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THIS DOCUMENT IS IMPORTANT AND REQUIRES
YOUR IMMEDIATE ATTENTION
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VIATEL HOLDING (BERMUDA) LIMITED
Notice of Special General Meeting in
connection with Proposed Financing
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A notice convening the Special General Meeting of Viatel Holding (Bermuda)
Limited to be held on April 6, 2004 at 11:00 am at the offices of Appleby
Spurling & Kempe, Canon's Court, 22 Victoria Street, Hamilton, HM12, Bermuda is
enclosed with this document.
Your attention is drawn in particular to the letter from the Chairman of Viatel
Holding (Bermuda) Limited set out in Part I of this document.
PLEASE COMPLETE, SIGN AND RETURN THE ENCLOSED FORM OF PROXY IN ACCORDANCE WITH
THE PRINTED INSTRUCTIONS THEREON AS SOON AS POSSIBLE BUT, IN ANY EVENT, SO AS TO
BE DELIVERED BY MAIL TO SHAREOWNER SERVICES, PO BOX 64873, SAINT PAUL MN 55164
9397 OR BY FAX TO SHAREOWNER SERVICES, ATTENTION PROXY DEPARTMENT (FAX NUMBER +1
651 450 4026) NO LATER THAN 24 HOURS BEFORE THE TIME FIXED FOR THE SPECIAL
GENERAL MEETING.
CONTENTS
Page
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PART I Letter from the Chairman of Viatel Holding (Bermuda) Limited 3
PART II Summary of the Proposed Financing 15
PART III Rights of the Special Share and Bye-Law Amendments 29
PART IV Definitions 33
Term Sheet 36
PwC Fairness Opinion 65
Notice of Special General Meeting 69
TIMETABLE OF EVENTS
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Record Date for Special General Meeting February 19, 2004
Latest time and date for receipt of proxies for use in
connection with the Special General Meeting 11:00 am on April 5, 2004
Special General Meeting 11:00 am on April 6, 2004
Expected closing of Proposed Financing Second Quarter of 2004
All times are local time in Bermuda.
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PART I - LETTER FROM THE CHAIRMAN OF VIATEL HOLDING (BERMUDA) LIMITED
VIATEL HOLDING (BERMUDA) LIMITED
Canon's Court
22 Victoria Street
Hamilton HM12
Bermuda
www.viatel.com March 5, 2004
To the Shareholders of Viatel Holding (Bermuda) Limited
Dear Shareholder:
Enclosed with this letter you will find a notice of a Special General Meeting of
the Company to be held at the offices of Appleby Spurling & Kempe, Canon's
Court, 22 Victoria Street, Hamilton HM12, Bermuda on April 6, 2004, at 11.00 am.
All definitions used in this letter have the meanings set out under
"Definitions" at the end of this document.
The SGM has been convened to consider and, if thought fit, approve various
Resolutions, details of which are set out in the notice of the SGM. All of the
Resolutions relate to a proposed U.S. $50-$60 million financing of the Company -
the Proposed Financing - through a private transaction with an identified group
of Investors. The successful conclusion of the Proposed Financing is conditioned
upon, among other things, the adoption by the Shareholders of the Resolutions.
The purpose of this document is to provide Shareholders with details of the
Proposed Financing, to explain why the Board (acting through its Financing
Committee) consider the Proposed Financing to be in the best interests of the
Shareholders as a whole, and accordingly to recommend that you approve and vote
in favour of the Resolutions.
I URGE YOU TO READ THIS DOCUMENT. FAILURE TO ADOPT THE RESOLUTIONS MAY RESULT IN
THE PROPOSED FINANCING NOT BEING CONSUMMATED. IN THIS EVENT, IT IS LIKELY THAT
WE WOULD BE REQUIRED TO CEASE OPERATIONS IN THE SECOND QUARTER OF 2004.
ACCORDINGLY YOUR VOTE IS VERY IMPORTANT AND I WOULD ASK THAT YOU COMPLETE, SIGN
AND RETURN THE FORM OF PROXY AS SOON AS POSSIBLE.
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THE NEW VIATEL BUSINESS PLAN
As I stated at the Annual General Meeting in December 2003, operating and
financial conditions in our industry have been and remain extremely difficult.
Nonetheless we have made real progress. Much work has been done to enable the
Company to re-emerge as a competitor in the European telecommunications market.
We have put in place a highly-regarded senior management team led by Lucy Woods
and the team have begun to implement a new business plan based on detailed
market analysis, in particular of the European "mid sized" corporate business
sector. The plan provides for the roll-out of an enhanced and attractive range
of products and services we believe to be capable of commanding improved
revenues.
Our intention is to focus, in particular, on the sale and provision of IP
connectivity and IP value added services such as IPVPN, Ethernet, Leased Lines,
Security Services, Managed Hosting, DSL, Dark Fibre, Wavelengths, IP transit and
Dedicated Internet Access.
Additionally, we anticipate expanding the geographic scope of our operations.
Currently our business is concentrated in the United Kingdom and Switzerland;
our business plan contemplates expansion into other European countries during
the next twelve months.
As the business grows, we expect to generate sufficient income and margins to
cover the costs of our network, thereby safeguarding the network as a strategic
and potentially valuable asset for the future.
BASED ON OUR BUSINESS PLAN, INCLUDING SUBSEQUENT REVISIONS, THE BOARD
ANTICIPATES THAT THE COMPANY'S GROUP OPERATIONS SHOULD BECOME CASH FLOW POSITIVE
IN THE LAST QUARTER OF 2005 - providing a base for the long term profitability
and solvency of the Company, and potential for return on investment to all
Shareholders. UNTIL THIS TIME, HOWEVER, WE EXPECT TO CONTINUE TO BE A NET USER
OF CASH. IN THE ABSENCE OF SIGNIFICANT ADDITIONAL FUNDING, WE BELIEVE THAT WE
HAVE INSUFFICIENT CASH RESERVES TO ENABLE US TO OPERATE BEYOND THE SECOND
QUARTER OF 2004.
Successful implementation of the business plan will be dependent, among other
things, on:
- successful financing to fund the Company whilst it is experiencing
negative cash flow;
- demand for services and connectivity from mid-sized corporate and
wholesale customers occurring in line with market analyst
expectations;
- attracting sufficient customers to deliver the predicted level of
revenues and margins; and
- our ability to control network and other costs.
Our requirement for additional financial resources has been an assumption
underlying the business plan since its adoption by the Board on August 11, 2003.
Even before this time, our senior management had initiated discussions with
potential investors seeking funding for the business plan.
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In September 2003, with assistance from a UK investment bank, we explored
various financing alternatives and identified potential investors. We then
approached a large number and diverse range of financial institutions both in
the United Kingdom and in the United States. Please see PART II - SUMMARY OF THE
PROPOSED FINANCING for further detail as to the activity undertaken in this
respect and the alternative financing arrangements considered by the Company.
In connection with the Company's efforts to obtain financing, our Board
established an independent Financing Committee composed of Board members having
no relationship with any potential investor (whether an existing Shareholder or
otherwise). The principal purpose of the Financing Committee has been to
evaluate the Company's various financing alternatives on an arm's length basis.
The establishment of the Financing Committee, comprising Dennis Belcher, Kevin
Power, Lucy Woods and myself, was formalized by written Directors' resolution
dated November 5, 2003.
FACTORS CONSIDERED BY THE FINANCING COMMITTEE
In evaluating the Company's financing options/requirements, the Financing
Committee has considered a number of factors including:
- current and projected market conditions in the telecommunications
industry;
- the business plan projection that the Company should be able to become
cash flow positive in the last quarter of 2005, subject to sufficient
funding;
- the likely minimum amount of funding required to fund the business
plan, given existing revenues/cash reserves;
- given existing revenues/cash reserves, the fact that, absent
additional financing, the Company would likely be forced to
discontinue operations in the second quarter of 2004;
- other alternatives to pursuing the business plan, including sales of
the network or of the Company itself, or of solvent liquidation;
- the comparative increase in the Company's financial resources
potentially provided by each financing proposal obtained by the
Financing Committee;
- the need for sufficient funding to enable the Company to attract
long-term contracts with customers who are of necessity concerned as
to our long term solvency;
- the extent to which the terms of any financing, in particular proposed
security arrangements, negative pledge restrictions and governance
rights, might impede the Company from raising additional third party
funding as and when required to support our business operations;
- the implications of any financing proposal on the control of the
Company;
- the potential availability and adequacy of alternative financing
terms; and
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- the impact on all Shareholders of specific financing terms.
REFLECTING THE CURRENT CLIMATE FOR NEW INVESTMENT IN THE TELECOMMUNICATIONS
SECTOR, OUR INTENSIVE FUND-RAISING EFFORTS RESULTED IN A VERY LIMITED NUMBER OF
BONA FIDE FUNDING PROPOSALS BEING RECEIVED BY THE FINANCING COMMITTEE.
AFTER DETAILED CONSIDERATION OF THE AVAILABLE ALTERNATIVES, AND TAKING INTO
ACCOUNT THE FACTORS LISTED ABOVE, AS WELL AS OTHER MATTERS, THE FINANCING
COMMITTEE HAS SELECTED THE PROPOSED FINANCING AS THE ONE WHICH IT BELIEVES TO BE
IN THE BEST INTERESTS OF THE COMPANY AND OF OUR SHAREHOLDERS.
PROPOSED FINANCING
On February 9, 2004, the Company and the Investors executed a Term Sheet setting
forth the principal terms of the Proposed Financing; the Term Sheet is included
in full at the end of this document. Following execution of the Term Sheet, the
Company and the Investors commenced preparation and negotiation of the
Definitive Documents. The Financing Committee also proceeded forthwith to
instruct the international accountancy practice, PricewaterhouseCoopers LLP
("PwC"), to prepare a fairness opinion as to the Proposed Financing. The receipt
of such an opinion, satisfactory to the Board, had been made, at the request of
the Company, a condition to Closing. Please see FAIRNESS OPINION below; a copy
of the fairness opinion is included at the end of this document.
As currently contemplated under the Term Sheet, the Company would receive U.S.
$50 million at Closing in consideration of its issuing senior convertible debt
securities to the Investors - the Notes - with the possibility of a total
investment of up to U.S. $60 million. Interest, at the rate of 8% per annum,
would be compounded and payable semi-annually by way of additional Notes or, at
the Company's option, in cash; the Notes would be due in 2014. The Notes would,
at the option of the Noteholder, be convertible into Ordinary Shares upon the
occurrence of certain specified "liquidity events", such as a change of control
or an Initial Public Offering, or if not previously converted, after the ninth
anniversary of issuance. Upon conversion of the Notes, persons previously
holding Notes would hold a significant majority of the Ordinary Shares. Both
prior to and following conversion, material corporate actions will effectively
require the consent of the Investors or their transferees. Specifically, major
corporate actions occurring before the Conversion Date will require the approval
of the Majority Noteholder. Major corporate actions occurring after the
Conversion Date will require the approval of the Qualified Shareholders. At the
time of Closing, Morgan Stanley & Co., Incorporated ("Morgan Stanley") will be
the Majority Investor and, as such, will at that time be in a position to
determine the outcome of any vote that is required of the Noteholders. In
addition, based on the relative principal amounts of notes expected to be
purchased by the various Investors at Closing, immediately following the
Conversion Date, Morgan Stanley will be in a position to determine the outcome
of any vote of the Qualified Shareholders assuming it has not disposed of Notes
or shares acquired upon conversion thereof, and no further shares are issued by
the Company, other than upon conversion of Notes.
It is a condition of the Proposed Financing that our Chief Executive Officer,
Lucy Woods, should, as at Closing, enter into an employment agreement on terms
satisfactory to the Investors. It is also contemplated that, as at or shortly
after Closing, there will be established an equity compensation plan for the
benefit of senior management. Whilst the terms of such
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plan are yet to be finalized, it is contemplated that this plan will provide for
a variable range of ownership of the Company by participants in the plan, with a
potential maximum aggregate ownership by plan participants of 10% of the
Company's equity, where the value of the Company is $350 million or more.
Additionally, it is now intended that Lucy Woods will, as a requirement of the
Investors, herself participate in the Proposed Financing through the purchase of
Notes in aggregate principal amount of up to U.S. $600,000, with a minimum
aggregate principal amount of U.S. $250,000.
The Term Sheet itself is non-binding, save as to matters such as indemnity,
confidentiality, reimbursement of expenses, cooperation and exclusivity; for
further detail, please refer to PART II - SUMMARY OF PROPOSED FINANCING. Whilst
binding provision is made in the Term Sheet for the Company to negotiate
exclusively with the Investors through May 9, 2004, provision is included to
enable the Company to engage in discussions with potential third party investors
in response to any unsolicited bona fide offer of investment which the Financing
Committee, in conjunction with its financial/legal advisers, considers to be
more favorable to the Company and our Shareholders than the terms of the
Proposed Financing. The Term Sheet, including this provision, was publicly
disclosed on February 9, 2004 and, as of March 5, 2004, the Company has not
received any subsequent financing proposals.
The Investors comprise a group of U.S. financial institutions including Morgan
Stanley which beneficially owns approximately 12.4% of the Ordinary Shares. Two
of the five serving non-executive Directors, Thomas E. Doster, IV and Edward
Greenberg, are senior executives of Morgan Stanley. These two Directors are not
members of the Financing Committee and have recused themselves from any
involvement on behalf of the Company in connection with the Proposed Financing.
Upon or shortly after Closing, the size of the Board is expected to be increased
from six (including the one executive Director, Lucy Woods) to nine, through the
appointment by the Investors of three new Directors. It is contemplated that two
of these new Directors, while selected by the Investors, will be independent and
not affiliates of any of the Investors. Thereafter, the Investors (or their
transferees) will be given such rights as will effectively allow them to appoint
such additional number of Directors as gives them control over the Board at any
given time until the Rights Termination Date. Please see PART II - SUMMARY OF
PROPOSED FINANCING for further detail in this respect.
THROUGH A COMBINATION OF THESE RIGHTS TO APPOINT, REMOVE AND REPLACE DIRECTORS,
AND THEIR RIGHTS TO APPROVE/VETO MATERIAL CORPORATE DECISIONS, AS THE SAME ARE
DESCRIBED IN MORE DETAIL IN INVESTOR RIGHTS/ISSUANCE OF SPECIAL SHARE BELOW, THE
INVESTORS (AND THEIR TRANSFEREES) WILL, UNDER THE TERMS OF THE PROPOSED
FINANCING, EFFECTIVELY ACQUIRE CONTROL OF THE COMPANY UNTIL THE RIGHTS
TERMINATION DATE. FOLLOWING CONVERSION OF THE NOTES, EVEN AFTER THE RIGHTS
TERMINATION DATE, THE INVESTORS AND THEIR TRANSFEREES WILL OWN A SUBSTANTIAL
MAJORITY OF THE ORDINARY SHARES ASSUMING THAT THE COMPANY HAS NOT ISSUED SHARES
OTHER THAN ON CONVERSION OF NOTES.
The Term Sheet and a related press release announcing the signing of the Term
Sheet, were filed with the U.S. SEC on a Form 6-K of the Company dated February
9, 2004. Copies of this and other Company filings with the U.S. SEC are
available on our website at www.viatel.com. Alternatively, you can access our
U.S. SEC filings online at www.sec.gov. A detailed summary of the provisions of
the Term Sheet - including a description of some of the likely effects of the
Proposed Financing on Shareholders, notably the extent to which
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control of the Company will pass to the Investors or their transferees - is
included in PART II - SUMMARY OF THE PROPOSED FINANCING. I would urge you to
read this summary.
SINCE THE TERMS OF THE TERM SHEET RELATED TO THE PROPOSED SALE OF THE NOTES ARE
NON-BINDING, NO ASSURANCE CAN BE GIVEN THAT THE PROPOSED FINANCING WILL BE
CONSUMMATED, EVEN IF ALL OF THE RESOLUTIONS ARE ADOPTED BY THE SHAREHOLDERS.
However, as noted in APPROVAL OF THE RESOLUTIONS below, the Resolutions if
approved, will not be considered effective until and upon Closing.
USE OF PROCEEDS FROM PROPOSED FINANCING
We currently intend to use the net proceeds from the Proposed Financing as
working capital, to cover ongoing operating expenses, debts and capital
investments, and for general corporate purposes. Such funds are of vital
importance to our efforts to continue the development and implementation of our
business plan.
As of the Company's most recent forecast, the Company anticipates that such net
proceeds will, together with projected cash flow from operations, provide the
Company with adequate funding for these purposes through the end of 2005. By
that time, assuming successful implementation of our business plan, the
operations of the Company should have become cash flow positive.
ALTERNATIVES TO THE PROPOSED FINANCING
If the Company for any reason fails to consummate the Proposed Financing, we
expect our financial resources to be insufficient to cover our anticipated cash
requirements beyond the second quarter of 2004. Accordingly, we would require
immediate additional outside financing to fund ongoing operations and to prevent
the need to begin bankruptcy or other insolvency proceedings.
The ability to obtain such alternative financing should be considered in the
light of the following limiting factors:
- offers of alternative financing may not be available on a timely
basis, on acceptable terms, or at all;
- current market conditions in our sector are likely to limit
opportunities for obtaining outside financing;
- our intensive fund-raising efforts, begun in July 2003, have to date
resulted in a very limited number of offers of financing;
- even if offers of financing are made, given the likely need for lender
due diligence/Bye-Law amendments to be passed at a Shareholders
meeting and appropriate document negotiation, it is unlikely that any
investment could be formally concluded in the time that would be
available before we would be forced to commence bankruptcy or
insolvency proceedings;
- the Company is restricted under the Term Sheet from soliciting other
financing proposals; and
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- even if, notwithstanding the above, we should be able to obtain
alternative financing on a timely basis, the terms of such financing
may be significantly less favorable to the Company or to the
Shareholders than the terms of the Proposed Financing.
As noted, if alternative financing were not available, it would be likely that
the Company would need to commence applicable bankruptcy/insolvency proceedings
in the second quarter of 2004. GIVEN THE GEOGRAPHIC DISPERSION ACROSS A NUMBER
OF EUROPEAN JURISDICTIONS OF THE BULK OF OUR NETWORK AND OTHER ASSETS, AND OF
OUR TRADE CREDITORS, IT IS HIGHLY PROBABLE THAT ANY SUCH BANKRUPTCY/INSOLVENCY
PROCEDURES COULD NOT BE STRUCTURED OR COORDINATED IN SUCH A WAY AS TO OFFER THE
COMPANY ANY REALISTIC PROSPECT OF SURVIVAL THROUGH A CORPORATE OR FINANCIAL
REORGANISATION AND/OR ANYTHING OTHER THAN A MINIMAL RETURN TO OUR SHAREHOLDERS.
SPECIAL GENERAL MEETING
It is a condition to the Proposed Financing that certain resolutions be adopted
at a meeting of Shareholders. The SGM has therefore been convened so as to
consider and, if thought fit, approve the Resolutions as set out in the notice
of the SGM. In essence, the Resolutions provide for:
- an increase of the Company's authorized share capital;
- the redesignation of one unissued Ordinary Share as a Special Share
with designated voting and other rights; and
- certain specified amendments to the Bye-Laws.
Each of these is considered in turn.
Increase in authorized share capital
It is proposed that the share capital of the Company be increased by 150 million
Ordinary shares, par value $0.01 each. This increase is designed to allow in
particular for the issue of: (a) Ordinary Shares on conversion of the Notes; and
(b) Ordinary Shares pursuant to the equity compensation plan referred to in the
Term Sheet and under PROPOSED FINANCING above.
Investor Rights/Issuance of Special Share
The Term Sheet provides for various rights to be conferred on the Investors and
their transferees (as Noteholders and as holders of Ordinary Shares upon
conversion), with respect, in particular, to their ability to appoint new
Directors and to approve/veto the taking of certain material actions by the
Company.
As noted above, as at or shortly after the Closing, it is contemplated that the
size of the Board will be increased from six to nine with the appointment of two
new independent directors and one further representative of the Investor group;
the maximum size of the Board permitted under the Bye-Laws having been increased
from seven to thirteen (see Bye-Law Amendments below). From and after the
Closing, and until the Rights Termination Date, the Noteholders
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and, after the Conversion Date, the Qualified Shareholders (and/or any of their
transferees) will effectively be entitled to replace any of their existing
Director appointees (other than the two newly appointed independent Directors)
and/or appoint (and subsequently remove and replace) additional Directors until
the Board reaches 13 in number, at which point the Noteholders or, as
applicable, the Qualified Shareholders (and/or any of their transferees) would
be entitled to appoint and/or replace 7 out of a total of 13 Directors.
