two submarine segments.

The European Network employs ring configurations and self-healing SDH systems to provide high reliability and redundancy. The network is equipped with technologically advanced fibre and optical transmission systems, and consists of a uniform configuration of DWDM (Dense Wave Division Multiplex) electronics and Lucent Technologies fibre optic cable on terrestrial routes.

With respect to the submarine systems, these were built using Alcatel armoured cable comprising Sumitomo fibre. Separate sea routes were chosen in the North Sea (Lowestoft – Zaandvoort) and the English Channel (Pevensey Bay – Cayeux-sur-Mer) respectively, so as to provide a ring topology.

In addition to the European Network, we also have three wavelengths of leased capacity to New York allowing us to offer transatlantic capacity to our customers. Where necessary, we purchase circuits in the United States from local providers to provide a seamless connection for our customers from our own transatlantic capacity to their required United States delivery location.

We also lease various assets including duct (leased duct totalling approximately 1,464 route kilometers, the main part of which relates to our German backbone) and fiber (fiber subject to

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Indefeasible Rights of Use (“IRU”) agreement totalling approximately 1,030 route kilometers). The duct and IRUs relating to our backbone, were in general leased for a period of approximately 20 years. In November 2004, we entered into an STM4 capacity lease which expires in 2010, which provides us with an extended UK network linking in particular Leeds, Manchester, Leicester, Birmingham, Coventry, Reading and London.

To support the European Network, all technical facilities are equipped, as standard, with redundant air conditioning, fire suppression systems, UPS (uninterruptible power supply), battery back-up and diesel generators which would be activated in the event of a prolonged local electricity outage. All these facilities take advantage of remote site alarms reported to and managed by the Network Operations Centre, based in Egham (near London) (the “NOC”), which operates on a 24 hours a day, 365 days a year basis.

The NOC is backed up by a Disaster Recovery Centre in Amsterdam (the “DRC”), where all key management systems of the NOC are duplicated in their entirety. Having duplicative systems allows us to maintain our carrier class quality of services, irrespective of the type of customer. Both our centres are equipped to detect and handle incidents and, where possible, quickly re-route traffic in the event of a significant interruption.

The European Network potentially remains a major long term asset of the Company. However, in the immediate future, we believe that our opportunities for commercial exploitation of the network, in particular through the sale of capacity to the wholesale carrier market, is limited. This is due principally to both a growing market trend for the provision of wavelength capacity – for which additional capital expenditure would be required – and an ongoing oversupply of capacity in the telecommunications industry which in turn has lead to vigorous and often uneconomical price competition. Given these market and economic conditions, the European Network currently does not, in itself, generate sufficient revenues to meet its current operating costs. A large proportion of these operating costs relate to ongoing maintenance charges and the fees charged, in France, by public authorities and other entities for rights of way (“ROW”). We are currently in legal proceedings disputing the level of the ROW charges we pay in France. See “Item 8. Financial Information – Legal Proceedings” and footnote 9 to the consolidated financial statements in this Form 20-F. Should we lose all or any such legal proceedings, it is likely that we would be required to continue to pay ROW charges which could make the future operation of all, or any part of, our French network uneconomic. During 2004 and into 2005 we have been investigating ways in which we can reduce our ongoing network costs – this has included potentially pursuing a transaction designed to maximise the use of tax losses associated with the depreciation/financial write-down of the network assets.

Competition

The European telecommunications industry is highly competitive, significantly affected by regulatory changes, marketing and pricing decisions of the larger industry participants and the introduction of new services and transmission methods made possible by recent technological advances. In the context of the provision of business data services, the market is being driven by: a need to provide connectivity/access to centralised data for enterprise-wide use of IP-based applications; growing volumes of email traffic and increasing prevalence of remote working; a continuing trend towards greater use of managed data networks; and, a need to maximize cost efficiencies in expenditure in IT and telecommunications requirements.

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Our ability to succeed in the implementation of the New Viatel Business Plan depends on our ability to compete with a variety of communications providers, including those providing competing networks. In this regard, we expect to compete with: (1) PTOs such as British Telecom and SwissCom; (2) alternative operators such as Global Crossing, Cable & Wireless, Energis, MCI, COLT Telecom and Level 3; (3) ISPs such as Easynet, Pipex, Demon/Thus, Star, Bulldog, Tiscali, Claranet, and PSINet (Europe); and (4) providers of VoIP such as Telappliant, Voipfone, Inclarity, alwaysON, Vonage and Gradwell.

Description of Certain Indebtedness

As noted above, our ability in the short-term to continue operations and, ultimately, our implementation of the New Viatel Business Plan is dependent on, among other things, successful financing to fund the Company whilst it is experiencing negative cash flow.

April 2004 Financing

On April 21, 2004, the Company entered into definitive documentation in respect of the April 2004 Financing with each of the Investors comprising: (1) Morgan Stanley; (2) Ahab Partners, L.P.; (3) Wayland Distressed Opportunities Fund I-A, LLC; (4) Värde; (5) Sapphire Special Opportunities Fund, LLC; (6) Stonehill Institutional Partners, L.P.; (7) Ore Hill Hub Fund Ltd; and (8) Lucy Woods. The April 2004 Financing involved the sale and issuance of the Existing Notes in an aggregate amount of US$52.25 million.

The April 2004 Financing Documentation and a related press release announcing the signing of the April 2004 Financing documentation were furnished to the U.S. SEC on the April 28 6-K and a Form 6-K of the Company dated April 21, 2004 respectively. Copies of these and other Company filings with the U.S. SEC are available on our website at www.viatel.com. Alternatively, you can access our U.S. SEC filings online at www.sec.gov.

The Existing Notes were issued to, and purchased by, the Investors in the following respective amounts:


Investor	Notes (US$)
(1) Morgan Stanley		36,000,000
(2) Ahab Partners, L.P.		3,000,000
(3) Wayland Distressed Opportunities Fund I-A, LLC		500,000
(4) Värde		10,000,000
(5) Sapphire Special Opportunities Fund, LLC.		500,000
(6) Stonehill Institutional Partners, L.P.		1,000,000
(7) Ore Hill Hub Fund Ltd		1,000,000
(8) Lucy Woods		250,000

Total		52,250,000

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Subsequent to the closing of the April 2004 Financing, Morgan Stanley assigned, as at June 10, 2004, US$350,000 of their Existing Notes to Ahab Partners, L.P., who in turn, as at August 2004, assigned US$350,000 of Existing Notes to two individuals as follows: (a) John Colton: US$250,000; and (b) Francis Williams: US$100,000. As at May 31, 2005, the Investors accordingly held the Existing Notes in the following respective principal amounts:


Investor	Notes (US$)
(1) Morgan Stanley		35,650,000
(2) Ahab Partners, L.P.		3,000,000
(3) Wayland Distressed Opportunities Fund I-A, LLC		500,000
(4) Värde		10,000,000
(5) Sapphire Special Opportunities Fund, LLC.		500,000
(6) Stonehill Institutional Partners, L.P.		1,000,000
(7) Ore Hill Hub Fund Ltd		1,000,000
(8) Lucy Woods		250,000
(9) John Colton		250,000
(10) Francis Williams		100,000

Total		52,250,000

Interest on the Existing Notes is 8% per annum, to be compounded and payable semi-annually by way of additional notes or, at the Company’s option, in cash. As at May 31, 2005 the Company has issued the following additional convertible notes by way of interest:

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Investor	Notes (US$)
(1) Morgan Stanley		2,118,085.34
(2) Ahab Partners, L.P.		190,081.72
(3) Wayland Distressed Opportunities Fund I-A, LLC		29,706.66
(4) Värde		594,133.34
(5) Sapphire Special Opportunities Fund, LLC.		29,706.66
(6) Stonehill Institutional Partners, L.P.		59,413.34
(7) Ore Hill Hub Fund Ltd		59,413.34
(8) Lucy Woods		14,853.34
(9) John Colton		6,394.96
(10) Francis Williams		2,557.99

Total		3,104,346.69

The Existing Notes have a 10 year maturity, and are convertible, at the option of the holder, into the Company’s common shares upon the occurrence of certain specified “liquidity events”, such as a change of control or an initial public offering, or if not previously converted, after the ninth anniversary of issuance, or upon the request of the holders of a majority of the Existing Notes.

Upon conversion of all or a large portion of the Existing Notes, persons previously holding such Existing Notes will hold a significant majority of our common shares, assuming that the Company has not issued shares other than on a conversion of the Existing Notes. Both prior to and following conversion, and until such time as the Investors directly or indirectly together hold, on a fully diluted basis, 25% or less of the Company’s common shares, material corporate actions will effectively require the consent of the Investors or their transferees.

The Investors (and their transferees) also effectively have the right, at any time, to increase the size of the Board and to approve a number of Directors sufficient to cause a majority of the Board to be designees of the Investors (and their transferees). See “Item 10. Additional Information – Memorandum of Association and Bye-Laws”.

It was a condition of the April 2004 Financing that our Chief Executive Officer, Lucy Woods, enter into an employment agreement on terms satisfactory to the Investors and that she also participate in the April 2004 Financing through the purchase of Existing Notes in an aggregate principal amount of US$250,000. It is a further condition under the terms of Mrs. Wood’s employment agreement (entered into as a condition of the April 2004 Financing) that to the extent Mrs. Woods receives a cash bonus during the first two years of the term of her employment agreement; such cash bonus is to be reinvested in the Company in the form of Existing Notes, up to a maximum of US$270,000.

It was also contemplated that, as soon as reasonably practicable after closing, there would be established an equity compensation plan for the benefit of senior management. In substitution of such plan, the Company has decided to offer to relevant senior management participation in a discretionary

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Employee Benefit Trust (“EBT”), the terms of which were approved by resolution of the Board dated December 2004. Mrs. Woods (together with all other members of the relevant management team) has accepted participation in the EBT, on such terms as approved by the Board, in satisfaction of the Company’s obligations to establish an equity compensation plan under the terms of her employment agreement. See “Item 6. Directors, Senior Management and Employees – Employee Benefit Trust”.

The Investors (with the exception of the individuals: John Colton, Francis Williams and Lucy Woods) comprise a group of U.S. financial institutions; one of these institutions, Morgan Stanley, itself beneficially owns approximately 12.5% of our ordinary shares. Two of the five serving non-executive Directors, Thomas E. Doster, IV and Edward Greenberg, are senior executives of Morgan Stanley. These two Directors were not members of the Financing Committee established in connection with the April 2004 Financing and recused themselves from any involvement on behalf of the Company in connection with both the April 2004 Financing and the June 2005 Financing.

June 2005 Financing and the Proposed Further Financing

On June 23, 2005, the Company entered into further financing documentation with two of the Investors, Morgan Stanley and Värde under which Morgan Stanley and Värde have conditionally committed to invest a further US$16 million in the Company by way of the purchase of, respectively US$12,937,799 million and US$3,062,201 million New Notes. Such investment is conditional upon customary conditions for transactions of this nature and upon the filing of this Form 20-F in a form satisfactory to Morgan Stanley and Värde. The investment agreement related to the June 2005 Financing is filed as an exhibit to this Form 20-F.

Interest on the New Notes is to be initially 12% per annum, payable semi-annually with the interest rate increasing by 0.5% per annum on each interest payment date, beginning on January 15, 2006. For the first year of issue interest will be payable on the New Notes by way of the issuance of additional New Notes. After the first anniversary of the issuance of the New Notes, interest will be payable in cash only.

The New Notes are to have a 2 year maturity and will rank senior to all subordinated debt of the Company (including the Existing Notes) and pari passu with all senior debt of the Company. Under the terms of the June 2005 Financing, the holders of the Existing Notes have agreed to subordinate their Existing Notes to the New Notes.

The Company expects to pursue the Further Financing and Morgan Stanley and Värde have advised the Company that they will consider providing such refinancing and/or additional financing. It is currently contemplated that any such Further Financing would involve an investment of an additional US$16 million, with such additional amount being reduced by the proceeds of any asset sales by the Company entered into prior to the Further Financing, and to be further reduced to the extent that the Company’s then performance against budget does not demonstrate a need for such additional financing. No assurance can be given that the intended Further Financing will be consummated or that alternative sources of financing would be available on attractive terms, or at all. Neither Morgan Stanley nor Värde is under any obligation to participate in the Further Financing or any other financing, other than the June 2005 Financing to the extent contemplated by the terms and conditions thereof.

It is further contemplated that any such Further Financing would involve transferring the New Notes into a new issue of convertible notes subject to, among other things: (a) the prior conversion of the Existing Notes; and (b) the transfer of the Special Share (see “Item 10. Additional Information –

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Description of Share Capital – Memorandum of Association and Bye-Laws”) to the holders of the newly issued convertible notes. Under the terms of the June 2005 Financing, the Company and the holders of the Existing Notes have agreed that, on the request of the holders of a majority of the Existing Notes, all of their Existing Notes will be converted on a date to be decided by the holders of a majority of the Existing Notes. At that time all of the Existing Notes will be converted into common shares of the Company at the then current conversion price as determined under the terms of the Existing Notes.

Regulation

Telecommunications services are subject to the new EU regulatory framework for electronic communications which came into force in July 2003. The principal elements of the regulatory framework are set out in the following EU Directives: (1) the Universal Service Directive; (2) the Access and Interconnection Directive; (3) the Authorisation Directive; and (4) a Framework Directive. The EU Directives (and related legislation/regulation) are intended in part to reduce regulation where possible, while introducing a common concept of market dominance, so as to identify those operators that might be considered as having “Significant Market Power” or “SMP”, and consequently for whom more stringent regulation might be appropriate.

Our activities in Western Europe are subject to such rules and regulations where and to the extent the new regulatory package has been implemented and to any other national rules and regulations governing telecommunications. Such rules and regulations are administered and enforced by the applicable NRAs in each country in which we operate. The level of regulation and the rights that attach to a license (where a license is required) or general authorizations related to telecommunications and other electronic communications vary in each country. In each European Union country in which we operate, we are not considered, as a company, to have SMP and are not therefore generally subject to the more stringent regulation that might otherwise be applied by NRAs.

We believe that we possess, or are in a position to obtain, all necessary permits, licenses, and authorizations or to make relevant notifications to operate, and to continue to operate, our business in all the countries in which we operate. However, to the extent we are unable to obtain all such permits, licenses and authorizations or to make relevant notifications, this may have a material impact on our ability to operate in certain of the countries in which our European Network is located which, in turn, could have a material adverse effect on our financial condition and results of operations.

In the United States, our services are subject to the provisions of the Communications Act of 1934 and the regulations of the Federal Communications Commission (“FCC”). The Company has obtained a Section 214 license, which allows it to operate as an international facilities-based carrier in the United States, and VTL-TP (Bermuda) Limited and VTL have each notified the FCC that they will trade under this authorization.

Regulators in the European area countries in which we operate are as follows: (1) Office of Communications (“OFCOM”), in the United Kingdom; (2) the Autorité de Regulation des Télécommunications (“ART”), the French Regulatory Authority for Telecommunications, in France; (3) the Regulierungsbehörde für Telekommunikation und Post (“RegTP”), or Regulatory Authority for Telecommunications and Post, in Germany; (4) the Onafhankelijke Post en Telecommunicatie Autoriteit (“OPTA”), in The Netherlands; and (5) the Belgian Institute of Postal and Telecommunications Services (“BIPT”), in Belgium. In Switzerland, there is no single regulatory body; however, telecommunications

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regulation is determined by the provisions of the Telecommunications Act (Fernmeldegesetz or “FMG”) and is overseen by the Federal Office of Communication.

Organizational Structure

Commencing on the Effective Date, a series of share transfers were made whereby the European Subsidiaries become wholly-owned, direct or indirect, subsidiaries of the Company. The following tables set out our active subsidiaries as at May 31, 2005:


		Ownership by Viatel Holding
Name of Subsidiary	Jurisdiction of Incorporation	(Bermuda) Limited

VTL-TP (Bermuda) Limited	Bermuda		100	%
Viatel Holding (Europe) Limited	England and Wales		100	%
Viatel Operations SA ⁽¹⁾	France		100	%
Viatel Belgium NV	Belgium		100	%
VTL, Inc. ⁽²⁾	US		100	%
Viatel Broadband Limited	England and Wales		100	%


Name of Subsidiary	Jurisdiction of Incorporation	Ownership by VTL, Inc.

Viatel Belgium Limited	England and Wales		100	%
VTL (UK) Limited	England and Wales		100	%
Viatel Circe Assets Limited	England and Wales		100	%


		Ownership by Viatel
Name of Subsidiary	Jurisdiction of Incorporation	Holding (Europe) Limited

Viatel Equipment Limited	England and Wales		100	%
Viaphone AG	Switzerland		100	%
Cybernet (Schweiz) AG	Switzerland		100	%
Viatel Global Communications B.V.	The Netherlands		100	%
Viatel German Asset GmbH	Germany		100	%
VTL Telecom GmbH	Germany		100	%

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(1) It is a requirement of French law that there be 7 shareholders of a corporation organized as a société anonyme (SA). The minority shares in Viatel Operations SA are held by each of 6 nominee shareholders.

(2) As from January 6, 2003.

Our purchase of the business and assets of Cybernet on March 6, 2003 was effected by Viatel AG (a previously inactive subsidiary), which then changed its name to Cybernet (Schweiz) AG.

Our purchase of the share capital of Netcom was effected on March 7, 2003 by VTL (UK) Limited, upon which Netcom became a wholly-owned subsidiary of VTL (UK) Limited. Netcom changed its name to Viatel Internet Limited on January 12, 2004.

Property, Plant and Equipment

The European Network and related telecommunications facilities and equipment sites comprise our principal properties.

We maintain telecommunications facilities in certain premises in which many telecommunications companies also lease facilities. These include our facilities at 60 Hudson Street, New York, Telehouse North and Telehouse East, both in London and also Telehouse Paris. We lease offices in Egham, UK, which include the NOC and our principal executive offices. We also maintain the DRC, a backup network operations center in Amsterdam, The Netherlands.

In addition, we also maintain co-location facilities, regeneration sites, repeater (or modular optical repeater) sites and points of presence in the countries through which our network runs. We also have approximately 76,000 square feet of equipment room space. The majority of these European locations have leases signed for a minimum term of 20 years, including renewal options for subsequent 5-year periods. These leases have been structured in a way so as to limit the risk of relocation. It is anticipated that prior to termination of any of the leases, we will be able to renew such leases or make other suitable arrangements.

To support the European Network, we have installed transmission equipment at 121 facilities across our 6 network countries, including at 49 POPs where customers and other carriers can access the network. These sites are equipped, as standard, with redundant air conditioning, fire suppression system, batteries/UPS (uninterruptible power supply) back-up for DC and AC power respectively. All these facilities take advantage of remote access and site alarms managed and reported by the NOC.

Set forth in the table below are details of the various leasehold interests held by the Company as at May 31, 2005. References to “POP”, “REGEN”, “MOR” and “COLO” are references to a point of presence, a regeneration site, a modular optical repeater site and co-location space, respectively.


		Total Equipment or Facility Area
Property name	Site Type	(leased total area may be larger)
ESSEN (BELGIUM)	REGEN	25 sqm
LEERS-NORD	REGEN	25 sqm

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		Total Equipment or Facility Area
Property name	Site Type	(leased total area may be larger)
LONDON GOSWELL ROAD	POP	1 rack

Aggregated rental payments for the calendar year 2002 and fiscal years 2003 and 2004 were approximately US$10.7 million, US$12.0 million and US$12.2 million respectively.

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The following discussion should be read in conjunction with our financial statements and the notes thereto included elsewhere in this Form 20-F. The following discussion includes certain forward-looking statements. See “Forward Looking Statements” on page 2. For a discussion of important factors, see “Item 3. Key Information – Risk Factors.”

General

The financial information presented in this section is derived from the audited consolidated financial information of: (1) the Company as at and for the years ended December 31, 2004 and 2003; (2) the Company as at December 31, 2002 and for the period from June 7, 2002 to December 31, 2002; (3) the Predecessor as at and for the years ended December 31, 2000 and 2001 and for the period from January 1, 2002 to June 7, 2002; and (4) combined financial information for the Company and the Predecessor for the year ended December 31, 2002 which is unaudited, combined historical data on an aggregate basis for such period.

On May 2, 2001, the Predecessor, on behalf of itself and the other Debtors filed a voluntary petition for relief under Chapter 11. The Plan of Reorganization was confirmed by the Bankruptcy Court on May 21, 2002 and consummated on June 7, 2002. The Company succeeded to certain business operations and assets of the Predecessor as a consequence of the Plan of Reorganization. See “Item 4. Information on the Company — Chapter 11 Reorganization” and “Emergence from Chapter 11”.

On June 7, 2002, the Company adopted fresh-start reporting in accordance with SOP 90-7.

The independent auditors report delivered to the Company in connection with its audited consolidated financial statements for the year ended December 31, 2004 and included in this Form 20-F contains an explanatory pararagraph stating that the Company’s recurring net losses and its difficulty in generating sufficient cash flow to meet its obligations and sustain its operations raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements and the selected financial data do not include any adjustments that might result from the outcome of that uncertainty.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the

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relevant reporting periods. Accounting estimates are an integral part of the financial statements prepared by management and are based on management’s current judgments. Those judgments are based on knowledge and experience about past and current events and assumptions about future events.

We believe the following to be our critical accounting estimates because they are important to the portrayal of our financial condition and results of operations and require critical management judgments and estimates about matters that are uncertain. If actual results or events differ materially from those contemplated by management in making these estimates, our results of operations could be materially affected.

Fresh Start Reporting

On June 7, 2002, the Company adopted “fresh start reporting” in accordance with SOP 90-7.

Under fresh start reporting, a new, viable entity is created for financial reporting purposes; the Company’s consolidated financial statements have been prepared for that new entity on that basis applying the following main principles:

• the reorganization value of the entity should be allocated to the entity’s assets in conformity with the procedures specified by Statement of Financial Accounting Standards No. 141, “Business Combinations” (“SFAS No. 141”) for transactions reported on the basis of the purchase method; and

• each liability existing as at the Effective Date, other than deferred taxes, should be stated at present values of amounts to be paid determined at appropriate current interest rates.

The reorganization value was primarily determined on a discounted cash flow analysis utilizing both recent operating results and future projected cash flows over the estimated lives of the network assets and a discount rate of 20%. The reorganization value was allocated to individual assets and liabilities based on the work of outside financial advisors as well as internal valuation estimates using the discounted cash flow analysis referred to above.

Included in the balance sheet at the Effective Date are amounts considered to be pre-confirmation contingencies in accordance with AICPA Practice Bulletin 11, “Accounting for Pre-confirmation Contingencies in Fresh Start Reporting”. Subsequent revisions to the pre-confirmation contingencies are reported in the statement of operations. In our case pre-confirmation contingencies include amounts realized and to be realized from the claims made by the Predecessor in the bankruptcy proceedings of certain subsidiaries. An estimate was made as at the Effective Date of the certain recoveries and, to the extent actual recoveries are in excess of those estimated at the Effective Date, we have recorded a gain through the statement of operations. Liabilities of which there was no actual knowledge yet relate to the Predecessor’s subsidiaries transferred to the Company, are reflected in the same way and the charge has been recorded in the statement of operations.

Revenue and Cost of Sales

The Company records communication services revenue as earned at the time services are provided. The related cost of communication services is reported in the same period.

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Revenues relating to annual operating and maintenance charges are recognized over the period in which the service is provided. Deferred revenue also includes amounts invoiced for standby maintenance applicable to future periods.

Operations and maintenance costs are expensed over the period to which the expenditure relates.

Costs relating to the short-term lease of capacity are recognized over the period of the contract. The costs of network service products are expensed over the period of the recognition of the corresponding revenue.

Impairment of Long-lived Assets

The Company has material customer relationships capitalized in its balance sheet as a result of its acquisition of Cybernet and Netcom. The Company periodically reviews the carrying values of intangible assets subject to amortization and other long–lived assets to determine whether there has been any impairment of these assets and the appropriateness of their remaining useful lives. Should events or circumstances indicate that the carrying value may not be recoverable based on undiscounted future cash flows, an impairment loss measured by the difference between the fair value and the carrying value of long-lived assets would be recognized. Fair value is generally determined based upon an estimate of the discounted future net cash flows to be generated by the assets.

Under the testing for impairment, estimates of future cash flows are used to test the recoverability of a long-lived asset, and are based on the existing service potential of the asset. These estimates exclude cash flows associated with future capital expenditures that would increase the service potential of the long-lived asset. There is an inherent uncertainty in estimating future cash flows which can have a material affect on the amount of any impairment.

Accounting for loan notes

In connection with the April 2004 Financing, the Company issued US$52.25 million of convertible loan notes. There are two embedded derivatives within the convertible loan note ‘host’ contract, a change of control put option and an equity conversion feature. The put option allows the loan note holder to put back the loan notes to the Company for cash equal to the value of 101% of the principal of the loan notes, should a change of control of the Company be effected. The equity conversion feature allows the loan note holder to convert the loan notes into equity, upon the occurrence of specified “liquidity events”, at a conversion price linked to the equity value of the Company, which in turn is related to the share price of the Company.

The change of control put option is separately accounted for pursuant to Statement of Financial Accounting Standards No. 133 “Accounting for Derivative Instruments and Hedging Activities”. The fair value of the embedded derivative is deemed to be nil at both the loan note issuance date, April 21, 2004, and the balance sheet date, December 31, 2004, as the likelihood of the loan note holder exercising the put option, should a change of control occur, has been assessed by management as being remote.

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Conversion Features or Contingently Adjustable Conversion Ratios” and Issue 00-27 “Application of Issue No. 98-5 to Certain Convertible Instruments”. These Issues require that an intrinsic value is assigned to the convertible feature at the date of the issuance of the loan notes, based on the difference between the conversion price and share price multiplied by the number of shares issued upon conversion. The conversion feature is recorded within Additional Paid in Capital in Shareholders’ Equity and as a discount against the face value of the loan notes. The discount is amortized using the effective yield method over the life of the loan notes.

Results of Operations

Due to the adoption of fresh start reporting as of June 7, 2002, the Company’s post-fresh start balance sheet, statement of operations and statement of cash flows have not been prepared on a consistent basis with, and are therefore generally not comparable to, those of the Predecessor. In accordance with SOP 90-7, the Company’s balance sheet, statement of operations and statement of cash flows have been presented separately from those of the Predecessor.