The Noteholders or, as the case may be, Qualified Shareholders, will be granted
certain prior approval/veto rights with respect to the Corporate Actions (as
listed under the caption "Covenants" in the Term Sheet). Until the Conversion
Date, the Corporate Actions shall require the consent of the holders of a
majority of the principal amount of the Notes then outstanding. At the time of
Closing, Morgan Stanley will be the Majority Investor and, as such, will at that
time be in a position to determine the outcome of any vote that is required of
the Noteholders.
After the Conversion Date, such Corporate Actions will generally require the
approval of a majority of the Qualified Shareholders - being all holders of
Ordinary Shares issued on conversion of the Notes. As with the right to
appoint/remove Directors, these approval/veto rights would survive until the
Rights Termination Date. Based on the relative principal amounts of Notes
expected to be purchased by the various Investors at Closing, immediately
following the Conversion Date, Morgan Stanley would be in a position to
determine the outcome of any vote of the Qualified Shareholders, assuming it has
not disposed of Notes or shares acquired upon conversion thereof and no further
shares are issued by the Company other than upon conversion of Notes.
The above reflects a modification to the Term Sheet which had strictly provided
that, following the Conversion Date, all of the Corporate Actions would (without
any limitation in time) require the consent of a majority of the holders of the
Ordinary Shares - thereby also including non-Qualified Shareholders. The
Financing Committee have agreed to this modification on the basis that the
control rights granted to the Investors - whether in respect of appointments to
the Board or the approval of Corporate Actions - should sensibly be
co-terminous, and that the modification also ensures certainty in the sense that
a finite period will now apply to the requirement that Shareholder approval be
obtained in respect of the Corporate Actions. In any event, assuming no further
Ordinary Shares are issued by the Company other than pursuant to the conversion
of the Notes, upon conversion of the Notes the Qualified Shareholders would own
a majority of the Ordinary Shares.
In order to give effect to the proposed Investor rights under Bermuda law, it is
proposed that a new single Special Share should be issued with the Notes either
to a trustee or special purpose corporate vehicle acting on behalf of the
Investors (and their transferees). The Special Share would be issued with such
rights as are required to enable the Investors (and their transferees) to
exercise the various Investor rights contemplated under the Term Sheet,
including those rights described above.
With respect to the taking of Corporate Actions, to the extent that any such
Corporate Actions may, under Bermuda law, require the approval of the
Shareholders in a general meeting, the Special Share would be granted weighted
voting rights to ensure it could carry any relevant vote; to the extent that a
vote of the Shareholders was not required by Bermuda law, such actions would be
able to be taken with the consent alone of the holder of the Special Share.
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Full details of the proposed rights to attach to the Special Share and the
effect of such rights on the holders of Ordinary Shares, are set out in PART III
- - RIGHTS OF THE SPECIAL SHARE AND BYE-LAW AMENDMENTS.
Bye-Law Amendments
Certain Bye-law amendments relating to the increase of the size of the Board and
to the conferring of the voting rights referred to above, are also required in
connection with the Proposed Financing. The specific proposed amendments are
included in the notice of the SGM and are explained in PART III - RIGHTS OF THE
SPECIAL SHARE AND BYE-LAW AMENDMENTS.
NEGOTIATION OF DEFINITIVE DOCUMENTS
As noted above - see PROPOSED FINANCING - following execution of the Term Sheet,
the Company and the Investors have commenced the preparation and negotiation of
the Definitive Documents. It is possible that during such negotiations,
amendments to the Resolutions and/or approval of additional resolutions by the
Shareholders may be required as a condition to Closing. In this respect, it
should, without limitation, be noted that the Term Sheet provides for the
veto/approval rights to be conferred on the Investors and their transferees with
respect to the Corporate Actions, to apply equally to other "actions customarily
restricted in a transaction of this nature". It is possible, therefore, that
additional veto/approval rights may be proposed as attaching to the Special
Share.
Any such amendments and/or additional resolutions would be proposed by the
Chairman of the SGM in accordance with the provisions of the enclosed notice
convening the SGM.
As provided for in the enclosed Form of Proxy, the Chairman will additionally
have the authority to propose that the SGM be adjourned; such authority might be
exercised if, amongst other circumstances, it is considered that an adjournment
is appropriate in order to facilitate the business and purpose of the SGM as set
out in this letter.
APPROVAL OF THE RESOLUTIONS
Shareholders listed as holders of Ordinary Shares as at the Record Date are
being asked to approve each of the Resolutions in order to permit the Company to
raise funds in the Proposed Financing. IF ANY RESOLUTION IS NOT APPROVED BY THE
SHAREHOLDERS, THE COMPANY MAY NOT BE ABLE TO CONSUMMATE THE PROPOSED FINANCING
THEREBY LIKELY CAUSING THE COMPANY TO CEASE OPERATIONS IN THE SECOND QUARTER OF
2004. ACCORDINGLY, YOUR VOTE IS VERY IMPORTANT. As provided in the notice of the
SGM, the Resolutions will not be considered effective until and upon Closing.
The affirmative vote of a simple majority of the votes cast at the SGM will be
required to approve each Resolution. The requisite quorum for the SGM is not
less than two Shareholders, present in person or by proxy and entitled to vote,
representing the holder(s) of 20% or more of the issued Ordinary Shares as at
the Record Date.
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DISSENTERS OR APPRAISAL RIGHTS
Under applicable Bermuda law, the Company's shareholders are not entitled to
dissenters' or appraisal rights with respect to the approval of the Resolutions
or the consummation of the Proposed Financing.
FAIRNESS OPINION
The Board has received a fairness opinion from the firm of PwC, an
internationally recognized accounting firm with substantial experience in
transactions similar to the Proposed Financing. A copy of the fairness opinion
is included at the end of this document. PwC was engaged as an independent
expert in this respect and, while a fee was payable in respect of the services
provided by PwC, such fee was in no way contingent upon the Proposed Financing.
THE FAIRNESS OPINION STATES THAT, AS OF ITS DATE, THE PROPOSED FINANCING IS FAIR
FROM A FINANCIAL POINT OF VIEW, TO THE COMPANY AND ITS SHAREHOLDERS.
CONCLUSION AND RECOMMENDATION
The purpose of the Proposed Financing is to permit the Company to survive the
current very difficult market environment and to enable the Company to become
cash-flow positive from ongoing operations.
ALL THE MEMBERS OF THE FINANCING COMMITTEE (ACTING ON BEHALF OF THE BOARD IN
THIS RESPECT), CONSIDER THE PROPOSED FINANCING TO BE IN BEST INTERESTS OF
SHAREHOLDERS AS A WHOLE AND ACCORDINGLY UNANIMOUSLY RECOMMEND YOU TO VOTE IN
FAVOUR OF THE RESOLUTIONS.
ACTION TO BE TAKEN
You will find enclosed a Form of Proxy for use in connection with the SGM.
WHETHER OR NOT YOU ARE PERSONALLY ABLE TO ATTEND THE SGM, PLEASE COMPLETE, SIGN,
DATE AND RETURN THE FORM OF PROXY AS SOON AS POSSIBLE. Signing and returning the
Form of Proxy will not prevent you from attending and voting in person at the
SGM.
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FURTHER INFORMATION
Your attention is drawn to the further information set out in Parts II through
IV of this document.
Very truly yours,
/s/ Leslie Goodman
- ------------------
Leslie Goodman
Chairman
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IMPORTANT
If your shares are registered in the name of a broker or bank, only your broker
or bank can submit the proxy form on your behalf and only after receiving your
specific instructions. In such circumstances, please contact the person
responsible for your account and direct him or her to submit the enclosed proxy
form on your behalf. If you have any questions about how to vote your shares,
please call our proxy solicitor:
D.F King & Co., Inc.
48 Wall Street
New York, New York 10005
Banks and Brokers Call: (212) 269-5550
All Others Call Toll Free: (800) 290-6429
FORWARD LOOKING STATEMENTS
THIS DOCUMENT CONTAINS "FORWARD-LOOKING STATEMENTS" AS THE TERM IS DEFINED IN
SECTION 21E OF THE U.S. SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, INCLUDING
STATEMENTS CONCERNING PLANS AND OBJECTIVES FOR FUTURE OPERATIONS, EVENTS OR
PERFORMANCE AND UNDERLYING ASSUMPTIONS AND OTHER STATEMENTS WHICH ARE OTHER THAN
STATEMENTS OF HISTORICAL FACT. ANY SUCH FORWARD-LOOKING STATEMENTS ARE NOT
GUARANTEES OF FUTURE PERFORMANCE. VARIOUS KNOWN OR UNKNOWN FACTORS COULD IN THE
FUTURE CAUSE ACTUAL OUTCOMES TO DIFFER MATERIALLY FROM THOSE ANTICIPATED IN ANY
SUCH FORWARD-LOOKING STATEMENTS. SUCH FACTORS INCLUDE, AMONG OTHER THINGS, OUR
ABILITY TO CONCLUDE FINAL TERMS AS TO THE PROPOSED FINANCING, THE AVAILABILITY
OF ALTERNATIVE FINANCING IN THE SHORT OR MEDIUM TERM, THE IMPACT OF THE PROPOSED
FINANCING ON OUR ABILITY TO RAISE ADDITIONAL FUNDING, OUR ABILITY TO MAINTAIN A
VIABLE CASH AND BALANCE SHEET POSITION OR TO REACH CASH BREAK-EVEN WITH OR
WITHOUT THE PROPOSED FINANCING, OUR ABILITY TO MAINTAIN, OPERATE AND DEVELOP OUR
NETWORK, AND OTHER UNFORESEEN FINANCIAL, LEGAL, OPERATIONAL OR TECHNICAL ISSUES.
ANY SUCH FORWARD-LOOKING STATEMENTS SPEAK ONLY AS OF THE DATE THEY ARE MADE. WE
UNDERTAKE NO OBLIGATION TO UPDATE ANY SUCH FORWARD-LOOKING STATEMENT IN LIGHT OF
NEW INFORMATION OR FUTURE EVENTS.
15
PART II - SUMMARY OF THE PROPOSED FINANCING
BACKGROUND TO THE PROPOSED FINANCING
We emerged from bankruptcy in June 2002 as a Bermuda holding company.
In May 2003, we appointed Lucy Woods as our new Chief Executive Officer who, at
the direction of the Board, undertook a comprehensive review of our business and
strategic options, including an evaluation of financing alternatives.
Based upon her review, Mrs. Woods in conjunction with other senior management
prepared a revised business plan, including strategies for the recovery of value
in the Company, together with an operating budget, a preliminary draft of which
was submitted to the Board in early July 2003 for review. The plan contemplated
the need for significant third party financing to fund its implementation, over
and above cash in hand.
On July 9, 2003, the Board considered the revised business plan, as well as
other strategic options and the required funding for each; these options
included a possible sale of the Company's network, of other Company assets or of
the Company itself. The Board further determined that the Company should seek
additional financing, with the first approaches for financing to be made to
existing large shareholders. In the interim, the Board continued to consider the
strategic options available to the Company. Between July 9 and July 16, 2003,
our senior management gave investor presentations to a number of large
shareholders including certain members of the Investor group.
On August 11, 2003, the Board selected a business plan option involving a
combination of organic and inorganic growth and approved the plan for
implementation. This plan forecast a funding requirement of over (pound)(British
Pounds) 34 million (over U.S. $56 million, at the then applicable exchange rate)
to finance the Company until it reached a cash flow positive operating
performance and to ensure compliance with all applicable solvency requirements.
Around this time, we also engaged U.S. legal counsel to advise the Company with
respect to a potential financing.
During the remainder of August through the latter part of September 2003, we
made presentations to other potential investors, and held a series of due
diligence sessions at the Company's offices with certain shareholders.
Beginning September 29, 2003, working with the assistance of a UK investment
bank, we identified a wider audience of investors and, over the course of the
next several months, through December 2003, we contacted many potential
investors, with detailed discussion taking place with a few.
On October 14, 2003, the Board approved in principle the establishment of a
Financing Committee comprising those members of the Board who had no
relationship with any
16
potential investor (whether an existing shareholder or otherwise). It was the
intent of the Board that the Financing Committee be formally established by
written resolution of the Directors, in which would be set out the Committee's
precise terms of reference. The Financing Committee, comprising Dennis Belcher,
Leslie Goodman, Kevin Power, Lucy Woods, each a Director who satisfied the
requirement of independence as set out above, was formally established by
written Directors' resolution dated November 5, 2004. The terms of reference set
out in the written resolution provided for the Financing Committee, among other
things, to take all steps it considered necessary to prepare the Company for
financing, to authorize the Company's senior management to negotiate with any
potential investor on terms they reasonably believed to be in the best interests
of the Company, to approve the final terms of any financing and to execute all
documents required to complete any financing. The members of the Financing
Committee met to review a draft term sheet which management proposed be provided
to interested investors. The draft provided for the raising of up to U.S. $50
million, as well as proposing that the Company be permitted to seek further
funding by way of debtor financing.
On October 15, and again on October 24, 2003, we held due diligence sessions
with one of the members of the Investor group, at the Company's premises.
On October 17, 2003, a draft term sheet (setting out a request for funding of up
to U.S. $50 million and the right to seek accounts receivable financing) was
sent to potential investors.
On December 1, 2003, one of the parties with whom the Company had been in
discussions since July 2003, notified the Company that it did not intend to
invest new funds in the Company.
On December 10, 2003, we received a non-binding draft term sheet from members of
the Investor group (other than Ahab Capital Management, Inc.) for the purchase
of U.S. $25 million of 12% senior secured notes convertible into Ordinary Shares
of the Company at U.S. $2 per share.
On December 12, 2003, we received a non-binding draft term sheet from a
potential alternative investor (the "Alternative Investor") for the purchase of
U.S. $15 million of 9% senior secured notes convertible into Ordinary Shares of
the Company at U.S. $3 per share. The term sheet also provided for the issue to
the Alternative Investor, on the closing of the transaction, of warrants to
purchase, on a fully-diluted basis, 5% of the shares in the Company. Such
warrants would be exercisable within 7 years, at an exercise price of $5 per
share.
On December 12, 2003, the Board and the Financing Committee met to discuss the
two term sheets received by the Company. The Financing Committee agreed that our
Chief Executive Officer and Chief Financial Officer should meet with each of the
potential financing groups in New York.
On December 15, 2003, we provided our initial comments on the Investor group
term sheet to members of the Investor group. It was noted in particular that the
proposed level of funding, at U.S. $25 million, was substantially below that
required to fund our business plan. Additionally, in light of the proposed level
of investment and the need to secure additional financing to fund the business
plan, the governance provisions were objected to. Among other things, it was
also noted that interest of 12% was too high.
17
On December 16, 2003, we provided our initial comments on the Alternative
Investor term sheet to the Alternative Investor. It was noted in particular that
the proposed level of investment, at U.S. $15 million, was also substantially
below that required to fund the Company's business plan and that this was
exacerbated by the fact that the term sheet specified that the funding could be
used solely for the purpose of corporate acquisition. It was stated that, from
the Company's perspective, it was therefore essential that either the
Alternative Investor gave some commitment as to further financing or allowed the
Company the ability to seek third party funding on commercially viable terms.
From December 18 to 20, 2003, our Chief Executive Officer and Chief Financial
Officer accompanied by Company legal counsel attended meetings with both
potential financing groups to negotiate improvements to the term sheets from the
Company's perspective.
On December 24, 2003, we received a revised term sheet from the Alternative
Investor reflecting substantially the same terms as previously presented, but
allowing the Company the ability to secure third party funding of up to an
additional U.S. $10 million financing, and allowing the proceeds of the
investment to be used for general working capital requirements. The term sheet
also permitted an additional accounts receivable financing facility of up to
U.S. $10 million. Given the level of interest to date shown by third parties in
seeking to commit funds to finance the Company, the Financing Committee
considered that it would be unlikely that the Company would be able to secure
any additional facility of the sort contemplated under the revised term sheet.
It was also noted that, having consulted with a UK financial institution, it was
considered that there was no realistic prospect of securing any accounts
receivable financing in the region of U.S. $10 million.
On December 28, 2003, the Board met in Bermuda in preparation for the 2003 AGM
and the Financing Committee was provided with an update on the status of
fund-raising efforts by the Company, including notification of the inclusion of
Ahab Capital Management, Inc. in the Investor Group. It was also noted that it
was now expected that the Investor Group's term sheet would provide for an
investment of up to U.S. $55 million and a floating conversion rate - with the
conversion value to be determined by reference to the value of the Company upon
a series of specified "liquidity events". It was noted that the floating
conversion rate would offer the ability for those shareholders not participating
in the funding to share in the upside of any increase in the value of the
Company. The revised Alternative Investor term sheet was also considered. It was
felt that while there had been improvements in the terms, it was still the
unanimous view of the Financing Committee that, among other things, the proposed
funding was insufficient for the purposes of the Company's business plan and
that, given our experience in seeking to raise funds, it was unlikely that
finding the additional funding within the timescales that would be required
would be possible.
During January 2004, we contacted a number of additional potential investors,
only one of whom indicated an intention to pursue discussions and signed a
non-disclosure agreement and was delivered a copy of our business plan.
On January 15, 2004, we received a revised term sheet from the Investor Group
increasing its investment from U.S. $25 million to U.S. $55 million, changing
the conversion price from U.S. $2.00 per share to a floating conversion price
based on the Company's equity value as described above, and reducing - in
response to the Company's previous request - interest to 8%.
18
On January 18, 2004, the Financing Committee met to review each of the revised
term sheets in detail and to consider next steps. It was determined that
management should respond to each of the proposed term sheets in writing, and
seek to receive best and final term sheets from each potential investor by
January 23, 2004. This calendar target reflected the decision of the Financing
Committee that, in light of the Company's forecast cash position, the financing
process should be progressed with as much speed as possible.
On January 20, 2004, management responded formally to both revised term sheets.
With respect to the Alternative Investor term sheet, included in the various
points raised, was the concern that the proposed level of funding was not
sufficient for the Company's purposes, and did not provide sufficient
flexibility to allow the raising of funds from alternative sources. With respect
to the Investor Group, a detailed mark-up was provided on the term sheet.
On January 22, 2004, we received a second revised draft term sheet from the
Investor Group reflecting an investment of up to U.S. $60 million, a floating
conversion price and various improved terms in response to our comments of
January 20, 2004. No further revised term sheet was received from the
Alternative Investor.
On January 23, 2004, the Financing Committee met to consider all available
financing options. Both term sheets, as revised to date, were reviewed. Once
again, the Financing Committee determined, with respect to the Alternative
Investor term sheet, that, among other matters, the investment opportunity
presented would be insufficient for the Company's projected funding and
operational requirements to fully implement its business plan. After a detailed
consideration of this issue and of the respective merits and disadvantages of
both funding proposals, it was determined to proceed negotiating with the
Investor Group. However, it was additionally agreed that, as one of the
conditions to concluding any investment agreement with the Investor Group on the
terms proposed, a fairness opinion as to the proposed transaction, satisfactory
to the Board, would be obtained. It was agreed that PwC would be instructed to
prepare a fairness opinion confirming, if appropriate, that the investment
proposed by the Investor group was fair, from a financial point of view, to the
Company and its Shareholders. Moreover, the Financing Committee understood that
while the term sheet would prohibit further solicitation of financing proposals
without the consent of the Investor Group, it would not prohibit the Company
from negotiation with respect to unsolicited superior proposals that may be
received.
On January 26, 2004, the Financing Committee met for another update by senior
management on the progress of negotiations with the Investor Group.
On February 5, 2004, the Company received a further revised term sheet from the
Investor Group which was reviewed and approved by the Financing Committee upon
its determination that entering into the Term Sheet was in the best interests of
the Company. This approval was subsequently ratified by written resolution of
the Financing Committee.
On February 9, 2004, the Company and the Investor Group signed the Term Sheet.
The Company issued a press release and filed a Form 6-K with the U.S. SEC.
19
INVESTMENT UNDER THE PROPOSED FINANCING
The Term Sheet contemplates purchases by the respective Investors set forth
below of Notes in the respective principal amounts set forth opposite their
names:
INVESTOR AMOUNT (U.S.$)
-------- --------------
Morgan Stanley & Co., Incorporated 33.65 million
Ahab Capital Management, Inc. 3.35 million
CFSC Wayland Advisers, Inc. 3.00 million
Varde Partners, Inc. and affiliates 10.00 million
--------------
Total 50.00 million
Based on the information made available to the Company by the respective
Investors, the Company believes that as of the date the Term Sheet was signed,
the respective Investors (or their affiliates) beneficially owned ordinary
shares of the Company, par value U.S. $0.01 per share ("Ordinary Shares"), as
set forth below:
INVESTOR NUMBER OF SHARES PERCENTAGE OF TOTAL
-------- ---------------- -------------------
Morgan Stanley & Co., Incorporated 1,329,689 12.4%
Ahab Capital Management, Inc. 200,000 1.9%
CFSC Wayland Advisers, Inc. 350,000 3.3%
Varde Partners, Inc. and affiliates 767,569 7.2%
---------------- -------------------
Total 2,647,258 24.8%
PRINCIPAL TERMS OF THE PROPOSED FINANCING
Under the Proposed Financing, the principal terms of the Notes would be as
follows:
Issuer
Viatel Holding (Bermuda) Limited.
Issue
8% Convertible Senior Secured Notes Due 2014.
Investment Amount
U.S. $50 million. Consideration is being given to a total Investment Amount of
U.S. $60 million.
Interest
8% per annum, compounded semi-annually and payable semi-annually in additional
Notes or, at the option of the Company, in cash.
20
Maturity Date
Tenth anniversary of issuance (the "Maturity Date").
Payment at Maturity
The outstanding principal amount under the Notes, along with any accrued and
unpaid interest, will be payable in its entirety on the Maturity Date.
Conversion Rights
The Notes will be convertible into Ordinary Shares at the option of the
Noteholders as follows:
- upon the occurrence of a "Liquidity Event" (as defined under the
caption "Liquidity Event" in the Term Sheet); or
- if no Liquidity Event has occurred prior to such time, from and after
the ninth anniversary of the closing date.
The conversion price (the "Conversion Price") at which Notes will be convertible
will be:
- determined by reference to the schedule attached as Annex A to the
Term Sheet in the case of conversion upon the occurrence of a
Liquidity Event other than a Liquidity Event described in clause (6)
of the definition of Liquidity Event; and
- in the case of conversion in the absence of a Liquidity Event, or in
the event of a Liquidity Event described in clause (6) of the
definition of Liquidity Event, equal to U.S. $0.75 (the "Base
Conversion Price").
This Base Conversion Price also applies in the context of any other reference to
a conversion price to be applied prior to a Liquidity Event. For example, it
will be used for determining beneficial ownership of Ordinary Shares into which
Notes may be converted.
As described in Annex A to the Term Sheet, except cases where the Base
Conversion Price applies or conversion is triggered by the Liquidity Event
defined in clause (6) of the definition of Liquidity Event, the Conversion Price
will be determined by reference to the total equity value of the Company on a
given date on a weighted average basis. The total equity value of the Company
for these purposes is determined by agreement between the Noteholders and the
Board of Directors of the Company (with affiliates of Noteholders who are
members of the Board of Directors abstaining from deliberations and voting at
the Board level) in accordance with the procedures described on Annex B to the
Term Sheet (and, if no agreement is reached, by an independent third party
selected by the disinterested Directors of the Board and the Noteholders).
Anti-dilution Adjustments
As described in the Term Sheet, the Notes will have the benefit of anti-dilution
adjustments to the Conversion Price upon the occurrence of various events.
21
Company Exchange Right
At any time:
- prior to the date that a majority of the initial principal amount of
the Notes has been converted into Ordinary Shares (the "Conversion
Date"), if there has occurred a Liquidity Event and the Company has
received written consent to the exchange of all Notes from the holders
of a majority of the principal amount of the Notes outstanding and
held by Investors at the time of the receipt of such consent; or
- following the Conversion Date;
the Company shall be entitled, at its option and upon 30 days' prior written
notice to holders of the Notes, to exchange the Notes in whole but not in part
for Ordinary Shares at the then-applicable Conversion Price.
In the event of a "change of control" (as to be defined in the Definitive
Documents), as described elsewhere in the Term Sheet, the exchange right will
not become effective until after the Noteholders have had the opportunity to
sell their Notes to the Company pursuant to the "Change of Control Put"
provision of the Term Sheet, unless the Board of Directors has determined in
good faith that the aggregate applicable "COC Put Price" that would be received
by Noteholders could not reasonably be considered to be equal to or greater than
the aggregate value of the Ordinary Shares that would be received by such
Noteholders upon such exchange.
Ranking
Except as otherwise required by law, the Notes will be pari passu with an
Accounts Receivable Facility (the "A/R Facility") that may be entered into by
the Company (with outstanding amounts not to exceed the lesser of U.S. $3
million or 65% of "eligible receivables" (to be defined in the Definitive
Documents)) and senior to all other indebtedness for borrowed money and debt
securities of the Company and its operating subsidiaries.
Guarantee and Security
The Notes will be subject to guarantee and security provisions satisfactory in
all respects to the Investors. The Investors currently contemplate that, to the
extent legally permissible and practical under the circumstances, the security
arrangements will include provision of guarantees by all of the Company's
operating subsidiaries (the "Guarantors"), liens over assets of the Company and
of the Guarantors and relevant pledges of the stock in the Guarantors.
The Investors also contemplate that a security trustee will hold the security in
trust for the Noteholders.
Information Rights
The Company will furnish to each Noteholder, and to each person that holds
Ordinary Shares issued upon conversion of the Notes (a "Qualified Shareholder"):
22
- prior to the time that a Trading Market (as defined below) exists,
monthly management reports of the Company, in form and substance
consistent with those reports currently furnished to Directors, within
30 days after the end of each month;
- annual consolidated (and, prior to the time that a Trading Market
exists, non-consolidated) financial statements of the Company, audited
by an internationally recognized accounting firm, within 120 days
after the end of each fiscal year; and
- copies of all filings made under the securities laws of Bermuda, the
United States and any other applicable jurisdiction, and copies of all
filings made under the rules of any stock exchanges or other
applicable self regulatory organizations, to the extent such filings
are not otherwise promptly and readily available to the public.
A "Trading Market" will be deemed to exist if the Ordinary Shares are registered
under the Securities Exchange Act of 1934 ("Exchange Act") or comparable
securities laws of the United Kingdom and listed on the New York Stock Exchange
or the London Stock Exchange or traded on the NASDAQ Standard 3 Marketplace, or
are otherwise traded in a manner that has been determined to be a Trading Market
by the Board of Directors of the Company with the consent of either:
- prior to the Conversion Date, holders of a majority in principal
amount of the Notes outstanding at the time that such consent is
given; or
- following the Conversion Date, holders of a majority of the Ordinary
Shares of the Company held by Qualified Shareholders.
Change of Control Put Right
Following any "change of control" of the Company (as to be defined in the
Definitive Documentation), the Company will be required to offer to repurchase
outstanding Notes at a purchase price in cash equal to 101% of the principal
amount of such Notes, plus accrued and unpaid interest to the date of repurchase
(the "COC Put Price"). Within 5 business days following a change of control, the
Company will be required to mail a notice to each Noteholder stating:
- that a change of control has occurred and that such Noteholder has the
right to require the Company to purchase such Noteholder's Notes at
the COC Put Price;
- the repurchase date (which shall be no earlier than 30 days nor later
than 60 days from the date such notice is mailed); and
- the procedures reasonably determined by the Company, consistent with
the terms of the Notes and related documentation, that a holder must
follow to have its Notes repurchased.
SPECIAL CORPORATE GOVERNANCE PROVISIONS
Corporate Actions
The Term Sheet provides that the Company will be restricted from taking
Corporate Actions without first obtaining certain Noteholder or, as applicable,
Qualified Shareholder approvals.
23
Prior to the Conversion Date (as defined herein) the Company will be restricted
from taking any Corporate Actions identified under the caption "Covenant" in the
Term Sheet without the consent of a majority of the then outstanding principal
amount of the Notes (the "Majority Noteholders").
After the Conversion Date, various actions identified under clause (4) under the
caption "Increase in the Number of Directors and Amendments to Bye-Laws" in the
Term Sheet were expressed to require the affirmative vote of a majority of the
votes cast at a general meeting or the approval by written consent of the
holders of a majority of the Ordinary Shares.
As noted under the section Investor Rights/Issuance of Special Share in the
Chairman's Letter in Part 1 of this document, a modification to the Term Sheet
has been agreed whereby, after the Conversion Date, the Corporate Actions will
effectively require: (i) the affirmative vote of a majority of the votes cast at
a general meeting by the holders of a majority of the Ordinary Shares held by
the Qualified Shareholders, or (ii) the approval by written consent of the
holders of a majority of the Ordinary Shares held by the Qualified Shareholders.
All such rights with respect to the Corporate Actions will terminate on the
Rights Termination Date.
Appointment of Directors
On or shortly after Closing, it is anticipated that the Board will comprise of
nine Directors six of whom will be independent. The Directors on Closing are
expected to be: (i) the current six Directors (two of whom are affiliated with
Morgan Stanley); (ii) two new independent directors selected by, but independent
of the Investors (the "New Independent Directors"); and (iii) one new Director
appointed by and a representative of the Investors.
However, at any time after Closing, and up until the Rights Termination Date,
the Investors (and their transferees) will effectively have the right to
increase the size of the Board and to appoint a number of Directors sufficient
to cause a majority of the Board to be designees of the Investors (and their
transferees). Up until such time, the holders of a majority in principal amount
of the Notes and, post the Conversion Date, the holders of a majority of the
Ordinary Shares held by Qualified Shareholders, will be entitled, on giving the
secretary of the Company written notice, to replace any of the Investors'
existing Director appointees (including for this purpose the two affiliates of
Morgan Stanley that currently are Directors (and their successors), but
excluding the New Independent Directors) and/or appoint (and subsequently remove
and replace) additional Directors until the Board reaches 13 in number. Thus,
following Closing, and until the Rights Termination Date, the Investors (and
their transferees) will have the ability to appoint and/or replace 7 out of a
total of 13 Directors. Any Director so appointed may be an employee, officer or
other representative or affiliate of the Investors (or, as appropriate, their
transferees).
OTHER TERMS OF THE PROPOSED FINANCING
The following is a brief summary of various other terms of the Definitive
Documents as contemplated by the Term Sheet.
Investment Agreement
Among other things, the Investment Agreement contemplated by the Term Sheet (the
"Investment Agreement") will include pro rata/ pre-emptive rights in favor of
the Investors,
24
Noteholders and Qualified Shareholders with respect to the sale or ownership of
Ordinary Shares or similar securities, various representations and warranties to
be given by the Company, conditions to Closing and certain indemnification
obligations.
Shareholders
The Term Sheet contemplates that the Company, the holders of Notes and holders
of Ordinary Shares into which the Notes can be or are converted will enter into
a Shareholders Agreement (the "Shareholders Agreement") pursuant to which the
holders will agree to be subject to tag-along and drag-along rights in favor of
the other such holders. In addition, the Shareholders Agreement is expected to
provide that holders of Notes will have rights of first refusal if another
holder of Notes proposes to sell any Notes to a non-affiliated third party,
other than pursuant to an exercise of registration rights or pursuant to an
exercise of tag-along or drag-along rights.
The Shareholders Agreement is also expected to contain customary restrictions on
the disclosure by holders of Notes and Ordinary Shares into which the Notes can
be converted of confidential information regarding the Company and to further
provide that any such holder that is eligible to receive confidential
information and intends to trade in securities of the Company will be permitted
to notify the Company of such intention and request that the Company cease to
provide confidential information (other than Rule 144A information described
below) to such holder.
The Shareholders Agreement is also expected to provide that at any time:
- prior to the Conversion Date that one Investor, together with such
Investor's affiliates (collectively, the "Majority Investor"), holds
at least a majority of the outstanding principal amount of the Notes,
a majority of the outstanding principal amount of the Notes held by
Investors excluding the aggregate principal amount of the Notes held
by the Majority Investor shall be sufficient to cause the designation,
election, removal and replacement of two of the Investor-Appointed
Directors (which directors shall be identified at the time of the
initial appointment, and are referred to as the "Minority Directors");
and
- from and after the Conversion Date (and until such time as the
minority investors (being Ahab Capital Management, Inc., CFSC Wayland
Advisers, Inc., Varde Partners, Inc and certain affiliated entities,
the "Minority Investors") collectively beneficially own less than 10%
of the Ordinary Shares of the Company) that one Investor, together
with such Investor's affiliates holds at least a majority of the
outstanding Ordinary Shares, the Minority Investors may cause the
designation, election, removal and replacement of such Minority
Directors; and
- prior to the occurrence of a Liquidity Event, any Original Holder (as
defined to include the Investors and their Affiliates) that
beneficially owns more than 35% of the Ordinary Shares, excluding
Ordinary Shares issuable upon conversion of the Notes, shall vote all
Ordinary Shares owned by such Original Holder in a manner that is
proportionate to the voting of holders of the remaining Ordinary
Shares.
The Shareholders Agreement is also expected to provide that until the Minority
Investors collectively beneficially own less than 10% of the Ordinary Shares of
the Company, each of the minority Investors will also have the right to appoint
one non-voting representative who
25
shall be allowed to attend all meetings of the Company's Board of Directors, and
that the Minority Investors and their representatives will enter into customary
confidentiality agreements.
Registration Rights Agreement
The Term Sheet contemplates that the Company will enter into a registration
rights agreement with respect to the Notes and the Ordinary Shares into which
the Notes can be converted (the "Registration Rights Agreement"). The
Registration Rights Agreement will provide that each Noteholder that has
acquired Ordinary Shares upon conversion of Notes shall be entitled to demand
registration, at the expense of the Company, of all or any portion of the
Ordinary Shares held by such Investor as follows:
- at any time that the Company is subject to the provisions of the
Exchange Act upon the request of Investors holding at least 10% of the
Ordinary Shares; and
- at any time that the Company is not subject to the provisions of the
Exchange Act, upon the request of Investors holding at least a
majority of the outstanding Ordinary Shares.
The Registration Rights Agreement will provide that upon the request of holders
of at least a majority of the original principal amount of the Notes, the
Noteholders shall be entitled to demand one registration of the Notes, and each
Noteholder shall be entitled to include all of its Notes in such registration.
Each Noteholder or Qualified Shareholder shall be entitled to demand no more
than two registrations with respect to Ordinary Shares, and such persons in the
aggregate shall be entitled to demand no more than four registrations with
respect to Ordinary Shares. Holders shall also have customary "piggyback" rights
with respect to other registration statements filed by the Company. Transferees
of the Notes are considered Investors for these purposes.
POSSIBLE EFFECTS OF PROPOSED FINANCING
Impact of Security Arrangements
Security for the Company's obligations under the Notes will be provided by a
security package which will encumber substantially all of the Company's network
assets in favour of the Noteholders or prohibit the granting of any lien or
encumbrance other than as expressly permitted.
In the event of a bankruptcy or insolvency of the Company and its principal
operating subsidiaries, the Noteholders will generally have priority over the
holders of Ordinary Shares. As a result, in such event holders of Ordinary
Shares may receive little or no recovery in respect of their Ordinary Shares.
Impact of Special Corporate Governance Provisions
The effect of the rights conferred on the Investors with respect to the approval
of Corporate Actions and appointment of Directors will constitute an effective
change of control of the Company. Such rights will enable the Investors and
their transferees, collectively to control the Board of Directors of the
Company. This, together with their effective veto powers over Corporate
Transactions, will enable the Investors (and/or their transferees) effectively
to
26
control the Company until the Rights Termination Date. At the time of Closing,
Morgan Stanley will be the Majority Investor and, as such, will at that time be
in a position to determine the outcome of any vote that is required of the
Noteholders. If Morgan Stanley does not dispose of a significant portion of its
Notes or Ordinary Shares acquired upon exercise of the Notes, then Morgan
Stanley would remain as the Majority Investor following the Conversion Date, and
as such would at that time be in a position to determine the outcome of any vote
that is required of the Qualified Shareholders.
Following conversion of the Notes, even after the Rights Termination Date, the
Investors will own a substantial majority of the Ordinary Shares, assuming that
the Company has not issued shares other than on conversion of Notes
Impact of Conversion of the Notes
Any issuance of the Ordinary Shares that will be issuable upon conversion of the
Notes may very substantially increase the number of Ordinary Shares outstanding.
The issuance of a large number of additional Ordinary Shares, or even the
prospect of such issuance in the future, could have a depressive effect on the
market price of, and reduce trading activity in, the outstanding Ordinary
Shares. Such downward pressure could in turn encourage short sales or similar
trading with respect to the Ordinary Shares which could in itself place further
downward pressure on the outstanding Ordinary Shares.
If all of the Notes are converted in accordance with their terms, the number of
Ordinary Shares outstanding will increase substantially, significantly diluting
the proportionate ownership interests and voting power of the existing holders
of Ordinary Shares who do not own Notes. Adjustments to the conversion price of
the Notes, or payments of interest on the Notes in the form of additional Notes,
would further dilute the proportionate ownership interests and voting power of
the existing holders of Ordinary Shares who do not own Notes.
Holders of the Notes will become significant holders of the Ordinary Shares upon
conversion of all or a large portion of the Notes and as such will have
significant voting power with respect to their Ordinary Shares.
Impact of Variable Conversion Price
In general terms, the higher the total equity value of the Company on a given
date, the higher the Conversion Price, and vice versa. Accordingly, at higher
total equity values of the Company on a given date, the number of Ordinary
Shares issuable upon conversion of the Notes is lesser (as the Conversion Price
increases), and at lower total equity values of the Company on a given date, the
number of Ordinary Shares issuable upon conversion of the Notes is more (as the
Conversion Price decreases).
For example, as of March 2, 2004, there were 10,730,000 Ordinary Shares
outstanding. Assuming that:
- the Investors purchase the Notes for aggregate gross proceeds to the
Company of U.S. $50 million;
- the number of Ordinary Shares stated above is the total number
outstanding on a given date; and
27
- all of the Notes are converted into Ordinary Shares at the conversion
prices set forth below on such given date;
the number of Ordinary Shares outstanding immediately following such conversion
would be the number set forth opposite each such conversion price, of which the
Investors by virtue of such conversion of the Notes (and in addition to any
Ordinary Shares owned by Investors other than as a result of the conversion of
the Notes) and shareholders owning Ordinary Shares immediately prior to any such
conversion of Notes would own the percentage of outstanding Ordinary Shares set
forth opposite each such conversion price.
Ordinary Shares
Conversion Price outstanding Investor % Non-investor %
- ---------------- --------------- ---------- --------------
0.75 77,396,667 90% 10%
0.87 68,298,807 88% 12%
1.10 56,098,278 86% 14%
1.38 46,918,005 83% 17%
1.68 40,416,576 77% 23%
2.00 35,730,000 75% 25%
2.29 32,544,994 75% 25%
2.54 30,408,136 73% 27%
2.76 28,848,555 72% 28%
2.96 27,642,662 71% 29%
3.14 26,670,488 70% 30%
3.30 25,861,769 69% 31%
3.46 25,172,531 68% 32%
3.61 24,573,787 67% 33%
3.75 24,045,604 66% 34%
It should be noted that, going forward, the ownership percentage set forth in
this table would be impacted by, among other things, any issuance of additional
Notes by the Company as payment for interest due on the then outstanding
principal amount of the Notes, and by the issuance of additional Ordinary Shares
pursuant to the equity compensation plan contemplated under the Term Sheet as
being established for the benefit of the Company's senior management - see under
PROPOSED FINANCING in Part I of this document.