Year-on-year movements in the statement of operations from fiscal 2003 to fiscal 2004 were principally caused by organic growth and the recognition of non-recurring benefits following settlement of claims originating from the Predecessor’s business (including settlement of our claim with Easynet Telecommunications Limited (“Easynet”)). The benefit recognized in the 2004 fiscal year of US$17.8 million from Easynet was Substantially offset by higher sales and marketing expenses incurred to drive organic growth. See “Item 8. Financial Information – Legal Proceedings”. Year-on-year movements in the statement of operations from calendar 2002 to fiscal 2003 were principally caused by the acquisitions of Netcom and Cybernet effected during 2003. Year-on-year movements in the statement of operations from fiscal 2001 to calendar 2002 were principally caused by the exiting from the Predecessor’s voice businesses and enterprise businesses in multiple jurisdictions during 2001. The fiscal year ended December 31, 2001 includes a partial year of operations of all of the Predecessor’s businesses, with the remainder of the year being more limited business activity, similar to the Company’s ongoing business. During the year ended December 31, 2002, the Predecessor and the Company operated similar businesses. For a greater description of the evolution of the businesses of both the Predecessor and the Company, see “Item 4. Information on the Company”.

Certain of the Company’s line items in the statement of operations were not affected by the adoption of fresh start reporting. Therefore, for these line items, the Predecessor’s 2002 amounts have been combined with the Company’s 2002 amounts for comparison and analysis purposes herein, as shown in the table below. For those items affected by the adoption of fresh start reporting, the total in the column below is shown as “N/A”.


	Successor															Predecessor
													Jun. 7-
	Year Ended December						Year Ended						Dec. 31,			Jan.1–Jun.			Total Calendar Year Ended
	31, 2004						December 31, 2003						2002			7, 2002			December 31, 2002 ⁽¹⁾
				% of						% of												% of
	$’000			revenue			$’000			revenue			$’000			$’000			$’000			revenue
Revenue		28,790			100			18,912			100			4,164			2,667			6,831			100

Cost of service & sales		(16,538	)		(57	)		(10,015	)		(53	)		(1,506	)		(1,518	)		(3,024	)		(44	)

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	Successor															Predecessor
													Jun. 7-
	Year Ended December						Year Ended						Dec. 31,			Jan.1–Jun.			Total Calendar Year Ended
	31, 2004						December 31, 2003						2002			7, 2002			December 31, 2002 ⁽¹⁾
				% of						% of												% of
	$’000			revenue			$’000			revenue			$’000			$’000			$’000			revenue
Selling, general & administrative		(67,797	)		(235	)		(51,225	)		(271	)		(30,840	)		(26,502	)		(57,342	)		(839	)

Gains on amounts due from bankruptcy estates		3,105			11			358			2			25,003			—			N/A			N/A

Restructuring and impairment		—			—			—			—			—			(908	)		(908	)		(13	)

Depreciation and amortization		(9,140	)		(32	)		(7,181	)		(38	)		(2,458	)		(1,736	)		(4,194	)		(61	)


Other operating income		17,780			62			—			—			—			—			—			—

Operating loss before reorganization items		(43,800	)		(91	)		(49,151	)		(260	)		(5,637	)		(27,997	)		N/A			N/A

Reorganization items		—			—			—			—			—			2,662,669			N/A			N/A


Operating (loss) / income		(43,800	)		(152	)		(49,151	)		(260	)		(5,637	)		2,634,672			N/A			N/A


Interest and other income		775			3			1,557			8			986			1,007			1,993			29

Interest expense		(4,395	)		(15	)		—			—			(11	)		(63	)		(74	)		(1	)

Taxation		241			1			—			—			—			—			—			N/A


Net (loss) / income		(47,179	)		(143	)		(47,377	)		(251	)		(4,662	)		2,635,616			N/A

(10)

(1) where not affected by adoption of fresh start reporting.

Foreign Currency

We have exposure to fluctuations in foreign currencies relative to the United States Dollar as a result of billing portions of our communications services revenue in Pounds Sterling, Swiss Francs and United States Dollars while many of our ongoing obligations, including a substantial portion of the costs of operating our network, are denominated in Pounds Sterling and Euros. In addition, our funding received under the April 2004 Financing and to be received under the June 2005 Financing was, or is to be, as appropriate, received in United States Dollars.

To hedge against this risk we exchanged our cash balances pro rata into those currencies in which we anticipated our expenditure to occur.

Inflation

We do not believe that inflation has had a significant effect on our operations to date.

Results of Operations for the year ended December 31, 2004 as compared with the year ended December 31, 2003

The following discussion provides a comparison of the results of operations of the Company for the year ended December 31, 2004 with the year ended December 31, 2003.

Revenue

For the year ended December 31, 2004, we recognized revenues of $28.8 million compared to $18.9 million for the year ended December 31, 2003, an increase of 52%.

The increase is primarily due to organic growth, and the recognition of 12 months of revenue from Netcom and Cybernet which we acquired during 2003, as compared to 10 months of revenue in the prior year. The effect of recognising a full 12 months of revenue is estimated to have increased reported revenues by US$2.9 million.

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Our revenues have been derived primarily from the provision of telecommunications services in Europe. These services are marketed and sold to different classes of customer on a wholesale or retail basis. By wholesale customers, we generally refer to other telecommunications companies (or “carriers”) and by retail customers, we generally refer to SME customers. The majority of our revenues are billed based on a periodic billing basis, monthly, quarterly or annually, based upon contracted service fees. A small percentage of our revenues, such as access fees to our collocation facilities, are billed based upon specific service requests from our customers and certain revenues, such as our roaming Internet access service, are billed on a usage basis.

Revenue from communications services in the year ended December 31, 2004 was $26.9 million or 93% of total revenue, an increase of 56% on communications services revenues for the year ended December 31, 2003 which was $17.2 million or 91% of total revenue.

Operations and maintenance fees are revenues that we derive from customers who have in the past purchased certain interests in network capacity. Such revenues are contracted at the time of initial purchase and reflect charges that we make to such customers for the ongoing maintenance of their portion of the network capacity they have purchased.

Revenue from operations and maintenance fees in the year ended December 31, 2004 was $1.8 million, or 6% of total revenue for such period, while for the year ended December 31, 2003, total operations and maintenance fee revenue was $1.7 million, or 9% of total revenue for that period.

Each revenue source has a different impact on our results of operations. As a consequence of our network assets, the costs of which are not generally included in cost of sales, our wholesale connectivity services provide increased gross profit margins. Our retail revenues are more reliant upon services acquired from third parties.

Cost of Sales

Our cost of services and sales can be classified into three general categories: access costs, backbone network costs and installation costs.

Access costs generally represent the costs associated with providing connections between a customer’s premises and the closest access point on our network. Access costs vary depending upon the distance from our network to the customer’s premises and from country to country.

Backbone network costs represent the recurring third party costs of providing connectivity to locations where we do not own our own network infrastructure.

Installation costs represent the initial non-recurring costs of connecting customers to our network, and include third party connection fees, as well as the cost of equipment located at customers’ premises.

For the year ended December 31, 2004, we incurred costs of sales of $16.5 million, or 57% of total revenue for such period, an increase of 65% compared to $10.0 million for the year ended December 31, 2003 or 53% of total revenue for such period. The reason for this increase was primarily related to the increased revenue of the Company.

The gross margin generated by the revenues and related costs of services and sales for the year ended December 31, 2004 was 43%, while for the year ended December 31, 2003 it was 47%. This decline reflects the increased focus on sales to retail customers, a business which offers lower margins

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than those the Company can achieve when selling on-network wholesale connectivity services as a consequence of the reliance upon third party carriers to deliver retail services.

Selling, General and Administrative Expenses

Our selling, general and administrative expenses include network property lease and related costs, periodic ROW and wayleave costs, repair and maintenance costs, advertising and promotional costs, all employee costs, bad debt expense, and overhead costs associated with our headquarters, back-office, NOC and sales offices.

A significant proportion of our total selling, general and administrative expenses is currently accounted for by costs which are related to the continued operation of our network; such costs are unavoidable if we continue to operate the network on its current footprint and level of service.

For the year ended December 31, 2004, we incurred selling, general and administrative expenses of $67.8 million, an increase of 32% compared to $51.2 million for the year ended December 31, 2003. The increase is principally attributed to higher sales and marketing, as the Company undertook both to accelerate growth in new order intake and to expand its product portfolio. Increased headcount and external marketing expenditure contributed $8.4 million, or 16%, of the growth in selling, general and administrative expenses. The weaker US dollar resulted in a further increase in reported expenses of approximately $5 million, or 10%

Gains on amounts due from bankruptcy estates

For the year ended December 31, 2004, we recognized $3.1 million in respect of gains on amounts due from bankruptcy estates, and in the year ended December 31, 2003, we recognized $0.4 million for such gains. These items have arisen due to the Predecessor’s position as a significant creditor in the estates of several of its subsidiaries which were forced to enter into bankruptcy proceedings. The final amounts to be received ultimately depend upon the success of the liquidation processes and are considered pre-confirmation contingencies in accordance with AICPA Practice Bulletin 11. Subsequent revisions to the pre-confirmation contingencies are reported in the statement of operations.

Gains on amounts due from bankruptcy estates may continue to occur until such bankruptcy estates are finally liquidated, which is anticipated during 2005. Due to their nature, such gains are unpredictable in size and timing.

Restructuring and Impairment

We did not incur any expense for restructuring and impairment in either of the years ended December 31, 2004 or 2003. During 2003 and 2004, no restructuring was undertaken and, in the view of management, there was no impairment of any assets.

Depreciation and Amortization

Depreciation and amortization expense includes charges relating to depreciation of property and equipment, which consist principally of our fiber-optic network, as well as telecommunications related equipment such as leasehold improvements at our POPs, furniture and equipment and amortization of intangible assets. We depreciate our network over periods ranging from five to twenty years and amortize our intangible assets over periods ranging from two to five years.

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For the year ended December 31, 2004, we recorded depreciation and amortization expense of $9.1 million, an increase of 27% over the $7.2 million recorded in the year ended December 31, 2003. This increase is principally due to the higher average value of the depreciable cost base during 2004, due to the capitalization of assets during the latter half of 2003 and through 2004.

Other operating income

Other operating income represents the recognition of amounts due of US$17.8 million following settlement of our claim with Easynet. See “Item 8 – Financial Information – Legal Proceedings” and footnote 10(b) to consolidated financial statements in this Form 20-F.

Operating loss

For the year ended December 31, 2004, we recorded an operating loss of US$43.8 million, an improvement of US$5.4 million over the loss of $49.2 million recorded in 2003.

Interest and Other Income

Interest was earned on cash balances held by certain of the Group’s subsidiaries, which has been invested principally in overnight, week-to-week or month-to-month treasury deposits.

For the year ended December 31, 2004, we recognized interest income of US$0.8 million, a decrease of US$0.8 million or 50% from the US$1.6 million interest income recognized for the year ended December 31, 2003. The interest income decrease was due to the lower average cash balances being held by the group in 2004 compared with 2003.

Interest expense

For the year ended December 31, 2004, we recorded interest expense of US$4.4 million. This principally accrued on the convertible loan notes which were issued on April 21, 2004, and which bear interest at 8% per annum. Interest expense was also recognized as a result of amortization of the deferred financing costs associated with the issuance of the convertible loan notes, and on the discount on the convertible loan notes arising as a consequence of recognizing the beneficial conversion feature.

Net loss

For the year ended December 31, 2004, we recorded a net loss of US$47.2 million, an improvement of US$0.2 million over the net loss of US$47.4 million recorded in 2003.

Capital Expenditure

In 2004 capital expenditure increased by 77% to US$3.9 million from US$2.2 million in the year ended December 31, 2003. During 2003, we also incurred cash expenditure for the purchase of Netcom (approximately US$0.8 million) and Cybernet (approximately US$3.2 million).

Capital expenditure incurred in 2004 included US$1.3 million to ‘light’ the French western loop of our European network. The balance of expenditure was predominately incurred in the acquisition of computer hardware and IP equipment to support the launch of our managed hosting portfolio and to support Cybernet’s ongoing business.

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Results of Operations for the year ended December 31, 2003 as compared with the year ended December 31, 2002

The following discussion provides a comparison of the results of operations of the Company for the year ended December 31, 2003 with the historical results of the Company and the Predecessor on a combined basis for the year ended December 31, 2002. The discussion is provided for comparative purposes only. Please note that the value of such a comparison may be limited. The historical results of operations for the year ended December 31, 2002 combines the results of operations for the Predecessor for the period from January 1, 2002 to June 7, 2002 with the results of operations for the Company for the period from June 7, 2002 to December 31, 2002. Such combined financial information does not necessarily reflect the results of operations that either the Predecessor or the Company would have achieved during 2002. The combined financial information for the year ended December 31, 2002 is merely such combined historical data on an aggregate basis and does not attempt to give pro forma effect to the acquisitions of assets by the Company in 2003, transactions related to the Plan of Reorganization or any other events which occurred during or after the period. In addition, the Company has a significantly different capital structure than the Predecessor as a result of its Chapter 11 reorganization.

Revenue

For the year ended December 31, 2003, we recognized revenues of $18.9 million compared to $6.8 million for the year ended December 31, 2002 on a combined basis, an increase of 178%.

This increase was primarily due to the revenues being generated by the companies which we acquired during 2003. Cybernet contributed US$8.7 million and Netcom US$4.8 million of the total revenue line.

Revenue from communications services in the year ended December 31, 2003 was $17.2 million or 91% of total revenue, an increase of 330% on communications services revenues for the year ended December 31, 2002 which on a combined basis was $4.0 million or 59% of total revenue. The increase in percentage terms that communications services revenue represents of total revenue reflects a lesser reliance on the operations and maintenance fee revenues. Substantially, all of the revenue being added as a consequence of the acquisitions in the year is communications services revenue.

Revenue from operations and maintenance fees in the year ended December 31, 2003 was $1.7 million, or 9% of total revenue for such period, while for the year ended December 31, 2002, total operations and maintenance fee revenue on a combined basis was $2.8 million, or 41% of total revenue for that period. The reason for the decrease in operations and maintenance fee revenue of 40% was due to the loss of one customer whose bankruptcy caused them to terminate their agreement for the provision of network capacity.

Cost of Sales

For the year ended December 31, 2003, we incurred costs of sales of $10.0 million, or 53% of total revenue for such period, an increase of 333% compared to $3.0 million for the year ended December 31, 2002 on a combined basis, or 44% of total revenue for such period. The reason for this increase was primarily related to the increased revenue of the Company.

The gross margin generated by the revenues and related costs of services and sales for the year ended December 31, 2003 was 47%, while for the year ended December 31, 2002 on a combined basis, it was 56%. The reduction of 9 percentage points between 2002 and 2003 in gross margin is due to the increased focus on sales to retail customers.

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Selling, General and Administrative Expenses

For the year ended December 31, 2003, we incurred selling, general and administrative expenses of $51.2 million, a decrease of 11% compared to $57.3 million for the year ended December 31, 2002 on a combined basis. The 2002 figure includes a charge of $6.1 million for a repayment due to the French VAT authorities which is a non-recurring item. No such charge has arisen in 2003; absent the charge for French VAT, selling, general and administrative expenses in 2003 would have been 1% lower than for the year ended December 31, 2002 on a combined basis.

Gains on amounts due from bankruptcy estates

For the year ended December 31, 2003, we recognized $0.4 million in respect of gains on amounts due from bankruptcy estates. In the period from June 7, 2002 to December 31, 2002, we recognized $25.0 million for such gains. As this item results from the adoption of fresh-start reporting, the Predecessor had no such gains in its statements of operations. This item has arisen due to the Predecessor’s position as a significant creditor in the estates of several of its subsidiaries which were forced to enter into bankruptcy proceedings. The final amounts to be received ultimately depend upon the success of the liquidation processes and are considered pre-confirmation contingencies in accordance with AICPA Practice Bulletin 11. Subsequent revisions to the pre-confirmation contingencies are reported in the statement of operations.

In the period from June 7, 2002 to December 31, 2002, the full revision of the estimate of amounts receivable from bankruptcy estates was recognized and the balance sheet amount for such gains was based on extensive information available from the liquidators of such bankruptcy estates. The extensive look-back period available in the composition of the audited consolidated 2002 financial statements has given rise to a significant reduction in the size of the gain recognized in the year ended December 31, 2003.

Restructuring and Impairment

For the year ended December 31, 2003, we incurred no expense for restructuring and impairment compared with an expense of $0.9 million for the year ended December 31, 2002 on a combined basis. During 2003, no restructuring was undertaken and, in the view of management, there was no impairment of any assets.

Depreciation and Amortization

For the year ended December 31, 2003, we recorded depreciation and amortization expense of $7.2 million, an increase of 71% over the $4.2 million recorded in the year ended December 31, 2002, on a combined basis. This increase is principally due to the depreciation of tangible fixed assets acquired and the amortization of intangible assets acquired as a consequence of the acquisitions of Netcom and Cybernet.

Operating loss

For the year ended December 31, 2003, we recorded an operating loss of $49.2 million. Due to the application of fresh start reporting, such loss is not comparable with a similar period in 2002.

Interest and Other Income

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Interest was earned on cash balances held by certain of the Group’s subsidiaries, which has been invested principally in overnight, week-to-week or month-to-month treasury deposits.

For the year ended December 31, 2003 we recognized interest income of $1.6 million, a decrease of 22% on the interest income recognized for the year ended December 31, 2002 on a combined basis, which was $2.0 million. The interest income decrease was due to the lower cash balances being held by the Group in 2003 compared with 2002.

Net loss

For the year ended December 31, 2003, we recorded a net loss of $47.4 million. Due to the application of fresh start reporting, such loss is not comparable with a similar period in 2002.

Capital Expenditure

In 2003 capital expenditure declined by 79% to $2.2 million from $10.4 million in the year ended December 31, 2002, on a combined basis. This is primarily due to the completion of our Swiss network build during 2002. No such network construction-related capital expenditure was incurred in 2003. During 2003, we incurred cash expenditure for the purchase of Netcom (approximately US$0.8 million) and Cybernet (approximately US$3.2 million).

Liquidity and Capital Resources

The Company and the Predecessor have experienced significant net losses from operations and negative cash flows from operations for most of their history. We are currently operating at a net loss and experiencing negative cash flows through the current year to date and expect to continue to do so as we continue to implement the New Viatel Business Plan and expand our business.

Operating cash outflows for the years ended December 31, 2004 and 2003 amounted to US$48.8 million and US$25.1 million respectively. The 2004 cash outflow included US$10.5 million of cash which was subject to a hedging conversion which straddled the year end and consequently fell to be recognized as an around to be received from exchange contracts and not as cash or cash equivalents as of December 31, 2004. This amount receivable from exchange contracts was received in cash on January 5, 2005. Financing activities during 2004 generated gross proceeds of US$52.25 million from the issue of loan notes, such monies being reduced by US$8.1 million due to costs incurred in connection with the loan note offering, resulting in completion of the April 2004 financing.

As of May 31, 2005, our available cash amounted to US$8.7 million. As of December 31, 2004, our available cash amounted to US$22.8 million and as of December 31, 2003, our available cash amounted to US$30.4 million. Since the Effective Date, we have met our cash requirements through the financing from the Investors, the recovery of funds through the Plan of Reorganization, recoveries from the bankruptcy proceedings of certain subsidiaries of the Predecessor, interest income on short-term investments and trade receipts. Operating cash outflows for the years ended December 31, 2004 and 2003 amounted to US$48.8 million and US$25.1 million respectively.

We currently have limited financial resources available to support our ongoing operations, to fund the New Viatel Business Plan and to pay our ongoing operational obligations as they become due. Interest on the New Notes is to be initially 12% per annum, payable semi-annually with the interest rate increasing by 0.5% per annum on each interest payment date, beginning on january 15, 2006. For the first year of issue interest will be payable on the New Notes by way of the issuance of additional New Notes. After the first anniversary of the New Notes, interest will be payable in cash only.

The New Notes are to have a 2 year maturity and will rank senior to all subordinated debt of the Company (including the Existing Notes) and pari passu will all senior debt of the Company. Under the terms of the June 2005 financing, the holders of the Existing Notes have agreed to subordinate their Existing Notes to the New Notes.

The Company expects to pursue the further financing and Morgan Stanley and Värde have advised the Company that they will consider providing such financing and/or additional financing. It is currently contemplated that any such further financing would involve an investment of an additional US$16 million, with such additional amount being reduced by the proceeds of any asset sales by the Company entered into prior to the future financing, and to be further reduced to the extent that the Company’s then performance against budget does not demonstrate a need for such additional financing. No assurance can be given that the proposed further financing will be consummated. If the Company does not obtain acceptable funding, the Directors will be forced to reduce dramatically cash requirements or to raise cash, by discounting or disposing of existing development programmes or business operations, by selling assets or otherwise. These consolidated financial statements do not include any adjustment that might result from the outcome of this uncertainty. If these measures were to be inadequate to cover the Company’s cash needs, the Company would likely become insolvent. Neither Morgan Stanley nor Värde is under any obligation to participate in the further financing or any other financing, other than the June 2005 financing to the extent contemplated by the terms and conditions thereof.

Our business plan projections would indicate that we will not generate positive cash flows on a monthly basis until into the last quarter of 2006.

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Our cash requirements and financial resources may vary significantly from our current operating budgets and financial forecasts, however, based on many factors. These factors include those set forth under the caption “Item 3. Key Information – Risk Factors” in this Form 20-F.

Commitments

The following table provides a summary of our expected obligations and commitments to make future payments under contracts, contractual obligations and commercial commitments as at December 31, 2004:

Contractual Obligations


			Less than						More than
US$000’	TOTAL		1 year		1-3 years		3-5 years		5 years
	(United States Dollars in thousands)
Standby maintenance contracts		3,730		3,678		52		—		—
Operating leases		39,930		5,394		7,771		6,065		20,700

Loan and future interest payments		94,812		1,952		12,774		8,516		71,570

Total contractual cash commitments		138,472		11,024		20,597		14,581		92,270

This table excludes contracts entered into shortly before the year end, in the normal course, for delivery of goods or services early in the new year. Future contractual obligations under standby maintenance contracts and operating leases are expected to be satisfied through ongoing financing and operating cashflows. Loan and future interest payments are expected to be satisfied either through ongoing financing, operating cashflows or through the exercise, at the loan holders’ behest, of the conversion of the loan notes and accumulated interest into equity. The contractual committment to make future interest payments assures interest obligations are paid in cash and not met through the conversion of accrued interest into additional loan notes.

New Notes to the value of US$16 million are expected to be issued in connection with the June 2005 financing. These New Notes are due for repayment by June 2007. Interest on the New Notes proposed to be issued upon completion of the June 2005 financing is to be initially 12% per annum, payable semi-annually with the interest rate increasing by 0.5% per annum on each interest payment date, beginning January 15, 2006, for the first year of issue interest will be payable on the New Notes by way of the issuance of additional New Notes. After the first anniversary of the issuance of the New Notes, interest will be payable in cash only.

Research and Development and Capital Expenditures

The following table summarizes our capital expenditure and research and development from the 2002 fiscal year through to December 31, 2004. During 2004, we conducted development activity in MPLS VPN, managed hosting, Ethernet and connectivity In 2005 the Company commenced development activity in respect of VISP and VoIP product lines and underlying network and technical solutions.

Successor

Predecessor

Year ended

From June 7, 2002

From January 1,

US$000’

December 31,

to December 31,

2002 to June 7,

2004

2003

2002

Capital expenditure

3,847

2,180

1,667

8,721

Research and development

1,093

—

Recent Accounting Pronouncements Not Yet Adopted

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Board (IASB) toward development of a single set of high-quality accounting standards. The FASB and the IASB noted that ARB 43, Chapter 4 and IAS 2, Inventories, are both based on the principle that the primary basis of accounting for inventory is cost. Both of those accounting standards also require that “abnormal” amounts of idle freight, handling costs, and wasted materials be recognized as period costs; however, the Boards noted that differences in the wording of the two standards could have led to the inconsistent application of those similar requirements. The FASB concluded that clarifying the existing requirements in ARB 43 by adopting language similar to that used in IAS 2 is consistent with its goals of improving financial reporting in the United States and promoting convergence of accounting standards internationally. The guidance is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. Earlier application is permitted for inventory costs incurred during fiscal years beginning after November 23, 2004. We do not anticipate that the adoption of SFAS 151 will have a material impact on our results of operations, financial position or cash flows.

In December 2004, the FASB issued SFAS 123 (revised 2004), “Share-Based Payments” or SFAS 123R. This statement eliminates the option to apply the intrinsic value measurement provisions of APB 25, “Accounting for Stock Issued to Employees” to stock compensation awards issued to employees. Rather, SFAS 123R requires companies to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. That cost will be recognized over the period during which an employee is required to provide services in exchange for the award-the requisite service period (usually the vesting period). SFAS 123R applies to all awards granted after the required effective date and to awards modified, repurchased, or cancelled after that date. For public entities that do not file as small business issuers, standard is effective for the annual reporting period that begins after June 15, 2005. We are currently evaluating the impact of SFAS 123R on our results of operations, financial position and cash flows.

In December 2004, the FASB issued SFAS 153, “Exchanges of Nonmonetary Assets — an amendment of APB Opinion No. 29”, which amends APB 29, “Accounting for Nonmonetary Transactions” to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. SFAS 153 is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. We are currently evaluating the impact of SFAS 153 on our results of operations, financial position and cash flows.

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

Directors and Executive Officers

The following table sets forth certain information with respect to our Directors and executive officers as of May 31, 2005:


Name	Age		Date of Appointment	Position

Leslie Goodman		59	July 24, 2002	Chairman of the Board (1), (2)

Lucy Woods		46	May 9, 2003	Chief Executive Officer and Director (1)

S. Dennis Belcher		64	August 8, 2002	Director (1), (2), (3)

Kevin Power		51	October 25, 2002	Director (1), (2), (3)

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Name	Age		Date of Appointment	Position

Edward Greenberg		53	March 31, 2003	Director (3), (4)

Thomas E. Doster IV		36	August 8, 2002	Director (4)

Steve Best		38	July 25, 2004	Chief Technical Officer

Stuart Blythe		41	September 29, 2003	Senior Vice President and General Counsel (5)

Roberto Bonanzinga		35	September 15, 2003	Senior Vice President, Marketing

Brian McArthur Muscroft		41	August 1, 2004	Chief Financial Officer (5)

(1)		Member of the Financing Committee.

(2)		Member of the Audit Committee.

(3)		Member of the Remuneration Committee.

(4)		Serves as representative of Morgan Stanley.

(5)		Member of the Disclosure Committee.

Leslie Goodman. Mr. Goodman has served as our Chairman since April 2003. Prior to assuming such position, Mr. Goodman served as a Director of the Company since July 2002. Mr. Goodman is a UK non-practising qualified solicitor who has spent over 30 years in the investment banking and insurance industries. He has been a director of investment banks Hill Samuel and Barclays de Zoete Wedd, and Chief Executive Officer of ACE London the UK business of ACE Limited, a Bermuda-based, NYSE-listed insurance group. He currently serves as a director of a number of other companies.