CLOSING CONDITIONS
The Term Sheet also provides that closing of the Proposed Financing is subject
to the satisfaction or waiver of the following conditions:
- satisfactory completion of due diligence on the Company and its
subsidiaries (including business, legal, financial, accounting and
tax) of a nature and scope satisfactory to the Investors in their sole
discretion, and the Investors' satisfaction with the current business
plan of the Company (in the updated form delivered to the Investors on
January 27, 2004), including the Company's progress with respect to
the business plan, and the absence of any substantial expenditure or
commitment of cash that is not contemplated by such business plan;
28
- a mutually satisfactory set of definitive agreements setting forth the
terms contained in the Term Sheet and containing customary
representations, warranties, indemnities, covenants, opinions and
conditions;
- amendment of the Bye-Laws of the Company as described in the Term
Sheet, including receipt of all approvals of shareholders required to
so amend the Bye-Laws;
- receipt of all necessary corporate approvals (including due
authorisation of the issuance of the Notes);
- receipt of any necessary third party and governmental consents,
waivers and approvals;
- no material adverse change in the Company's assets, liabilities,
business, condition (financial or otherwise), results of operations or
prospects, or that in any other manner would be expected to adversely
affect the interests of the Investors, from January 27, 2004;
- execution and delivery by the Company and Lucy Woods, the Company's
Chief Executive Officer, of an employment agreement in form and
substance satisfactory to the Investors;
- receipt by the Board of Directors of the Company of a satisfactory
fairness opinion from an independent financial advisor; and
- other customary closing conditions for a transaction of this nature,
including receipt of satisfactory legal opinions from Company counsel.
29
PART III - RIGHTS OF THE SPECIAL SHARE AND BYE-LAW AMENDMENTS
The existing Bye-Laws are proposed to be amended at the SGM to provide for the
rights to be attached to the Special Share which will be created at the SGM.
Certain other amendments to the Bye-Laws, which are consequential to the
creation of the Special Share or are required under the Term Sheet for the
purposes of implementing the Proposed Financing, shall also be proposed at the
SGM.
RIGHTS OF THE SPECIAL SHARE
Subject to the passing of Resolutions 3 and 4 set out in the Form of Proxy
accompanying the notice of the SGM and subject to Closing, the Bye-Laws will be
amended to reflect the rights of the Special Share. The following describes
these rights which will attach to the Special Share.
Voting and Quorum at General Meetings
The registered holder of the Special Share (the "Holder") will have the right to
receive notice of and to attend general meetings of the Company. The Holder
shall have the right to speak at a general meeting.
The Company will be restricted from taking certain actions without the approval
of the Holder. These actions, set out under the caption "Covenant" in the Term
Sheet (collectively, the "Corporate Actions"), will be specifically identified
in the Bye-Laws and will include the issue of or repurchase of debt or equity
securities, payment of dividends, incurring of indebtedness, certain
transactions with affiliated entities, mergers, amalgamations, or similar
transactions, certain leases or sales over a certain value, the grant of
security interests, the acquisition of assets or subsidiaries over a certain
value, amendment to the Company's Memorandum of Association or Bye-Laws, actions
related to the Company's Chief Executive Officer, and a change to the size of
the Board or certain levels of capital expenditures.
To the extent that, under Bermuda law, a Corporate Action requires the passing
of a resolution of the Shareholders of the Company in a general meeting, the
requisite quorum for such general meeting will be the presence, in person or by
proxy, of the Holder. Further, the Special Share will carry weighted voting
rights in relation to the resolution to approve the taking of such Corporate
Action, so that a vote cast by the Holder is equivalent to nine votes for every
one cast by any other holder of Ordinary Shares on a poll.
To the extent that Bermuda law does not require a Corporate Action to be
approved by resolution of the shareholders of the Company passed at a general
meeting, the Company may take such Corporate Action on receipt of a written
approval and/or notice of the Holder.
The weighted voting rights described above will automatically lapse on the
Rights Termination Date.
30
The proposed new Bye-Law 76A reflects the above voting/quorum requirements.
Essentially, Bye-Law 76A(3) lists those actions (reflecting the scope of the
Corporate Actions) which may not be undertaken by the Company without the
consent of the Holder or, as appropriate, a Shareholder resolution passed at
general meeting. In accordance with Bermuda law, it is specified that the items
listed in Bye-Laws 76A(3)(e) and (j) (broadly business combinations and
amendments to Bye-Laws/Memorandum respectively) will always require the consent
of the Shareholders in general meeting. In order to give effect to the voting
rights to be conferred on the Investors - and as described above - it is also
stated that the Special Share will carry weighted voting rights on any such
resolution.
Two of the items listed in Bye-Law 76A(3) include, respectively, the defined
terms, "A/R Facility" and "Permitted Liens". These terms will only be ultimately
defined in the final Investment Agreement documenting the terms of the Proposed
Financing. Their anticipated scope is however described below.
The reference to the "A/R Facility" is included in proposed Bye-Law 76A(3)(c)
which effectively prohibits, without the relevant approvals described above, the
incurring of indebtedness in excess of the aggregate of the outstanding
principal amount of the Notes and amounts permitted under the "A/R facility".
The latter reference is intended to refer to an Accounts Receivable Facility
which the Term Sheet contemplates will be entered into by the Company. While the
precise terms of the "A/R Facility" as of the date of this letter have not been
finalized, the Term Sheet does provide that the outstanding amounts under such
facility will not exceed the lesser of $3 million or 65% of "Eligible
Receivables". The eligible receivables will be defined in the final investment
documentation.
The reference to "Permitted Liens" is to be found in Bye-Law 76A(3)(g), which
effectively prohibits the granting by any group company of any security interest
in any of its assets other than "Permitted Liens." The precise scope of this
carve-out will be defined in the final Investment Agreement; it is, however,
contemplated that it will cover such matters as liens or rights of set-off and
retention of title provisions, as the same may arise in the normal course of
trading. Certain carve-outs may, without limitation, also be required so as to
reflect local law statutory requirements.
Appointment of Directors
Until the Rights Termination Date, the Holder will be entitled, by giving the
secretary of the Company written notice, to replace any of the existing
Investor-appointed Directors and/or appoint (and subsequently remove and
replace) additional Directors so that a majority of the Board are appointees of
the Investors or their transferees (or the Qualified Shareholders). For these
purposes, the expected two New Independent Directors (as defined in the Term
Sheet) are not deemed to be appointees of the Investors, but the two existing
Directors that are affiliates of Morgan Stanley and their successors are deemed
to be appointees of the Investors.
These rights are reflected in the proposed new Bye-Laws 83A through 83C. A new
Bye-Law 83D is also proposed which would have the effect of disapplying the
current Bye-Laws 84 and 85 for so long as the Investors and their transferees
(through the Holder) retain the above-mentioned Director appointment/removal
rights. Bye-Laws 84 and 85 currently provide for a staggered board, requiring
half of the current board to retire from office at each annual general meeting.
31
Redemption of the Special Share
The Company may at any time after the occurrence of certain specified events be
entitled, provided that it is lawfully able, to redeem the Special Share at par
upon giving 15 days' notice in writing to the Holder. The events referred to
are: (i) prior to the Conversion Date, the repayment in full of all amounts
outstanding under the Notes; (ii) the receipt of a written consent to the
redemption from the Holder (upon the direction of the Investor or their
transferees); and (iii) following the Conversion Date, the Investors and their
affiliates directly or beneficially holding less than 25% of the issued Ordinary
Shares.
Other Provisions
The Holder will not be entitled to receive any dividend.
On a return of capital or a winding up, the Holder shall only receive an amount
equal to the sum paid up in respect of the Special Share.
The Special Share shall not be transferable, without the Company's consent (by
vote of Directors that are not affiliates of the Investors) other than to
another trustee or special purpose vehicle acting on behalf of the Investors (or
their transferees).
IMPACT OF THE SPECIAL SHARE ON EXISTING SHAREHOLDERS
The effect of the rights attaching to the Special Share will be an effective
change of control of the Company. The rights will enable the Investors and their
transferees, collectively, to control the Board of Directors of the Company.
Additionally, through the exercise of the weighted voting rights attaching to
the Special Share or the requirement for the Holder's written approval with
respect to the Corporate Actions, the Investors or their transferees will have
effective veto rights over all material corporate actions.
OTHER AMENDMENTS TO THE BYE-LAWS
Subject to the passing of Resolutions 5 and 6 set out in the Form of Proxy
accompanying the notice of the SGM and subject to Closing, it is proposed that
the Bye-Laws be further amended to provide for the following.
Voting and Directors' Interests
A Director who has disclosed his interest in a transaction or arrangement with
the Company, or in which the Company is otherwise interested, may count toward
quorum and be entitled to vote at a meeting of the Board at which such
transaction is considered. The requirement for a majority of the other Directors
present at the meeting to consent to such Director so voting shall be deleted
from the Bye-Laws.
Notice Period for Special General Meetings
The notice period required for the convening of Special General Meetings
(general meetings other than the Annual General Meeting) be reduced from 21 to
10 days. This is intended to facilitate the administration/management of the
Company. The required period for Annual General Meetings shall remain at 21
days.
32
SHAREHOLDERS SHOULD NOTE THAT THE DESCRIPTION OF THE RIGHTS ATTACHING TO THE
SPECIAL SHARE AND THE DESCRIPTION OF THE OTHER AMENDMENTS PROPOSED TO BE MADE TO
THE BYE-LAWS IN THIS PART III IS INTENDED TO BE A SUMMARY OF THOSE RIGHTS AND
AMENDMENTS ONLY, AND SHAREHOLDERS WHO ARE CONSIDERING THE RESOLUTIONS ARE
ADVISED TO READ THE PROPOSED AMENDMENTS TO THE BYE-LAWS SET OUT IN FULL IN THE
NOTICE CONVENING THE SGM SET OUT AT THE END OF THIS DOCUMENT. PLEASE NOTE THAT
THE CURRENT BYE-LAWS CAN BE FOUND ON THE COMPANY'S WEB-SITE (AT
WWW.VIATEL.COM/BYE-LAWS) SO AS TO ENABLE YOU TO REVIEW THE PROPOSED CHANGES IN
THE CONTEXT OF THE EXISTING PROVISIONS.
33
PART IV - DEFINITIONS
In this document (other than Parts II and III where, in the event of conflict,
the definitions employed therein will apply), the following expressions shall,
unless the context requires otherwise, have the following meanings:
"Board", "Board of Directors" the directors of the Company;
or "the Directors"
"Bye-Laws" the Bye-Laws of the Company;
"Closing" the closing of the Proposed
Financing in accordance with the
terms of the Definitive Documents;
"Conversion Date" the date upon which a majority in
principal amount of the Notes
issued at Closing have been
converted into Ordinary Shares;
"Corporate Actions" those actions as are listed under
the caption "Covenants" in the Term
Sheet;
"Definitive Documents" the Investment Agreement and
related agreements that will
document the final terms of the
investment contemplated by the Term
Sheet;
"Financing Committee" the independent committee of the
Board established pursuant to
Bye-law 104 so as to consider the
issues relating to the future
funding of the Company, and to take
all material decisions relating to
such funding on behalf of the
Company;
"Investors" or "Investor group" each and any of Morgan Stanley,
Ahab Capital Management, Inc., CFSC
Wayland Advisers, Inc. and Varde
Partners Inc. and certain of its
affiliated entities;
"Majority Investor" such Investor as, together with its
affiliates, holds at least a
majority of the outstanding
principal amount of the
34
Notes. As at Closing, Morgan
Stanley will be the Majority
Investor;
"Majority Noteholder(s)" any person(s) which, as at the
relevant time, is the holder(s) of
a majority of the then-outstanding
principal amount of the Notes;
"Morgan Stanley" Morgan Stanley & Co., Incorporated;
"Ordinary Shares" common shares of the Company, par
value U.S. $0.01 each;
"Notes" the Company's 8% Convertible Senior
Secured Notes Due 2014;
"Proposed Financing" the Proposed Financing of the
Company, through the sale and
issuance of the Notes to the
Investors, as contemplated under
the Term Sheet;
"PwC" PricewaterhouseCoopers LLP;
"Qualified Shareholder(s)" means the holder(s) of shares
acquired upon conversion of Notes;
"Record Date" February 19, 2004;
"Resolutions" the resolutions set out in the
notice of the SGM;
"Rights Termination Date" the date on which the Investors
and/or any transferees of the Notes
collectively own, directly or
beneficially, less than 25% of the
Ordinary Shares or, if earlier, on
which the Special Share is
repurchased;
"Shareholders" the holders of Ordinary Shares;
"Special General Meeting" or "SGM" the special general meeting of the
Company, notice of which is set out
at the end of this document, and
any adjournment thereof;
"Special Share" the new Ordinary Share to be issued
with the Notes, and having the
rights described in Part III of
this document;
35
"Term Sheet" the Term Sheet dated February 9,
2004 between the Company and the
Investors with respect to the
Proposed Financing, and as the same
was filed on Form 6-K dated
February 9, 2004 with the U.S. SEC;
"U.S. SEC" the United States Securities and
Exchange Commission.
References in this document to "we", "our", "Viatel" or the "Company" refer to
Viatel Holding (Bermuda) Limited and, where appropriate, its subsidiaries.
36
- --------------------------------------------------------------------------------
TERM SHEET
- --------------------------------------------------------------------------------
37
VIATEL HOLDING (BERMUDA) LIMITED
PRELIMINARY TERM SHEET
ISSUER: Viatel Holding (Bermuda) Limited (the "Company").
ISSUE: 8% Convertible Senior Secured Notes Due 2014 (the
"Notes," and the purchase of the Notes, the
"Investment").
INVESTMENT AMOUNT: US$50 million. Consideration is being given to a
total Investment Amount of US$60 million.
PURCHASERS (AND AMOUNT Morgan Stanley & Co. Incorporated (US$33.65 million)
TO BE PURCHASED): ("Morgan Stanley") and Ahab Capital Management, Inc.
(US$3.35 million), CFSC Wayland Advisers, Inc. (US$3
million) and Varde Partners, Inc. and certain
affiliated entities (US$10 million) (collectively,
the "Minority Investors" and, together with Morgan
Stanley, the "Investors").
In conjunction with its ownership of Notes, each
Investor shall, at all times during which it is a
Noteholder, own at least one Ordinary Share (as
defined below).(1)
DOCUMENTATION: - Investment Agreement by and among the Company and
the Investors.
- Newly issued debt securities evidencing the
Notes, along with related and ancillary
agreements and instruments (including, as
appropriate, an indenture and pledge, guarantee
and security agreements as contemplated below).
- Registration Rights Agreement.
- Bye-Law Amendments as contemplated below.
- Shareholders Agreement.
- -----------------
(1) Note: This provision will not be applicable if a new class of ordinary
shares is created and issued to the Investors in connection with the
transaction.
38
INTEREST: 8% per annum, compounded semi-annually and payable
semi-annually in additional Notes or, at the option
of the Company, in cash.
MATURITY DATE: Tenth anniversary of issuance.
PAYMENT AT MATURITY: The outstanding principal amount under the Notes,
along with any accrued and unpaid interest, will be
payable in its entirety on the Maturity Date.
CONVERSION: The Notes will be convertible, at the option of the
Noteholder, into ordinary shares of the Company, par
value US$0.01 per share (the "Ordinary Shares"):
(1) upon the occurrence of a "Liquidity Event" (as
defined herein); or
(2) if no Liquidity Event has occurred prior to such
time, from and after the ninth anniversary of the
closing date.
Notes and accrued and unpaid interest thereon may be
converted in whole or in part, at a conversion price
(the "Conversion Price"):
(1) determined by reference to the schedule attached
as Annex A, in the case of conversion upon the
occurrence of a Liquidity Event (other than a
Liquidity Event described in clause (6) of the
definition of Liquidity Event); and
(2) in the case of conversion in the absence of a
Liquidity Event, or in the event of a Liquidity
Event described in clause (6) of the definition
of Liquidity Event, equal to US$0.75 (the "Base
Conversion Price"). The Base Conversion Price
shall also apply in the context of any other
reference to a conversion price to be applied
prior to a Liquidity Event (e.g., for determining
beneficial ownership of Ordinary Shares into
which Notes may be converted).
LIQUIDITY EVENTS Liquidity Events shall include the following:
(1) if (A) any "person" (as such term is used in
Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934 (the "Exchange Act")), other
than one or more Original Holders (which will be
defined in the Investment Agreement to include
the Investors and their Affiliates), is or
becomes the beneficial owner (as defined in Rules
13d-3 and 13d-5 under the Exchange Act, except
that such person shall be deemed
39
to have "beneficial ownership" of all shares that
any such person has the right to acquire, whether
such right is exercisable immediately or only
after the passage of time or upon the occurrence
of an event, including all Ordinary Shares
issuable upon conversion of the Notes), directly
or indirectly, of more than 50% of the total
voting power of the Company (or its successor by
merger, consolidation or purchase of all or
substantially all of its assets) (for the purpose
of this clause, such person shall be deemed to
beneficially own any voting stock of the Company
held by an entity, if such person "beneficially
owns" (as defined above), directly or indirectly,
more than 50% of the voting power of such entity)
and (B) the Original Holders beneficially own (as
defined above), directly or indirectly, in the
aggregate a lesser percentage of the total voting
power of the Company (or such successor) than
such other person (for the purposes of this
clause, such other person shall be deemed to
beneficially own any voting stock of a specified
entity held by an entity, if such other person
"beneficially owns," directly or indirectly, more
than 50% of the voting power of such parent
entity and the Original Holders "beneficially
own," directly or indirectly, in the aggregate a
lesser percentage of the voting power of such
entity). In this event, the Board of Directors of
the Company will determine the Fair Market Value
of the Company.
(2) if:
(A) any "person" (as defined above)
(x) other than, or
(y) if, no later than 60 business days following
the Event Date (as defined below), the Board
of Directors of the Company (with the
Directors that are affiliated with
Noteholders abstaining) notifies the
Noteholders that it desires such event to be
a Liquidity Event, including
any of the Original Holders, is or becomes
the beneficial owner (as defined above,
except that solely for purposes of this
clause (2) such person shall be deemed not to
have "beneficial ownership" of any shares
that any such person has the right to
acquire, whether such right is exercisable
immediately or only after the passage of time
or upon the occurrence of an event, through
conversion of the Notes), directly or
indirectly, of more than 35% of the
outstanding Ordinary Shares of the Company
(or its successor by merger, consolidation or
purchase of all or substantially all of its
assets) (for the purpose of this clause, such
person shall be deemed to beneficially own
40
any voting stock of the Company held by an
entity, if such person "beneficially owns"
(as defined above), directly or indirectly,
more than 35% of the voting power of such
entity) (the date of such event or occurrence
being referred to herein as the "Event
Date"); and
(B) in either such case, holders of a majority in
principal amount of the Notes agree in
writing (within 60 business days following
receipt of written notice of the Event Date,
together with notice of the proposed
Conversion Price) that such event shall be
deemed a Liquidity Event.
(3) the adoption by the shareholders of the Company
of a plan or proposal for the liquidation or
dissolution of the Company, provided that holders
of a majority in principal amount of the Notes
then outstanding agree in writing (no later than
20 business days following receipt of written
notice of adoption of such plan or proposal) that
such event shall be deemed a Liquidity Event;
(4) consummation of a scheme of arrangement,
reorganization, merger, statutory share exchange
or consolidation or similar corporate transaction
involving the Company or any of its subsidiaries,
a sale or other disposition of all or
substantially all of the assets of the Company,
or the acquisition of the assets or stock of
another entity by the Company or any of its
subsidiaries (each, a "Business Combination"), in
each case unless, following such Business
Combination, (A) all or substantially all of the
individuals and entities that were the beneficial
owners of the Ordinary Shares (or of options,
warrants, rights or other securities convertible
into or exercisable for Ordinary Shares) of the
Company immediately prior to such Business
Combination beneficially own, directly or
indirectly, more than 67% of the then-outstanding
voting power of the corporation resulting from
such Business Combination in substantially the
same proportion as their ownership immediately
prior to such Business Combination of the
outstanding Ordinary Shares (or options,
warrants, rights or other securities convertible
into or exercisable for Ordinary Shares) of the
Company and (B) no person (excluding any
corporation resulting from such Business
Combination or any employee benefit plan or
related trust of the Company or such corporation
resulting from such Business Combination)
beneficially owns, directly or indirectly, 20% or
more (on a fully-diluted basis) of the voting
power of the corporation resulting from such
Business Combination, except to the extent that
such
41
ownership existed prior to the Business
Combination.
(5) if the Company effects a public offering for cash
of an amount of its Ordinary Shares equal to at
least 20% of the Ordinary Shares of the Company
and, following such offering, the Ordinary Shares
of the Company are registered with the U.S.
Securities and Exchange Commission pursuant to
the Exchange Act or traded either on a U.S. or
foreign securities exchange or in the National
Association of Securities Dealers Automated
Quotation System.