Lucy Woods. Mrs. Woods has served as our Chief Executive Officer since May 2003. Mrs. Woods has over 20 years of telecommunications experience in the UK and European markets. From 1999 to 2003, she was Senior Vice President for MCI Europe, Middle East and Africa. Prior to that, she was a senior executive at British Telecom, where she held the posts of CEO of British Telecom Northern Ireland and the Republic of Ireland. Mrs. Woods was a member of the Patten Commission for Policing in Northern Ireland. Mrs. Woods holds an Honours Degree in Mechanical Engineering from Imperial College, University of London.

S. Dennis Belcher. Mr. Belcher has served as a Director of the Company since August 2002. Mr. Belcher has forty-four years of experience in banking in the United Kingdom, United States and Canada. At the time of his retirement in March 2002, he was Executive Vice President, Credit and Risk Management and a member of the Loan Policy Committee at the Bank of Nova Scotia. Mr. Belcher’s other directorships include Call-Net Enterprises, Inc., Foamex International Inc. and Rand McNally and Company. Mr. Belcher is an Associate of the Institute of Bankers (UK), a Graduate of the Stonier School of Banking and a Fellow of the Insolvency Institute of Canada.

Kevin Power. Mr. Power has served as a Director of the Company since October 2002. He has served as the Chairman of ECTA, the European Competitive Telecommunications Association since 2000 and was a member of the Board of Universal Access, Inc. from 2000-2003. He has over 20 years

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experience as a senior telecommunications executive in a number of companies, including GTS, Orion Network Systems and Intelsat.

Edward Greenberg. Mr. Greenberg has served as a Director of the Company since March 2003. Mr. Greenberg, who has over 20 years of telecommunications experience, is an Advisory Director at Morgan Stanley. He was previously a highly ranked Research Analyst at Sanford Bernstein and Co., and Morgan Stanley and was Director of Telecom Research at Morgan Stanley for four years. For the last 6 years, Mr. Greenberg has been a Managing Director and Global Telecom Strategist in Morgan Stanley’s investment banking department. Previously, Mr. Greenberg served as a telecommunications policy specialist with the National Telecommunications and Information Administration and as an economist with the Federal Communications Commission.

Thomas E. Doster IV. Mr. Doster has served as a Director of the Company since August 2002. He is the Managing Director in the Distressed Research department at Morgan Stanley and was the Chairman of the Viatel, Inc. creditors’ committee. Mr. Doster has 13 years experience in the fields of High Yield and Distressed Debt at Morgan Stanley and Goldman, Sachs & Co.

Steve Best. Mr. Best joined Viatel as Chief Technology Officer in July 2004. Previously, Mr. Best held a number of senior positions with the MCI group including Vice President of Marketing and head of Engineering and Technology for MCI Europe, Middle East and Africa; his responsibilities while at MCI included the design of MCI’s pan-European voice network and the product development and marketing of the company’s voice, data and IP portfolio across 19 European countries. Before MCI, Mr. Best spent seven years with BT in engineering, marketing and product management. He holds a Bachelor’s Degree in Management Science from Lancaster University.

Stuart Blythe. Mr. Blythe has served as our Senior Vice President and General Counsel since September 2003. Prior to joining us he was Vice President and General Counsel for MCI Europe, Middle East and Africa from 1997-2003. From 1989 until 1997 he practised with the law firms Theodore Goddard and Coudert Brothers LLP, both in London and in New York, specialising in mergers and acquisitions, joint ventures and general corporate law matters. He is qualified both as a Solicitor of the Supreme Court of England and Wales and as an Attorney-at-law in the State of New York.

Roberto Bonanzinga. Mr. Bonanzinga has served as our Senior Vice President, Marketing since September 2003. Previously Mr. Bonanzinga worked as VP Marketing and Services for Netscalibur, a pan-European business ISP. He held this role for three years, pioneering the development of virtual private networking and hosting services tailored to the needs of business customers. Mr. Bonanzinga has an indepth knowledge of the Internet industry having worked in California throughout the mid nineties developing both marketing and business strategy for a string of successful Internet companies.

Brian McArthur Muscroft. Mr. McArthur Muscroft has served as our Chief Financial Officer since August 2004. Prior to assuming such position, Mr. McArthur Muscroft served as Group Finance Director at Eckoh Technologies plc. Prior to that, Mr. McArthur Muscroft held a number of senior financial positions with several of the world’s largest corporations, including Chief Financial Officer at WorldCom EMEA and Chief Financial Officer at Cable & Wireless HKT Interactive Multimedia. He was also appointed Director of Risk Management for Cable & Wireless Asia Pacific. Mr. McArthur Muscroft spent the first 11 years of his career with the Price Waterhouse Corporate Restructuring Group

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in London. Mr. McArthur Muscroft is a member of the Institute of Chartered Accountants in England and Wales and has a law degree.

There is no family relationship between any of the foregoing persons. Certain Directors became Directors pursuant to the Plan of Reorganization. Otherwise, there are no specific agreements, arrangements or understandings with major shareholders, customers, suppliers or others, pursuant to which any of the foregoing persons were selected as a Director or executive officer.

Compensation

We pay an annual fee to any non-employee independent Chairman of the Board of US$100,000 in cash and to independent non-employee Directors in the amount of US$30,000 in cash, paid in quarterly instalments. Chairmen of Committees of the Board receive an additional US$10,000 per year per chairmanship, paid in quarterly instalments. In addition, independent non-employee Directors also receive US$1,200 for each Board Meeting attended and held separately and US$600 for each Board Meeting or Committee Meeting participated in by telephone. Directors who are also our employees are not separately compensated for serving on the Board. Directors are reimbursed for out-of-pocket expenses incurred in attending Board and Committee Meetings.

The total aggregate compensation for the Board as a group for 2004 was US$225,000. The total aggregate compensation of all executive officers of the Company as a group for 2004 was US$2,492,810. During 2004, no options to purchase ordinary shares were granted to executive officers under the Company’s Equity Incentive Plan. Included in the total aggregate compensation for our Board and executive officers for 2004 was US$103,685 to provide for pension and other retirement benefits. In addition to the aggregate compensation noted above, payments totalling US$1,258,245 were made to executives resigning during the year.

Mr. Grist resigned on July 31, 2004 and was replaced with Mr. McArthur Muscroft. Upon the effectiveness of such resignation, Mr. Grist’s contract of employment with the Company was terminated. In connection with Mr. Grist’s resignation, in July 2004 Mr. Grist exercised an option to purchase 70,000 shares at US$0.01 per share.

As of December 31, 2004 there were no options outstanding under the Company’s Equity Incentive Plan. The Company does not intend to make any further grants under its Equity Incentive Plan and intends to terminate the Equity Incentive Plan in 2005.

Board Practices

Board of Directors

Our Board is currently comprised of six Directorships. In connection with the April 2004 Financing, various changes to our Bye-Laws were approved and adopted by shareholder resolution at the Special General Meeting of the Company held on April 6, 2004 (the “April 2004 SGM”) which have a material impact on the powers and procedures relating to the appointment and removal of Directors. Effectively, the Investors have the power to appoint a majority of the Board at any one time. Under the Bye-Laws, Värde, Ahab Capital management, Inc, CFSC Wayland Advisers, Inc. and certain affiliated entities who purchase Existing Notes, each have the right to appoint one non-voting representative to attend all meetings of the Board until such time as they collectively beneficially own less than ten percent

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of the then outstanding common shares of the Company. In connection with the April 2004 Financing, the Company granted the Investors certain registration rights to cause the Company under certain circumstances to register the common shares issuable upon conversion of the Existing Notes under a registration statement to be filed with the U.S. SEC. See “Item 4. Information on the Company – Financing” and “Item 10. Further Information – Memorandum of Association and Bye-Laws”.

Our Bye-Laws provide that at the second Annual General Meeting of the Company, all of the Directors (other than any holding executive office) are to retire from office, and at every subsequent Annual General Meeting one-half of the Directors who are subject to retirement by rotation or, if their number is not two or a multiple of two, the number nearest to but not more than one-half shall retire from office. The Directors to retire shall be those who have been longest in office since their last appointment or reappointment, but as between persons who became or were last reappointed Directors on the same day those to retire shall (unless they otherwise agree among themselves) be determined by lot. As a result of the Bye-Law amendments adopted by shareholders’ resolution at the April 2004 SGM in connection with the April 2004 Financing, the Bye-Law in relation to retirement by rotation is not applicable for so long as the Special Share is outstanding (see “Item 10. Further Information – Description of Share Capital — Memorandum of Association and Bye-Laws”). As a result Bermuda law applies and each Director is appointed at the relevant annual general meeting and serves until reappointed at the following AGM or until their successors are appointed, unless they are earlier removed or resign.

We have not entered into any service agreements providing for benefits to our Directors upon termination of their Directorships.

Committees of the Board of Directors

Our Board has established three standing committees, a Remuneration Committee, an Audit Committee and a Disclosure Committee. The current members of the Remuneration Committee are Messrs. Belcher, Greenberg and Power; the current members of the Audit Committee are Messrs. Belcher, Goodman and Power; and the current members of the Disclosure Committee are Messrs. Blythe, McArthur Muscroft and Steve Garry.

The Remuneration Committee reviews general policy matters relating to compensation and benefits of our employees and officers and administers our Equity Incentive Plan and the EBT. See “Item.6 – Employee Benefit Trust”. None of our executive officers currently serves on the Remuneration Committee of another entity or any other committee of the board of another entity performing functions similar to the Remuneration Committee. No interlocking relationships exist between our Board or our Remuneration Committee and the board of directors or compensation committee of any other company.

The Audit Committee consists of 3 independent Directors and meets at least 3 times a year. Its role is to recommend to our Board the firm of independent public accountants to audit our financial statements, review with management and the independent accountants our interim and year-end operating results, consider the adequacy of our internal controls and audit procedures and review the non-audit services to be performed by the independent accountants.

The Disclosure Committee was established pursuant to a written Disclosure Committee Charter approved by our Board. The Disclosure Committee Charter was adopted by our Chief Executive Officer

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and Chief Financial Officer and ratified by our Board by written Directors’ resolutions dated December 28, 2003. The Charter enumerates the Committee’s responsibilities, including designing disclosure controls, monitoring their effectiveness and supervising the preparation of our disclosure documents. The Disclosure Committee oversees the gathering of information in connection with the preparation of the reports that we file under the Exchange Act, including this Form 20-F, and works to ensure the accuracy and completeness of our disclosures in such reports.

Employees

The following tables set forth the number of full-time employees on a functional basis at the end of each of 2004, 2003 and 2002:


	2004		2003		2002

Engineering and Operations		50		41		43
Sales, Services and Marketing		143		105		22
Finance		14		15		7
Management Information Systems		9		5		5
Legal and Human Resources		7		2		1
Other		2		14		5

Total		225		182		83

As at May 31, 2005, the Company had 198 full-time employees, of which 48 are engaged in Engineering and Operations, 120 in Sales & Service and Marketing, 13 in Finance, 8 in Management Information Systems, 8 in Legal and Human Resources and two others to include the Chief Executive Officer and one administrative assistant. The breakdown of these 198 full-time employees by geographic location is as follows:


May 31, 2005	Total		UK		Belgium		France		Germany		Netherlands		Switzerland
Engineering & Operations		48		36		1		3		1		2		5
Sales, Services and Marketing		120		90		—		1		1		2		26
Finance		13		11		—		1		—		—		1
Management Information Systems		8		8		—		—		—		—		—
Legal and Human Resources		7		7		—		—		—		—		—
Other		2		2		—		—		—		—		—

Total		198		154		1		5		2		2		32

None of the foregoing employees including those referred in the table set out above is or was represented by a labour union or, save for the 5 employees employed by the French company, Viatel Operations SA, who are covered by a collective agreement.

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Share Ownership

Beneficial Ownership of Executive Officers and Directors

As at May 31, 2005, none of our executive officers or directors reported any information to us concerning any related beneficial ownership of our common shares. For these purposes, beneficial ownership is determined in accordance with the rules of the U.S. SEC. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, common shares subject to options and warrants held by that person that are currently exercisable, or exercisable within 60 days, are deemed outstanding. Such common shares, however, are not deemed outstanding for the purpose of computing the percentage ownership of any other person.

However, upon conversion of the Existing Notes held by Mrs. Woods (including those addintional notes issued to Mrs. Woods by way of interest on the Existing Notes issued to Mrs. Woods under the April 2004 financing), Mrs Woods would beneficially own 353,137 common shares of the Company, assuming a conversion price of US$0.75 per share.

Both Mr. Edward Greenberg and Mr. Thomas E. Doster IV are Directors of the Company, and an Advisory Director and a Managing Director in the Distressed Research Department, respectively, of Morgan Stanley and therefore may be deemed to beneficially own the common shares owned by Morgan Stanley. However each of Mr. Greenberg and Mr. Doster disclaims any beneficial interest in the common shares owned by Morgan Stanley. See “Item 4. Information on the Company – Description of Certain Indebtedness” and “Item 7. Major Shareholders and Related Party Transactions” for details of Morgan Stanley’s ownership.

Equity Incentive Plan and Employee Benefit Trust

On June 6, 2002, with shareholder approval, the Board approved the terms of and adopted the Equity Incentive Plan which is designed to: (1) attract, retain and motivate participants; (2) provide incentive compensation opportunities to participants that are competitive with those of companies similarly situated; and (3) further align the interests of participants with those of our shareholders. Such participants initially were the executive officers in place at the Effective Date, however it was anticipated that grants under the Equity Incentive Plan would be made to certain levels of management of the Company.

Pursuant to the Equity Incentive Plan, “non-qualified” stock options to acquire shares of common stock may be granted to the Company’s employees, officers, directors, independent contractors and consultants. The Incentive Plan also provides for the grant of Stock Appreciation Rights, either separately or in tandem with options, entitling holders to cash compensation measured by appreciation in the value of the common shares, and Limited Stock Appreciation Rights, that are exercisable upon the occurrence of specified events. The Equity Incentive Plan also authorizes the grant of any other share-based awards, such as restricted stock and bonus stock, as deemed appropriate.

The Equity Incentive Plan is currently administered by the Remuneration Committee. The Equity Incentive Plan allows for the issuance of up to a maximum of 1,440,000 shares of common stock of which 1,180,000 shares remained available for grant at December 31, 2003. No options were granted

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during the year ended December 31, 2004. The exercise price of the share covered by each non-qualified stock option shall be as determined by the Remuneration Committee. Should an incentive stock option be granted to a person possessing more than 10% of the combined voting power of the Company, the exercise price shall not be less than 110% of the fair market value of the share on the date of grant. Options are subject to various vesting conditions as disclosed below and have a maximum term of 10 years from the grant date.

Each option granted pursuant to the Equity Incentive Plan is evidenced by a written agreement, which contains the terms, provisions and conditions of the grant. Stock options may not be assigned or transferred during the lifetime of the holder except as may be required by law or pursuant to a qualified domestic relations order. Common stock subject to a restricted stock purchase or bonus agreement is transferable only as provided in that agreement. As at December 31, 2004, no stock options had been granted to non-employees.

Each of Mrs. Woods, Mr. Bonanzinga and Mr. Blythe were given a contractual commitment upon joining the Company in 2003 and Mr. Best and Mr. McArthur Muscroft were given a contractual commitment upon joining the Company in 2004, as to the grant of share options. No such options have been issued or the requisite Board approval given. Instead the Company has offered each of these individuals the opportunity to participate in the EBT which has been set up by the Company. Each of the aforementioned officers have accepted participation in the EBT, on such terms as approved by the Board, in satisfaction of the Company’s obligations to establish an equity compensation plan under the terms of their respective employment agreements.

“Under the terms of the EBT, which is in the process of being formally established, amounts will be paid, in either cash or equity, for the benefit of these individuals (and their families) in connection with specified “liquidity events”. The value of such awards could potentially, in aggregate, equal 5% of the equity value of the Company (as such term as defined in the EBT) where the equity value is at least $100 million and potentially up to 10% of the equity value, where the equity value is $350 million or more (with interpolated values in between $100 million and $350 million on a pro rata basis).

Awards under the Plan will vest in 3 trances (one third effective 21 April 2005 and one third on each of the subsequent anniversaries) subject to the individual’s continued employment through each applicable resting date.

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

Security Ownership of Certain Beneficial Owners

The following table sets forth certain information regarding the beneficial ownership of our common shares, as of May 31, 2005, by each person or entity known to us to own beneficially more than 5% of our outstanding common shares. Under Bermuda law the Company does not have to look past its register of members or their duly appointed proxies with regard to attendance and voting at general meetings of the Company. Neither is the Company obliged to recognize a person’s beneficial interest in shares held in trust. To this extent, beneficial owners of shares do not have the same voting rights as the registered holders of shares in the Company. All information with respect to beneficial ownership has been furnished to us by the respective shareholders and/or by way of filings with the U.S. SEC.


	Amount and Nature of Beneficial	Percentage of
Name and Address of Beneficial Owner⁽¹⁾	Ownership⁽¹⁾	Outstanding Shares⁽²⁾

Morgan Stanley & Co. Incorporated⁽³⁾ 1585 Broadway, New York, NY 10036	1,528,870 common shares	14.4%

Aspen Partners Series A⁽⁴⁾ c/o Aspen Advisors LLC	1,499,018 common shares	14.1%
152 West 57^th Street, New York, NY 10019

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	Amount and Nature of Beneficial	Percentage of
Name and Address of Beneficial Owner⁽¹⁾	Ownership⁽¹⁾	Outstanding Shares⁽²⁾

The Värde Fund L.P.⁽⁵⁾ 8500 Normande Lake Blvd. #1570 Minneapolis MN 55437.	882,531 common shares	8.3 %

Ramius Capital Group, LLC ⁽⁶⁾ 666 Third Avenue, 26^th Floor New York, New York 10017 Citizenship (Cayman Islands)	677, 871 common shares	6.4%

1.		Beneficial ownership is determined in accordance with the rules of the U.S. SEC. In computing the number of common shares beneficially owned by a person and the percentage ownership of that person, common shares subject to options and warrants held by that person that are currently exercisable or exercisable within 60 days are deemed outstanding. Such common shares, however, are not deemed outstanding for the purpose of computing the percentage ownership of any other person. Except as indicated in the footnotes to this table, the shareholder named in the table has sole voting and investment power with respect to our common shares set forth opposite such shareholder’s name.

2.		Based on 10,630,000 common shares outstanding as of May 31, 2005.

3.		Information based on the Schedule 13D-A, dated June 29, 2005, of Morgan Stanley. As a result of the amendment of the Existing Notes under the terms of the Letter Agreement to make such Existing Notes convertible upon the election of holders of a majority of the outstanding principal amount of the Existing Notes (the “Existing Notes Amendment”), Morgan Stanley will be deemed the beneficial owner of 54,117,503 shares (or 85.6% of the Company’s outstanding shares) comprised of (a) the 1,528,870 common shares directly owned by Morgan Stanley; (b) 47,533,333 common shares issuable upon conversion of $35,650,000 million principal amount of Existing Notes held by Morgan Stanley; and (c) 5,055,300 common shares issuable upon conversion of $3,791,475 of additional Existing Notes representing accrued interest on the Existing Notes held by Morgan Stanley, based on the lowest possible conversion price under the Existing Notes of $0.75 per share. The exact number of common shares into which the Existing Notes are convertible is not calculable at the present time because the conversion price used for such conversion is based upon a calculation of the total equity value of the Company, to be calculated at the time of conversion by the Board of Directors of the Company (subject to approval of the majority noteholders). See “Item. 4 Company Information – Description of Certain Indebtedness).

4.		Information based on the Schedule 13G, dated February 11, 2005, of Aspen Partners Series A, Aspen Capital LLC, Aspen Advisors LLC and Nikos Hecht, as modified to reflect updated movements in the register of members and beneficial ownership of our common shares since the date of filing.

5.		Information based on the Schedule 13G, dated February 11, 2005, of The Värde Fund L.P., The Värde Fund V L.P., The Värde Fund VI L.P., Värde Investment Partners L.P., The Värde Select Fund L.P., The Värde Fund (Cayman) Limited, The Värde Fund V GP LLC, The Värde Fund VI GP LLC, Värde Investment Partners GP LLC, Värde Partners L.P., Värde Partners Inc. and Värde Management International Inc., George G. Hicks, Gregory S. McMillan, Marcia L. Page. The address for The Värde Fund (Cayman) Limited is 2nd Floor Harbour Centre, P.O. Box 896, George Town

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		BWI. All other entities can be contacted at the address listed in the table. As a result of the Existing Notes Amendment, Värde will be deemed the beneficial owner of 15,008,042 shares (or 58.5% of the Company’s outstanding shares) comprised of (a) the 882,531 common shares directly owned by Värde; (b) 13,333,333 common shares issuable upon conversion of $10.0 million principal amount of Existing Notes held by Värde; and (c) 792,178 common shares issuable upon conversion of $594,133 of additional Existing Notes representing interest payment on the Existing Notes held by Värde, based on the lowest possible conversion price under the Existing Notes of $0.75 per share. The exact number of common shares into which the Existing Notes are convertible is not calculable at the present time because the conversion price used for such conversion is based upon a calculation of the total equity value of the Company, to be calculated at the time of conversion by the Board of Directors of the Company (subject to approval of the majority noteholders). See “Item. 4 Company Information – Description of Certain Indebtedness).

6.		Information based on the Schedule 13G, dated February 11, 2005, of the RCG Carpathia Master Fund Ltd (Cayman Islands), Ramius Securities LLC, Ramius Capital Group, LLC, RCG Carpathia Master Fund Ltd, SphinX Distressed (RCG Carpathia) Segregated Portfolio, C4S & Co., LLC, Peter A. Cohen, Morgan B. Stark, Thomas W. Strauss and Jeffrey M. Solomon, as modified to reflect updated movements in the register of members and beneficial ownership of our common shares since the date of filing.

Related Party Transactions

Except as disclosed in these pages in relation to the resignation of Mr. Grist and the termination of his employment arrangements the hedging transactions entered into with Morgan Stanley and the issuance of the Existing Notes in connection with the April 2004 Financing, there were no transactions with related parties during the year ending December 31, 2004. See Item 6. Directors, Senior Management and Employees – Compensation.”

During 2004, following the Company’s issuance of convertible loan notes, the Company entered into three hedging contracts with Morgan Stanley. These contracts allowed for the conversion of US$6 million, US$6 million and US$10 million into Pounds Sterling at “Protected” rates of US$1.8045, US$1.7975 and US$1.7885 respectively for delivery on July 1, 2004, October 1, 2004 and January 5, 2005. These conversion rates were dependent upon the GBP to USD spot rates at the time of exercise being above these rates; if market rates had been lower, the actual conversion rates would have been split between the Protected rate, and market rates, based on the proportion of time during the contract period in which actual rates had been below the Protected rates.

In connection with the April 2004 Financing, Morgan Stanley, Värde and our Chairman Lucy Woods purchased Existing Notes in the principal amounts of $36.0 million, $10.0 million and $250,000 respectively. Additional Notes were issued in satisfaction of payment of accrued interest on the Existing Notes in respective amounts of approximately US$2.1 million, US$0.6 million and US$0.15 million. In connection with the June 2005 Financing, it is contemplated that Morgan Stanley and Värde purchase New Notes in the principal amounts of $12,937,799 million and $3,062,201 million, respectively.

On June 23, 2005, the Investors and the Company executed the Letter Agreement pursuant to which the parties agreed to amend the terms of the Existing Notes to allow for their conversion at any time, upon the election of holders of a majority of the outstanding principal amount of the Existing Notes.

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ITEM 8. FINANCIAL INFORMATION

Consolidated Statements and Other Financial Information

Financial Statements

We have elected to provide financial statements pursuant to Item 18 of this Form 20-F as included on pages F-1 to F-32.

Legal Proceedings

On the Filing Date, the Debtors filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code. The Plan of Reorganization was consummated on the Effective Date. Commencing as of the Effective Date, a series of share transfers were made whereby the European Subsidiaries became wholly-owned, direct or indirect, subsidiaries of the Company. Additionally, under the terms of the Plan of Reorganization, VTL was authorized to serve as disbursing agent (with the right to designate other disbursing agents) with respect to distributions required under the Plan of Reorganization. Accordingly, on or after the Effective Date and to the extent not otherwise disposed of pursuant to the Plan of Reorganization, the Debtors’ Property vested in VTL. Ownership of VTL was transferred to the Successor in January 2003. Except as otherwise set forth in the Plan of Reorganization, all claims and liabilities of the Debtors were discharged as of the Effective Date.

The Company had certain claims against Easynet in which the Company alleged breach of contract under an Indefeasible Right of Use Agreement dated May 30, 2000 and certain related agreements (together, “the Agreements”). The claims were formally commenced in the High Court of Justice in England as of February 11, 2003 and proceeded to a full trial commencing on November 19, 2003. The Company has now accepted, as full and final settlement of its claims under the Agreements, payment by Easynet of £6.9 million (US$13.0 million approximately) which was paid in two equal instalments in March 2004 and September 2004, the second instalment having accrued interest at an annual rate of 4%. The settlement also served to dismiss certain related counterclaims brought by Easynet against the Company. As at December 31, 2003 and 2002 the Company had a liability for future performance obligations of $4.6 million under the contract with Easynet. Under the terms of the settlement, the Company was relieved of this obligation and accordingly recognized the release of the liability in the statement of operations in 2004 upon receipt of the final settlement payment.

In September 2003, the Company’s French subsidiary Viatel Operations SA (“Viatel Operations”) filed a claim for approximately €7.7 million (US$9.35 million approximately) in the Tribunal of Lille, France against Voies Navigables de France (“VNF”), the owner of certain French waterways to whom the Company currently pays in excess of €2 million (US$2.4 million approximately) annually for ROW charges. The claim principally asserts that the ROW charges are discriminatory and should conform more closely to the charges levied by the highway and road authorities in France. On the basis that this claim was filed by way of an “opposition procedure”, the Company is entitled to withhold payment of ongoing charges as they fall due. On this basis the Company has withheld its ROW charges for 2004 in an amount of €1.95 million approximately (US$2.37 million approximately) and it is anticipated that payment of the ROW charges for 2005 in an amount of €2 million approximately (US$2.5 million approximately) will be withheld on the same basis. If the Company is unsuccessful in its claim, it will likely be required to pay all outstanding fees together with interest, the interest being

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estimated to amount to as much as approximately €120,000 (US$150,000 approximately). Judgment is not expected until the end of 2005 at the earliest.