(6) there occurs an Event of Default or an Event of
Default is threatened by the Company, provided
that holders of a majority in principal amount of
the Notes then outstanding agree in writing
(within 20 business days following receipt of
written notice thereof) that such event shall be
deemed a Liquidity Event.
COMPANY EXCHANGE RIGHT At any time
(A) prior to the date that a majority of the initial
principal amount of the Notes has been converted
into Ordinary Shares (the "Conversion Date"), if
(i) there has occurred a Liquidity Event and (ii)
the Company has received written consent to the
exchange of all Notes from the holders of a
majority of the principal amount of the Notes
outstanding and held by Investors at the time of
the receipt of such consent; or
(B) following the Conversion Date,
the Company shall be entitled, at its option and upon
30 days' prior written notice to holders of the
Notes, to exchange the Notes in whole but not in part
for Ordinary Shares at the then- applicable
Conversion Price.
In the event of a change of control, as described
below, the exchange right will not become effective
until after the Noteholders have had the opportunity
to sell their Notes to the Company pursuant to the
Change of Control Put described below, unless the
Board of Directors has determined in good faith that
the aggregate applicable COC Put Price that would be
received by Noteholders could not reasonably be
considered to be equal to or greater than the
aggregate value of the Ordinary Shares that would be
received by such Noteholders upon such exchange.
VALUATION FOR CONVERSION The Board of Directors shall determine the equity
value of the Company in good faith based on
established practice and in
42
PRICE CALCULATION accordance with the guidelines set forth in Annex B.
RANKING: Except as otherwise required by law, the Notes will
be pari passu with the Accounts Receivable Facility
(the "A/R Facility") to be entered into by the
Company (with outstanding amounts not to exceed the
lesser of US$3 million or 65% of "eligible
receivables" (to be defined)) and senior to all other
indebtedness for borrowed money and debt securities
of the Company and its operating subsidiaries.
GUARANTEE AND SECURITY: The Notes will be subject to guarantee and security
provisions satisfactory in all respects to the
Investors. The Investors currently contemplate that,
to the extent legally permissible, the Notes will be
(a) guaranteed by all of the Company's operating
subsidiaries (the "Guarantors") and (b) secured by
liens on substantially all of the assets of the
Company and the Guarantors (including, as to the
Company, a pledge of all of the issued and
outstanding equity of the Guarantors but excluding
the accounts receivable of the Company and of the
Guarantors securing the A/R Facility). The Investors
also contemplate that a security trustee will hold
the security in trust for the Noteholders. The
Company has presented for review by the Investors a
proposed alternative structure.
VOTING RIGHTS: Except as set forth below with respect to
"Increase in Number of Directors and Amendments to
Bye-Laws" and "Covenants," holders of the Notes as
such will have no voting rights. Holders of Ordinary
Shares issued upon conversion of Notes will have the
voting rights intrinsic to such Ordinary Shares.
INFORMATION RIGHTS: The Company will furnish to each Noteholder, and to
each person that holds Ordinary Shares acquired upon
exercise of the Notes (a "Qualified Shareholder"):
(1) Prior to the time that a Trading Market (as
defined below) exists, monthly management reports
of the Company, in form and substance consistent
with those reports currently furnished to
directors, within 30 days after the end of each
month;
(2) Annual consolidated (and, prior to the time that
a Trading market exists, non-consolidated)
financial statements of the Company, audited by
an internationally recognized accounting firm,
within 120 days after the end of each fiscal
year; and
(3) Copies of all filings made under the securities
laws of Bermuda, the United States and any other
applicable
43
jurisdiction, and copies of all filings made
under the rules of any stock exchanges or other
applicable self regulatory organizations, to the
extent such filings are not otherwise promptly
and readily available to the public.
A "Trading Market" will be deemed to exist if the
Ordinary Shares are (i) registered under the Exchange
Act or comparable securities laws of the United
Kingdom and (ii) listed on the New York Stock
Exchange or the London Stock Exchange or traded on
the NASDAQ Standard 3 Marketplace, or are otherwise
traded in a manner that has been determined to be a
Trading Market by the Board of Directors of the
Company with the consent of either (x) prior to the
Conversion Date, holders of a majority in principal
amount of the Notes outstanding at the time that such
consent is given, or (y) following the Conversion
Date, holders of a majority of the Ordinary Shares of
the Company held by Qualified Shareholders.
CONFIDENTIAL INFORMATION The Shareholders Agreement will contain customary
RECEIVED BY NOTEHOLDERS restrictions on the disclosure by Noteholders and
AND QUALIFIED Qualified Shareholders of confidential information
SHAREHOLDERS regarding the Company. The Shareholders Agreement
will further provide that any Noteholder or Qualified
Shareholder that is eligible to receive confidential
information and that intends to trade in securities
of the Company shall be permitted to notify the
Company of such intention and request that the
Company cease to provide confidential information
(other than Rule 144A information described below) to
such Noteholder or Qualified Shareholder.
TRANSFERABILITY: The Notes and the Ordinary Shares into which the
Notes are converted may be transferred in
transactions that are exempt from Securities Act
registration under Rule 144A, subject to compliance
with the Right of First Refusal described below. The
Company will make available to qualifying purchasers
for such transactions the information required to be
made available to such purchasers under Rule
144A(d)(4).
The Ordinary Shares into which the Notes are
converted will be transferable subject to any
restrictions on transfer (including any rights of
first refusal) that are or become generally
applicable to holders of Ordinary Shares.
All transferees will be required to become parties to
the Shareholders Agreement.
CHANGE OF CONTROL PUT: Following any "change of control" of the Company (to
be defined in the final documentation), the Company
shall be
44
required to offer to repurchase each of the
Outstanding Notes at a purchase price in cash equal
to 101% of the principal amount thereof, plus accrued
and unpaid interest, if any, prorated to the date of
repurchase (the "COC Put Price").
Within 5 business days following a change of control,
the Company shall mail a notice to each Noteholder
stating:
(1) that a change of control has occurred and that
such Noteholder has the right to require the
Company to purchase such Noteholder's Notes at
the purchase price stated above;
(2) the repurchase date (which shall be no earlier
than 30 days nor later than 60 days from the date
such notice is mailed); and
(3) the procedures reasonably determined by the
Company, consistent with the terms of the Notes
and related documentation, that a holder must
follow to have its Notes repurchased.
TAG-ALONG/DRAG-ALONG Each Noteholder and each Qualified Shareholder will
RIGHTS: agree to be subject to tag-along rights in favor of
the other Noteholders and Qualified Shareholders
requiring: (1) in the event of a proposed transfer,
in one or a series of related transactions (other
than to an affiliate), by any Noteholder, or group of
Noteholders, of Notes having a principal amount of at
least US$10 million, all other Noteholders to have
the ability to dispose of (on the same terms and
conditions) a pro rata portion of such Noteholder's
Notes, and (2) at any time that a "Trading Market"
does not exist, in the event of a proposed transfer,
in one or a series of related transactions (other
than to an affiliate), by any Qualified Shareholder
of Ordinary Shares representing at least 10% of the
outstanding Ordinary Shares of the Company (on a
fully diluted basis), all other Qualified
Shareholders to have the ability to dispose of (on
the same terms and conditions) a pro rata portion of
such Qualified Shareholder's Ordinary Shares.
The Noteholders and Qualified Shareholders will also
agree to be subject to drag-along rights in favor of
the other Noteholders and Qualified Shareholders
requiring:
(1) at any time that a "Trading Market" does not
exist, in the event of a transfer, in one or a
series of related transactions (other than to an
affiliate), by one or more Qualified Shareholders
of Ordinary Shares representing a majority of the
outstanding Ordinary Shares of the Company (on a
fully diluted basis), such Qualified
45
Shareholders (if requested by such selling Investors)
to sell (on the same terms and conditions) a pro rata
portion of the Ordinary Shares owned by such
Qualified Shareholders; and
(2) in the event of a transfer, in one or a series of
related transactions occurring prior to the
Conversion Date (other than transfers to an
affiliate), by one or more Noteholder(s) of a
majority of the then-outstanding principal amount of
the Notes, such Noteholders (if requested by such
selling Noteholders) to sell (on the same terms and
conditions) a pro rata portion of the Notes owned by
such Noteholders; provided, however, that if the
purchase price for such "dragged-along" Notes in such
transaction is less than the COC Put Price that would
be payable if a Change of Control Put occurred on the
date of the closing of such "drag-along" transaction
(the "Minimum Price"), then the purchase price of
such "dragged-along" Notes shall be increased so that
it equals the Minimum Price.
RIGHT OF FIRST REFUSAL Each Noteholder shall have a right of first refusal
if a Noteholder proposes to sell (a "Selling
Noteholder") any Notes to a non-affiliated third
party (other than pursuant to an exercise of
registration rights or pursuant to an exercise of
tag-along or drag-along rights).
The Selling Noteholder(s) will send a notice (the
"First Refusal Notice") of the transaction to all of
the other Noteholders, including its good faith
intention to transfer Notes to a bona fide third
party, the identity and address of the third party,
the proposed form of consideration, the number of
Notes proposed to be sold, the proposed sale price
and all other material terms of the transaction.
Noteholders will have the ability to exercise their
right of first refusal, on a pro rata basis based on
the percentage of Notes held by all Noteholders other
than the Selling Noteholder(s), within 10 business
days from receipt of such notice. If the offer is
undersubscribed, each Noteholder electing to exercise
its right of first refusal shall be able to purchase
a pro rata portion of the remaining Notes offered
based on the percentage of Notes held by such
electing Noteholder.
If there are any remaining Notes, the Selling
Noteholder(s) may sell such Notes to the proposed
third party within 120 days after the date by which
the Noteholders must exercise their right of first
refusal. The Selling Noteholders must sell such Notes
at a price, for consideration and on terms no more
favorable than those specified in the First Refusal
Notice. However, any such sale shall be subject to
the Transfer
46
restrictions set forth in the Agreement. After such
120-day period, any Transfer of Notes will be again
subject to a right of first refusal.
REGISTRATION RIGHTS: The Company will enter into a Registration Rights
Agreement with each Investor with respect to the
Notes and the Ordinary Shares into which the Notes
can be converted. The Registration Rights Agreement
will provide that each Investor that has acquired
Ordinary Shares upon conversion of Notes shall be
entitled to demand registration, at the expense of
the Company, of all or any portion of the Ordinary
Shares held by such Investor:
(1) at any time that the Company is subject to the
provisions of the Exchange Act, upon the request
of Investors holding at least 10% of the Ordinary
Shares, and
(2) at any time that the Company is not subject to
the provisions of the Exchange Act, upon the
request of Investors holding at least a majority
of the outstanding Ordinary Shares.
The Registration Rights Agreement will provide that
upon the request of holders of at least a majority of
the original principal amount of the Notes, the
Investors shall be entitled to demand one
registration, and each Investor shall be entitled to
include all of its Notes in such registration. Each
Investor shall be entitled to demand no more than two
registrations with respect to Ordinary Shares, and
the Investors in the aggregate shall be entitled to
demand no more than four registrations with respect
to Ordinary Shares. Investors shall also have
customary "piggy back" rights with respect to other
registration statements filed by the Company.
Transferees of the Notes will be considered Investors
for these purposes.
INCREASE IN NUMBER OF The Company's Board of Directors shall, in accordance
DIRECTORS AND with Bye-Law 83, adopt a resolution increasing the
AMENDMENTS TO BYE- number of Directors on the Board from six to nine,
LAWS: such increase to be effective from and after the
closing date. The newly created Board vacancies will
be filled by three Directors to be selected by the
Investors. It is currently contemplated that two of
the three Directors to be selected by the Investors
(the "New Independent Directors") shall have no
affiliation to any of the Investors and shall
otherwise qualify as independent.
In addition to the Bye-Law amendments that were
approved by the Finance Committee of the Board of
Directors and that are described in a proxy statement
of the Company dated 19 November 2003 (the "November
Amendments"), the Bye-Laws will be further amended to
delete the proviso that was added to
47
clause (5) of Bye-Law 97 pursuant to the November
Amendments. The Bye-Laws will be further amended to
provide that:
(1) The number of Directors shall be nine; provided,
however, that (x) at any time before the
Conversion Date, shareholders who are holders of
a majority of the then-outstanding principal
amount of the Notes (the "Majority Noteholders")
may by written notice to the Company demand, and
(y) for a period commencing on the Conversion
Date and ending on the date on which the
Investors beneficially own less than an aggregate
of 25% of the Ordinary Shares, holders of a
majority of the then-outstanding Ordinary Shares
held by Qualified Shareholders may by written
notice to the Company demand, that the number of
Directors be increased to any number up to 13, in
which case the number of Directors shall be so
increased and the (x) Majority Noteholders or (y)
holders of a majority of the then-outstanding
Ordinary Shares held by Qualified Shareholders,
as the case may be and as described in paragraph
(2) below, shall have an immediate power to
appoint the additional Directors resulting from
such increase.
(2) During the period commencing on the closing date
and ending on the Conversion Date, the Majority
Noteholders, and during the period commencing on
the Conversion Date and ending on the date on
which the Investors beneficially own less than an
aggregate of 25% of the Ordinary Shares, holders
of a majority of the Ordinary Shares held by
Qualified Shareholders, will be entitled to
designate, elect, remove and replace (the
"Investor-Appointed Directors") a number of
Directors that is equal to (x) the total number
of Directors on the Board of Directors (as
increased in accordance with paragraph (1) above)
minus (y) the total number of Directors who are
on the Board at that time that are not designated
by the Investors in accordance with this section.
(3) It shall not be necessary to elect the
Investor-Appointed Directors by vote in a
shareholders meeting. Until the Conversion Date,
the Majority Noteholders shall instead have power
to appoint Directors at any time and from time to
time, in accordance with paragraph (2) above, and
to remove any Directors so appointed by the
Majority Noteholders, in each case by written
notice to the Company secretary. (For these
purposes, the two current directors that are
affiliates of Morgan Stanley are deemed to be
appointed by the Majority Noteholders, and the
New Independent Directors referred to above are
not deemed to
48
be appointed by the Majority Noteholders.) For
the period commencing on the Conversion Date and
ending on the date on which the Investors
beneficially own less than an aggregate of 25% of
the Ordinary Shares, the Qualified Shareholders
shall have the power to appoint Directors at any
time and from time to time, in accordance with
paragraph (2) above, and to remove any Directors
so appointed or appointed by the Majority
Noteholders, in each case by written notice to
the Company secretary.
(4) Effective from and after the Conversion Date, in
addition to matters otherwise subject to approval
by resolution at a general meeting of
shareholders, the following actions will require
the prior approval of a majority of the votes of
Ordinary Shares cast at a shareholder meeting or
the approval by written consent of a majority of
the Ordinary Shares without a shareholder
meeting:
(a) Any offer, sale or issuance of any debt or
equity securities of the Company or any of
its subsidiaries, other than:
(i) the issuance of Ordinary Shares
upon (A) conversion of the Notes or
(B) exercise of options outstanding
under the equity compensation plan
of the Company (the "Equity Plan")
that is in effect as of the closing
date and that is reasonably
acceptable to the Investors; or
(ii) the entry into the A/R Facility;
(b) Any repurchase or redemption of equity
securities of the Company or any of its
subsidiaries, or declaration or payment of
any dividend on the Company's or any
subsidiary's equity securities (other than
dividends to the Company from direct or
indirect wholly owned subsidiaries) or any
increase in the number of shares reserved
under the Company's option plans;
(c) Incurrence by the Company or any of its
subsidiaries of indebtedness for borrowed
money, or guarantees by the Company or any of
its subsidiaries of indebtedness for borrowed
money, that would cause the consolidated
indebtedness of the Company and its
subsidiaries to exceed the sum of amounts
that would be permitted under the A/R
Facility and the then-outstanding principal
amount of the Notes; or the repayment of the
outstanding indebtedness of the Company or
any of its subsidiaries other than in
accordance with the terms thereof;
(d) Transactions between the Company or any
subsidiary,
49
on the one hand, and any affiliate of the
Company or any subsidiary (other than the
Company or any other subsidiary), on the
other hand, other than compensation of
directors, officers and employees that has
been approved by the Board of Directors
(in the case of directors and executive
officers) or pursuant to Board approved plans
(in the case of other employees);
(e) Any merger, consolidation, recapitalization,
reorganization, liquidation or dissolution of
the Company or any subsidiary (other than any
such transaction involving solely an internal
reorganization) or any other transaction
involving the sale, transfer or other
disposition of all or any substantial portion
of the assets of the Company or any of its
subsidiaries;
(f) Any sale, lease, transfer or other
disposition or transfer of assets of the
Company or any subsidiary, in one or a series
of related transactions, having a value in
excess of US$1 million individually or US$5
million in any fiscal year;
(g) The grant by the Company or any of its
subsidiaries of a security interest in any
assets, including any pledge, except for
Permitted Liens (to be defined in the final
documentation);
(h) Any acquisition by the Company or any of its
subsidiaries of assets, in one or a series of
related transactions, having a value in
excess of US$2 million;
(i) Hiring or firing the Company's chief
executive officer;
(j) Any amendment to the Company's Bye-Laws or
Memorandum of Incorporation;
(k) Any changes to the size of the Company's
board of directors (other than as
contemplated above); and
(l) Any capital expenditures exceeding US$2
million individually or in excess of US$6
million in any fiscal year.
As amended, the Bye-Laws will be in the form attached
as Annex C hereto.(2)
SHAREHOLDERS AGREEMENT The Investors and all of their transferees shall
enter into a Shareholders Agreement that will
provide, among other things, that:
(1) at any time (x) prior to the Conversion Date that
one Investor, together with such Investor's
affiliates
- ------------------
(2) Annex C to be provided subsequently, but to reflect the terms described
above.
50
(collectively, the "Majority Investor"), holds at
least a majority of the outstanding principal
amount of the Notes, a majority of the
outstanding principal amount of the Notes held by
Investors excluding the aggregate principal
amount of the Notes held by the Majority Investor
shall be sufficient to cause the designation,
election, removal and replacement of two of the
Investor-Appointed Directors (which directors
shall be identified at the time of the initial
appointment, and are referred to herein as the
"Minority Directors"), and (y) from and after the
Conversion Date (and until such time as the
Minority Investors collectively beneficially own
less than 10% of the Ordinary Shares of the
Company) that one Investor, together with such
Investor's affiliates holds at least a majority
of the outstanding Ordinary Shares, the Minority
Investors may cause the designation, election,
removal and replacement of such Minority
Directors; and
(2) prior to the occurrence of a Liquidity Event, any
Original Holder that owns more than 35% of the
Ordinary Shares shall vote all Ordinary Shares
owned by such Original Holder in a manner that is
proportionate to the voting of holders of the
remaining Ordinary Shares.
OBSERVER RIGHTS Until such time as the Minority Investors
collectively beneficially own less than 10% of the
Ordinary Shares of the Company, each of the Minority
Investors shall have the right to appoint one
non-voting representative who shall be allowed to
attend all meetings of the Company's Board of
Directors. The Minority Investors and their
representatives shall sign customary confidentiality
agreements.
ANTI-DILUTION PROVISIONS: The instruments governing the Notes will include
anti-dilution adjustments to the Conversion Price,
including without limitation, upon the occurrence of:
(1) issuances by the Company of Ordinary Shares or
options, warrants, rights or other securities
convertible into or exercisable for Ordinary
Shares, or of securities convertible into or
exercisable for preferred shares having economic
terms similar to Ordinary Shares ("Ordinary
Equivalents"), other than exercises of stock
options granted by the Company pursuant to the
Equity Plan;
(2) any stock split, reclassification, subdivision,
combination other redistribution or
reclassification of Ordinary Shares or of
Ordinary Equivalents;
(3) declaration of any dividend or other distribution
to holders of the Ordinary Shares (including
distributions of cash,
51
evidences of the Company's indebtedness and of
any class or series of capital stock or other
property) or to holders of options, warrants,
rights or other securities convertible into or
exercisable for Ordinary Shares or to holders of
Ordinary Equivalents; or
(4) any repurchase of Ordinary Shares, or of options,
warrants, rights or other securities convertible
into or exercisable for Ordinary Shares or of
Ordinary Equivalents; or
(5) the making by any person of a tender or exchange
offer for Ordinary Shares, or for options,
warrants, rights or other securities convertible
into or exercisable for Ordinary Shares or for
Ordinary Equivalents, at a price that is in the
good faith judgment of the Board a premium to the
market price.