Similar claims in respect of ROW charges have been filed against each of: (1) Compagnie Nationale du Rhône (“CNR”); (2) Ville de Paris (“VDP”); and (3) SAGEP. The amounts of the claims being, respectively, approximately €1.16 million (approximately US$1.4 million) against CNR; approximately €1.4 million (approximately US$1.75 million) against VDP; and approximately €1.18 million (approximately US$1.43 million) against SAGEP. In the case of both CNR and SAGEP, the Company has again withheld payment of fees currently due – should the Company lose the relevant proceedings, this could yield a liability to repay (including applicable interest) an amount of approximately €900,000 (approximately US$1.1 million) to CNR and an amount of approximately €430,000 (approximately US$530,000) to SAGEP.

It should be noted that the outcome of the legal claims with respect to the ROW charges could be substantially influenced by the enactment by the French government of a proposed regulation intended to provide for a limit on the fees payable with respect to the grant and use of ROWs on the public domain. Under a current draft decree – dated April 14, 2005 – the proposed limit would not require any decrease in the amounts currently charged by VNF and CNR; the limit would however have the effect of requiring the fees charged by both VDP and SAGEP to be substantially reduced. The Company is currently lobbying the French government and other public bodies to argue for a lower limit to be prescribed.

Viatel Operations is engaged in a dispute which arose as a result of the early termination of a lease agreement dated 29 September 1999. The lessor is claiming payment of: (a) an early termination indemnity in the amount of €30,489.40 (approximately US$37,000); and (b) the cost of fit-out works which, according to the lessor, Viatel Operations was under an obligation to perform under the lease. When the dispute first arose, the lessor chose to quantify the amount of the fit out works as €855,514.20 (approximately US$1.1 million). Viatel Operations denied that it was under any obligation to carry out the fit-out works, the lease being permissive in this regard, not obligatory. In February 2005, the lessor issued proceedings requesting payment of the early indemnity, a provisional payment from Viatel Operations of €69,510.20 (approximately US$84,400) for reinstating the property and, finally, the appointment of an expert by the French court whose duty will be to assess the cost of reinstating the pro“erty “on the basis of the schedule of fit-out works appended to the”lease”. The initial hearing in this matter was scheduled for April 2005 but following two postponements, made at the lessor’s request, the hearing is now scheduled for September 2005.

Viatel Operations is also currently in dispute regarding a second lease termination – this time with respect to the termination of a lease agreement dated May 4, 2000 relating to premises in St. Denis, France (the “St. Denis Lease”). The lessor is claiming the termination to be both procedurally and substantively defective, and is consequentially claiming the balance of all payments due under the lease, amounting in aggregate to €12,678,366 (approximately US$17.3 million). Viatel Operations has received strong advice in support of its position.

The Company’s UK subsidiary VTL (UK) Limited (“VTL (UK)”) is in dispute with a company which previously provided it with financial advice, in particular with respect to its employee benefits programme. The financial advisor is claiming an unlawful termination of its engagement with VTL (UK) and has indicated a potential related damages claim of over £100,000 (approximately US$182,000). VTL (UK) has been advised that it has strong grounds both to defend any such claim and to bring a

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counterclaim in respect of the breach by the financial advisor of various express and implied contractual terms relating to its former engagement.

Fibrelac a company acting on its own behalf has filed claims against three Swiss Cantons in relation to the build of a telecommunications network. The principal basis of the claim is that, in return for allowing the build to proceed, the cantons of Bern, Basle and Aargau insisted that they be given a duct in such build, either for free or for a consideration lower than the market value, the claim being based on provisions of the Swiss Telecommunications Act including those dealing with the absence of compensation in case of access to public domain. The claims also seek to obtain a declaration of ownership of the ducts rather than indefeasible rights of use. Claims have been filed against all 3 cantons. Were the claims to be successful, Viaphone AG would be entitled, based on various agreements, on a pro rata basis (allocated pro rata by duct) to approximately CHF 10,000,000 (approximately US$8 million) together with interest at 5% per annum from late 2000.

As previously noted, any adverse decision in all or any of the proceedings summarised above regarding ROW charges in France could render the operation of all or part of the Company’s network in France uneconomical. An adverse decision in the litigation regarding the St. Denis Lease could also have a material effect on the Company’s French subsidiary’s financial position. Subject to this, the Company does not believe that any adverse outcome from litigation would have a material adverse effect on its financial position or results of operations. The Company is not aware of any other material litigation against it. The Company does, however, have various other legal proceedings pending against it or its subsidiaries which, if adversely determined, would not have, in the Company’s view, individually or in the aggregate, a material adverse effect on its business, financial condition or results of operation.

Dividend Policy

We do not anticipate paying dividends on our common shares in the foreseeable future.

Significant Changes

Other than as disclosed above or elsewhere in this Form 20-F, no significant change has occurred since the date of our most recent audited financial statements.

ITEM 9. THE LISTING

Listing Details

The Predecessor

From October l996 until May 2, 2001, the Predecessor’s common stock was actively traded on The Nasdaq National Market under the symbol “VYTL.” On May 2, 2001, Nasdaq suspended trading of the Predecessor’s common stock, which was delisted in July 2001. Below is a chart showing the trading prices of the Predecessor’s common stock on the Nasdaq National Market. Pursuant to the Plan of Reorganization, the dissolution of the Predecessor occurred in the first half of 2004.

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	High		Low
Period	(in USD)
Fiscal 1998		23.50		5.00
Fiscal 1999		57.50		17.00
Fiscal 2000		75.38		1.63
First Quarter 2001		5.75		0.56
Second Quarter 2001 (1)		0.86		0.06
Third Quarter 2001 (2).		0.06		0.03
Fourth Quarter 2001		N/A		N/A
Fiscal 2002		N/A		N/A

(1)		On May 2, 2001, the Nasdaq National Market suspended trading of the common stock of the Predecessor.

(2)		In July 2001, the Nasdaq National Market delisted the common stock of the Predecessor.

The Successor

The Successor’s common shares, US$0.01 par value per share, referred to throughout this Form 20-F as our “common shares,” is currently traded on the over-the-counter market under the symbol “VTLAF.PK”. Prior to December 2002, we were not aware of any trading in our common shares; a price at December 2002 was determined at US$0.51 per share. The following chart sets out the trading prices of our common stock since it commenced trading on the over-the-counter market.

The following table sets out, for the periods indicated, the high and low sales prices of our common shares:


	High		Low
Period	(in USD)
Fourth Quarter 2002		N/A		N/A
First Quarter 2003		1.35		1.10
Second Quarter 2003		1.35		0.50
Third Quarter 2003		4.25		0.50
Fourth Quarter 2003		8.00		0.50
First Quarter 2004		2.75		0.75
Second Quarter 2004		1.90		0.90
July 2004		1.20		0.90
August 2004		0.92		0.70
September 2004		0.90		0.60
October 2004		0.95		0.60
November 2004		1.05		0.85
December 2004		1.50		0.90
January 2005		0.96		0.75
February 2005		0.95		0.75
March 2005		0.95		0.60
April 2005		0.75		0.20
May 2005		0.30		0.07
June 2005 (through June 16, 2005)		0.10		0.07

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The issuance and distribution of the common shares other than the common shares issued or issuable under the Equity Incentive Plan were exempt from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 1145(a) of the Bankruptcy Code. The common shares are, generally, freely transferable unless the common shareholder is deemed, by Section 1145(b) of the Bankruptcy Code, to be an “underwriter” for purposes of Section 2(11) of the Securities Act with respect to such securities. If a common shareholder is deemed an underwriter, such securities may not be resold unless they are registered under the Securities Act or an exemption from such registration requirements is available.

Markets

Our common shares are currently traded on the over-the-counter market under the symbol “VTLAF.PK.”

ITEM 10. ADDITIONAL INFORMATION

Description of Share Capital

At the April 2004 SGM the Company resolved, among other things, that: (a) the authorized share capital of the Company be increased to US$2,500,000 by the creation of an additional 150,000,000 common shares; and (b) one unissued common share of the Company be redesignated as the Special Share.

As a result, the authorized share capital of the Company is US$2,500,000 divided into 250,000,000 common shares of US$0.01 each (“common shares”). As of May 31, 2005, there were 10,630,000 fully paid common shares issued and outstanding. As of May 31, 2005 the Company had no outstanding options to purchase its common shares.

Historical Movement in the Authorized Share Capital

On incorporation, the Memorandum of Association of the Company provided that the authorized share capital of the Company was US$12,000 divided into 1,200,000 common shares. The entire share capital was fully subscribed and pursuant to a resolution of the provisional directors of the Company passed on March 27, 2002 was allotted to the sole shareholder, the Predecessor, at a price of US$0.01 per share.

At the statutory meeting of the Company, being also the first annual general meeting of the Company, held on March 27, 2002, the Predecessor resolved that the authorized share capital of the Company be increased to US$1,000,000 by the creation of an additional 98,800,000 common shares.

Pursuant to a written resolution of the Board dated May 6, 2002, the Board issued 9,360,000 common shares to the Predecessor at a price of US$0.01 per share and reserved 1,440,000 shares for issuance under the terms of any share incentive plan that may be adopted by the Company in the future.

During a meeting of the Board held on June 6, 2002 the Board resolved to approve the terms of the Equity Incentive Plan. During such meeting the Board further resolved that on consummation of the Plan of Reorganization, that the Company issue options to purchase up to: (1) 240,000 common shares at an exercise price of US$0.01 per share to the then current directors of the Company (the “Directors’ Options”); (2) 504,000 shares at an exercise price of US$8.33 per share to the then current directors and senior management of the Company (together with the Directors’ Options, the “Officers’ Options”); and (3) 96,000 shares at an exercise price of US$8.33 per share to be granted to employees of the Company or its subsidiaries on the instruction of the Chairman and Chief Executive Officer of the Company. One third of the options referred to in (2) vested on the Effective Date, one third vested on June 7, 2003 and the final third will vest on June 7, 2004.

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170,000 of the Directors’ Options were exercised during the year ended December 31, 2003. As of May 31, 2005 all other outstanding Officers Options had either been exercised or terminated.

On March 31, 2003 the Board resolved to purchase and cancel 100,000 shares from Michael Mahoney, in accordance with section 42A of the Bermuda Act, pursuant to a settlement agreement and general release among Michael Mahoney, the Company and VTL (UK) dated March 24, 2003 and a stock exchange agreement between the Company and Michael Mahoney dated April 1, 2003. These shares were formally cancelled during 2004. See “Item 6. Directors, Senior Management and Employees – Compensation”.

Memorandum of Association and Bye-Laws

We are an exempted company organized under the Bermuda Act.

The rights of our shareholders are governed by Bermuda law, our Memorandum of Association and our Bye-Laws. The Bermuda Act differs in some material respects from laws generally applicable to U.S. corporations and their shareholders.

As a condition to the closing of the April 2004 Financing, and so as to give effect to various rights to be conferred on the Investors, certain amendments to the Bye-Laws were passed by shareholders resolutions at the April 2004 SGM. Such rights conferred on the Investors relate in particular to the ability of the Investors to appoint new Directors and to approve/veto the taking of certain material actions by the Company. In order to give effect to these rights under Bermuda law the Special Share was issued with the Notes to a trustee acting on behalf of the Investors (and their transferees). The Special Share was issued with such rights as are required to enable the Investors (and their transferees) to exercise the various Investor rights provided for under the April 2004 Financing documentation.

With respect to the taking of any material actions that will require the approval of the Investors, to the extent that any such actions may, under Bermuda law, require the approval of the Company’s shareholders in general meeting, the Special Share has been granted weighted voting rights (nine votes for every one vote cast by other Shareholders) to ensure it can carry any relevant vote; to the extent that a vote of the shareholders is required by Bermuda law, such actions are able to be taken with the consent alone of the holder of the Special Share.

Further reference is made below to these and other amendments adopted at the April 2004 SGM; this is not intended however to be a comprehensive summary of such adopted amendments. Full details of the Bye-Law amendments are set out in the documents accompanying the Company’s Notice of the April 2004 SGM (the “April 2004 SGM Notice”); see in particular the Chairman’s Letter and Part III of the April 2004 SGM Notice. The April 2004 SGM Notice and related materials were filed as exhibits to the Form 6-K of the Company dated March 10, 2004 (the “March 10 6-K”). The March 10 6-K and such exhibits are hereby incorporated by reference in this Form 20-F.

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The following is a summary of the material provisions of Bermuda law and our organizational documents as were in effect as of May 31, 2005.

Objects and Purposes

The Company’s objects can be found in our Memorandum of Association. In summary, the objects for which the Company was formed and incorporated are:

• to carry on the business of constructing, establishing, owning, providing operating and maintaining telecommunications networks in all parts of the world and to provide telecommunications services;

• to carry on the business as a holding company and to acquire and hold shares, stocks, debenture stock, bonds, mortgages, obligations and securities issued or guaranteed by any entity;

• to acquire such shares and other securities by subscription, syndicate participation, tender, purchase, exchange or otherwise;

• to coordinate the administration, policies, management, supervision, control, research, planning, trading and any and all other activities of, and to act as financial advisers and consultants to, any companies which may or which may become a group company;

• to provide financing and financial investment, management and advisory services to any group company; and

• as set forth in paragraphs (b) to (n) and (p) to (u) inclusive of the Second Schedule to the Bermuda Act.

Board Actions

Our Bye-Laws provide that, subject to the prior consent of the holder of the Special Share in certain circumstances, certain actions are required to be approved by our Board. Actions must be approved by a majority of the votes present and entitled to be cast at a properly convened meeting.

A Director who has disclosed his interest in a transaction or arrangement with the Company, or in which the Company is otherwise interested, may be counted in the quorum and vote at any meeting at which such transaction or arrangement is considered by the Board.

Board Remuneration

Our Bye-Laws provide that the ordinary remuneration of the Directors shall be as is set out in the Bye-Laws or as is determined by resolution of the Directors. The shareholders, at the third annual general meeting of the Company held on December 8, 2004, further authorized the Directors to determine and approve the remuneration of each Director.

Directors’ Borrowing Powers

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Our Bye-Laws provide that, subject to the prior consent of the holder of the Special Share, the Board may exercise all of the powers of the Company to borrow money and to mortgage or charge all or any part of the undertaking, property and assets (present and future) and uncalled capital of the Company and to issue debentures and other securities, whether outright or as collateral security for any debt, liability or obligation of the Company or of any other person.

Election or Removal of Directors

As noted in “Item 4. Information on the Company – Description of Certain Indebtedness” and “Item 6. Directors, Senior Management and Employees – Board Practices” under the Bye-Law amendments adopted at the April 2004 SGM, significant changes with respect to the mechanism for the appointment and removal of Directors were made. Effectively, the Investors have the power to appoint a majority of the Board at any time.

Our Bye-Laws provide that at the second annual general meeting of the Company all of the Directors (other than any who holds executive office) shall retire from office, and at every subsequent annual general meeting one-half of the Directors who are subject to retirement by rotation or, if their number is not two or a multiple of two, the number nearest to but not more than one-half shall retire from office. The Directors to retire shall be those who have been longest in office since their last appointment or reappointment, but as between persons who became or were last reappointed Directors on the same day those to retire shall (unless they otherwise agree among themselves) be determined by lot. Under the Bye-Law amendments adopted at the April 2004 SGM, provision is now made that for so long as the Special Share is outstanding, the Bye-Law providing for retirement by rotations shall not be applicable. Meantime, Bermuda law will apply to retirement of Directors which states Directors are appointed at the annual general meeting and serve until reappointed or until their successors are appointed, unless they are earlier removed or resign.

No person may be appointed a Director unless he is either: (a) recommended by our Board; or (b) recommended, appointed or elected by the holder of the Special Share; or (c) proposed by a shareholder for appointment at a general meeting. In the latter case, the shareholder must give the Company a duly executed notice of his intention to propose a person for appointment in the form more particularly described in the Bye-Laws not less than five, nor more than twenty-five, clear days before the date appointed for the general meeting.

At anytime the holder of the Special Share can increase the number of directors constituting the Board up to thirteen. Only the holder of the Special Share can elect and appoint Directors (“Investor Designees”) to fill the vacancies created by an increase in the size of the Board made by it or to elect or to appoint any Director to replace or fill any vacancy created by such Investor Designee or any Investor-Appointed Director. Effectively, the Investors (and their transferees) have the right, at any time, to increase the size of the Board and to approve a number of Directors sufficient to cause a majority of the Board to be designees of the Investors (and their transferees).

Except in relation to a vacancy resulting from an increase in the size of the Board carried out by the holder of the Special Share or a vacancy as a result of an Investor-Appointed Director, our Bye-Laws grant the Board power to appoint individuals to fill vacancies among its members as a result of the resignation or removal of a Director so long as there is a vacancy on the Board which was not created by the holder of the Special Share.

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A Director (other than an Investor-Appointed Director) can be removed from office by a vote of the shareholders at a special general meeting called for such purpose. Any vacancy created by the removal of a Director at a special general meeting may be filled at that meeting by the election or appointment of another Director in his or her place or, in the absence of any such election or appointment, by our Board. For so long as the Special Share is outstanding, the holder of the Special Share alone will be entitled to remove any Investor-Appointed Director(s), but will not be entitled to remove any non-Investor-Appointed Director(s).

Common Shares

As noted above, in connection with the April 2004 SGM, a Special Share was issued to a trustee acting on behalf of the Investors (and their transferees). The rights that are attached to the Special Share are set out in the April 2004 SGM Notice – see in particular Part III of the April 2004 SGM Notice and the Chairman’s Letter.

Subject to the weighted voting rights attached to the Special Share (nine votes for every one vote cast by other shareholders), the holders of our common shares present in person or by proxy at a general meeting are entitled, on a vote by show of hands, to one vote each and, on a poll vote, to one vote per common share on all matters to be voted upon by the shareholders. The holders of common shares are entitled to receive dividends out of assets legally available for such purposes at times and in amounts as our Board, with the prior consent of the holder of the Special Share only, may from time to time determine.

Subject to the weighted voting rights attached to the Special Share in relation to the election and appointment of Investor Designees (see above), cumulative voting for the election of directors is not provided for in our Memorandum of Association or Bye-Laws, which means that the holders of a majority of the shares voted can elect all of the directors then standing for election. Our common shares are not entitled to pre-emptive rights and are not subject to conversion or redemption.

There are no sinking fund provisions applicable to our common shares.

Voting Rights

Under Bermuda law, except as otherwise provided in the Bermuda Act, or in a company’s bye-laws, questions brought before a general meeting of shareholders are decided by a majority vote of shareholders present at the meeting. Our Bye-Laws provide that, subject to the provisions of the Bermuda Act, and subject to the weighted voting rights attached to the Special Share (nine votes for every one vote cast by other shareholders), any question proposed for the consideration of the shareholders will be decided by a simple majority of the votes cast with each shareholder present, and each person holding proxies for any shareholder, entitled, on a show of hands, to one vote each and, on a poll vote, to one vote for each common share held by the shareholder, except in certain exceptional cases where a greater majority vote is required by our Bye-Laws.

Dividends

Under Bermuda law, a company may pay dividends that are declared from time to time by its board of directors unless there are reasonable grounds for believing that the company is or would, after the payment, be unable to pay its liabilities as they become due or that the realizable value of its assets

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would thereby be less than the aggregate of its liabilities and issued share capital and share premium accounts. The board of directors is unable to declare dividends without the prior consent of the holder of the Special Share.

Rights in Liquidation

Under Bermuda law, in the event of liquidation or winding up of a company, after satisfaction in full of all claims of creditors and subject to the preferential rights accorded to any series of preference shares, the proceeds of the liquidation or winding up are distributed pro rata among the holders of common shares.

Transfer of Shares

Our Bye-Laws contain provisions relating to the transfer of shares in the Company and, separately, the transfer of the Special Share. These include a power given to the Board to, in its absolute discretion and without assigning any reason therefor, decline to register any transfer of any share which is not a fully paid share.

Amendment of Memorandum of Association and Bye-Laws

Bermuda law provides that the memorandum of association of a company may be amended by a resolution passed at a general meeting of shareholders of which due notice has been given. Our Bye-Laws also provide that such resolution passed at a general meeting of shareholders must include the vote of the holder of the Special Share (exercising its weighted voting rights). An amendment to the memorandum of association, other than an amendment which alters or reduces a company’s share capital as provided in the Bermuda Act, also requires the approval of the Bermuda Minister of Finance, who may grant or withhold approval at his or her discretion.

Our Bye-Laws may be amended by our Board if the amendment is approved by: (1) a vote of a majority of the votes cast by the Directors; and (2) our shareholders by a resolution passed by the majority of the votes cast at a general meeting, such resolution passed must include the vote of the holder of the Special Share (exercising its weighted voting rights).

Under Bermuda law, the holders of an aggregate of not less than 20% in par value of a company’s issued share capital or any class of issued share capital have the right to apply to the Bermuda Court for an annulment of any amendment of the memorandum of association adopted by shareholders at any general meeting, other than an amendment which alters or reduces a company’s share capital as provided in the Bermuda Act. Where such an application is made, the amendment becomes effective only to the extent that it is confirmed by the Bermuda Court. An application for the annulment of an amendment of the memorandum of association must be made within 21 days after the date on which the resolution altering the company’s memorandum is passed and may be made on behalf of the persons entitled to make the application by one or more of their number as they may appoint in writing for the purpose. No such application may be made by persons voting in favor of the amendment.

Meetings of Shareholders

Under Bermuda law, a company is required to convene at least one general shareholders’ meeting each calendar year or within three months of the end of a calendar year in which a general

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meeting has not been held. Bermuda law provides that a special general meeting may be called by the board of directors and must be called upon the request of shareholders holding not less than 10% of the paid-up capital of the company carrying the right to vote. Bermuda law also requires that shareholders be given at least five days’ advance notice of a general meeting but the accidental omission to give notice to any person does not invalidate the proceedings at a meeting. Under Bermuda law, the number of shareholders constituting a quorum at any general meeting of shareholders is determined by the bye-laws of a company.

Under our Bye-Laws, we must give each shareholder at least 21 days’ notice of the annual general meeting and at least 10 days’ notice of any special general meeting. Similarly, we must give each shareholder not less then 21 days’ notice of any meeting adjourned through want of a quorum.

Our Bye-Laws provide that at least two shareholders present in person or by proxy and entitled to vote, representing the holder(s) of 20% or more of our issued shares (and subject to the presence of the holder of the Special Share (in person or proxy) in matters on which the Special Share would be controlling is proposed to be considered) constitutes a quorum, except in certain exceptional cases. To the extent permissible under Bermuda law, at a meeting called at which any matter on which the vote of the Special Share would be controlling is proposed to be considered, the presence of the holder of the Special Share (in person or proxy) shall constitute the necessary quorum.

Our Bye-Laws further provide that, except in exceptional circumstances, quorum for an adjourned meeting shall be two shareholders present in person or by proxy and entitled to vote and representing the holders of 10% or more of the issued shares and, to the extent permissible under Bermuda law, at an adjourned meeting called at which any matter on which the vote of the Special Share would be controlling is proposed to be considered, the presence of the holder of the Special Share (in person or proxy) shall be deemed to represent a holder of 10% or more of the issued shares.

The Chairman may invite any person to attend and to speak at a general meeting of the Company where he considers it will assist in the deliberations of the meeting, provided, however, each shareholder, including the holder of the Special Share, shall be entitled to attend and speak at all general meetings of the Company.

Access to Books and Records and Dissemination of Information

Members of the general public have the right to inspect the public documents of a company available at the office of the Registrar of Companies in Bermuda. These documents include a company’s certificate of incorporation, its memorandum of association, including its objects and powers, and any alteration to its memorandum of association. Shareholders have the additional right to inspect the bye-laws of the company, minutes of general meetings and the company’s audited financial statements, which must be presented at the annual general meeting. The register of shareholders of a company is also open to inspection by shareholders, without charge, and by members of the general public, upon the payment of a fee.

A company is required to maintain its share register in Bermuda but may, subject to the provisions of Bermuda law, establish a branch register outside Bermuda. We maintain a share register in Hamilton, Bermuda. A company is required to keep at its registered office a register of its directors and officers which is open for inspection for not less than two hours each day by members of the public

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without charge. Bermuda law does not, however, provide a general right for shareholders to inspect or obtain copies of any other corporate records or documents.

Amalgamation

Under our Bye-Laws, a resolution proposed at a general meeting to approve the amalgamation of the Company with any other entity shall require the approval of a simple majority of the votes cast at the meeting, such votes cast must include the vote of the holder of the Special Share (exercising its weighted voting rights).

Continuation

Our Bye-Laws provide that, subject to Bermuda company law, a resolution proposed to approve the discontinuation of the Company in Bermuda and the continuation of the Company in a jurisdiction outside Bermuda shall require the affirmative vote of the simple majority of the votes cast at a general meeting.

Appraisal Rights and Shareholder Suits

Under Bermuda law, in the event of an amalgamation of a Bermuda company with another company, a shareholder who is not satisfied that fair value has been paid for the shares may apply to the Bermuda Court to appraise the fair value of the shares. Under Bermuda law and our Bye-Laws, our amalgamation with another company requires the amalgamation agreement to be approved by our Board and, except where the amalgamation is between a holding company and one or more of its wholly-owned subsidiaries or between two or more wholly owned subsidiaries, at a meeting of our shareholders at which the holder of the Special Share must be present in person or proxy in order for such meeting to be quorate. Under Bermuda law, an amalgamation also requires the consent of the Bermuda Minister of Finance, who may grant or withhold such consent at his or her discretion.

Class actions and derivative actions are generally not available to shareholders under Bermuda law. The Bermuda Court, however, would ordinarily be expected to permit a shareholder to commence an action in the name of a company to remedy a wrong done to the company where the act complained of is alleged to be beyond the corporate power of the company or is illegal or would result in the violation of the company’s memorandum of association or bye-laws. Further consideration would be given by the Bermuda Court to acts that are alleged to constitute a fraud against the minority shareholders or, for instance, where an act requires the approval of a greater percentage of the company’s shareholders than that which actually approved it.

When the affairs of a company are being conducted in a manner oppressive or prejudicial to the interests of some of the shareholders, one or more shareholders may apply to the Bermuda Court for an order regulating the company’s conduct of affairs in the future or compelling the purchase of the shares of any shareholder, by other shareholders or by the company.

Material Contracts

On June 23, 2005 the Company executed binding documentation in connection with the June 2005 Financing. The investment agreement related to the June 2005 Financing are filed as an exhibit to this Form 20-F. It was a condition of the April 2004 Financing that our Chief Executive Officer, Lucy Woods, entered into an employment agreement on terms satisfactory to the Investors. The employment agreement entered between the Company and Mrs. Woods on April 21, 2004 is filed as an exhibit to this Form 20-F.

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Exchange Controls and Other Limitations Affecting Security Holders

Certain provisions of our Bye-Laws may have the effect of delaying, deferring or preventing a change in control. Such provisions, including those providing for the possible issuance of preferred shares without shareholder approval, establishing a staggered board, and regulating the nomination of Directors and submission of matters for consideration at meetings of shareholders, may make it difficult for other persons, without the approval of our Board, to make a tender offer or otherwise acquire substantial amounts of common shares or to launch other takeover attempts that a shareholder might consider to be in such shareholder’s best interest.

We have been designated by the Bermuda Monetary Authority as non-resident of Bermuda for exchange control purposes and are required to obtain the permission of the Bermuda Monetary Authority for the issue and free transferability of all of our shares. Approval or permissions received from the Bermuda Monetary Authority do not constitute a guarantee by the Bermuda Monetary Authority as to our performance or our creditworthiness. Accordingly, in giving those approvals or permissions, the Bermuda Monetary Authority will not be liable for our performance or default or for the correctness of any opinions or statements expressed in this Form 20-F.

The transfer of common shares is subject to the consent of the Bermuda Monetary Authority and the issuance of additional common shares within the current authorized share capital may be effected subject to the consent of the Bermuda Monetary Authority under the Exchange Control Act of 1972 and regulations thereunder. As we have been designated as non-resident of Bermuda for exchange control purposes, there are no exchange control restrictions on our ability to transfer funds (denominated in currencies other than Bermuda dollars) in and out of Bermuda or to pay dividends to non-Bermuda residents who are holders of our common shares.

Except as ordered by a court of competent jurisdiction, as required by law, or as otherwise contemplated by our constitution, in the case of a shareholder acting in a special capacity, for example, as trustee, we are under no obligation to recognise a person as holding any share upon trust and the Company is not bound by or required in any way to recognise (even when having notice thereof) any equitable, contingent, future or partial interest in any share or any interest in any fractional part of a share or (except only as otherwise provided in the bye-laws of the Company, or by law) any other right in respect of any share except an absolute right to the entirety thereof in the registered holder.

As an exempted company, we are not subject to restrictions on the percentage of share capital held by non-Bermudians. However, except with the express permission of the Bermuda legislature, we may not, as an exempted company, carry on certain activities including, but not limited to:

• the acquisition or holding of land in Bermuda, except that required for its business and held by way of lease or tenancy for terms of not more than 50 years or, with the consent of the Minister of Finance, that required to provide accommodation or recreational facilities for its employees and held by way of lease or tenancy for terms of not more than 21 years;

• the taking of mortgages on land in Bermuda;

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• the acquisition of any bonds or debentures secured on any land in Bermuda except bonds or debentures issued by the Bermuda government or a public authority; or

• the carrying on of business of any kind in Bermuda other than with persons outside Bermuda, except in certain limited circumstances such as doing business with another exempted company in Bermuda in furtherance of our business carried on outside Bermuda.

Taxation

In this section, we summarize some of the tax considerations relevant to the purchase of our common shares by an individual or entity, who or which holds our common shares as capital assets for purposes of the U.S. Internal Revenue Code and who or which is:

• for purposes of the U.S. Internal Revenue Code, a citizen or resident of the United States;

• a corporation or other entity taxable as a corporation created or organized under the laws of the United States or any political subdivision thereof;

• an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or

• a trust which is subject to supervision of a court within the United States and the control of one or more U.S. persons.

If a partnership or other entity taxable as a partnership holds our common shares, the tax treatment of a partner will generally depend on the status of the partner and the activities of the partnership. Such partner should consult its tax advisors as to the tax consequences of the partnership owning and disposing of our common shares .

We refer to persons who satisfy these conditions and are beneficial owners of our common shares as “U.S. Holders.”

We assume, for purposes of this discussion, that you are a U.S. Holder. The U.S. Internal Revenue Code contains rules relating to securities held by special categories of U.S. Holders, including financial institutions, some insurance companies, broker-dealers, tax-exempt organizations, traders in securities that elect to mark-to-market, investors liable for the alternative minimum tax, investors that hold shares as part of a straddle or a hedging or conversion transactions, investors whose functional currency is not the U.S. Dollar and investors who own, directly or indirectly, 10% or more of our outstanding shares, except as otherwise discussed. We do not discuss these rules and U.S. Holders who are in these special categories should consult their own tax advisors.

This discussion is based upon the current provisions of:

• Bermuda law;

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• the U.S. Internal Revenue Code and current and proposed regulations under the Internal Revenue Code;

• the administrative policies published by the U.S. Internal Revenue Service, or “IRS”; and

• judicial decisions;

all of which are subject to change either prospectively or retroactively. The 1986 tax treaty between the UK Government, on behalf of Bermuda and the United States, which relates only to the taxation of insurance enterprises and mutual assistance in tax matters, will generally not affect the Bermuda tax and U.S. federal income tax considerations material to the purchase of our common shares.

We intend this discussion to be a general description of the Bermuda tax and U.S. federal income tax considerations material to the purchase of our common shares. We do not discuss U.S. state, local or other tax laws that may apply. Therefore, you should consult your own tax advisor regarding the tax consequences of purchasing our common shares.

Bermuda Tax Considerations

As of the date of this Form 20-F, there is no Bermuda income, corporation or profits tax, dividend withholding tax, capital gains tax, capital transfer tax, estate duty or inheritance tax payable by us or our shareholders, other than shareholders ordinarily resident in Bermuda. We are not subject to stamp duty on the issue or transfer of our shares.

We have obtained an assurance from the Ministry of Finance granting an exemption, until 28 March 2016, from the imposition of tax under any applicable Bermuda law computed on profits or income or computed on any capital asset, gain or appreciation, or any tax in the nature of estate duty or inheritance tax, provided that such exemption shall not prevent the application of any such tax or duty to such persons as are ordinarily resident in Bermuda and shall not prevent the application of any tax payable in accordance with the provisions of the Land Tax Act 1967 or otherwise payable in relation to land in Bermuda leased to us.

As an exempted company, we are liable to pay the Bermuda Government an annual registration fee calculated on a sliding scale based upon our authorized share capital and any premium paid on the issue of shares at a rate not exceeding Bermuda Dollars 27,825 per annum.

U.S. Tax Considerations

Taxation of Dividends Distributed on our Common Shares.

Subject to the passive foreign investment company rules discussed below, you, as a U.S. Holder, generally will include in income dividend distributions received from us, which we will pay in U.S. Dollars, to the extent of our current or accumulated earnings and profits as determined under U.S. tax principles. To the extent dividend distributions paid by us exceed our current or accumulated earnings and profits, they will be treated first as a tax-free return of capital to the extent of your adjusted tax basis in the shares, and then as gain from the sale or exchange of shares.

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Dividends paid by us will not be eligible for the reduced 15% rate of tax applicable to certain dividends paid to non-corporate U.S. taxpayers. If, however, our shares become readily tradable on an established securities market in the United States, as determined for U.S. tax purposes, then dividends paid to non-corporate U.S. Holders should be eligible for the reduced 15% rate. Dividends paid by us generally will not be eligible for the “dividends-received” deduction otherwise generally allowed to corporate U.S. Holders.

If you are a U.S. Holder, dividends received by you with respect to common shares will be treated as foreign source income, which may be relevant in calculating your foreign tax credit limitation. For this purpose, dividends distributed by us generally will constitute “passive income”, or, in the case of certain U.S. Holders, “financial services income”.

Taxation of Disposition of our Common Shares.

If you sell our common shares, you generally will recognize gain or loss in an amount equal to the difference, if any, between the U.S. Dollar value of the amount realized on the sale and your adjusted tax basis, determined in U.S. Dollars, in the shares. Any gain or loss you recognize on the sale will be capital gain or loss and will be long-term capital gain or loss if you have held the shares for more than one year. Long-term capital gain of a non-corporate U.S. Holder is generally taxed at a maximum rate of 15%.

Passive Foreign Investment Company Status.

Special U.S. federal income tax rules apply to U.S. Holders owning shares of a “passive foreign investment company,” which is commonly referred to as a “PFIC”. In general, a foreign corporation will be considered a PFIC for any taxable year in which either:

• 75% or more of its gross income is “passive income,” which includes interest, dividends and certain rents and royalties not earned in the active conduct of a trade or business (the “Income Test”); or

• 50% or more of its assets, measured quarterly, generally by fair market value, produce, or are held for the production of, passive income (the “Asset Test”).

Subject to certain exceptions, a U.S. shareholder who owns shares in a foreign corporation in a year in which the foreign corporation satisfies the Income Test or the Asset Test will be treated as owning shares in a PFIC for that year and all subsequent years in which the shareholder owns such shares, even if the foreign corporation does not satisfy either the Income Test or the Asset Test in any subsequent year.

For the taxable years ending December, 31, 2003 and December 31, 2004, we do not believe we satisfied either the Income Test or the Asset Test. We did, however, satisfy the Asset Test for the taxable year ending December 31, 2002. Therefore, unless we qualify for the “start-up year” exception (described below), we will be considered a PFIC for the taxable year ending December 31, 2002 and all subsequent years, even if in subsequent years we fail both the Income Test and the Asset Test. We will qualify for the start-up year exception for the taxable year ending December 31, 2002 if:

• a predecessor corporation was not a PFIC;

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• we establish to the satisfaction of the Internal Revenue Service that we would not be a PFIC for our 2003 and 2004 taxable years based on current estimates; and

• we in fact are not a PFIC for either of our 2003 and 2004 taxable years.

As of December 31, 2002, based on our then-projected income, assets and activities, we believed that we would not be classified as a PFIC for our taxable years ending December 31, 2003 and 2004, and, as noted above, for the taxable years ending December 31, 2003 and 2004, we do not believe we would be classified as a PFIC. Therefore, we believe we should qualify for the start-up year exception. Our determination that we are not a PFIC depends upon whether our gross income and holdings of passive assets remain at a level that will not cause us to become a PFIC. While we intend to so manage the level of our gross income and passive assets, it may not always be feasible for us to do so. In addition, since the nature of our income, assets and activities may change, we cannot be certain that we will not be classified as a PFIC for our taxable year ending December 31, 2002, or any subsequent year .

If we are a PFIC for any taxable year during which you are a U.S. Holder holding our common shares, you generally will be subject to special tax rules (regardless of whether we remain a PFIC) with respect to (1) any “excess distribution” made by us to you (generally any distribution received by a U.S. Holder in a taxable year that is greater than 125% of the average annual distributions received by the U.S. Holder in the three preceding taxable years, or the U.S. Holder’s holding period for our common shares, if shorter); and (2) any gain realized on the sale or other disposition (including a pledge) of our common shares.

Under these special rules: (1) the excess distribution or gain would be allocated ratably over your holding period for our common shares; (2) the amount allocated to the current taxable year and any taxable year prior to the first taxable year in which we were a PFIC (if any) would be treated as ordinary income; and (3) the amount allocated to each of the other years would be subject to tax at the highest tax rate in effect for you for that year and an interest charge generally applicable to underpayments of tax would be imposed with respect to the resulting tax attributable to such other years (the “Excess Distribution Rules”). The tax liability with respect to amounts allocated under (3) above cannot be offset by any net operating losses, and gains (but not losses) realized on the sale of our common shares will not be treated as capital gains, even if the shares are held as capital assets.

Provided a PFIC furnishes certain information to its U.S. shareholders, a U.S. Holder of shares of a PFIC may elect to treat its interest in the PFIC as a “qualifying electing fund,” in which case the U.S. Holder would take its pro rata share of the PFIC’s undistributed earnings and profits and net capital gains into gross income for the PFIC’s taxable year which ends with or within such U.S. Holder’s taxable year. However, if we are a PFIC we do not expect to furnish the information necessary to permit a U.S. Holder to make such an election.

In certain circumstances a U.S. Holder, in lieu of being subject to the Excess Distribution Rules, may make an election to include gain on the stock of a PFIC as ordinary income under a mark-to-market method provided that such stock is regularly traded on a qualified exchange. Under current law, the mark-to-market election would not be available to U.S. Holders because our common shares are not treated as regularly traded on certain qualified exchanges in the United States.

If a PFIC ceases to satisfy the Income Test and the Asset Test in a taxable year, a U.S. Holder may prospectively avoid application of the Excess Distribution Rules by electing to recognize built-in

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gain (but not loss) on the stock of the foreign corporation as of the last day of the taxable year for which the foreign corporation satisfied the Income Test or the Asset Test. The gain recognized from the deemed sale, however, would be subject to the Excess Distribution Rules. A U.S. Holder who elects the deemed sale treatment will increase its basis in the stock by the amount of the gain recognized on the deemed sale of such stock. Losses are not recognized on the deemed sale, and there is no adjustment to the U.S. Holder’s stock basis where there is a realized but unrecognized loss on the deemed sale. Although we currently believe we will qualify for the start-up year exception (described above) for our taxable year ending December 31, 2002, there can be no assurance that we will in fact satisfy the requirements applicable to the exception. If we do not qualify for the start-up year exception, you, as a U.S. Holder of our common shares, may wish to elect the deemed sale treatment for the taxable year ending December 31, 2002, in which case you would make the deemed sale election generally by filing an amended tax return for your taxable year that includes the last day of the last year in which we were a PFIC, which would be December 31, 2002 (assuming we do not meet the Income Test or the Asset Test for 2003). You should consult your own tax advisors as to whether you should elect the deemed sale treatment.

A U.S. Holder who beneficially owns shares in a PFIC must file an annual return with the Internal Revenue Service on IRS Form 8621 that describes any distributions received with respect to the PFIC shares and any gain realized on the disposition of these shares.

You should consult your own tax advisors regarding the tax consequences that would arise if we were treated as a PFIC.

Controlled Foreign Corporation.

If U.S. persons who individually own at least 10% of our common shares (10% Shareholders”) own, in the aggregate, more than 50% (measured by voting power or value) of the stock of our common shares (directly, indirectly or by attribution), we will be a controlled foreign corporation (a “CFC”). If we are characterized as a CFC, then a portion of our undistributed income may be subject to inclusion in the taxable income of each 10% Shareholder, and a portion of the gain recognized by such 10% Shareholder on the disposition of its common shares (which could otherwise qualify for capital gain treatment) may be converted into ordinary income.

Information Reporting and Backup Withholding.

Any dividends paid by us on our common shares and payment of proceeds from the sale of our common shares generally will not be subject to U.S. information reporting or the 28% backup withholding tax unless they are paid in the United States or paid by a U.S. payor or a U.S. middleman. If you furnish the U.S. payor or middleman with a duly completed and signed IRS Form W-9, these dividends and payments will not be subject to backup withholding tax. You will be allowed a refund or a credit equal to any amounts withheld under the U.S. backup withholding rules against your U.S. federal income tax liability, provided you furnish the required information to the IRS.

The above description is not intended to constitute a complete analysis of all tax consequences relating to the ownership of our common shares. You should consult your own tax advisor concerning the tax consequences of your particular situation.

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Documents on Display

We are subject to the informational requirements of the Exchange Act. In accordance with these requirements, we file reports and other information with the U.S. SEC. These materials, including this Form 20-F, and exhibits thereto are available to the public over the Internet at the Commission’s web site at http://www.sec.gov. You may also read and copy any document we file at the Commission’s public reference room located at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the Commission at 1-800-SEC-0330 for further information on the public reference room and its copy charges.

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign Currency Exchange Risks

Viatel is an international company that at the end of December 2003 had operations in eight countries. Only two operations and the parent company have a functional currency of U.S. dollars. Having operations in foreign currencies exposes the Company to foreign currency exchange risks.

There are principally two types of foreign exchange risk, transaction and translation risks that may impact the results of operations and comprehensive income respectively. These are discussed more fully below.

Transaction risks

Transactions in currencies other than the functional currency are translated at either the exchange rate in effect at the end of the month in which the transaction occurs or in some cases the rate in effect at the date of the transaction. Differences in exchange rates during the period between the date a transaction denominated in a foreign currency is consummated and the date on which it is settled or translated, are recognized in the consolidated statements of operations as a component of “Selling, general and administrative expenses.”

Our local operations transact business in their local currencies. They do not have significant assets, liabilities or other accounts denominated in currencies other than their local currency, and therefore are not subject to significant exchange rate risk with respect to their normal operations. Foreign currency exchange fluctuations currently have little or no impact on the price of our products and our competitiveness in various markets primarily for two reasons. First, other than for our cross border customers, our revenue streams are derived from the local operating subsidiaries. These subsidiaries transact with customers in the same country and the supporting agreements are generally denominated in the same local currency. Second, the local operating subsidiaries cost base is largely denominated in the local functional currency. The majority of underlying agreements with backbone and bandwidth suppliers, maintenance and property suppliers and salary costs, which comprise the majority of our expenses, are also denominated in the same currency as the local revenue stream.

The parent company’s foreign exchange transaction risk is primarily derived from the revaluation of current assets and liabilities that are denominated in a currency other than U.S. Dollars. These are comprised principally of Euro cash balances held to meet the working capital requirements of the five local operating subsidiaries with a Euro functional currency and the inter-company balances denominated in the local operating subsidiaries’ functional currency (Pounds Sterling, Swiss Francs and Euros).

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When required, the parent company funds the local operating subsidiaries in their functional currency supported with a corresponding intercompany receivable denominated in the local operating subsidiary’s functional currency. Thus, the parent company’s intercompany balances are held in the operating subsidiaries local functional currency and consequently are revalued on a monthly basis. The resultant foreign exchange gain or loss is reflected in the consolidated balance sheet as a component of the cumulative translation adjustment in shareholder’s equity.

The parent company’s cash balances consist of Euros and U.S. Dollars. The Euro bank account is revalued each month and the resultant gain or loss is reflected in the consolidated statements of operations as a component of “Selling, general and administrative expenses.”

The fluctuation in the exchange rates resulted in a foreign currency gain reflected in the consolidated statement of operations of US$1.5 million for the year ended December 31, 2004 and US$3.3 million for the year ended December 31, 2003. For the period from June 7, 2002 to December 31, 2002 there was a foreign currency loss of US$1.4 million. For the Predecessor period from January 1, 2002 to June 7, 2002, there was a foreign currency gain of US$0.4 million.

Translation risks

The financial statements of the Company’s local operating subsidiaries with a functional currency other than U.S. Dollars are translated into U.S. Dollars using the current rate method. Accordingly, assets and liabilities are translated at period-end exchange rates while revenue and expenses are translated at the period’s average exchange rates. Exchange differences arising from the retranslation at period end exchange rates of the opening net investments and results for the period are charged or credited directly to the cumulative translation adjustment in shareholders’ equity.

The fluctuation in the exchange rates resulted in a cumulative translation adjustment gain reflected as a component of accumulated other comprehensive loss in stockholders’ equity, of US$3.6 million for the year ended December 31, 2004 and of US$11.3 million for the year ended December 31, 2003. For the period from June 7, 2002 to December 31, 2002, there was a gain of US$3.6 million. In the Predecessor, there were gains of US$7.0 million for the period from January 1, 2002 to June 7, 2002.

Exchange rates can vary significantly. The Euro high and low rates varied by approximately 16% in relation to the U.S. Dollar during the year ended December 31, 2004; in 2003, the variation was in the region of 22%. This variation affects the average exchange rates used to translate the income statements of our operating companies whose functional currency is not U.S. Dollars. At December 31, 2004, the Euro to U.S. Dollar exchange rate was approximately 8% above where it was at the beginning of the year; as at December 31, 2003, the corresponding figure was 17%. This variation affects the ending exchange rates used to translate amounts on the balance sheet of our operating companies whose functional currency is not U.S. Dollars. Future changes in the value of the Euro could have a material impact on our financial position and results of operations. We also experienced fluctuations in other exchange rates.

Hedging against foreign exchange risks

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We manage currency exchange rate exposure through the use of hedging transactions and natural hedging strategies through our treasury planning function, and it is anticipated that we will continue to do so.

During 2004 the Company entered into three hedging contracts. These contracts allowed for the conversion of US$6 million, US$6 million and US$10 million into Pounds Sterling at “Protected” rates of US$1.8045, US$1.7975 and US$1.7885 respectively for delivery on July 1, 2004, October 1, 2004 and January 5, 2005. These conversion rates were dependent upon the GBP to USD spot rates at the time of exercise being above these rates; if market rates had been lower, the actual conversion rates would have been split between the Protected rate, and market rates, based on the proportion of time during the contract period in which actual rates had been below the Protected rates.

We have exposure to financial market risks, including changes in interest rates and foreign exchange rates. At December 31, 2004 and 2003, the Company’s financial instruments consisted of short-term investments and money market deposits. At December 31, 2004 and 2003 all of our investments were due to mature within three months and the carrying value of such investments approximates fair value.

Sensitivity analysis

As mentioned above, at December 31, 2004 and 2003, we had Euro and Pound Sterling denominated balances held by group entities with a functional currency in U.S. Dollars. Therefore, this exposes the Company to foreign currency exchange rate risk in the Statement of Operations. At December 31, 2004, a 10 percent weakening of the U.S. Dollar against all other currencies in which the Group’s net earnings are denominated would have resulted in a decreased loss of US$3.4 million (2003 – US$2.1 million). A 10 percent strengthening of the U.S. Dollar against all other currencies in which the Group’s net earnings are denominated would have resulted in a further loss of US$3.1 million (2003 – US$1.9 million). The change in exposure from year to year is related to the change in the balance of the Euro and Pound Sterling denominated balances.

Interest Rates

In connection with the April 2004 Financing the Company issued convertible loan notes with a principal amount of US$52.25 million, which bear interest at a fixed rate of 8% per annum to be compounded and payable semi-annually by way of additional Notes or, at the Company’s option, in cash. The loan notes are convertible into common shares of the Company at a conversion price of US$0.75 per common share on 21 April 2013 or earlier upon the occurrence of certain specified “liquidity events” such as a change of control or an initial public offering. The loan notes are also puttable at a price of 101% of the principal should a change of control of the Company be effected. Otherwise the loan notes are repayable at par on 21 April 2014.

Interest on the New Notes proposed to be issued upon completion of the June 2005 Financing is to be initially 12% per annum, payable semi-annually with the interest rate increasing by 0.5% per annum on each interest payment date, beginning January 15, 2006. For the first year of issue interest will be payable on the New Notes by way of the issuance of additional New Notes. After the first anniversary of the issuance of the New Notes, interest will be payable in cash only.

PART II

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Not applicable.

- 87 -

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

See “Item 4. Information on the Company — Chapter 11 Reorganization”.

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

Pursuant to the Plan of Reorganization, the Predecessor’s common shares, preferred stock and warrants were cancelled and the holders of such securities did not receive any shares or other securities in the Company. See “Item 4. Information on the Company – Chapter11 Reorganization”.

ITEM 15. CONTROLS AND PROCEDURES

Following implementation of certain provisions of the U.S. Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”), companies such as ours that have a class of securities registered under Section 12 of the Exchange Act generally must maintain disclosure controls and procedures. Each such company’s management must evaluate, with the participation of the principal executive and principal financial officers, or persons performing similar functions, the effectiveness of its disclosure controls and procedures. In the case of a company that is, as we are, a “foreign private issuer” under the relevant Exchange Act rules, the evaluation must be made as of the end of each fiscal year. Each such company’s management must also evaluate, with the participation of its principal executive and principal financial officers, or persons performing similar functions, any change in its internal control over financial reporting that occurred during its fiscal year that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.

For these purposes, under the relevant U.S. SEC rules the term “disclosure controls and procedures” means controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the U.S. SEC’s rules and forms. Under the rules, such disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Disclosure controls and procedures can provide only reasonable, rather than absolute, assurance of achieving the desired control objectives.

The term “internal control over financial reporting” is defined under the relevant U.S. SEC rules as a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

• pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company;

- 88 -

• provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and

• provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

We have carried out the above-referenced evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2004, the end of the period covered by this Form 20-F. This evaluation has been carried out under the supervision of, and with the participation of, our senior management, including our Chief Executive Officer (our principal executive officer) and our Chief Financial Officer (our principal financial officer).

Based upon this evaluation, we have concluded that as of December 31, 2004 our disclosure controls and procedures were adequate and effective to ensure that material information is made known to our management and that the information required to be disclosed in this Form 20-F and our other reports to be filed under the Exchange Act is timely recorded, processed, summarized and reported.

The steps that have been taken to achieve this result include:

• We have engaged an external law firm to review various aspects of our Exchange Act disclosure procedures.

• We have established a Disclosure Committee operating under a written Disclosure Committee Charter approved by our Board. The Disclosure Committee Charter was adopted by our Chief Executive Officer and Chief Financial Officer and ratified by our Board. The Charter enumerates the Committee’s responsibilities, including designing disclosure controls, monitoring their effectiveness and supervising the preparation of our disclosure documents. The members of the Disclosure Committee are General Counsel Stuart Blythe, Chief Financial Officer Brian McArthur Muscroft and European Finance Director Steve Garry. The Disclosure Committee oversees the gathering of information in connection with the preparation of the reports that we file under the Exchange Act, including this Form 20-F, and works to ensure the accuracy and completeness of our disclosures in such reports.

• The members of our Disclosure Committee have been directly involved in the preparation and review of this Form 20-F.

• Further, our Board has approved and adopted a written Code of Ethics. See “Item 16B. Code of Ethics”.

As of the date of this Form 20-F, we are still in the process of identifying, developing and implementing other measures to improve the effectiveness of our disclosure controls and procedures and

- 89 -

our internal controls, including plans to enhance our resources, systems and training with respect to our financial reporting and disclosure responsibilities, and to review our actions with our Audit Committee and our independent auditors. We have committed, and intend to continue to commit, considerable resources to these efforts.

Except as described above, there were no significant changes in our internal controls or in other factors in the current year that could significantly affect our internal controls subsequent to the date of our evaluation of our disclosure controls and procedures.

ITEM 16A: AUDIT COMMITTEE FINANCIAL EXPERT

Due to anticipated short-term additions to the Audit Committee and the Board, no “audit committee financial expert” has yet been designated.

ITEM 16B. CODE OF ETHICS

In 2003, the Board adopted a written Code of Ethics. The principles set forth in our Code of Ethics are intended to promote the honest and ethical conduct of all our employees and compliance with all applicable rules and regulations that apply to us. This code has been filed as Exhibit 11 to the 2002 Form 20-F and is incorporated by reference in this Annual Report on Form 20-F. It is available on the U.S. SEC’s website at www.sec.gov.

Since the adoption of the Code of Ethics, there have been no amendments to any of its provisions.

During 2004, the Company did not grant any waiver, including any implicit waiver, from any provision of the Code of Ethics to the principal executive officer, the principal financial officer, the principal accounting officer or controller, or persons performing similar functions.

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

At the annual meeting of the Company held on December 8, 2004, our shareholders re-appointed Deloitte & Touche LLP, London, England, to serve as our Independent Registered Public Accounting Firm for the 2005 fiscal year. See “Item 6. Directors, Senior Management and Employees – Board Practices – Committees of the Board of Directors”.