PREEMPTIVE RIGHTS: The Investors, Noteholders and Qualified Shareholders
shall have pro rata preemptive rights in the event of
any sale or issuance of Ordinary Shares or of
options, warrants, rights or other securities
convertible into or exercisable for Ordinary Shares
or of Ordinary Equivalents, based on beneficial
ownership (including with respect to Notes on as
as-converted basis) of all Ordinary Shares owned or
acquired as of the date of this term sheet (with
respect to securities other than the Notes) and the
date of the closing of the transactions contemplated
hereby (with respect to Notes) by the Investors,
except for issuances of Ordinary Shares upon
conversion of the Notes and upon the exercise of
employee stock options granted by the Company under
the Equity Plan. For purposes of calculations of
preemptive rights, the conversion price shall be (1)
absent a Liquidity Event, the Base Conversion Price;
(2) if a Liquidity Event has occurred, the conversion
price determined with reference to Annex A hereto.
The preemptive rights shall terminate effective on
the date of the effectiveness of a Liquidity Event.
REPRESENTATIONS The Investment Agreement will contain standard
AND WARRANTIES: representations and warranties, with indemnification
to survive for the later of one year following
closing or three months after delivery of audited
financials for 2004. The Investment Agreement will
also contain interim operating covenants similar to
those set forth below.
COVENANTS: During the period commencing on the closing date and
ending on the Conversion Date, without the prior
consent of a majority in aggregate principal amount
of outstanding Notes, the
52
Company will not, and will cause its subsidiaries not
to:
(1) offer, sell or issue any debt or equity
securities of the Company or any of its
subsidiaries, other than (A) the issuance of
Ordinary Shares upon conversion of the Notes or
exercise of options outstanding under the Equity
Plan or (B) the entry into the A/R Facility.
[Note: This may involve the creation of a new
class of Company shares to be held directly by
the Investors in proportion to their ownership of
Notes.]
(2) Declare or pay any dividend on the Company's or
any subsidiary's equity securities (other than
dividends to the Company from direct or indirect
wholly owned subsidiaries);
(3) Incur indebtedness for borrowed money, or extend
guarantees of indebtedness for borrowed money,
that would cause the consolidated indebtedness of
the Company and its subsidiaries to exceed the
sum of amounts that would be permitted under the
A/R Facility and the then-outstanding principal
amount of the Notes, or repay any outstanding
indebtedness of the Company or any of its
subsidiaries other than in accordance with the
terms thereof;
(4) Engage in any transaction between the Company or
any subsidiary, on the one hand, and any
affiliate of the Company or any subsidiary (other
than the Company or any other wholly owned
subsidiary), on the other hand, other than
compensation of directors, officers and employees
that has been approved by the Board of Directors
(in the case of directors and executive officers)
or pursuant to Board-approved plans (in the case
of other employees);
(5) Engage in any merger, consolidation or
reorganization of the Company or any subsidiary
(other than any such transaction involving solely
an internal reorganization) or any other
transaction involving the sale, transfer or other
disposition of all or any substantial portion of
the assets of the Company or any of its
subsidiaries;
(6) Sell, lease, transfer or otherwise dispose or
transfer assets of the Company or any subsidiary,
in one or a series of related transactions,
having a value in excess of US$1 million
individually or US$5 million in the aggregate in
any fiscal year;
(7) Grant a security interest in any assets of the
Company or any of its subsidiaries, including any
pledge, except for
53
Permitted Liens;
(8) Acquire assets, in one or a series of related
transactions, having a value in excess of US$2
million;
(9) Replace the Company's chief executive officer
with one or more persons not reasonably
acceptable to the Noteholders;
(10) Change or amend the Company's Memorandum of
Incorporation or Bye-Laws in a manner that
adversely affects the rights of Note holders;
(11) Change the size of the Company's board of
directors (other than as contemplated above
under "Increase in Number of Directors and
Amendments to Bye-Laws");
(12) Make any capital expenditures exceeding US$2
million individually or in excess of US$6
million in any fiscal year; or
(13) Engage in other actions customarily restricted
in a transaction of this nature.
EVENTS OF DEFAULT: An Event of Default will occur if:
(1) The Company fails to pay an installment of
interest within 3 days of the date on which the
same becomes due and payable;
(2) The Company fails to pay principal when due;
(3) The Company fails to comply with any material
term, covenant or agreement contained in the
Investment Agreement, the Notes or related
documents and such failure remains uncured for
60 days after written notice thereof;
(4) The Company becomes subject to any bankruptcy,
insolvency, liquidation or similar proceeding;
or
(5) Any guarantee or collateral ceases to be valid
or perfected.
PREPAYMENT: The Notes will be prepayable at the option of the
Company at any time following the ninth anniversary
of the closing date; provided, however, that (i) the
Company must provide written notice to the
Noteholders no later than 20 days prior to exercising
a prepayment right and (ii) in the event of a change
of control prior to or in connection with such
prepayment, the prepayment price will be the greater
of the price set forth above and the COC Put Price
that would be payable if the holders
54
exercised the Change of Control Put described above
on the date of prepayment. Giving of a notice of
prepayment will not terminate the right of
Noteholders to convert such Notes, at any time prior
to the effectiveness of such prepayment, into
Ordinary Shares.
CLOSING CONDITIONS: The transaction is subject to the following closing
conditions:
(1) Satisfactory completion of due diligence on the
Company and its subsidiaries (including business,
legal, financial, accounting and tax) of a nature
and scope satisfactory to the Investors in their
sole discretion, and the Investors' satisfaction
with the current business plan of the Company (in
the form delivered to the Investors on January
27, 2004), including the Company's progress with
respect to the business plan, and the absence of
any substantial expenditure or commitment of cash
that is not contemplated by such business plan;
(2) A mutually satisfactory set of definitive
agreements setting forth the terms contained in
this Term Sheet and containing customary
representations, warranties, indemnities,
covenants, opinions and conditions;
(3) Amendment of the Bye-Laws of the Company as
described herein, including receipt of all
approvals of shareholders required to so amend
the Bye-Laws;
(4) Receipt of all necessary corporate approvals
(including due authorization of the issuance of
the Notes);
(5) Receipt of any necessary third party and
governmental consents, waivers and approvals;
(6) No material adverse change in the Company's
assets, liabilities, business, condition
(financial or otherwise), results of operations
or prospects, or that in any other manner would
be expected to adversely affect the interests of
the Investors, from January 27, 2004;
(7) Execution and delivery by the Company and each of
the officers of the Company named on Annex D
hereto of employment agreements in form and
substance that are satisfactory to the Investors;
(8) Receipt by the Board of Directors of the Company
and its Financing Committee of a satisfactory
fairness opinion from an independent financial
advisor;
(9) Other customary closing conditions for a
transaction of this
55
nature, including receipt of satisfactory legal
opinions from Company counsel and satisfaction by
the Investors with the guarantee and security
provisions of the investment.
AMENDMENTS: Amendments to the Investment Agreement will require
the written consent of:
(1) in the event of amendments occurring prior to the
closing, Investors representing a majority in
principal amount of the Notes to be purchased
pursuant to the Investment Agreement;
(2) in the event of amendments occurring following
the closing and prior to the Conversion Date,
Noteholders representing a majority in principal
amount of the Notes then outstanding; and
(3) in the event of amendments occurring following
the Conversion Date:
(a) to the extent the proposed amendment(s)
adversely affect(s) the right of holders of
Notes, Noteholders representing a majority in
principal amount of the Notes outstanding;
and
(b) to the extent the proposed amendment(s)
adversely affect(s) the rights of holders of
Ordinary Shares, Qualified Shareholders
representing a majority of the Ordinary
Shares acquired upon conversion of the Notes.
Amendments to the Notes and related documents will
require the written consent of holders of a majority
in principal amount of the outstanding Notes, except
with respect to:
(1) the timing, form or amount of principal or
interest payments, which shall require the
consent of each affected Noteholder; and
(2) any provision where applicable law otherwise
requires, which shall require such legally
required consent.
COOPERATION Unless terminated earlier by written agreement of the
AND EXCLUSIVITY; Investors and the Company, the Company will, and will
cause its officers, directors, agents,
representatives and advisors to, negotiate
exclusively with the Investors with respect to a
financing transaction or investment in the Company
for the earlier of 90 days from the signing of this
Term Sheet or upon written notification to the
Company by the Investors of the Investors'
56
decision to no longer proceed with the investment.
Notwithstanding the immediately preceding paragraph,
if the Company receives an unsolicited bona fide
offer or proposal with respect to a potential or
proposed transaction involving the Company from
another entity or group (a "Potential Competing
Investor") that the Financing Committee of the
Company's Board of Directors reasonably determines,
after consultation with its independent financial
advisor and legal counsel, is more favorable to the
Company and to the holders of Ordinary Shares than
the transactions contemplated by this Term Sheet (a
"Superior Proposal"), the Company may engage in
discussions and negotiations with such Potential
Competing Investor, provided, however, that if the
Company intends to do so (a "termination of
exclusivity") pursuant to this paragraph:
(i) the Company shall deliver to the Investors, no
less than two business days prior to
termination of exclusivity, written notice of
the Company's receipt of a Superior Proposal,
of the material terms and conditions of the
Superior Proposal and of the Company's intent
to terminate exclusivity with the Investors
(the "Non-Exclusivity Notice") (it being
understood and agreed that the Company shall
deliver to the Investors a copy of each and
every unsolicited bona fide offer or proposal
received by the Company with respect to a
potential or proposed transaction involving the
Company from a Potential Competing Investor,
regardless of whether the Financing Committee
considers such proposal to be superior and
regardless of whether, upon receipt of such
proposal, the Company or the Financing
Committee intend to exercise any rights under
this paragraph);
(ii) Termination of exclusivity pursuant to this
section shall not be deemed to terminate or
affect any other provision of this Term Sheet;
(iii) The Company shall, within twenty-four hours of
any material changes or modifications in the
material terms of any such Superior Proposal,
notify the Investors in writing of such changes
or modifications;
(iv) The Company shall deliver to the Investors
three days' written notice prior to entering
into any oral or written agreement pursuant to
which the Company incurs any liability or
obligation to a Potential Competing Investor;
and
(v) The Company shall provide to the Investors a
copy of any and all confidential information
provided to such Potential Competing Investor,
at the time that such
57
information is provided to such Potential
Competing Investor.
The Investors and their representatives will have
full access to the Company's senior management team,
books, operations, records and other materials so
that the Investors can complete due diligence review.
ADVISORY FEES: None.
FINANCING FEES: None.
TRANSACTION FEE: None.
OUT-OF-POCKET EXPENSES: Whether or not the transaction contemplated by this
Term Sheet is consummated, the Company will reimburse
each Investor within five business days of the
Investor's request for all of such Investor's
reasonable out-of-pocket expenses and fees, including
the fees and expenses of attorneys, accountants and
consultants employed in connection with the
Investors' consideration, negotiation and
consummation of the investment, including the
Investor's due diligence on the Company and any
documentation relating to the transactions
contemplated by this Term Sheet. Notwithstanding the
foregoing, if the transaction contemplated by this
Term Sheet is not consummated, the Company shall not
be required to pay more than an aggregate of US$1
million in respect of the foregoing obligation.
The liability of the Company hereunder shall not
extend to or include any liability or sum which
would, but for this proviso, cause such liability to
be unlawful or prohibited by section 39 of the
Bermuda Companies Act 1981.
INDEMNITY: By the Company of the Investors from any legal
actions arising in connection with the Investment or
the pursuit of an investment or otherwise in
connection with this Term Sheet, or in connection
with the breach of any representation of the Company
as set forth above or in the documentation to be
entered into pursuant to this Term Sheet; provided,
however, that:
(1) the liability of the Company hereunder shall not
extend to or include any liability or sum which
would, but for this proviso, cause such liability
to be unlawful or prohibited by section 39 of the
Bermuda Companies Act 1981; and
(2) The Company shall be permitted to defer payment
of any
58
indemnification amount, other than indemnity-
related fees and expenses (which shall be
reimbursed by the Company on a current basis as
provided below), until the earlier of (i) the
expiration of the twelve (12)-month period
following the closing date of the transactions
contemplated by this Term Sheet (or if the
transactions contemplated by this Term Sheet do
not close within three months of the date hereof,
the expiration of the eighteen (18)-month period
following the date hereof) and (ii) the date on
which the Company becomes subject to any
bankruptcy, insolvency, liquidation or similar
proceeding. Interest will accrue on all payment
amounts deferred pursuant to this clause (2) at a
rate of 10% per annum, which amount shall be
payable along with the indemnification amount
upon termination of the deferral period.
Notwithstanding anything to the contrary herein, to
the extent permitted under clause (1) above, the
Company shall reimburse an Investor for all
indemnity-related fees and expenses (including but
not limited to legal fees) within five business days
of such Investor's request for reimbursement.
CONFIDENTIALITY: From and after the date hereof, without the prior
written consent of the other parties, the Investors,
the Company and their respective representatives
agree not to disclose the existence of this Term
Sheet or its contents to any other parties, nor to
make any written or other public disclosures
regarding this transaction, other than as required by
law. Except as required by law, the Investors, the
Company and their representatives will keep
confidential any discussions between the Company and
the Investors.
BINDING By executing this Term Sheet, the parties express
EFFECT AND LIABILITY: their mutual interest in pursuing an investment
substantially along the lines described herein, and,
solely with respect to the provisions described in
the following sentence, make certain commitments to
each other. The parties understand and acknowledge
that, except for the obligations of the Investors and
the Company in the sections entitled "Cooperation and
Exclusivity," "Out-of-Pocket Expenses," "Indemnity,"
"Confidentiality," "Binding Effect and Liability,"
"Governing Law" and "Waiver and Release of Certain
Claims," all of which are intended to be legally
binding once the parties have executed this Term
Sheet, this Term Sheet is not a legally binding
agreement and that the failure to execute and deliver
a definitive agreement will impose no liability on
any of the Investors or the Company.
59
GOVERNING LAW: This Term Sheet, the Investment Agreement and the
Notes will be governed by New York law, with
exclusive jurisdiction for all disputes concerning
this Term Sheet to be in the federal or state courts
in the State of New York. The parties consent to the
jurisdiction of the federal and state courts located
in the State of New York.
WAIVER AND RELEASE OF Each of the Company and each of the Investors
CERTAIN CLAIMS affirmatively waives and releases any and all claims,
known or unknown at the time of execution of this
Term Sheet, against each other party to this Term
Sheet that relate in any way to the negotiation,
execution or delivery of this Term Sheet or the
consummation of any transaction contemplated hereby.
Accepted and agreed as of [______, __] 2004, Accepted and agreed as of [______, __] 2004,
on behalf of: on behalf of:
MORGAN STANLEY & CO., INCORPORATED CFSC WAYLAND ADVISERS, INC.
By: ____________________________ By: ____________________________
Name: Name:
Title: Title:
Accepted and agreed as of [______, __] 2004, Accepted and agreed as of [______, __] 2004,
on behalf of: on behalf of:
AHAB CAPITAL MANAGEMENT, INC. VARDE PARTNERS, INC.
By: ____________________________
By: ____________________________ Name:
Name: Title:
Title:
Accepted and agreed as of [______, __] 2004,
on behalf of:
VIATEL HOLDING (BERMUDA) LIMITED
By: __________________________
Name:
Title:
A-1
61
ANNEX A
CONVERSION PRICE
TOTAL EQUITY VALUE TRANCHE C.P. CONVERSION PRICE
- ------------------ ------------ ----------------
100,000,000 0.75 0.75
150,000,000 1.45 0.87
200,000,000 2.14 1.10
250,000,000 2.84 1.38
300,000,000 3.54 1.68
350,000,000 4.24 2.00
400,000,000 4.43 2.29
450,000,000 4.63 2.54
500,000,000 4.82 2.76
550,000,000 5.02 2.96
600,000,000 5.22 3.14
650,000,000 5.41 3.30
700,000,000 5.61 3.46
750,000,000 5.80 3.61
800,000,000 6.00 3.75
"Total Equity Value" means the total equity value (to be defined in the final
documentation) of the Company on a given date.
"Tranche" means a category of Total Equity Value. The Investment Agreement will
include Tranches in increments of US$1,000,000 and corresponding Tranche C.P.s.
"Tranche C.P." means the conversion price to be applied to the corresponding
category of Total Equity Value.
"Conversion Price" means the weighted average conversion price. The Conversion
Price shall be the result of a fraction, (A) the numerator of which is the
"SumProduct" of each Tranche times the Tranche C.P. of such Tranche, up to and
including the Tranche that includes the Total Equity Value, divided by (B) the
Total Equity Value. The "SumProduct" means the sum of each of such products. An
example of the formula follows:
SumProduct (1) (Tranches; Conversion Price)
-------------------------------------------
Total Equity Value
(1) Sum Product = Multiply each Tranche by its respective Tranche C.P. and add
the totals.
ANNEX B
GUIDELINES FOR VALUATION IN CONVERSION PRICE CALCULATION
At any time that a Conversion Price must be determined, the Total Equity
Value shall be determined as follows:
1. The Board of Directors shall make a reasonable, good-faith
determination of the Total Equity Value and shall submit such
determination (the "Board Determination") for the approval of the
Majority Noteholders.
2. If the Majority Noteholders do not approve the Board Determination,
then the Board of Directors, on the one hand, and the Majority
Noteholders, on the other hand, shall promptly commence good-faith
negotiations to arrive at a joint determination of the Total Equity
Value.
3. If the Board of Directors and the Majority Noteholders do not arrive at
a joint determination of the Total Equity Value within ten days of
delivery by the Board of Directors to the Noteholders or by the
Noteholders to the Board of Directors, as applicable, of written notice
of the occurrence of an event giving rise to conversion or exchange,
then no later than the fifteenth day after delivery of the written
notice referenced in this clause (c), the Board of Directors and the
Majority Noteholders shall refer the matter to an independent valuation
expert to be selected by mutual consent of the Board of Directors and
the Majority Noteholders. The determination of such independent
valuation expert shall be final and binding on all parties.
4. If the circumstance giving rise to a right of conversion by Noteholders
or exchange by the Company is a Liquidity Event of the nature set forth
in clause (5) of the definition of "Liquidity Events," the Total Equity
Value shall be determined with reference to the public offer price for
the Ordinary Shares, unless the public offer price does not reasonably
reflect the equity value of the Company.
5. If a Trading Market exists, the Total Equity Value shall be determined
with reference to the market value of the Ordinary Shares on the
Trading Market, unless such market value does not reasonably reflect
the equity value of the Company.
6. Noteholders' affiliates who are members of the Board of Directors shall
abstain from all Board deliberations and voting with respect to the
Board's determination or negotiation of Total Equity Value.
B-1
ANNEX C
FORM OF AMENDED BYE-LAWS
[INTENTIONALLY OMITTED]
C-1
64
ANNEX D
COMPANY OFFICERS SIGNING EMPLOYMENT AGREEMENTS
Lucy Woods
65
- --------------------------------------------------------------------------------
PwC FAIRNESS OPINION
- --------------------------------------------------------------------------------
[PRICEWATERHOUSECOOPERS LOGO]
PRICEWATERHOUSECOOPERS LLP
1 Embankment Place
London WC2N 6RH
Telephone +44(0) 20 7583 5000
Facsimile +44(0) 20 7822 4652
20 February 2004
Viatel Holding (Bermuda) Limited
Inbucon House
Wick Road
Egham
Surrey TW20 OHR
UK
Members of the Board of Directors:
Viatel Holding (Bermuda) Limited (the "Company"), Morgan Stanley & Co.
Incorporated, Ahab Capital Management, INC., CFSC Wayland Advisers, INC., and
Varde Partners, INC. (the "Investors"), have entered into a Preliminary Term
Sheet, dated as of February 9, 2004 (the "Term Sheet"), pursuant to which the
Investors will invest in the Company an amount of US$50 million in exchange for
the issuance by the Company to the investors of 8% Convertible Senior Secured
Notes Due 2014 (the "Notes") with a face value of US$50 million (the
"Transaction").
We understand that consideration is being given to a possible total investment
of US$60 million being made on the same terms. In this regard, our opinion with
respect to the Transaction as stated herein, will equally apply to any
investment made on such terms in any amount above $50 million and up to $60
million.