Aggregate fees billed and billable to the Company for the fiscal years ended December 31, 2004, 2003, and 2002 by the Company’s principal accounting firm, Deloitte & Touche LLP, the member firms of Deloitte Touche Tohmatsu, and their respective affiliates (collectively, “Deloitte”) were:


	Year ended December 31,
US$’000⁽¹⁾	2004		2003		2002
Audit Fees (2)		321		425		518
Audit-Related Fees (3)		—		16		—

Total audit and audit-related fees		321		441		518
Tax Fees (4)		27		20		18
All Other Fees		—		—		—

Total Fees		348		461		536

- 90 -

(1)		Predominantly all fees are billed in Pounds Sterling. The exchange rates used in preparing this table are GBP:US$ 1:1.833, 1:1.633 for 2003 and 1:1.571 for 2002.

(2)		Consists of fees rendered for professional services for the audit of our annual financial statements and services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years. The 2003 figure excludes £45,000 (approximately US$73,000) of fees in respect of the audit of an acquired entity for the period prior to the acquisition by the Company. Of the 2002 audit fees, £70,000 (approximately US$114,000) relate to the audit of the Predecessor.

(3)		Consists of fees for financial due diligence.

(4)		Consists of fees for UK tax compliance services.

Audit Committee’s pre-approval policies and procedures

Our Audit Committee nominates and engages our independent auditors to audit our financial statements. See also “Item 6. Directors, Senior Management and Employees – Board Practices – Committees of the Board of Directors”. In 2003, our Audit Committee also adopted a policy requiring management to obtain the Committee’s approval before engaging our independent auditors to provide any other audit or permitted non-audit services to us or our subsidiaries. Pursuant to this policy, which is designed to assure that such engagements do not impair the independence of our auditors, the Audit Committee pre-approves annually specific audit and non-audit services in the categories Audit Service, Audit-Related Services, Tax Consulting Services, and Other Services that may be performed by our auditors, subject to any de minimis threshold of $25,000.

Our Chief Financial Officer reviews all individual management requests to engage our auditors as a service provider in accordance with this policy and, if the requested services are permitted pursuant to the policy, approves the request accordingly. We inform the Audit Committee about these approvals at the following Audit Committee meeting. Services that are not included in this pre-approval process require pre-approval by the Audit Committee’s chairman on a case-by-case basis. The chairman of our Audit Committee is not permitted to approve any engagement of our auditors if the services to be performed either fall into a category of services that are not permitted by applicable law or the services would be inconsistent with maintaining the auditors’ independence.

PART III

ITEM 17. FINANCIAL STATEMENTS

The registrant has responded to Item 18 in lieu of responding to this item.

ITEM 18. FINANCIAL STATEMENTS

The financial statements listed in the Index to Financial Statements are filed or incorporated by reference as a part of this Form 20-F.

ITEM 19. EXHIBITS

- 91 -


Exhibit
Number		Description of Exhibit	Page
1.1	-	Certificate of Incorporation of Viatel Holding (Bermuda) Limited. (Previously filed as Exhibit 1.1 to the Company’s Form 20-F for the year ended December 31, 2002 dated March 22, 2004 and incorporated by reference herein.)

1.2	-	Memorandum of Association of Viatel Holding (Bermuda) Limited. (Previously filed as Exhibit 1.2 to the Company’s Form 20-F for the year ended December 31, 2002 dated March 22, 2004 and incorporated by reference herein.)

1.3		Amendment to Memorandum of Association of Viatel Holding (Bermuda) Limited. (Previously filed as Exhibit 1.3 to the Company’s Form 20-F for the year ended December 31, 2002 dated March 22, 2004 and incorporated by reference herein.)

1.4	-	Bye-laws of Viatel Holding (Bermuda) Limited effective from April 21, 2004. (Amending and reinstating those Bye-Laws previously filed as Exhibit 99.2 to the Company’s Form 6-K dated February 5, 2004.).

2.1	-	Form of Registration Rights Agreement, among Viatel Holding (Bermuda) Limited and the other parties thereto. (Previously filed as Exhibit 2 to the Company’s Form 20-F for the year ended December 31, 2002 dated March 22, 2004 and incorporated by reference herein.)

2.2	-	Registration Rights Agreement, among Viatel Holding (Bermuda) Limited and the other parties thereto. (Previously filed as Exhibit 2 to the Company’s Form 6-K dated April 28, 2004 and incorporated by reference herein).

4.1	-	Investment and Note Purchase Agreement, among Viatel Holding (Bermuda) Limited and the other parties thereto. (Previously filed as Exhibit 1 to the Company’s Form 6-K dated April 28, 2004 and incorporated by reference herein).

4.2	-	Shareholders’ Agreement, among Viatel Holding (Bermuda) Limited and the other parties thereto. (Previously filed as Exhibit 3 to the Company’s Form 6-K dated April 28, 2004 and incorporated by reference herein).

4.3	-	Form of Note, due 2014. (Previously filed as Exhibit 4 to the Company’s Form 6-K dated April 28, 2004 and incorporated by reference herein).

4.4	-	Investment and Note Purchase Agreement among Viatel Holding (Bermuda) Limited and the other parties thereto dated June 23, 2005.

4.5	-	Letter Agreement among Viatel Holding (Bermuda) Limited and the other parties thereto dated June 23, 2005.

- 92 -

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of
Viatel Holding (Bermuda) Limited
Hamilton, Bermuda

We have audited the accompanying consolidated balance sheets of Viatel Holding (Bermuda) Limited, a Bermudan Company and subsidiaries (the “Company”) as of December 31, 2004 and December 31, 2003 and the related consolidated statements of operations, comprehensive (loss)/income, shareholders’ equity and cash flows for the years ended December 31, 2004 and December 31,2003, and for the periods from June 7, 2002 to December 31, 2002 (Successor Company operations) and January 1, 2002 to June 7, 2002 (Predecessor Company operations). These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As discussed in Note 1 to the consolidated financial statements, the Bankruptcy Court entered an order confirming the Plan of Reorganization, which became effective after the close of business on June 7, 2002. Accordingly, the accompanying financial statements for the periods subsequent to June 7, 2002 have been prepared in conformity with AICPA Statement of Position 90-7, Financial Reporting by Entities in Reorganization Under the Bankruptcy Code for the Successor Company as a new entity with assets, liabilities and a capital structure having carrying values not comparable with prior periods as described in Note 3 to the consolidated financial statements.

In our opinion, the Successor Company consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of and for the years ended December 31, 2004 and December 31, 2003 and the consolidated results of their operations and their consolidated cash flows for the period from June 7, 2002 to December 31, 2002 in conformity with accounting principles generally accepted in the United States of America. Furthermore, in our opinion, the Predecessor Company consolidated financial statements referred to above present fairly, in all material respects, the consolidated results of their operations and their consolidated cash flows for the period from January 1, 2002 to June 7, 2002, in conformity with accounting principles generally accepted in the United States of America.

F-2

VIATEL HOLDING (BERMUDA) LIMITED
AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(United States Dollars, in thousands, unless specifically stated)



	31 December			31 December
	2004			2003

ASSETS
Current Assets:
Cash and cash equivalents		22,820			30,378
Restricted cash		486			—
Amounts receivable from exchange contracts		10,552			—
Accounts receivable (net of allowance for doubtful debts of $1,567, 2003 – $1,648)		3,167			4,026
Amounts receivable from bankruptcy estates within one year		5,320			7,257
VAT receivable		3,676			3,469
Prepaid expenses and other current assets		5,845			6,427


Total current assets		51,866			51,557

Property and equipment, net		37,986			39,899
Intangible assets, net		2,198			3,330
Other assets		—			96
Deferred financing costs		7,630			—

Total assets		99,680			94,882


LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable		9,322			5,135
Accrued administrative and priority claims		—			1,868
Accrued expenses		7,937			9,209
Accrued interest		1,955			—
Accrual for French VAT payable		—			6,076
Deferred revenue		4,626			3,853
Deferred income tax liability		47			—
Future performance obligations		—			4,600
Other current liabilities		3,784			2,374

Total current liabilities		27,671			33,115

Long–term liabilities:
Deferred income tax liability		—			304
Convertible loan notes		36,617			—

Total long–term liabilities		36,617			304


Total liabilities		64,288			33,419


Commitments and contingencies (Note 10)

Shareholders’ equity:
Common stock, $.01 par value: 2004 – 250,000,000 shares authorised; 10,630,000 shares issued and outstanding, 2003 – 100,000,000 shares authorized; 10,730,000 shares issued and outstanding		106			107
Additional paid–in capital		116,045			98,494
Accumulated other comprehensive income		18,459			14,914
Deferred stock compensation		—			(13	)
Accumulated deficit		(99,218	)		(52,039	)

Total shareholders’ equity		35,392			61,463

Total liabilities and shareholders’ equity		99,680			94,882

See accompanying notes to consolidated financial statements.

F-4

VIATEL HOLDING (BERMUDA) LIMITED
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(United States Dollars, in thousands, unless specifically stated)


	Successor			Successor			Successor			Predecessor

							From June 7,
	Year Ended			Year Ended			2002 to			From January
	December 31,			December 31,			December 31,			1, 2002 to June
	2004			2003			2002			7, 2002

Revenue:
Communication services revenues		26,962			17,205			2,793			1,216
Operations and maintenance fee revenue		1,828			1,707			1,371			1,451


Total revenue		28,790			18,912			4,164			2,667

Operating expenses:
Cost of sales		(16,538	)		(10,015	)		(1,506	)		(1,518	)
Selling, general and administrative (including non–cash stock compensation (income) / expense of $(48), $(27), $75 (Successor), $4,567 (Predecessor)		(67,797	)		(51,225	)		(30,840	)		(26,502	)
Gain on amounts due from bankruptcy estates		3,105			358			25,003			–
Restructuring and impairment		–			–			–			(908	)
Depreciation and amortization		(9,140	)		(7,181	)		(2,458	)		(1,736	)


Total operating expenses (net)		(90,370	)		(68,063	)		(9,801	)		(30,664	)

Other operating income		17,780			–			–			–


Operating loss before reorganization items		(43,800	)		(49,151	)		(5,637	)		(27,997	)

Reorganization items		–			–			–			2,662,669


Operating (loss) / income		(43,800	)		(49,151	)		(5,637	)		2,634,672

Other income / (expense):
Interest and other income		775			1,557			986			1,007
Interest expense		(4,395	)		–			(11	)		(63	)


Net (loss) / income before taxation		(47,420	)		(47,594	)		(4,662	)		2,635,616
Taxation		241			217			–			–


Net (loss) / income		(47,179	)		(47,377	)		(4,662	)		2,635,616

Net (loss) / income per common share, basic and diluted		(4.42	)		(4.43	)		(0.44	)		51.72

Weighted average common shares outstanding, basic and diluted		10,680			10,705			10,560			50,963

See accompanying notes to consolidated financial statements.

F-5

VIATEL HOLDING (BERMUDA) LIMITED
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(United States Dollars, in thousands, unless specifically stated)


													Foreign
	Number of						Additional						Currency
	Shares of Common			Common			Paid–In			Deferred Stock			Translation			Accumulated
	Stock			Stock			Capital			Compensation			Adjustments			Deficit			Total

Balance at January 1, 2002		50,962,868			510			1,123,380			(3,966	)		(95,962	)		(3,570,391	)		(2,546,429	)
Foreign Currency translation adjustment		–			–			–			–			7,009			–			7,009
Stock options issued		–			–			2,569			(2,569	)		–			–			–
Earned compensation		–			–			–			4,567			–			–			4,567
Net income		–			–			–			–			–			2,635,616			2,635,616
Impact of Fresh Start Adjustments :
Elimination of Accumulated losses		–			–			–			–			–			934,775			934,775
Elimination of foreign currency translation reserve		–			–			–			–			88,953			–			88,953
Cancellation 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			–			–			–			98,636

Successor Company balance, June 7, 2002		10,560,000			106			98,788			(258	)		–			–			98,636
Earned compensation		–			–			–			75			–			–			75
Foreign Currency translation adjustment		–			–			–			–			3,635			–			3,635
Net loss		–			–			–			–			–			(4,662	)		(4,662	)

Balance at December 31, 2002		10,560,000			106			98,788			(183	)		3,635			(4,662	)		97,684
Earned compensation		–			–			–			68			–			–			68
Stock options exercised		170,000			2			–			–			–			–			2
Shares exchanged for One World		–			(1	)		(97	)		–			–			–			(98	)
Stock options forfeited		–			–			(197	)		102			–			–			(95	)
Foreign Currency translation adjustment		–			–			–			–			11,279			–			11,279
Net loss		–			–			–			–			–			(47,377	)		(47,377	)

Balance at December 31, 2003		10,730,000			107			98,494			(13	)		14,914			(52,039	)		61,463
Shares cancelled		(100,000	)		(1	)		–			–			–			–			(1	)
Stock options forfeited		–			–			(61	)		13			–			–			(48	)
Beneficial conversion feature		–			–			17,612			–			–			–			17,612
Foreign Currency translation adjustment		–			–			–			–			3,545			–			3,545
Net loss		–			–			–			–			–			(47,179	)		(47,179	)

Balance at December 31, 2004		10,630,000			106			116,045			–			18,459			(99,218	)		35,392

See accompanying notes to consolidated financial statements

F-7

VIATEL HOLDING (BERMUDA) LIMITED
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASHFLOWS

(United States Dollars, in thousands, unless specifically stated)


	Successor			Successor			Successor			Predecessor

	Year Ended			Year Ended			From June 7, 2002			From January 1,
	December 31,			December 31,			to December 31,			2002 to June 7,
	2004			2003			2002			2002

Cash flows from operating activities:

Net (loss) / income		(47,179	)		(47,377	)		(4,662	)		2,635,616
Adjustments to reconcile net (loss) / income to net cash used in operating activities:
Depreciation and amortization		9,140			7,181			2,458			1,736
Loss on disposal of property and equipment		344			256			–			–
Accreted interest expense on long-term debt		2,930			–			–			–
Amortization of deferred financing costs		461			–			–			–
Amortization of loan note discount		1,003			–			–			–
Deferred income tax liability		(257	)		(217	)		–			–
Reorganization adjustments, net of cash		–			–			–			(2,660,786	)
Stock-based compensation (income) / expense		(48	)		(27	)		75			4,567
Non–cash exchange of common shares		–			(97	)		–			–
Changes in operating assets and liabilities, net of effect of acquisitions:
Decrease / (increase) in accounts and notes receivable and accrued interest		859			1,869			(540	)		8,200
(Increase) in restricted cash		(486	)		–			–			–
(Increase) in amounts receivable from exchange contracts		(10,552	)		–			–			–
Decrease / (increase) in prepaid expenses and other receivables		374			(6,074	)		2,843			6,180
Decrease / (increase) in amounts receivable from bankruptcy estates		1,937			13,628			(15,622	)		13,737
Decrease / (increase) in other assets		96			859			(374	)		195
(Decrease) / increase in accrued telecommunications costs, accounts payable, and other accrued expenses		(7,446	)		4,883			2,057			(1,589	)

Net cash (used in) / provided by operating activities		(48,824	)		(25,116	)		(13,765	)		7,856

Cash flows from investing activities:
Capital expenditures		(3,847	)		(2,180	)		(1,667	)		(8,721	)
Proceeds from disposal of property and equipment		–			2,697			–			2,051
Cash paid for acquisitions, net of cash acquired		–			(3,469	)		–			–

Net cash used in investing activities		(3,847	)		(2,952	)		(1,667	)		(6,670	)

Cash flows from financing activities:
Proceeds from exercise of stock options		–			2			–			–
Proceeds from preferred loan note offering		52,250			–			–			–
Deferred financing costs associated with loan note offering		(8,092	)		–			–			–

Net cash provided by financing activities		44,158			2			–			–

Effects of exchange rate changes on cash		955			5,036			605			1,116

Net (decrease) / increase in cash and cash equivalents		(7,558	)		(23,030	)		(14,827	)		2,302
Cash and cash equivalents at beginning of period		30,378			53,408			68,235			65,933

Cash and cash equivalents at end of period		22,820			30,378			53,408			68,235


Supplemental disclosure of cash flow activity

Interest paid		(2	)		–			8			63
Interest received		775			848			906			1,007
Taxes paid		–			–			–			–
Receipts from bankruptcy estates		5,612			13,628			10,030			13,737

See accompanying notes to consolidated financial statements

F-8

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

Viatel Holding (Bermuda) Limited (“the Company”) operates a pan–European telecommunications network (the “European Network”) comprised of advanced fiber–optic cable systems and interfaces that are owned by, leased to, or otherwise available to the Company. Over its network, the Company offers a variety of telecommunications products and services, IP transit, leased line services, managed hosting, co–location services and rights of use in capacity.

Viatel Holding (Bermuda) Limited was incorporated on January 4, 2002 under the laws of Bermuda, as a subsidiary of Viatel, Inc. and in anticipation of the consummation of the First Amended Joint Chapter 11 Plan of Reorganization (the “Plan of Reorganization”) of Viatel, Inc. and certain of its subsidiaries. As contemplated under the terms of the Plan of Reorganization, and commencing as of the close of business on June 7, 2002 (the “Effective Date”), a series of share transfers were made whereby various subsidiaries that had been previously held, directly or indirectly, by Viatel, Inc. became wholly–owned direct or indirect subsidiaries of Viatel Holding (Bermuda) Limited.

The Company has adopted “fresh start reporting” in accordance with the American Institute of Certified Public Accountants Statement of Position 90–7, “Financial Reporting by Entities in Reorganization under the Bankruptcy Code” (“SOP 90–7”). Under fresh start reporting, a new, viable entity with a going concern value is created for financial reporting purposes and the consolidated financial statements have been prepared for that new entity on that basis. Viatel Holding (Bermuda) Limited and its subsidiaries is therefore considered the Successor Company to Viatel, Inc., which is considered the Predecessor Company on the date of consummation of the Plan of Reorganization. Accordingly, the results that are presented in the consolidated financial statements of the Successor are those from the close of business on the Effective Date to December 31, 2002 and then for the fiscal years 2003 and 2004.

In March 2003, the Company acquired the business and assets of Cybernet (Schweiz) AG (“Cybernet”) and the share capital of Netcom Internet Limited (“Netcom”). Both of these companies provide business ISP services in their respective geographical locations; further information on these acquisitions is included in Note 10 to these financial statements.

References in these consolidated financial statements to “The Group”, “Viatel”, the “Successor Company”, the “Successor”, “we” or “us” refer to Viatel Holding (Bermuda) Limited and its subsidiaries. Any references in these financial statements to the “Predecessor Company” or the “Predecessor” refer to Viatel, Inc. and its subsidiaries prior to the Effective Date.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company currently has limited financial resources available to support ongoing operations, fund its operating business plan and pay ongoing operational obligations as they become due.

On April 21, 2004, the Company executed binding documentation with a group of investors for the issuance of US$52.25 million of senior convertible debt securities (the “Existing Notes”). Interest, at the rate of 8% per annum, is compounded and payable semi–annually by way of additional Existing Notes or, at the Company’s option, in cash; the Existing Notes are due in 2014. The Existing Notes are, at the option of the Noteholder, convertible into common shares of the Company upon the occurrence of certain specified “liquidity events”, such as a change in control or public offering, or upon the request of the holders of a majority of the Existing Notes. This is discussed in further detail in Note (8).

F-9

VIATEL HOLDING (BERMUDA) LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(United States Dollars, in thousands, unless specifically stated)

On June 23, 2005, the Company entered into further financing documentation with two of the Investors, Morgan Stanley and Värde under which Morgan Stanley and Värde have conditionally committed to invest a further US$16 million in the Company by way of the purchase of, respectively US$12.9 million and US$3.1 million 12% increasing rate senior secured notes due 2007 (the “New Notes”) — “the June 2005 Financing”. Such investment is conditional upon customary conditions for transactions of this nature and upon the filing of this Form 20-F in a form satisfactory to Morgan Stanley and Värde.

The Company expects to pursue the [further financing (“Further Financing”)] and Morgan Stanley and Värde have advised the Company they will consider providing such Further Financing and/or additional financing. It is currently contemplated that any such Further Financing would involve an investment of an additional US$16 million, with such additional amount being reduced by the proceeds of any asset sales by the Company entered into prior to the Further Financing, and to be further reduced to the extent that the Company’s then performance against budget does not demonstrate a need for such additional financing. No assurance can be given that the proposed Further Financing will be consummated or that alternative sources of financing would be available or attractive terms, or at all. Neither Morgan Stanley nor Värde is under any obligation to participate in the Further Financing or any other financing, other than the June 2005 Financing to the extent contemplated by the terms and conditions thereof. If the Company does not obtain acceptable funding, the Directors will be forced to reduce dramatically cash requirements or to raise cash, by discontinuing or disposing of existing development programmes or business operations, by selling assets or otherwise. These consolidated financial statements do not include any adjustment that might result from the outcome of this uncertainty. If these measures were to be inadequate to cover the Company’s cash needs, the Company would likely become insolvent.

If the proposed Further Financing is consummated, the Directors believe that the amount of the financing will be sufficient to fund the Company’s operating plan. However, should the operating performance not meet that contemplated in the operating plan, the Company will require additional funding.

(2) Significant Accounting Policies

These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and are expressed in U.S. Dollars. The significant accounting policies are summarized as follows:

F-10

VIATEL HOLDING (BERMUDA) LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(United States Dollars, in thousands, unless specifically stated)

(a) Basis of Consolidation

The financial statements consolidate the Company and its majority–owned and controlled subsidiaries from their respective dates of acquisition. All acquisitions are accounted for by the purchase method, with the excess of the purchase price over the fair value of the assets and liabilities acquired being recorded as goodwill. Further details of acquisitions are given in Note 10. All intercompany balances and transactions have been eliminated in consolidation. As at December 31, 2004, and 2003, there were no equity method investments.

(b) Use of Estimates

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingencies at the date of the financial statements, as well as the reported amounts of revenue and expenses during the reporting period. The most significant estimates include accounts receivable reserves, impairment charges, useful lives of fixed assets and performance obligations under long–term contracts. Actual amounts and results could differ from those estimates.

(c) Statement of Position 90–7, “Financial Reporting by Entities in Reorganization under the Bankruptcy Code”

On June 7, 2002, the Company adopted “fresh start reporting” in accordance with SOP 90–7,

F-11

VIATEL HOLDING (BERMUDA) LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(United States Dollars, in thousands, unless specifically stated)

Included in the balance sheet at the Effective Date are amounts considered to be pre confirmation contingencies in accordance with AICPA Practice Bulletin 11, “Accounting for Pre–Confirmation Contingencies in Fresh Start Reporting”. Subsequent revisions to the pre–confirmation contingencies are reported in the statement of operations. In our case pre–confirmation contingencies include amounts realized and to be realized from the claims made by the Predecessor in the bankruptcy proceedings of certain subsidiaries. An estimate was made as at the Effective Date of the certain recoveries and to the extent actual recoveries are in excess of those estimated at the Effective Date we have recorded a gain through the statement of operations.

(d) Revenue and Cost of Sales

The Company records communication services revenue as earned at the time services are provided. The related cost of communication services is reported in the same period.

Revenues relating to operations and maintenance charges are recognized over the period in which the service is provided. Deferred revenue also includes amounts invoiced for standby maintenance applicable to future periods.

Operations and maintenance costs are expensed over the period to which the expenditure relates.

(e) Advertising Costs

Advertising costs are expensed as incurred. Such costs are included in selling, general and administrative expenses in the accompanying consolidated statements of operations and amounted to US$1,376 for the year ended December 31, 2004 and US$184 for the year ended December 31, 2003. For the period from June 7, 2002 to December 31, 2002, the period from January 1, 2002 to June 7, 2002, advertising costs amounted to US$1, and US$nil respectively.

(f) Income Taxes

Income taxes are accounted for under the liability method. Deferred taxes are determined based on the difference between the tax basis of an asset or liability and its reported amount in the financial statements. A deferred tax liability or asset is recorded using the enacted tax rates expected to apply to taxable income in the period in which the deferred tax liability or asset is expected to be settled or realized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period in which the change is enacted. Future tax benefits attributable to these differences, if any, are recognizable to the extent that realization of such benefits is more likely than not. A valuation allowance is applied to deferred tax assets in order to reduce them to the amount that is more likely than not to be realised.

(g) Net (loss)/income per Common Share

Basic net (loss)/income per common share is computed by dividing net (loss)/income applicable to common shareholders by the weighted average number of common shares outstanding during the period. Diluted net (loss)/income per common share is computed by dividing net (loss)/income by the weighted average number of common shares and common share equivalents outstanding during the period. For the years ended December 31, 2004 and 2003, the periods from June 7, 2002 to December 31, 2002 and from January 1, 2002 to June 7, 2002, no outstanding stock options have been included in the calculation of diluted net loss per share as the effect would be anti–dilutive.

F-12

VIATEL HOLDING (BERMUDA) LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(United States Dollars, in thousands, unless specifically stated)

(h) Property and Equipment

At December 31, 2004 and December 31, 2003 property and equipment included property and equipment acquired from the Predecessor, which is stated at fair value upon acquisition. All acquisitions of capital equipment thereafter, principally comprising telecommunications-related equipment, are stated at cost.

Depreciation is calculated on a straight–line basis over the assets’ estimated useful lives, which are determined based on historical usage with consideration given to technological changes, trends in the industry and other economic factors that could impact the network architecture and asset utilization. Amortization of equipment held under capital leases and of leasehold improvements is included in the Consolidated Statement of Operations as “Depreciation and amortization”, and is calculated on a straight–line basis over the estimated useful lives of the assets, or the related lease term, whichever is shorter. The estimated useful lives of the other assets are as follows:


Communications systems and network infrastructure		5 to 18 years
Furniture, office and computer equipment		2 to 5 years
Land		Not depreciated

(i) Intangible Assets

Intangible assets purchased, including customer relationships, are capitalised at fair value and are amortised over their expected useful lives on a straight line basis. The expected useful lives of the intangible assets acquired during 2003 were 2 years. During 2004 the expected useful life of the intangible assets arising from the acquisition of Cybernet were re–assessed, and increased from 2 years to 5 years. This re-assessment reflected the fact that actual customer churn experienced subsequent to the acquisition was lower than originally anticipated. The re-assessment of the useful economic life of Cybernet resulted in the total amortization expense for the year ended December 31, 2004 being US$1,637 lower than it would otherwise have been. It is estimated that the impact of this change on charges in future years will be to increase annualized future charges through to February 2008 by approximately US$470 each year.

Negative goodwill arises where the sum of the amounts assigned to assets acquired and liabilities assumed exceeds the consideration for the acquired entity. Negative goodwill is allocated as a pro rata reduction of the amounts that otherwise would have been assigned to all of the acquired assets except (a) financial assets other than investments accounted for by the equity method, (b) assets to be disposed of by sale, (c) deferred tax assets, (d) prepaid assets relating to pension or other postretirement benefit plans, and (e) any other current assets.