You have asked us whether, in our opinion, the Transaction is fair from a
financial point of view to the Company and its shareholders. Under certain
circumstances described in the Term Sheet, the Investors may convert the Notes
into ordinary shares of the Company, par value US$0.01 per share (the "Ordinary
Shares") at a defined conversion price based on the equity value of the Company.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed certain publicly available business and financial information
relating to the Company that we deemed to be relevant;
(2) Reviewed certain information, including internal financial statements and
financial forecasts, relating to the business, earnings, cash flow, assets,
liabilities and prospects of the Company furnished to us by the Company and
developed a discounted cash flow analysis of the Company based on this
information;
(3) Conducted discussions with members of senior management and representatives
of the Company concerning the matters described in clauses 1 and 2 above, as
well as the businesses prospects before and after giving effect to the
Transaction;
PricewaterhouseCoopers LLP is a limited liability partnership registered in
England with registered number OC303525. The registered office of
PricewaterhouseCoopers LLP is Embankment Place, London WC2N 6RH.
PricewaterhouseCoopers LLP is authorised and regulated by the Financial Services
Authority for designated investment business.
[PRICEWATERHOUSECOOPERS LOGO]
(4) Reviewed the market prices and valuation multiples for the Company and
compared them with those of certain publicly traded companies that we deemed to
be relevant;
(5) Reviewed the results of operations of the Company compared them with those
of certain publicly traded companies that we deemed to be relevant and drawing
upon the industry expertise of PricewaterhouseCoopers;
(6) Compared the proposed financial terms of the Transaction with the financial
terms of certain other transactions that we deemed to be relevant;
(7) Reviewed the Term Sheet; and
(8) Reviewed such other financial studies and analyses and took into account
such other matters as we deemed necessary, including our assessment of general
economic, market and monetary conditions.
In preparing our opinion, we have assumed and relied on the accuracy and
completeness of all information supplied or otherwise made available to us,
discussed with or reviewed by or for us, or publicly available, and we have not
assumed any responsibility for independently verifying such information or
undertaken an independent evaluation or appraisal of any of the assets or
liabilities of the Company or been furnished with any such evaluation or
appraisal. In addition, we have not assumed any obligation to conduct any
physical inspection of the properties or facilities of the Company. With respect
to the financial forecast information furnished to or discussed with us by the
Company, we have assumed that they have been reasonably prepared and reflect the
best currently available estimates and judgment of the Company's management as
to the expected future financial performance of the Company.
Our opinion is necessarily based upon market, economic and other conditions as
they exist and can be evaluated on, and on the information made available to us
as of, the date hereof. We have assumed that in the course of obtaining the
necessary regulatory or other consents or approvals (contractual or otherwise)
for the Transaction, no restrictions, including any divestiture requirements or
amendments or modifications, will be imposed that will have a material adverse
effect on the contemplated benefits of the Transaction.
We are acting as an independent expert in connection with the assessment of the
fairness of the Transaction from a financial point of view, to the Company and
its shareholders and will receive a fee from the Company for our services. No
part of our fee is in any way contingent on the Transaction. In addition, the
Company has agreed to indemnify us for certain liabilities arising out of our
engagement. We have, in the past, provided other professional services to the
Company and may continue to do so and have received, and may receive, fees for
the rendering of such services.
This opinion is for the use and benefit of the Board of Directors of the
Company. Our opinion does not address the merits of the underlying decision by
the Company to engage in the Transaction and does not constitute a
recommendation to any shareholder of the Company as
(2)
[PRICEWATERHOUSECOOPERS LOGO]
to how such shareholder should vote on the proposed issuance of the Notes or any
related matter. We are not expressing any opinion herein as to the prices at
which the Ordinary Shares may trade following the announcement or consummation
of the Transaction.
On the basis of and subject to the foregoing, we are of the opinion that, as of
the date hereof, the Transaction is fair from a financial point of view, to the
Company and its shareholders.
Yours faithfully
/s/ PricewaterhouseCoopers LLP
(3)
69
VIATEL HOLDING (BERMUDA) LIMITED
(the "Company")
NOTICE
NOTICE IS HEREBY GIVEN to all Shareholders of record on February 19, 2004 that a
Special General Meeting of the Company will be held at Canon's Court, 22
Victoria Street, Hamilton HM12, Bermuda on:
TUESDAY, APRIL 6 2004 AT 11.00 AM
AGENDA
1. Elect a Chairman, if necessary.
2. Read the Notice convening this Special General Meeting.
3. Consider and, if thought fit, approve, subject to Closing (as defined
in the Chairman's letter accompanying this Notice (the "Chairman's
Letter")) taking place, an increase of the Company's share capital from
U.S. $1,000,000 to U.S. $2,500,000 by the creation of 150,000,000
additional common shares of par value U.S. $0.01 each.
4. Consider and, if thought fit, approve, subject to Closing taking place,
the redesignation of one unissued common share of the Company as a
Special Share with the rights to be incorporated into the Bye-laws of
the Company upon approval of item 5 below.
5. Consider and, if thought fit, approve, subject to Closing taking place,
the amendments to the Company's Bye-laws as set out in Schedule 1 to
this Notice together with and subject to such other amendments as may
be proposed by the Chairman at the Special General Meeting which are
consistent with the transactions described in the Chairman's Letter.
6. Consider and, if thought fit approve, subject to Closing taking place,
the amendments to the Company's Bye-laws as set out in Schedule 2 to
this Notice.
7. Consider and, if thought fit, approve any such other resolutions and/or
amendments to the Specified Resolutions (as defined in the Proxy
solicited for use at this Special General Meeting and distributed with
this Notice) proposed by the Chairman to give effect to the Specified
Resolutions and to allow the Company to enter into and perform the
transactions described in the Chairman's Letter.
8. Consider any other business, which may properly come before the Special
General Meeting.
BY ORDER of the Directors
Director
Dated: March 5, 2004
To: The Shareholders
Cc: The Directors
The Resident Representative
70
SCHEDULE 1
BYE-LAWS
(AGENDA ITEM 5)
1. (1) In these Bye-Laws unless the context otherwise requires -
"AFFILIATED PERSON" means any Director who is designated by or
affiliated with an Investor;
"A/R FACILITY" means such accounts receivable facility as may
be entered into in accordance with the Investment Agreement;
"ALTERNATE DIRECTOR" shall have the meaning set forth in
Bye-Law 92;
"BERMUDA" means the Islands of Bermuda;
"BOARD" means the Board of Directors of the Company or the
Directors present at a meeting of Directors at which there is
a quorum;
"COMMON SHARES" means the common shares of the Company;
"COMPANIES ACTS" means every Bermuda statute from time to time
in force concerning companies insofar as the same applies to
the Company;
"COMPANY" means the company incorporated in Bermuda under the
name of Viatel Holding (Bermuda) Limited on the 4th day of
January 2002;
"CONVERSION DATE" means the date that a majority in principal
amount of the Notes issued by the Company on the first date of
issuance by the Company of Notes have been converted into
Common Shares;
"DIRECTOR" means such person or persons as shall be appointed
to the Board from time to time pursuant to these Bye-Laws;
"EFFECTIVE DATE" means the date these Bye-laws become
effective as set out on the certification page of these
Bye-laws;
"EQUITY PLAN" means the equity compensation plan(s) of the
Company in effect as of, or after, the Effective Date that
have been approved by the Investors prior to, or after, the
Effective Date in accordance with the Investment Agreement;
"HOLDER" means the registered holder of the Special Share;
"INVESTMENT AGREEMENT" means the Investment Agreement entered
into on or prior to the Effective Date between the Company and
each of Morgan
71
Stanley & Co., Incorporated, Ahab Capital Management, Inc.,
CFSC Wayland Advisers, Inc., and Varde Partners, Inc. and
certain affiliated entities and/or other potential Investors,
relating to the issuance on the Effective Date of the Notes;
"INVESTOR" means any person who is registered in the Register
of Noteholders as the holder of any Notes;
"INVESTOR-APPOINTED DIRECTORS" means any Directors appointed
pursuant to Bye-Law 83B together with any and all Alternate
Directors thereof and such Directors who, as of the Effective
Date, are Affiliated Persons, excluding the New Independent
Directors;
"MINORITY INVESTORS" means Ahab Capital Management, Inc., CFSC
Wayland Advisers, Inc., Varde Partners and certain affiliated
entities who purchase Notes;
"NEW INDEPENDENT DIRECTORS" means such Directors (up to two)
appointed by or on behalf of the Investors pursuant to Bye-Law
83B to fill vacancies created by the expansion of the Board
upon the Effective Date in accordance with the terms of the
Investment Agreement, who have no affiliation to any of the
Investors other than having been initially appointed by or on
behalf of the Investors;
"NOTES" means 8% Convertible Senior Secured Notes due 2014
issued by the Company pursuant to the Investment Agreement;
"OFFICER" means a person appointed by the Board pursuant to
Bye-Law 118 of these Bye-Laws and shall not include an auditor
of the Company;
"ORIGINAL INVESTORS" means the persons other than the Company
that are parties to the Investment Agreement and purchasers of
Notes thereunder, and all affiliates of such persons;
"PAID UP" means paid up or credited as paid up;
"PERMITTED LIENS" means such liens or other security interests
as may be permitted under the terms of the Investment
Agreement to be granted with respect to any asset or assets of
the Company;
"POST-CONVERSION PERIOD" means the period, if any, commencing
on the Conversion Date and ending on the date on which the
Original Investors collectively own directly or beneficially
less than 25% of the then outstanding Common Shares on a fully
diluted basis;
72
"PREFERRED SHARES" means the preferred shares in the Company
created pursuant to Bye-Law 3 and subject to the rights and
restrictions set out in Schedule 1;
"QUALIFIED SHAREHOLDER" means a holder of Common Shares that
were issued by the Company immediately upon conversion of
Notes held by such person, including, for the avoidance of
doubt, direct and indirect transferees or assignees thereof;
"REDEMPTION DATE" means the date: (i) prior to the Conversion
Date, on which the Company has repaid in full all amounts
outstanding under the Notes; or (ii) on which the Company
receives from the Holder a duly authorized written consent to
the repurchase by the Company of the Special Share; or (iii)
post the Conversion Date, on which the Original Investors
directly or beneficially hold less than 25% of the then
outstanding Common Shares;
"REGISTER" means the register of Shareholders of the Company;
"REGISTER OF NOTEHOLDERS" means the register of the holders of
Notes of the Company;
"REGISTERED OFFICE" means the registered office for the time
being of the Company;
"RESIDENT REPRESENTATIVE" means the person (or, if permitted
in accordance with the Companies Acts, the company) appointed
to perform the duties of resident representative set out in
the Companies Acts and includes any assistant or deputy
Resident Representative appointed by the Board to perform any
of the duties of the Resident Representative;
"RESOLUTION" means a resolution of the Shareholders or, where
required, of a separate class or separate classes of
Shareholders, duly passed at either an Annual General Meeting,
a Special General Meeting or in writing in accordance with
Bye-Law 49;
"SCHEDULE" means a schedule to these Bye-Laws;
"SEAL" means the common seal of the Company and includes any
duplicate thereof;
"SECRETARY" includes a temporary or assistant or deputy
Secretary and any person appointed by the Board to perform any
of the duties of the Secretary;
73
"SHAREHOLDER" means a holder of any shares or member of the
Company;
"SHARES" means any shares in the share capital of the Company
from time to time, and includes Common Shares, Preferred
Shares and the Special Share;
"SPECIFIED PLACE" means the place, if any, specified in the
notice of any meeting of the shareholders, or adjourned
meeting of the shareholders, at which the chairman of the
meeting shall preside;
"SPECIAL SHARE" means the share of par value US $0.01 issued
with the Notes having the rights set out in these Bye-Laws and
as further described in Schedule 2;
"THESE BYE-LAWS" means these Bye-Laws including the Schedules
in their present form or as amended from time to time;
(2) For the purposes of these Bye-Laws a corporation shall be
deemed to be present in person if its representative duly
authorised pursuant to the Companies Acts is present;
(3) Words importing only the singular number include the plural
number and vice versa;
(4) Words importing only the masculine gender include the feminine
and neuter genders respectively;
(5) Reference to writing shall include typewriting, printing,
lithography, photography and other modes of representing or
reproducing words in a legible and non-transitory form;
(6) Any words or expressions defined in the Companies Acts in
force at the date when these Bye-Laws or any part thereof are
adopted shall bear the same meaning in these Bye-Laws or such
part (as the case may be);
(7) In these Bye-Laws, (a) powers of delegation shall not be
restrictively construed but the widest interpretation shall be
given thereto; (b) the word "Board" in the context of the
exercise of any power contained in these Bye-Laws includes any
committee consisting of one or more Directors, any Director
holding executive office and any local or divisional Board,
manager or agent of the Company to which or, as the case may
be, to whom the power in question has been delegated; (c) no
power of delegation shall be limited by the existence or,
except where expressly provided by the terms of delegation,
74
the exercise of any other power of delegation; and (d) except
where expressly provided by the terms of delegation, the
delegation of a power shall not exclude the concurrent
exercise of that power by any other body or person who is for
the time being authorised to exercise it under these Bye-Laws
or under another delegation of the powers;
(8) In these Bye-Laws, references to a beneficial owner or person
beneficially owning or holding shares shall be construed by
reference to the definition of beneficial owner as set forth
in Rules 13d-3 and 13d-5 under the Exchange Act, except that
such person shall be deemed to have "beneficial ownership" of
all shares that any such person has the right to acquire,
whether such right is exercisable immediately or only after
the passage of time or upon the occurrence of an event,
including all Common Shares issuable upon conversion of the
Notes (even if the Notes are not at that time convertible).
Any underwriters acting on behalf of the Company that own
Common Shares for a limited period of time in the context of
an underwritten distribution of Common Shares shall not be
deemed to beneficially own such Common Shares.
2. The Registered Office shall be at such place in Bermuda as the Board
shall from time to time appoint; provided that the Registered Office
may not be changed unless prior notice of the place of the new
Registered Office has been given to the Holder in writing at least two
business days before the effective date of such change.
3.1 Subject to the Companies Acts, the rights conferred on the holders of
any other class of shares, and to Bye-Law 76A, any share in the Company
may be issued with or have attached to it such preferential, deferred,
qualified or special rights, privileges or conditions as the Company
may by Resolution decide or, if no such Resolution is in effect or
insofar as the Resolution does not make specific provision, as the
Board may from time to time determine.
3.2 Without limiting the foregoing and subject to the Companies Acts and
Bye-Law 76A, the Company may issue Preferred Shares (including any
Preferred Shares created pursuant to Bye-Law 3.3) which (i) are liable
to be redeemed on the happening of a
75
specified event or events or on a given date or dates and/or (ii) are
liable to be redeemed at the option of the Company and/or the holder.
The terms and manner of redemption of any redeemable Preferred Shares
created pursuant to Bye-Law 3.3 shall be as the Board may by resolution
determine before the allotment of such shares and the terms and manner
of redemption of any other redeemable Preferred Shares shall be either
(i) as the Company may by Resolution determine or (ii) insofar as the
Board is so authorised by any Resolution, as the Board may by
resolution determine, in either case, before the allotment of such
shares. A copy of any such Resolution or resolution of the Board for
the time being in force shall be attached in Schedule 1 to (and shall
form part of) these Bye-Laws.
3.3 Subject to Bye-Law 76A, the Company may, either by Resolution or by a
resolution of the Board, designate any authorised but unissued shares
in the Company as Preferred Shares. The rights attaching to the
Preferred Shares shall be as follows:
3.3.1 each Preferred Share shall have attached to it such preferred,
qualified or other special rights, privileges and conditions
and be subject to such restrictions, whether in regard to
dividend, return of capital, redemption, conversion into
Common Shares or voting or otherwise, as the Board may
determine on or before its allotment;
3.3.2 the Board may allot the Preferred Shares in more than one
series and, if it does so, may name and designate each series
in such manner as it deems appropriate to reflect the
particular rights and restrictions attached to that series,
which may differ in all or any respects from any other series
of Preferred Shares;
3.3.3 the particular rights and restrictions attached to any
Preferred Share shall be recorded in a resolution of the
Board. The Board may at any time before the allotment of any
Preferred Share by further resolution in any way amend such
rights and restrictions or vary or revoke its designation. A
copy of any such resolution or amending resolution for the
time being in force shall be annexed as Schedule 1 to (and
shall form part of) these Bye-Laws;
76
3.3.4 the Board shall not attach to any Preferred Share any rights
or restrictions which would alter or abrogate any of the
special rights attached to any other class of series of shares
for the time being in issue without such sanction as is
required for any alteration or abrogation of such rights,
unless expressly authorised to do so by the rights attaching
to or by the terms of issue of such shares; and
3.3.5 The special rights conferred upon the holders of any shares or
class of shares shall not, unless otherwise expressly provided
in the rights attaching to or the terms of issue of such
shares, be deemed to be altered or abrogated by (i) the
creation or issue of further shares ranking pari passu with
them, (ii) the creation or issue for full value (as determined
by the Board) of further shares ranking as regards
participation in the profits or assets of the Company or
otherwise in priority to them or (iii) the purchase or
redemption by the Company of any of its own shares.
3.4 Subject to Bye-Law 76A, the terms of any redeemable Preferred Shares
(including any redeemable Preferred Shares created pursuant to Bye-Law
3.3) may provide for the whole or any part of the amount due on
redemption to be paid or satisfied otherwise than in cash, to the
extent permitted by the Companies Acts.
4. Subject to Bye-Law 76A, the Company may adopt a scheme or arrangement
(hereinafter called a "shareholder rights plan") providing for the
creation and issuance of rights entitling the Shareholders of the
Company, or certain of them, to purchase from the Company shares of a
class or assets of the Company or a subsidiary of the Company or
otherwise, and the terms and conditions of such shareholder rights plan
and rights may be amended or modified either (i) as the Company may in
general meeting determine or (ii) as the Directors or any committee
thereof may determine, such shareholder rights plan to be attached as a
Schedule to these Bye-Laws.
5. Subject to the Companies Acts, all or any of the special rights for the
time being attached to any class of shares for the time being issued
may from time to time (whether or not the Company is being wound up) be
altered or abrogated with the consent in writing of the holders of not
less than seventy five (75%) percent of the
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issued shares of that class or with the sanction of a resolution passed
at a separate general meeting of the holders of such shares voting in
person or by proxy. To any such separate general meeting, all the
provisions of these Bye-Laws as to general meetings of the Company
shall mutatis mutandis apply, but so that the necessary quorum shall be
two or more persons holding or representing by proxy the holder(s) of
twenty (20%) percent or more of the shares of the relevant class, that
every holder of shares of the relevant class shall be entitled on a
poll to one vote for every such share held by him and that any holder
of shares of the relevant class present in person or by proxy may
demand a poll; provided, however, that if the Company or a class of
Shareholders shall have only one Shareholder, one Shareholder present
in person or by proxy shall constitute the necessary quorum.
5A. For the purposes of this Bye-Law, those rights attaching to any class
of shares for the time being shall not be deemed to be altered by the
exercise of the rights, including without limitation the voting rights,
of the Special Share as set forth in these Bye-Laws.
6. For the purposes of this Bye-Law but subject to Bye-Law 5A, unless
otherwise expressly provided by the rights attached to any shares or
class of shares, those rights attaching to any class of shares for the
time being shall be deemed to be altered by the reduction of the
capital paid up on those shares otherwise than by a purchase or
redemption by the Company of such shares and by the allotment of other
shares ranking in priority for payment of a dividend or in respect of
capital or which confer on the holders voting rights more favourable
than those conferred by such first mentioned shares but shall not
otherwise be deemed to be altered by the creation or issue of further
shares ranking pari passu therewith or by the purchase or redemption by
the Company of any of its own shares.
7. Subject to the provisions of these Bye-Laws, including without
limitation Bye-Law 76A, the unissued shares of the Company (whether
forming part of the original capital or any increased capital) shall be
at the disposal of the Board, which may offer, allot, grant options
over or otherwise dispose of them to such persons, at such times and
for such consideration and upon such terms and conditions as the Board
may determine.
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9. Except as ordered by a court of competent jurisdiction or, as required
by law, or with respect to the Special Share, no person shall be
recognised by the Company as holding any share upon trust and the
Company shall not be 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 these Bye-Laws, or by
law) any other right in respect of any share except an absolute right
to the entirety thereof in the registered holder.