The Company has no indefinite lived intangible assets or goodwill.

(j) Impairment of Long–lived Assets

F-13

VIATEL HOLDING (BERMUDA) LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(United States Dollars, in thousands, unless specifically stated)

long–lived assets would be recognized. Fair value is generally determined based upon an estimate of the discounted future net cash flows to be generated by the assets.

Under the testing for impairment, estimates of future cash flows are used to test the recoverability of a long–lived asset, and are based on the existing service potential of the asset. These estimates exclude cash flows associated with future capital expenditures that would increase the service potential of the long–lived asset. There is an inherent uncertainty in estimating future cash flows which can have a material affect on the amount of any impairment.

(k) Cash and Cash Equivalents

Cash equivalents include highly-liquid debt instruments purchased with an original maturity of three months or less. The company had restricted cash as at December 31, 2004 of US$486 and US$nil as at December 31, 2003.

(l) Amounts Receivable From Exchange Contracts

Amounts due under currency options straddling the year end are recorded as Amounts receivable from exchange contracts (see note 14).

(m) Convertible Notes

In connection with the April 21, 2004 Financing, the Company issued US$52.25 million of convertible loan notes (the “Existing Notes”). The embedded put option is bifurcated and recorded at fair value along with the carrying value of the note. Changes in fair value of the put option are recorded in the statement of operations.

The beneficial conversion feature, representing the difference between the conversion price and the share price on the issuance date, is recorded within Additional Paid in Capital in Shareholders’ Equity. The corresponding discount on the loan notes is being amortized using the effective interest method over their term.

Direct costs associated with the issuance of the Existing Notes are recorded as deferred financing costs and amortized over their term.

(n) Foreign Currency Translation

The functional currency of each of the Company’s subsidiaries is the local currency of the country in which each subsidiary is located. Transactions in currencies other than the functional currency are translated into the functional currency at the rates of exchange at the date of each transaction.

Differences in exchange rates during the period between the date a transaction denominated in a foreign currency is recorded and the date on which it is either settled or translated at period–end exchange rates are recognized in the statement of operations. The foreign exchange gain recognized in the statement of operations and included in “Selling, general and administrative expenses” amounted to US$1,611 for the year ended December 31, 2004 and US$3,256 for the year ended December 31, 2003. For the period from June 7, 2002 to December 31, 2002, there was an exchange transaction loss of US$1,421. For the

F-14

VIATEL HOLDING (BERMUDA) LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(United States Dollars, in thousands, unless specifically stated)

period from January 1, 2002 to June 7, 2002, the Predecessor experienced exchange transaction gains of US$441.

The financial statements of foreign subsidiaries are translated into United States Dollars using the current–rate method. Accordingly, assets and liabilities denominated in foreign currencies are translated at rates of exchange in effect at the balance sheet date and the statements of operations of overseas subsidiaries are translated into United States Dollars at average exchange rates. Exchange differences arising from retranslation at period–end exchange rates of the opening net investments and results for the period are charged or credited directly to the cumulative translation adjustment in shareholders’ equity.

(o) Financial Instruments, Derivatives and Concentration of Credit Risk

At December 31, 2004 the Company’s financial instruments included cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and convertible loan notes (the “Existing Notes”). It is not practicable to estimate the fair value of the convertible loan notes as a quoted market price is not available. As at 31 December 2004, the face value of the Existing Notes was US$52.3 million and the face value of the Existing Notes issued on 15 July 2004 in lieu of interest was US$1.0 million. These Existing Notes have a fixed interest rate of 8% which is payable semi annually. The Existing Notes mature on 21 April 2014. The fair values, at December 31, 2004 and at December 31, 2003, of cash and cash equivalents, receivables, accounts payable and accrued interest approximated their carrying values because of the short–term nature of these instruments.

Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of temporary cash investments and trade receivables. The Company restricts investment of temporary cash investments to financial institutions with high credit standing.

The Company does not have any derivative instruments at December 31, 2004 and did not enter into any activities resulting in derivative instruments during the year then ended other than the embedded derivatives related to the put option on the loan notes.

The Company records all derivative instruments on the balance sheet at fair value. Changes in a derivative’s fair value are recognized in income unless specific hedge criteria are met. If the derivative is designated as a fair value hedge, the changes in the fair value of the derivative and of the hedged item attributable to the hedged risk are recognized as a charge or credit to income. If the derivative is designated as a cash flow hedge, the effective portions of changes in the fair value of the derivative are recorded in other comprehensive income (loss) and are recognized in the consolidated statement of operations when the hedged item affects income and the cash flows are classified consistent with the underlying hedged item. For purchased foreign currency options the entire change in fair value is included in the measurement of hedge effectiveness for cash flow hedges. Ineffective portions of changes in the fair value of cash flow hedges are recognized as a charge or credit to income.

The Company designates and assigns derivatives as hedges of forecasted transactions, specific assets or specific liabilities. When hedged assets or liabilities are sold or extinguished or the forecasted transactions being hedged are no longer expected to occur, the Company recognizes the gain or loss on the designated hedging financial instruments.

The Company has a diverse customer base, but does have a concentration within the telecommunications industry. Current industry conditions have adversely affected other telecommunications providers, some of whom are customers of the Company. Such adverse effects could

F-15

VIATEL HOLDING (BERMUDA) LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(United States Dollars, in thousands, unless specifically stated )

result in an inability to fulfil their obligations to the Company, including payment of amounts owed for services provided.

(p) Stock Option Plan

The Company has adopted the disclosure only provision of SFAS 123 “Accounting for Stock–Based Compensation”. The Company applied APB Opinion 25 “Accounting for Stock Issued to Employees” and related interpretations in accounting for the stock option plans that it operates.

At December 31, 2004, and 2003 the Company had a stock-based employee compensation plan which is more fully described in Note 9. The Company recognizes stock–based compensation in the statement of operations over the vesting period for each award. The intrinsic value of the option is the difference between the market value of the stock on the measurement date, and the amount required to be paid for the stock. The difference, if any, is charged to expense over the vesting period of the options. Any award of options to non–employees is accounted for under SFAS 123 and the fair value of the option is expensed over the vesting period. Under APB 25, the effect of any forfeiture is recognized in the period in which the options are forfeited. No options were granted in the years ended December 31, 2004 or 2003.

The table below shows the pro forma net income of the Company if SFAS 123 had been adopted, calculated using the Black–Scholes option pricing model. The following assumptions were applied in calculating the fair value of options awarded by the Predecessor Company during 2002 prior to the Effective Date: (1) a risk-free interest rate of 4.48%; (2) an expected life of the options of 5 years; (3) volatility of approximately 48.13%; and (4) an annual dividend yield of 0%.


	Successor			Successor			Successor			Predecessor
	Year Ended			Year Ended			From June 7, 2002			From January 1,
	December 31,			December 31,			to December 31,			2002 to June 7,
	2004			2003			2002			2002

Net (loss) / income as reported		(47,179	)		(47,377	)		(4,662	)		2,635,616
Add: non–cash stock–based compensation expense/(income)		(48	)		(27	)		75			4,567
Less: SFAS 123 stock–based compensation charge / (credit)		69			38			(106	)		(4,029	)

Pro forma net (loss) / income		(47,158	)		(47,366	)		(4,693	)		2,636,154


Pro–forma basic and diluted (loss) / income per share		(4.42	)		(4.42	)		(0.44	)		51.73
Basic and diluted net (loss) / income per common share, as reported		(4.42	)		(4.43	)		(0.44	)		51.72

(q) Segment Information

The Company reports segment information in accordance with SFAS 131, “Disclosures about Segments of an Enterprise and Related Information,” (“SFAS 131”). Under SFAS 131 all publicly-traded companies are required to report certain information about the operating segments, products, services and geographical areas in which they operate and their major customers. The Company presents segment information externally the same way management uses financial data internally to make operating decisions and assess performance.

F-16

VIATEL HOLDING (BERMUDA) LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(United States Dollars, in thousands, unless specifically stated )

(r) Comprehensive (Loss)/Income

The Company reports comprehensive (loss)/income in accordance with Statement of Financial Accounting Standard 130, “Reporting Comprehensive Income” (“SFAS 130”). SFAS 130 establishes guidelines for the reporting and display of comprehensive (loss)/income and its components in financial statements. Comprehensive (loss)/income includes charges and credits to equity that are not the result of transactions with shareholders. Included in other comprehensive income for the Company are foreign currency translation gains and losses.

(s) Recent Accounting Pronouncements Not Yet Adopted

On November 24, 2004, the FASB issued SFAS 151, “Inventory Costs, an amendment of ARB No. 43, Chapter 4”. The amendments made by SFAS 151 clarify that “abnormal” amounts of idle facility expense, freight, handling costs, and wasted materials (spoilage) should be recognized as current-period charges require the allocation of fixed production overheads to inventory based on the normal capacity of the production facilities. SFAS 151 is the result of a broader effort by the FASB to improve the comparability of cross-border financial reporting by working with the International Accounting Standards Board (IASB) toward development of a single set of high-quality accounting standards. The FASB and the IASB noted that ARB 43, Chapter 4 and IAS 2, Inventories, are both based on the principle that the primary basis of accounting for inventory is cost. Both of those accounting standards also require that “abnormal” amounts of idle freight, handling costs, and wasted materials be recognized as period costs; however, the Boards noted that differences in the wording of the two standards could have led to the inconsistent application of those similar requirements. The FASB concluded that clarifying the existing requirements in ARB 43 by adopting language similar to that used in IAS 2 is consistent with its goals of improving financial reporting in the United States and promoting convergence of accounting standards internationally. The guidance is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. Earlier application is permitted for inventory costs incurred during fiscal years beginning after November 23, 2004. We do not anticipate that the adoption of SFAS 151 will have a material impact on our results of operations, financial position or cash flows.

F-17

VIATEL HOLDING (BERMUDA) LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(United States Dollars, in thousands, unless specifically stated )

(3) Fresh Start Reporting

The Company’s emergence from Chapter 11 bankruptcy proceedings resulted in a new reporting entity and adoption of fresh start reporting in accordance with SOP 90–7. The consolidated financial statements for the period ended June 7, 2002 reflect adjustments for the discharge of debt and adoption of fresh start reporting.

The “Reorganization Value” set out in the Plan of Reorganization was US$87.8 million before current liabilities of US$7.8 million, and was determined by the Company with the assistance and analysis of its financial advisors. The “Reorganization Value” was primarily determined on a discounted cash flow analysis utilizing both recent operating results and future projected cash flows over the estimated lives of the network assets and a discount rate of 20%. The estimated “Reorganization Value” of the Company is consistent with the basis for the Plan of Reorganization approved by the United States Bankruptcy Court for the District of Delaware.

The business plan within the Plan of Reorganization was based upon a number of assumptions including general macro–economic conditions and in particular the state of the wholesale telecommunications market in Europe and the Company’s competitive position.

Between the presentation of the Plan of Reorganization and its confirmation by the Bankruptcy Court the Company was able to realize additional net assets of US$18.6 million, principally in additional cash and cash equivalents.

The following table reflects the fresh start reporting adjustments to the Company’s Condensed Consolidated Balance Sheet position as of emergence from bankruptcy:


	Balance Sheet at June 7, 2002
				Fresh Start
				Reporting –
				Settlement of
				Claims, Debt
	Predecessor			discharge and			Successor
	Company Balance			Equity			Company Balance
	Sheet			Restructuring			Sheet

Cash and cash equivalents		70,118			(1,883	)		68,235
Amounts receivable from bankruptcy estates		5,263			–			5,263
Trade receivables		4,028			–			4,028
Other current assets		6,131			–			6,131
Property and equipment		35,708			–			35,708
Deferred financing costs		61,865			(61,865	)		–
Other assets		581			–			581

Total assets acquired		183,694			(63,748	)		119,946


Current liabilities		(51,533	)		30,223			(21,310	)
Liabilities subject to compromise		(2,357,935	)		2,357,935			–

		(2,409,468	)		2,388,158			(21,310	)


Preferred stock		(338,259	)		338,259			–


Shareholders’ equity		(2,564,033	)		2,662,669			98,636

F-18

VIATEL HOLDING (BERMUDA) LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(United States Dollars, in thousands, unless specifically stated )

Fresh start reporting adjustments in these consolidated financial statements result primarily from the following:

• Elimination of the deferred financing costs balance of the Predecessor relating to Predecessor’s liabilities subject to compromise.

• Elimination of the deferred revenue balances of the Predecessor and recognition of the performance obligations under long–term contracts that were entered into by Predecessor to reflect fair value.

• Elimination of Predecessor’s liabilities subject to compromise.

• Cancellation of Predecessor’s common stock and the elimination of accumulated deficit.

The “Reorganization Value” was allocated to individual assets and liabilities based on the work of outside financial advisors, as well as internal valuation estimates using discounted cash flow analyses.

In accordance with and pursuant to the Plan of Reorganization of Viatel, Inc., all pre–petition liabilities of the Predecessor were discharged and creditors received a pro–rata distribution of 10,560,000 common shares issued by the Company. Additionally, the Predecessor’s entire deficit was eliminated. There were no other adjustments to individual assets and liabilities

(4) Amounts receivable from exchange contracts

As of December 31, 2004 there were amounts receivable from exchange contracts of US$10,551. This balance arose due to the execution by the Company of a forward foreign exchange contract to convert US$10 million into pounds sterling on December 31, 2004. Proceeds of £5,591 (US$10,551) from this transaction were not received until January 4, 2005, and consequently, and in accordance with Statement of Financial Accounting Standards No. 95 “Statement of cashflows” this amount did not fall to be recognized as cash or cash equivalents as of December 31, 2004, but as an amount to be received from exchange contracts. There was no equivalent amount as of December 31, 2003.

(5) Property and Equipment

Property and equipment consists of the following as of December 31:


	2004			2003

Land and buildings		500			500
Communications systems and network infrastructure		53,072			46,226
Furniture, office and computer equipment		2,314			1,980

		55,886			48,706
Less accumulated depreciation		(17,900	)		(8,807	)

Net book value		37,986			39,899

Depreciation on property and equipment, and included in depreciation and amortization in the accompanying consolidated statements of operations, amounted to US$7,696 for the year ended December 31, 2004 and US$4,802 for the year ended December 31, 2003. For the periods from June 7,

F-19

VIATEL HOLDING (BERMUDA) LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(United States Dollars, in thousands, unless specifically stated )

2002 to December 31, 2002, and from January 1, 2002 to June 7, 2002, depreciation amounted to US$2,458 and US$1,736 respectively.

(6) Intangible Assets

Intangible assets consist of the following as of December 31:


	2004			2003

Customer Relationships (see Note 11)		6,244			5,709
Less amortization		(4,046	)		(2,379	)

Net Book Value		2,198			3,330

Amortization on intangible assets, and included in depreciation and amortization in the accompanying consolidated statements of operations, amounted to US$1,445 for the year ended December 31, 2004 and US$2,379 for the year ended December 31, 2003. The expected annualized amortization charge for future years will be approximately US$470 each year through to February 2008, and nil thereafter.

(7) Deferred financing costs

Deferred financing costs consist of the following as of December 31:


	2004			2003

Financing costs		8,092			—
Less amortization		(462	)		—

Net Book Value		7,630			—

(8) Convertible notes

In connection with the April 2004 Financing, the Company issued convertible loan notes (the “Existing Notes”) with a principal value of US$52.25 million. There are two embedded derivatives within the convertible loan note ‘host’ contract, a change of control put option and an equity conversion feature. The put option allows the loan note holder to put back the loan notes to the Company for cash equal to the value of 101% of the principal of the loan notes, should a change of control of the Company be effected. The equity conversion version feature allows the loan note holder to convert the loan notes into equity, upon the occurrence of a Liquidity event, at a conversion price linked to the equity value of the Company, which in turn is related to the share price of the Company.

The change of control put option is separately accounted for pursuant to Statement of Financial Accounting Standards No. 133 “Accounting for Derivative Instruments and Hedging Activities”. The fair value of the embedded derivative is deemed to be nil at both the loan note issuance date, April 21, 2004, and the balance sheet date, December 31, 2004 as the likelihood of the loan note holder exercising the put option, should be a change of control occur, has been assessed by management as being remote.

The convertible feature within the loan notes is not required to be separately accounted for pursuant to the Statement of Financial Accounting Standards No. 133 “Accounting for Derivative Instruments and hedging Activities”. The feature has therefore been accounted for in accordance with the Emerging Issue Task Force, Issue 98-5 “Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratio” and Issue 00-27 “Application of Issue No. 98-5 to Certain Convertible Instruments”. These Issues require that an intrinsic value is assigned to the convertible feature at the date of the issuance of the loan notes, based on the difference between the conversion price and share price multiplied by the number of shares issued upon conversion.

The beneficial conversion feature embedded within these notes was valued at US$17,417, and this amount has been recorded at a discount against the principal value. This discount is then amortised over the term of the loan notes based on the effective yield method (the imputed interest notes is 4.13%) resulting in a reduction of the discount of US$995 by December 31, 2004. On July 15, 2004, interest accumulated to date on principal value of the loan notes of US$976 was converted into additional notes. These notes had a beneficial conversion feature of US$195 on issuance, which had amortised by US$8 by December 31, 2004.

F-20

VIATEL HOLDING (BERMUDA) LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(United States Dollars, in thousands, unless specifically stated )

There are two embedded derivatives within the convertible loan note ‘host’ contract, a change of control put option and an equity conversion feature. The put option allows the loan note holder to put back the loan notes to the Company for cash equal to the value of 101% of the principal of the loan notes, should a change of control of the Company be effected. The equity conversion version feature allows the loan note holder to convert the loan notes into equity, upon the occurrence of a Liquidity event, at a conversion price linked to the equity value of the Company, which in turn is related to the share price of the Company.

Interest on the loan notes is 8% per annum, to be compounded and payable semi-annually by way of additional notes or, at the Company’s option, in cash.

The convertible loan note holders (and their transferees) effectively have the right, at any time, to increase the size of the Board and to approve a majority of the Board to be designees of the convertible loan note holders.

The convertible loan notes do not include any financial covenants but do contain covenants that significantly limit or prohibit the Company’s ability to, interalia, incur indebtedness, engage in certain transactions and change the Chief Executive Officer.

Upon conversion of all or a large portion of the convertible loan notes, persons previously holding such convertible loan notes will hold a significant majority of our common shares, assuming that the Company has not issued shares other than on a conversion of the convertible loan notes. Both prior to and following conversion, and until such time as the Investors directly or indirectly together hold, on a fully diluted basis, 25% or less of the Company’s common shares, material corporate actions will effectively require the consent of the Investors or their transferees.

(9) Stock Incentive Plans

As of December 31, 2001, the Predecessor had 567,299 options outstanding. Pursuant to the Predecessor’s Plan of Reorganization, all outstanding common stock and stock options were cancelled on the Effective Date.

During 2002, the Company adopted, with stockholder approval, an Equity Incentive Plan (the “Incentive Plan”). Pursuant to the Incentive Plan, “non–qualified” stock options to acquire shares of common stock may be granted to the Company’s employees, officers, directors, independent contractors and consultants. The Incentive Plan also provides for the grant of Stock Appreciation Rights, either separately or in tandem with options, entitling holders to cash compensation measured by appreciation in the value of the shares, and Limited Stock Appreciation Rights, that are exercisable upon the occurrence

F-21

VIATEL HOLDING (BERMUDA) LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(United States Dollars, in thousands, unless specifically stated )

of specified events. The Incentive Plan also authorizes the grant of any other share–based awards, such as restricted stock and bonus stock, as deemed appropriate.

The Incentive Plan is currently administered by the Remuneration Committee of the Company’s Board of Directors. The Incentive Plan allows for the issuance of up to a maximum of 1,440,000 shares of common stock of which 696,000 shares remained available for grant at December 31, 2004 (2003 – 696,000; 2002 – 696,000). Prior to the Effective Date, the Company issued 744,000 options as described below. During the period from the Effective Date to December 31, 2002, no options were issued or exercised. During the year ended December 31, 2003, 170,000 options were exercised and 384,000 options were forfeited as a result of employee terminations. The exercise price of the share covered by each non–qualified stock option shall be as determined by the Compensation Committee of the Board of Directors. Should an incentive stock option be granted to a person possessing more than 10% of the combined voting power of the Company, the exercise price shall not be less than 110% of the fair market value of the share on the date of grant. Options are subject to various vesting conditions as disclosed below and have a maximum term of 10 years from the grant date.

Each option granted pursuant to the Incentive Plan is evidenced by a written agreement, which contains the terms, provisions and conditions of the grant. Stock options may not be assigned or transferred during the lifetime of the holder except as may be required by law or pursuant to a qualified domestic relations order. Common stock subject to a restricted stock purchase or bonus agreement is transferable only as provided in that agreement. As at December 31, 2004, no stock options had been granted to non–employees (2003 – none).

Stock option activity is shown below:


	Weighted Average		Number of Shares			Number of Exercisable
	Exercise Price		(in thousands)			options at end of each year

Outstanding at December 31, 2001	$	25.11		567			567
Granted at below market price before Effective Date (at a weighted average fair value of $6.02)		5.65		744
Forfeited		25.11		(567	)

At June 7, 2002	$	5.65		744			408

Outstanding at December 31, 2002	$	5.65		744			408
Forfeited		8.33		(384	)
Exercised		0.01		(170	)

Outstanding at December 31, 2003	$	5.26		190			150
Forfeited		8.33		(120	)
Exercised		0.01		(70	)

Outstanding at December 31, 2004		–		–			–

The vesting of the US$0.01 options was 100% on the earlier of (1) one year from May 21, 2002 (the date of grant); (2) a Change of Control as defined in the underlying employment contract, pursuant to which the options were granted; (3) termination of employment of the recipient of the options; and (4) consummation of the Plan of Reorganization. Consequently, all such options vested on June 7, 2002.

The vesting of the US$8.33 options was 33.4% on the consummation of the Plan of Reorganization; 33.3% on the first anniversary of the Effective Date and 33.3% on the second anniversary of the Effective Date.

(10) Other operating income

The Company had certain claims against Easynet Telecommunications Limited (“Easynet”) in which the Company alleged breach of contract under an Indefeasible Right of Use Agreement dated May 30, 2000 and certain related agreements (together, “the Agreements”). The claims were formally commenced in the High Court of Justice in England as of February 11, 2003 and proceeded to a full trial commencing on November 19, 2003. The Company has now accepted, as full and final settlement of its claims under the Agreements, payment by Easynet of £6.9 million (US$13.0 million approximately) which was paid in two equal instalments in March 2004 and September 2004, the second instalment having accrued interest at an annual rate of 4%. These settlement amounts, other than the interest income received, were recorded within other operating income during 2004. The settlement also served to dismiss certain related counterclaims brought by Easynet against the Company. As at December 31, 2003 and 2002 the Company had a liability for future performance obligations of $4.6 million under the contract with Easynet. Under the terms of the settlement, the Company was relieved of this obligation and accordingly recognized the release of the liability in the statement of operations in 2004 upon receipt of the final settlement payment.

F-22

VIATEL HOLDING (BERMUDA) LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(United States Dollars, in thousands, unless specifically stated )

(11) Acquisitions

In furtherance of our expansion of our target customer base into Small and Medium–Sized enterprises, in March 2003, we acquired two recognized business ISPs, Cybernet (Schweiz) AG (“Cybernet”) in Switzerland, and Netcom Internet Limited (“Netcom”) in the United Kingdom.

Netcom

On March 7, 2003, the Company acquired 100% of the outstanding common shares of Netcom Internet Limited (“Netcom”) from its parent, Net Access Limited (“Net Access”). Netcom’s business is the leasing of circuits and lines used for internet connectivity. The acquisition has been accounted for using the purchase method of accounting and the results of operations have been consolidated since the date of acquisition. The Company’s interest in the net assets acquired at fair values is as follows:


Current Assets	1,063
Property and Equipment	775
Intangible assets	1,737
Deferred income tax liability	(521	)
Current Liabilities	(2,168	)

Net assets	886


Consideration
Cash	722
Expenses	164

Total consideration	886

The intangible asset relates to the Customer Relationship acquired in the purchase of Netcom. The estimated useful life of this Customer Relationship is 2 years.

In calculating the fair value of the assets acquired and the liabilities assumed negative goodwill of $1.2 million arose. This negative goodwill has been allocated pro rata to the value of the property and equipment and the Customer Relationship.

Cybernet

On February 5, 2003, the Company acquired certain assets and assumed certain liabilities of Cybernet (Schweiz) AG (“Cybernet”) from its parent, Cybernet Internet Services International. Cybernet’s business is the provision of internet services to small and medium sized enterprises. The acquisition has been accounted for using the purchase method of accounting and the results of operations have been consolidated since the date of acquisition. The Company’s interest in the net assets acquired at fair values is as follows:


Cash	331
Current Assets	843
Property and Equipment	942
Intangible assets	3,539
Current Liabilities	(2,697	)

Net assets	2,958

Consideration
Cash	2,908
Expenses	50

Total consideration	2,958

F-23

VIATEL HOLDING (BERMUDA) LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(United States Dollars, in thousands, unless specifically stated )

The intangible asset relates to the Customer Relationship acquired in the purchase of the assets and liabilities of the Cybernet entity.

The following unaudited pro–forma data summarizes the results of operations for the year ended December 31, 2003 and for the period from June 7, 2002 to December 31, 2002 as if the acquisitions of Cybernet and Netcom had been completed as of June 7, 2002. The pro forma amounts are presented for illustrative purposes and do not purport to be indicative of the results that would have been actually achieved if the acquisitions had occurred as of June 7, 2002 of that may be achieved in the future. The principal pro forma adjustment relates to the depreciation and amortization expense of long-lived assets.


	Year ended			From June 7, 2002
	December 31,			to December 31,
	2003			2002
Revenue		21,006			11,466
Net loss		(47,520	)		(5,294	)
Basic and diluted net loss per share		(4.44	)		(0.50	)

(12) Income Taxes

The Company’s operations were undertaken in foreign jurisdictions for the years ended December 31, 2004 and 2003.

The Company is organized and tax resident in Bermuda. At the present time, no income, profit, capital or capital gains taxes are levied in Bermuda. In the event that such taxes are levied in the future, the Company and all its subsidiaries registered in Bermuda have received an undertaking from the Bermuda Government exempting them from all such taxes until March 28, 2016.

The statutory Bermuda tax rate for the year ended December 31, 2004 was zero (2003 – zero) and the statutory rates in the jurisdictions in which the Company operates range from 23% to 40.2% (2003 – 23% to 42.4%). The effective tax rate was (0.5)% for the years ended December 31, 2004 and 2003 due to the Company amortizing a deferred tax liability through the Statement of Operations in both years. No tax benefit has been recorded in respect of net taxable losses incurred.

The only significant reconciling items between pre-tax income at the statutory tax rate and the tax charge reflected in the income statement are the movement in the valuation allowance as a result of current year losses for which no benefit is being recorded, and the write off of prior year gross deferred tax assets (against which a full valuation allowance had also been recorded) as described below.

The tax effect of temporary differences that give rise to significant portions of the deferred tax assets are as follows as of December 31, 2004 and 2003:

F-24

VIATEL HOLDING (BERMUDA) LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(United States Dollars, in thousands, unless specifically stated )


Deferred Income Tax Assets	2004			2003

US net operating loss carryforwards		–			2,119
Foreign net operating loss carryforwards		43,756			54,531
Foreign property and equipment temporary differences		7,914			7,219

Total gross deferred tax assets		51,670			63,869
Less valuation allowance		(51,670	)		(63,869	)

Net deferred tax assets		–			–

The Company has unused net operating loss carryforwards of approximately US$154.1 million (2003 – US$183.9 million). Of this amount, US$nil million (2003 – US$5.3 million) represents US net operating losses expiring in 2007 through 2021 and US$57.4 million (2003 – US$52.2 million) of these losses represent French net operating losses which will expire by 2009. Other net operating losses have no expiration. Certain losses arising in foreign jurisdictions are expected to continue to be available to the Company, although their use may be subject to restrictions in the US and elsewhere.

Foreign net operating loss carryforwards were US$43,756 as of December 31, 2004, US$10,775 lower than as of December 31, 2003. This reduction is attributed to a re-assessment during 2004 of the carrying value of certain foreign property and equipment, which in turn reduced the operating losses available for carryforward in those foreign jurisdictions

The Company also has potentially significant deferred tax assets as a result of the consolidated book value of the European Network being considerably less than its original cost and tax basis. Further, any realization would be dependent upon the disposal of the European Network assets. As a consequence of its bankruptcy proceedings in various jurisdictions there is significant uncertainty as to the quantum of the potential deferred tax asset and accordingly no estimate has been made.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in the respective tax jurisdiction during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning in making these assessments. Management believes that it is more likely than not that the tax benefit from the deferred tax assets will not be realized. Accordingly, management has recorded a full valuation allowance against the net deferred tax assets.

The unremitted earnings, if any, of the Company’s foreign subsidiaries are considered by Management to be indefinitely reinvested and accordingly no income taxes have been provided thereon. Upon distribution of those earnings in the form of dividends or otherwise, the Company could be subject to income taxes (subject to an adjustment for foreign tax credits, where applicable) and withholding taxes payable to the various foreign counties. Determination of the amount of unrecognized foreign deferred income tax liability is not practicable because of the complexities associated with its hypothetical calculation.

F-25

VIATEL HOLDING (BERMUDA) LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(United States Dollars, in thousands, unless specifically stated )

(13) Commitments and Contingencies

(a) Leases and long-term contracts

At December 31, 2004, the Company was committed under non–cancellable operating leases for the rental of network locations, office space, motor vehicles and long-term contracts for standby maintenance. These leases expire at various times through May 2029.

The Company’s future minimum operating lease and long term contract payments are as follows:


	Network		Standby		Office Space		Motor		Total
	Locations		Maintenance				Vehicles
2005		4,452		3,678		912		30		9,071
2006		3,310		52		862		14		4,238
2007		2,730		—		855		—		3,585
2008		2,337		—		772		—		3,109
2009		2,185		—		772		—		2,957
Thereafter		18,771		—		1,929		—		20,700

Total minimum payments		33,785		3,730		6,101		44		43,660

Total rent expense amounted to US$12.2 million for the year ended December 31, 2004, US$12.0 million for the year ended December 31, 2003, US$6.1 million for the period from June 7, 2002 to December 31, 2002, US$4.6 million from January 1, 2002 to June 7, 2002.

(b) Litigation

On May 2, 2001 the (“Filing Date”), the Debtors filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code. The Plan of Reorganization was consummated on June 7, 2002, (the “Effective Date”). Commencing as of the Effective Date, a series of share transfers were made whereby the European Subsidiaries became wholly-owned, direct or indirect, subsidiaries of the Company. Additionally, under the terms of the Plan of Reorganization, VTL, Inc. (“VTL”) was authorized to serve as disbursing agent (with the right to designate other disbursing agents) with respect to distributions required under the Plan of Reorganization. Accordingly, on or after the Effective Date and to the extent not otherwise disposed of pursuant to the Plan of Reorganization, the Debtors’ Property vested in VTL. Ownership of VTL was transferred to the Successor in January 2003. Except as otherwise set forth in the Plan of Reorganization, all claims and liabilities of the Debtors were discharged as of the Effective Date.

F-26

VIATEL HOLDING (BERMUDA) LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(United States Dollars, in thousands, unless specifically stated )

In September 2003, the Company filed a claim for approximately €7.7 million (US$9.35 million approximately) in the Tribunal of Lille, France against Voies Navigables de France (“VNF”), the owner of certain French waterways to whom the Company currently pays in excess of €2 million (US$2.4 million approximately) annually for ROW charges. The claim principally asserts that the ROW charges are discriminatory and should conform more closely to the charges levied by the highway and road authorities in France. On the basis that this claim was filed by way of an “opposition procedure”, the Company is entitled to withhold payment of ongoing charges as they fall due. On this basis the Company has withheld its ROW charges for 2004 and it is anticipated that payment of the ROW charges for 2005 will be withheld on the same basis. If the Company is unsuccessful in its claim, it will likely be required to pay all outstanding fees together with interest, the interest being estimated to amount to as much as approximately €120,000 (US$150,000 approximately). Judgement is not expected until the end of 2005 at the earliest.

Similar claims in respect of ROW charges have been filed against each of; (1) Compagnie Nationale du Rhône (“CNR”); (2) Ville de Paris (“VDP”); and (3) SAGEP. The amounts of the claims being, respectively, approximately €1.16 million (approximately US$1.4 million) against CNR; approximately €1.4 million (approximately US$1.75 million) against VDP; and approximately €1.18 million (approximately US$1.43 million) against SAGEP. In the case of both CNR and SAGEP, the Company has again withheld payment of fees currently due – should the Company lose the relevant proceedings, this could yield a liability to repay (including applicable interest) an amount of approximately €900,000 (approximately US$1.1 million) to CNR and an amount of approximately €430,000 (approximately US$530,000) to SAGEP.

The Company’s French subsidiary Viatel Operations SA (“Viatel Operations”) is engaged in a dispute which arose as a result of the early termination of a lease agreement dated 29 September 1999. The lessor is claiming payment of: (a) an early termination indemnity in the amount of €30,489.40 (approximately US$37,000); and (b) the cost of fit-out works which, according to the lessor, Viatel Operations was under an obligation to perform under the lease. When the dispute first arose, the lessor

F-27

VIATEL HOLDING (BERMUDA) LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(United States Dollars, in thousands, unless specifically stated )

chose to quantify the amount of the fit out works as €855,514.20 (approximately US$1.1 million). Viatel Operations denied that it was under any obligation to carry out the fit-out works, the lease being permissive in this regard, not obligatory. In February 2005, the lessor issued proceedings requesting payment of the early indemnity, a provisional payment from Viatel Operations of €69,510.20 (approximately US$84,400) for reinstating the property and, finally, the appointment of an expert by the French court whose duty will be to assess the cost of reinstating the property “on the basis of the schedule of fit-out works appended to the lease”. The initial hearing in this matter was scheduled for April 2005 but following two postponements, made at the lessor’s request, the hearing is now scheduled for September 2005.

F-28

VIATEL HOLDING (BERMUDA) LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(United States Dollars, in thousands, unless specifically stated )

the aggregate, a material adverse effect on its business, financial condition or results of operation.

(c) Amounts due from Liquidators of bankruptcy estates

As a result of the Plan of Reorganization, the Company has claims against the bankruptcy estates of certain subsidiaries of Viatel, Inc. As at June 7, 2002, December 31, 2002, December 31, 2003, and December 31, 2004, estimates were made as to the expected recoveries of US$5,300, US$20,900, US$7,257 and US$5,320 respectively based upon all available information. Actual recoveries will vary depending upon the success of the liquidators in realizing the value .

(d) The Employee Benefit Trust

Awards under the Plan will vest in 3 tranches (one third effective 21 April 2005 and one third on each of the subsequent anniversaries) subject to the individual’s continued employment through each applicable resting date. Based upon the current value of the Company no accrual has been made under the terms of the EBT.

(14) Segment and Geographic Data

The Company’s sole operational activity relates to the provision of telecommunications services. The Company’s management uses financial data internally to make operating decisions and assess performance based upon this one principal activity of the Company. Following the adoption of the New Viatel Business Plan in August 2003 the Company has captured revenue data for 2 segments, wholesale and retail. It has not been possible to allocate certain costs of sales, nor selling, general and administration costs between the segments. The Company’s accounting systems did not distinguish between these two segments prior to August 2003 and accordingly only broad-based allocations were possible for the earlier part of 2003. It is not practicable to restate any earlier periods, during which the Company had only one reportable segment.

For 2004 the revenue for the retail segment was US$24.4 million (2003 – US$14.3 million) and for the wholesale segment was US$4.4 million (2003 – US$4.6 million).

For the years ended December 31, 2004 and 2003, no individual customer accounted for greater than 10% of revenues. Revenues for the period from June 7, 2002 to December 31, 2002 from three principal customers of the Company’s European Network represent approximately 40%, 28% and 16% each of consolidated revenues. For the period from January 1, 2002 to June 7, 2002, and the years ended December 31, 2001 and December 31, 2000, no individual customer accounted for greater than 10% of revenues.

The revenue generated by geographic location of customers is as follows:


	Successor		Successor		Successor		Predecessor
	Year Ended		Year Ended		From June 7, 2002		From January 1,
	December 31,		December 31,		to December 31,		2002 to June 7,
	2004		2003		2002		2002

United Kingdom		10,560		7,998		1,497		2,301
Switzerland		15,188		9,041		—		—
Other Western Europe		2,366		397		531		—
North America		676		1,476		2,136		366

Consolidated		28,790		18,912		4,164		2,667

F-29

VIATEL HOLDING (BERMUDA) LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(United States Dollars, in thousands, unless specifically stated )

The information below summarizes long–lived assets by geographic area as of December 31:


	Successor		Successor		Successor		Predecessor
	2004		2003		2002		2002

France		15,208		14,904		14,009		15,095
United Kingdom		4,257		6,450		7,420		343
Belgium		5,194		5,514		5,213		5,376
Germany		5,560		5,888		5,022		5,179
Switzerland		5,617		6,813		3,205		1,586
The Netherlands		3,000		3,051		2,844		2,933
North America		8,978		205		234		262

Consolidated		47,814		43,325		37,947		30,174

(15) Valuation and Qualifying Accounts

Reserves and allowances deducted from asset accounts:


	Successor			Successor			Successor			Predecessor
	Year Ended			Year Ended			From June 7, 2002			From January 1,
	December 31,			December 31,			to December 31,			2002 to June 7,
	2004			2003			2002			2002

Allowances for doubtful debts
Balance at beginning of period		(1,648	)		(790	)		–			–
Additions charged to costs and expenses		(883	)		(1,034	)		(790	)		–
Utilizations		964			176			–			–

Balance at end of period		(1,567	)		(1,648	)		(790	)		–

(16) Authorized Share Capital

(17) Related Party Transactions

Morgan Stanley was considered to be a related party throughout 2004 by virtue of its significant shareholding in the issued share capital of the Company. In April 2004, following the Company’s issuance of convertible loan notes, the Company entered into three hedging contracts with Morgan Stanley. These contracts allowed for the conversion of US$6 million, US$6 million and US$10 million into Pounds Sterling at “Protected” rates of US$1.8045, US$1.7975 and US$1.7885 respectively for delivery on July 1, 2004, October 1, 2004 and January 5, 2005. These conversion rates were dependent upon the GBP to USD spot rates at the time of exercise being above these rates; if market rates had been lower, the actual conversion rates would have been split between the Protected rate, and market rates, based on the proportion of time during the contract period in which actual rates had been below the Protected rates.

In connection with the April 2004 Financing, Morgan Stanley, Varde and our CEO Lucy Woods purchased Existing Notes in the principal amounts of $36.0 million, $10.0 million and $250,000 respectively. In connection with the June 2005 Financing Morgan Stanley and Varde have committed, subject to customary conditions and the filing of the Form 20-F in a form satisfactory to Morgan Stanley

F-30

VIATEL HOLDING (BERMUDA) LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(United States Dollars, in thousands, unless specifically stated )

and Värde, to purchase New Notes in the principal amounts of $12.9 million and $3.1 million, respectively.

During the year, additional loan notes to the value of US$665,564, US$186,667 and US$4,667 were issued to Morgan Stanley, Varde and Lucy Woods, respectively, in lieu of the interest accumulated to July 15, 2004. As of December 31, 2004 Morgan Stanley, Varde and Lucy Woods held total loan notes of US$36.7 million, US$10.2 million and US$254,667, respectively.

During 2003, the Company purchased 100,000 shares of Common Stock from the former Chairman and Chief Executive Officer, Michael Mahoney. Consideration for the purchase of these shares was the transfer to Michael Mahoney of all of the issued stock of a subsidiary of the Company, One World Telecommunications Corp. (“One World”), which had a book value of $97,000, approximating its fair value on the date of the transaction. The stock was cancelled during 2004. No gain or loss was recognized on this transaction.

(18) Subsequent events

F-31


		Total Equipment or Facility Area
Property name	Site Type	(leased total area may be larger)
AMIENS (PARC D’ACTIVITIES)	POP	750 sqm warehouse + 100 sqm office + 5 car parks
ST CHRISTOPHE-DE-DOUBLE	MOR	25 sqm
STRASBOURG	POP	781 sqm
NEVERS (LP4)	MOR	25 sqm
MONTELIMAR (SAULCE SUR RHONE)	MOR	25 sqm
MARSEILLE (4 RUE LEON GOZIAN)	POP	750 sqm
MARSEILLETTE	MOR	25 sqm
XOUAXANGE (HESSE)	MOR	500 sqm
NANCY RUE JAURES	POP	705 sqm
NAMBSHEIM (BS1)	MOR	25 sqm
NERSAC	MOR	25 sqm
PARIS 35 RUE DES JEUNEURS – BASEMENT (BASTILLE)	POP	97 sqm
ANDANCETTE	MOR	25 sqm
PARIS 35 RUE DES JEUNEURS – 2^ND FLR (BASTILLE)	POP/OFFICE	327 sqm
VERETZ (TOURS)	MINI-POP	25 sqm
PARIS 38 RUE DES JEUNEURS – 4^TH FLR	POP	7 RACKS
PARIS 35 RUE DES JEUNEURS – 3^RD FLR (BASTILLE)	POP/OFFICE	330 sqm
TROUSSEY (VILLOROY SUR MEHOLLE)	MOR	25 sqm
DUSSELDORF IN DER STEELE 29	POP	1 600 x 800 Cabinet
DERNBACH	MOR	25 sqm
DUSSELDORF HALLE CONNECTAPARK	POP	1400 sqm equipment room plus office
ELTEN	MOR	25 sqm
MANNHEIM	POP	1119 sqm
NAUROD	MOR	25 sqm
LINZ	REGEN	25 sqm


		Total Equipment or Facility Area
Property name	Site Type	(leased total area may be larger)
FRANKFURT 19 WEISSMULLERSTRASSE	POP	1 600 x 800 Cabinet
BERG LANGWIESE (GASLINE)	MOR	25 sqm
KAPPELLA (KAPPELLEN)	MOR	25 sqm
PORZ	MOR	25 sqm
FRANKFURT 90 KLEYERSTRASSE	MINI-POP/OFFICE	75 sqm
AMSTERDAM SCHIPLUIDENLAAN (DELFLANDLAAN)	POP/OFFICE/NOC	695 sqm, 7 car park spaces (basement)
AMSTERDAM NIKHEF BUILDING	POP	1 rack
AMSTERDAM WORLD TRADE CENTRE	POP/OFFICE	182 sqm
AMSTERDAM HALFWEG	POP	1728 sqm
AMSTERDAM 144 GYROKOOPWEG	POP	3 racks
AMSTERDAM 58 GYROKOOPWEG (INTERXION)	POP	1 rack
ZANDVOORT	REGEN	342 sqm
LEERSUM	MOR	25 sqm
ROTTERDAM ALBERT PLESMANWEG (SOERWEG 5B)	POP	365 sqm
WORLD FASHION CENTER (17^th floor)	Roof site	100 sqm on site
DOORN	MOR	25 sqm
OLTEN	MOR	50 sqm
BASEL	POP	4 racks
BERN	POP	50 sqm
EPENDES	REGEN	100 sqm
ZURICH 225 JOSEF STR	POP	2 racks
ZURICH 569 BADENEERSTRASSE	POP	810 sqm
ZURICH 560 SCHAFFHAUSERSTRASSE	POP/OFFICE	65 sqm
GENEVA	POP	77 sqm
GENEVA (Rue de la Confederation 6)	POP	1 rack


		Total Equipment or Facility Area
Property name	Site Type	(leased total area may be larger)
LONDON PARK STREET	POP	25 sqm
SNOW HILL	MOR	25 sqm
POLEGATE	REGEN	80 sqm (equipment room)
PEASE POTTAGE	MOR	77 sqm
PAKENHAM	MOR	25 sqm
MANCHESTER WILLIAMS HOUSE	POP	1 rack
LONDON TELEHOUSE NORTH	POP/OFFICE	243 sqm (2600 sq ft)
LONDON GLOBAL SWITCH	POP	1 rack 1 duct
EGHAM BLAYS BASEMENT	WAREHOUSE	257 sqm
EGHAM INBUCON HOUSE	POP/OFFICE/NOC	1405 sqm
LONDON 8 HARBOUR EXCHANGE (TELECITY 2)	POP	1 rack – ref 1 Z 18
LONDON TELEHOUSE NORTH (NETCOM)	POP	3 racks
LONDON BRICK LANE (INTERXION)	POP	1 x 600 x 600 rack
LONDON TELEHOUSE EAST	POP	3 racks
LONDON HOSTING CENTRE (PSINET)	POP	3 racks
LOWESTOFT	REGEN	25 sqm
BRACKNELL	OFFICE/POP	2,240 sqm
LONDON 7 HARBOUR EXCHANGE (REDBUS)	POP	1 rack 8^th floor
LONDON BONNINGTON HOUSE (TELECITY 1)	POP	4 racks
NEW YORK 60 HUDSON	POP	550 sqm
FIBERNET BIRMINGHAM	POP	rack E11 (60cm x 60 cm)
FIBERNET COVENTRY	POP	rack A10
FIBERNET LEEDS 2	POP	rack D11
FIBERNET LEICESTER	POP	rack B10
FIBERNET READING	POP	rack D5
FIBERNET EDINBURGH	POP	1 rack
LEEDS (FOUNDRY STREET)	OFFICE	479 Sq Ft


	Page
PART I		5
Item 1. Identity of Directors, Senior Management and Advisers		5
Item 2. Offer Statistics and Expected Timetable		5
Item 3. Key Information		5
Item 4. Information on the Company		18
Item 5. Operating and Financial Review and Prospects		45
Item 6. Directors, Senior Management and Employees		57
Item 7. Major Shareholders and Related Party Transactions		64
Item 8. Financial Information		67
Item 9. The Listing		69
Item 10. Additional Information		71
Item 11. Quantitative and Qualitative Disclosures About Market Risk		85
PART II		87
Item 12. Description of Securities other than Equity Securities		87
Item 13. Defaults, Dividend Arrearages and Delinquencies		88
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds		88
Item 15. Controls and Procedures		88
Item 16A. Audit Committee Financial Expert		90
Item 16B. Code of Ethics		90
Item 16C. Principal Accountant Fees and Services		90
PART III		91
Item 17. Financial Statements		91
Item 18. Financial Statements		91
Item 19. Exhibits		91
Financial Statements		F-1
Exhibit 1.4
Exhibit 4.4
Exhibit 4.5
Exhibit 4.6
Exhibit 4.7
Exhibit 8
Exhibit 12.1
Exhibit 12.2
Exhibit 13

	•		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 composition of revenues and cost of sales, including operating margins and the use of professional, consultancy and/or contractor services provided by third parties.

	•		our ability to obtain financing on acceptable terms and sufficiently to fund our working capital requirements and business plan;

	•		our vulnerability to adverse general economic and industry conditions;

	•		the adverse effect of a highly competitive market for our products and services; and

	•		our ability to retain the services of key management personnel.

	•		limiting our ability to obtain additional financing for our capital expenditures, acquisitions, working capital or other general requirements;

	•		limiting our flexibility in planning for, or reacting to, changes in our business, the competitive environment and the telecommunications industry;

	•		placing us at a competitive disadvantage to competitors with less debt;

	•		making us more vulnerable to economic downturns, which could weaken our ability to compete effectively and could reduce our flexibility in responding to changing economic conditions; and

	•		limiting our ability to take advantage of new business opportunities.

	•		incur indebtedness;

	•		make prepayments of certain indebtedness;

	•		pay dividends;

	•		make investments;

	•		engage in transactions with stockholders and affiliates;

	•		issue capital stock;

	•		create liens;

	•		sell assets;

	•		engage in mergers and consolidations;

	•		change the Chief Executive Officer; and

	•		increase the size of the Board.

	•		our ability to raise additional financing;

	•		general economic conditions;

	•		the conditions of the European telecommunications industry in general;

	•		further price decreases in the European telecommunications industry;

	•		continuing overcapacity leading to a reduction in demand for, in particular, our wholesale

			products and services;

	•		our ability to introduce new products and services;

	•		our ability to attract and retain customers;

	•		our ability to operate and develop in new markets, in particular that for consumer broadband and Voice over IP (“VoIP”);

	•		changes in the mix of services sold or channels through which services are sold;

	•		capital expenditure requirements and costs relating to our network;

	•		the outcome of legal proceedings; and

	•		the effects of government regulation and regulatory changes.

	•		generate customer acceptance of such new services and product offerings;

	•		integrate necessary equipment and software into our network;

	•		enhance our billing, back-office and information systems required to accommodate these new services and products; and

	•		fire and flood;

	•		power loss;

	•		natural disasters; and

	•		general transmission failures caused by a number of additional factors.

	•		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.

	•		Managed IP VPN: Launched in June 2004, this is a managed solution offering a virtual private network, providing a secure, cost effective communications network between a customer’s different sites, remote workers and its business partners.

	•		Bonded Broadband: Launched in June 2004, this managed service bonds together standard broadband lines into a high-speed service that aggregates bandwidth and offers a competitive alternative to a traditional leased line service.

	•		Ethernet: Launched in November 2004, this is a high performance national and international connectivity product using a standard local area network (“LAN”) interface common to most businesses, the key advantages being increased flexibility, scalability and cost-effectiveness.

	•		VoIP: Launched in May 2005, this is a replacement product for traditional voice services which use the public switched telephone network (“PSTN”). The product allows the elimination of traditional circuit activity associated with the PSTN and offers the customer substantial cost savings.

	•		Enterprise Business Broadband: an xDSL broadband service, with high performance and reliability, designed for the business user. This service is based on a 1-to-1 contention ratio (contention being defined as the number of organizations sharing the same bandwidth); in this way, the customer has effectively its own dedicated bandwidth, maximising service performance.

	•		SoHo Business Broadband: an xDSL shared broadband service aimed at small offices and people working from home.

	•		Dedicated Internet Access: a high bandwidth leased line Internet access utilising our IP Network and worldwide peering agreements.

	•		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.

	•		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 IPVPN service that allows customers to access private data, such as company information, across a public or shared network. The Viatel IPVPN offering takes advantage of a number of access technologies, such as dial, broadband and DIA. IPSec is currently the security protocol used by Viatel.

	•		Remote IPVPN: a service that allows customers with a distributed workforce to access company data and systems, such as order entry and work-flow management. An international roaming service option is also available.

	•		Viatel Managed IPVPN: a secure, cost effective communication service between customer sites, remote workers and business partners over a shared network. If customers wish to manage their own site equipment, they can choose a “wires only” option.

	•		Viatel Ethernet: a high bandwidth, flexible service to enable customers to run data intensive or real time applications between their sites.

	•		Viatel VoIP: comparable to a traditional voice access line service, but routed over cost effective Internet connections such as broadband and leased lines. We provide the Internet connection and a variety of gateways to IP enabled existing customer equipment. Viatel hosted VoIP provides a fully managed, bundled telephony solution, including IP enabled phones, connectivity and private branch exchange “PBX” functionality such as call forwarding and voice mail.

	•		Viatel VoIP VPN: a single, secure VPN network for integrated voice and data traffic between customer sites and remote workers, helping to reduce costs and improve efficiency.

	•		VPN Connect: an MPLS VPN service with ADSL connections;

	•		Videoconferencing: providing a voice, video and file shared conferencing platform enabling the customer to conduct on-line conferencing;

	•		A “white label” web hosting product: enabling wholesale partners to take space on the shared Cybernet hosting platform with a view to offering their own web hosting product; and

	•		Ethernet Connect: a 2Mb leased line with an Ethernet service, offering connectivity between over 200 Swiss towns.

	•		Leased Line: an end-to-end, managed, fully redundant and protected synchronous digital hierarchy (“SDH”) transmission technology international private wire service, over varying speeds, that uses the European Network.

	•		Wavelength: a service offering greater speed, flexibility and more efficient bandwidth utilization allowing carriers, ISPs and large corporate customers, effectively, to design and operate their own networks.

	•		IP transit: services where, starting with our own network’s IP backbone and then, by purchasing global IP transit from a number of carefully selected partners, we are able to offer our customers the best available connection routes, thus providing our customers with maximum quality, responsiveness and cost- effectiveness.

	•		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

	•		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.

	•		to carry on the business of constructing, establishing, owning, providing operating and maintaining telecommunications networks in all parts of the world and to provide telecommunications services;

	•		to carry on the business as a holding company and to acquire and hold shares, stocks, debenture stock, bonds, mortgages, obligations and securities issued or guaranteed by any entity;

	•		to acquire such shares and other securities by subscription, syndicate participation, tender, purchase, exchange or otherwise;

	•		to coordinate the administration, policies, management, supervision, control, research, planning, trading and any and all other activities of, and to act as financial advisers and consultants to, any companies which may or which may become a group company;

	•		to provide financing and financial investment, management and advisory services to any group company; and

	•		as set forth in paragraphs (b) to (n) and (p) to (u) inclusive of the Second Schedule to the Bermuda Act.

	•		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;

	•		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.

	•		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.

	•		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;

	•		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”).

	•		we establish to the satisfaction of the Internal Revenue Service that we would not be a PFIC for our 2003 and 2004 taxable years based on current estimates; and

	•		we in fact are not a PFIC for either of our 2003 and 2004 taxable years.