14. The Company shall have a first and paramount lien on every share (not
being a fully paid share) for all moneys, whether presently payable or
not, called or payable, at a date fixed by or in accordance with the
terms of issue of such share in respect of such share, and the Company
shall also have a first and paramount lien on every share (other than a
fully paid share) standing registered in the name of a Shareholder,
whether singly or jointly with any other person, for all the debts and
liabilities of such Shareholder or his estate to the Company, whether
the same shall have been incurred before or after notice to the Company
of any interest of any person other than such Shareholder, and whether
the time for the payment or discharge of the same shall have actually
arrived or not, and notwithstanding that the same are joint debts or
liabilities of such Shareholder or its estate and any other person,
whether a Shareholder or not. The Company's lien on a share shall
extend to all dividends payable thereon. The Board may at any time,
either generally or in any particular case, waive any lien that has
arisen or declare any share to be wholly or in part exempt from the
provisions of this Bye-Law. The Special Share and all shares (and
replacements thereof) issued upon conversion of the Notes shall be
deemed to be fully paid and, accordingly, exempt from the provisions of
this Bye-Law.
15. The Company may sell, in such manner as the Board may think fit, any
share on which the Company has a lien pursuant to Bye-Law 14 but no
sale shall be made unless some sum in respect of which the lien exists
is presently payable nor until the expiration of fourteen days after a
notice in writing, stating and demanding payment of the sum presently
payable and giving notice of the intention to sell in default of such
payment, has been served on the holder for the time being of the share.
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16. The net proceeds of sale by the Company of any shares on which it has a
lien pursuant to Bye-Law 14 shall be applied in or towards payment or
discharge of the debt or liability in respect of which the lien exists
so far as the same is presently payable, and any residue shall (subject
to a like lien for debts or liabilities not presently payable as
existed upon the share prior to the sale) be paid to the person who was
the holder of the share immediately before such sale. For giving effect
to any such sale the Board may authorise some person to transfer the
share sold to the purchaser thereof. The purchaser shall be registered
as the holder of the share and he shall not be bound to see to the
application of the purchase money, nor shall his title to the share be
affected by any irregularity or invalidity in the proceedings relating
to the sale.
18. The Board may from time to time make calls upon the Shareholders in
respect of any moneys unpaid on their shares (whether on account of the
par value of the shares or by way of premium) and not by the terms of
issue thereof made payable at a date fixed by or in accordance with
such terms of issue, and each Shareholder shall (subject to the Company
serving upon him at least fourteen days notice specifying the time or
times and place of payment) pay to the Company at the time or times and
place so specified the amount called on his shares. A call may be
revoked or postponed as the Board may determine. The Special Share and
all shares (and replacements thereof) issued upon conversion of the
Notes shall be issued as fully paid as set out in Bye-Law 14, and
therefore are not subject to the provisions of Bye-Laws 18-30.
21. If a sum called in respect of thea share shall not be paid before or on
the day appointed for payment thereof the person from whom the sum is
due shall pay interest on the sum from the day appointed for the
payment thereof to the time of actual payment at such rate as the Board
may determine, but the Board shall be at liberty to waive payment of
such interest wholly or in part.
34. Subject to the Companies Acts and to such of the restrictions contained
in these Bye-Laws as may be applicable, any Shareholder, except the
Holder in respect of the Special Share, may transfer all or any of his
shares by an instrument of transfer in the usual common form or in any
other form which the Board may approve; provided, however, the Special
Share shall be transferable to any party acting with respect to the
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Special Share solely in the capacity of trustee for the Original
Investors, Qualified Shareholders and their respective transferees, as
appropriate.
35. The instrument of transfer of a share shall be signed by or on behalf
of the transferor and where any share is not fully-paid, the transferee
and the transferor shall be deemed to remain the holder of the share
until the name of the transferee is entered in the Register in respect
thereof. All instruments of transfer when registered may be retained by
the Company. The Board may, 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.
The restrictions on transfer authorised by this Bye-Law and Bye-Law 34
shall not be imposed in any circumstances in a way that would interfere
with the settlement of trades or transactions entered into through the
facilities of the Nasdaq National Market (provided that the Company may
decline to register transfers in accordance with these Bye-Laws and
resolutions of the Board after a settlement has taken place) or the
transfer of shares in the Company pursuant to the Plan of Restructuring
of Viatel, Inc. under the Chapter 11 of the United States bankruptcy
code (which was consummated on 7 June 2002) by the disbursing agent
appointed thereunder to the creditors of affiliates of the Company. The
Board may also decline to register any transfer unless:-
(i) the instrument of transfer is duly stamped and lodged with the
Company, at such place as the Board shall appoint for the
purpose, accompanied by the certificate for the shares (if any
has been issued) to which it relates, and such other evidence
as the Board may reasonably require to show the right of the
transferor to make the transfer,
(ii) the instrument of transfer is in respect of only one class of
share,
(iii) where applicable, the permission of the Bermuda Monetary
Authority and any governmental body or agency in the United
States or any other applicable jurisdiction with respect
thereto has been obtained.
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Subject to any directions of the Board from time to time in force, the
Secretary may exercise the powers and discretions of the Board under
this Bye-Law and Bye-Laws 34 and 36.
45. Subject to Bye-Law 76A, the Company may from time to time by
Resolution:-
(1) divide its shares into several classes and attach thereto
respectively any preferential, deferred, qualified or special
rights, privileges or conditions;
(2) consolidate and divide all or any of its share capital into
shares of larger par value than its existing shares;
(3) sub-divide its shares or any of them into shares of smaller
par value than is fixed by its memorandum, so, however, that
in the sub-division the proportion between the amount paid and
the amount, if any, unpaid on each reduced share shall be the
same as it was in the case of the share from which the reduced
share is derived;
(4) NOT USED;
(5) cancel shares which, at the date of the passing of the
Resolution in that behalf, have not been taken or
agreed to be taken by any person, and diminish the amount of
its share capital by the amount of the shares so cancelled;
and
(6) change the currency denomination of its share capital.
Where any difficulty arises in regard to any division, consolidation,
or sub-division under this Bye-Law, the Board may settle the same as it
thinks expedient and, in particular, may arrange for the sale of the
shares representing fractions and the distribution of the net proceeds
of sale in due proportion amongst the Shareholders who would have been
entitled to the fractions, and for this purpose the Board may authorise
some person to transfer the shares representing fractions to the
purchaser thereof, who shall not be bound to see to the application of
the purchase money nor shall his title to the shares be affected by any
irregularity or invalidity in the proceedings relating to the sale.
47. Subject to the Companies Acts, its memorandum and any confirmation or
consent required by law or these Bye-Laws, the Company may from time to
time by Resolution authorise the reduction of its issued share capital
or any share premium or contributed surplus account in any manner.
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49. (1) The Board shall convene and the Company shall hold general
meetings as Annual General Meetings in accordance with the
requirements of the Companies Acts at such times and places as
the Board shall appoint. The Board may, whenever it thinks
fit, and shall, when requisitioned by shareholders pursuant to
the provisions of the Companies Acts, convene general meetings
other than Annual General Meetings which shall be called
Special General Meetings.
(2) Except in the case of the removal of auditors and Directors,
anything which may be done by resolution in general meeting
may, without a meeting and without any previous notice being
required, be done by resolution in writing, signed by all of
the Shareholders or their proxies, or in the case of a
Shareholder that is a corporation (whether or not a company
within the meaning of the Companies Acts) on behalf of such
Shareholder, being all of the Shareholders of the Company who
at the date of the resolution in writing would be entitled to
attend a meeting and vote on the resolution. Such resolution
in writing may be signed in as many counterparts as may be
necessary. Notwithstanding the foregoing, to the extent a
matter requires action by or the approval of the Holder but
not the other Shareholders, the Holder, as the holder of all
of the shares of the relevant class (i.e. the Special Share),
may take such action or provide its consent without a meeting
by written notice or written consent, as applicable.
(3) For the purposes of this Bye-Law, the date of the resolution
in writing is the date when the resolution is signed by or on
behalf of, the last Shareholder to sign and any reference in
any enactment to the date of passing of a resolution is, in
relation to a resolution in writing made in accordance with
this section, a reference to such date.
(4) A resolution in writing made in accordance with this Bye-Law
is as valid as if it had been passed by the Company in general
meeting or, if applicable, by a meeting of the relevant class
of Shareholders of the Company, as the case may be. A
resolution in writing made in accordance with this section
shall constitute minutes for the purposes of the Companies
Acts and these Bye-Laws.
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54. No business shall be transacted at any general meeting unless a quorum
is present when the meeting proceeds to business, but the absence of a
quorum shall not preclude the appointment, choice or election of a
chairman which shall not be treated as part of the business of the
meeting. Subject to Bye-Law 76A and save as otherwise provided by these
Bye-Laws, at least two Shareholders present in person or by proxy and
entitled to vote representing the holder(s) of twenty (20%) percent or
more of the issued shares shall be a quorum for all purposes; provided,
however, that (i) if the Company or a class of Shareholders shall have
only one Shareholder, one Shareholder present in person or by proxy
shall constitute the necessary quorum and (ii) to the extent
permissible under Bermuda law and solely with respect to meetings 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
(in person or by proxy) shall constitute the necessary quorum.
55. If within five minutes (or such longer time as the chairman of the
meeting may determine to wait) after the time appointed for the
meeting, a quorum is not present, the meeting, if convened on the
requisition of Shareholders, shall be dissolved. In any other case, it
shall, subject to compliance with the requirement as to minimum notice
provided below, stand adjourned to such other day and such other time
and place as the chairman of the meeting may determine and at such
adjourned meeting two Shareholders present in person or by proxy and
entitled to vote and representing the holder(s) of ten (10%) percent or
more of the issued shares shall be a quorum, provided that if the
Company or a class of Shareholders shall have only one Shareholder, one
Shareholder present in person or by proxy shall constitute the
necessary quorum. The Company shall give not less than twenty-one clear
days notice of any meeting adjourned through want of a quorum and such
notice shall state that the sole Shareholder or, if more than one, two
Shareholders present in person or by proxy and entitled to vote and
representing the holders of ten (10%) percent or more of the issued
shares shall be a quorum. If at the adjourned meeting a quorum is not
present within fifteen minutes after the time appointed for holding the
meeting, the meeting shall be dissolved. To the extent permissible
under Bermuda law, solely for the purposes of determining quorum in
accordance with this Bye-Law and solely with respect to meetings and at
which any matter on which the vote of the Special
84
Share would be controlling is proposed to be considered, the Holder (in
person or by proxy) shall be deemed to represent a holder of ten (10%)
percent or more of the issued shares
57. The Resident Representative, if any, upon giving the notice referred to
in Bye-Law 50 above, shall be entitled to attend any general meeting of
the Company and each Director shall be entitled to attend and speak at
any general meeting of the Company. The Chairman may invite any person
to attend and speak at a general meeting of the Company where he
considers this will assist in the deliberations of the meeting;
provided, however, each Shareholder, including without limitation the
Holder, shall be entitled to attend and speak at all general meetings
of the Company.
58. The Chairman (if any) of the Board or, in his absence, the President
shall preside as chairman at every general meeting. If there is no such
Chairman or President, or if at any meeting neither the Chairman nor
the President is present within ten minutes after the time appointed
for holding the meeting, or if neither of them is willing to act as
chairman, the Directors present shall choose one of their number to act
or if one Director only is present he shall preside as chairman if
willing to act. If no Director is present, or if each of the Directors
present declines to take the chair, the Holder (if present) together
with the persons present and entitled to vote on a poll shall elect by
vote on a poll one of their number to be chairman; provided that the
weighted voting rights of the Special Share as provided for under
Bye-Law 76A(1) shall apply in the context of any such poll.
61. Save where a greater majority or other vote is required by the
Companies Acts or these Bye-Laws, any question proposed for
consideration at any general meeting shall be decided on by a simple
majority of votes cast.
62. Subject to Bye-Laws 76A, 83A, 83B and 83C and to Schedule 2 to these
Bye-Laws, and subject to any rights or restrictions attached to any
class of shares, including without limitation, the Special Share, at
any meeting of the Company, each Shareholder present in person shall be
entitled to one vote on any question to be decided on a show of hands
and each Shareholder present in person or by proxy shall be entitled on
a poll to one vote for each share held by him provided that, if a
record
85
date is specified in any notice of a general meeting, in accordance
with these Bye-Laws, no person other than Shareholders of record on
such specified date (or their proxies) shall have the right to vote at
the general meeting.
63. At any general meeting, a resolution put to the vote of the meeting
shall be decided on a show of hands unless (before or on the
declaration of the result of the show of hands or on the withdrawal of
any other demand for a poll) a poll is demanded by:-
(1) the chairman of the meeting or the Holder; or
(2) at least three Shareholders present in person or represented
by proxy; or
(3) any Shareholder or Shareholders present in person or
represented by proxy and holding between them not less than
one tenth of the total voting rights of all the Shareholders
having the right to vote at such meeting; or
(4) a Shareholder or Shareholders present in person or represented
by proxy holding shares conferring the right to vote at such
meeting, being shares on which an aggregate sum has been paid
up equal to not less than one tenth of the total sum paid up
on all such shares conferring such right.
The demand for a poll may, before the poll is taken, be withdrawn but
only with the consent of the chairman and a demand so withdrawn shall
not be taken to have invalidated the result of a show of hands declared
before the demand was made. If the demand for a poll is withdrawn, the
chairman or any other Shareholder entitled may demand a poll.
67. A poll demanded on the election of a chairman or the Holder, or on a
question of adjournment, shall be taken forthwith. A poll demanded on
any other question shall be taken in such manner and either forthwith
or at such time (being not later than three months after the date of
the demand) and place as the chairman shall direct and he may appoint
scrutineers (who need not be Shareholders) and fix a time and place for
declaring the result of the poll. It shall not be necessary (unless the
chairman otherwise directs) for notice to be given of a poll.
74. No Shareholder shall, unless the Board otherwise determines, be
entitled to vote at any general meeting unless all calls or other sums
presently payable by him in respect of shares in the Company have been
paid. The Special Share and all shares (and
86
replacements thereof) issued upon conversion of the Notes shall be
issued as fully paid as set out in Bye-Law 14, and therefore are not
subject to the provisions of this Bye-Law 74.
76A.
(1) Notwithstanding anything to the contrary in these Bye-Laws,
prior to the Conversion Date and from and after the Conversion
Date during the Post-Conversion Period, the Company will not
be able to undertake any of the actions set out in
subparagraph (3)(e) or (j) below, without the sanction of a
Resolution passed in a general meeting at which meeting the
Holder must be present in person or by proxy in order for such
meeting to be quorate. In addition, at any such meeting, and
without prejudice to the Holder's rights under Bye-Laws 83A,
83B and 83C, the Holder shall be entitled to vote only on such
actions as are set out in sub-paragraph (3)(e) and (j) below
and as provided by Bye-Law 58, and the Special Share shall
carry nine votes for every one vote cast by a holder of any
other shares on any vote on a poll.
(2) Notwithstanding anything to the contrary in these Bye-Laws,
prior to the Conversion Date and from and after the Conversion
Date during the Post-Conversion Period, the Company will not
be able to undertake any of the actions set out in
sub-paragraphs (3)(a) to (d) inclusive, (3)(f) to (i)
inclusive and (3)(k) to (m) inclusive, and neither the Board
nor any Shareholder (other than the Holder) shall have the
ability to increase the exact number of Directors constituting
the Board or to elect or appoint any Director to replace any
Investor-Appointed Director (whether such Investor-Appointed
Director vacated office as a result of death, disability,
removal, resignation, retirement, expiration of term or any
other reason), in each case without the prior consent in
writing of the Holder, such actions being deemed to be a
variation of the class rights of the Special Share.
(3) (a) Any offer, sale or issuance of any debt or equity
securities of the Company or any of its subsidiaries,
other than the:
(i) exercise of options outstanding under the
Equity Plan;
(ii) entry into the A/R Facility;
87
(iii) issuance of shares on conversion of the
Notes.
(b) Any repurchase or redemption of equity securities of
the Company or any of its subsidiaries, or
declaration or payment of any dividend on the
Company's or any subsidiary's equity securities
(other than dividends to the Company from direct or
indirect wholly-owned subsidiaries) or any increase
in the number of shares reserved under the Company's
option plans.
(c) Incurrence by the Company or any of its subsidiaries
of indebtedness for borrowed money, or guarantees by
the Company or any of its subsidiaries of
indebtedness for borrowed money, that would cause the
consolidated indebtedness of the Company and its
subsidiaries to exceed the sum of amounts that would
be permitted under the A/R Facility and the
then-outstanding principal amount of the Notes; or
the repayment of the outstanding indebtedness of the
Company or any of its subsidiaries other than in
accordance with the terms thereof.
(d) Transactions between the Company or any subsidiary,
on the one hand, and any affiliate of the Company or
any subsidiary (other than the Company or any other
subsidiary), on the other hand, other than
compensation of directors, officers and employees
that has been approved by the Board (in the case of
directors and executive officers) or pursuant to
Board approved plans (in the case of other
employees).
(e) Any merger, amalgamation, consolidation,
recapitalization, reorganization, consolidation,
division or sub-division of shares, change in
denomination of share capital, conversion of shares
into redeemable shares, adoption of any "shareholder
rights plan", liquidation or dissolution of the
Company or any subsidiary (other than any such
transaction involving solely an internal
reorganization) or any other transactions involving
the sale, transfer or other disposition of all or any
substantial portion of the assets of the Company or
any of its subsidiaries.
(f) Any sale, lease, transfer or other disposition or
transfer of assets of the Company or any subsidiary,
in one or a series of related transactions,
88
having a value in excess of US$1 million individually
or US$5 million in the aggregate in any fiscal year.
(g) The grant by the Company or any of its subsidiaries
of a security interest in any assets, including any
pledge, except for Permitted Liens and any security
interest granted pursuant to, or contemplated under,
the Investment Agreement.
(h) Any acquisition by the Company or any of its
subsidiaries of assets, in one or a series of related
transactions, having a value in excess of US$2
million.
(i) The appointment, replacement or removal of any person
as the Company's chief executive officer.
(j) Any amendment of the Bye-Laws or Memorandum of
Association.
(k) Any changes to the size of the Board (other than as
contemplated in Bye-Law 83A, 83B or 83C).
(l) Any capital expenditures exceeding US$2 million
individually or in excess of US$6 million in any
fiscal year.
(m) Any action permitted to be taken by the Company, the
Shareholders and/or by Resolution in accordance with
any of Bye-Laws 46, 47, 151(c) or 153.
This Bye-Law 76A shall continue to apply for so long as the
Special Share is outstanding.
83A. The number of Directors constituting the Board shall be not
less than two (2) nor more than thirteen (13). Prior to the
Conversion Date and from and after the Conversion Date during
the Post-Conversion Period (x) the Holder alone may by and
upon written notice to the Company Secretary increase the
exact number of Directors constituting the Board from time to
time to any number up to thirteen (with such notice, and such
increase, being effective immediately upon receipt of such
notice either at the office at which the Secretary of the
Company normally resides or at the office referred to in
Bye-Law 2) and (y) neither the Board nor Shareholders other
than the Holder shall have the authority to increase the exact
number of Directors constituting the Board. Following the
Post-Conversion Period, the exact number of Directors
89
constituting the Board shall be determined from time to time
by resolution adopted by the affirmative vote of more than
fifty percent (50%) of the Directors then in office.
This Bye-Law 83A shall continue to apply for so long as the
Special Share is outstanding.
83B. Prior to the Conversion Date and from and after the Conversion
Date during the Post-Conversion Period, the Holder alone will
be entitled by and upon written notice to the Secretary of the
Company, to elect or appoint any Directors ("Investor
Designees") to fill the vacancies created by an increase in
the total number of Directors on the Board made by it in
accordance with Bye-Law 83A or to elect or appoint any
Director to replace or fill any vacancy created by the death,
disbility, removal, resignation, retirement, expiration of the
term or other vacancy from office of any such Investor
Designee or any Investor-Appointed Director. Any such notice,
and any such election or appointment, shall become effective
immediately upon receipt thereof either at the office at which
the Secretary of the Company normally resides or at the office
referred to in Bye-Law 2.
This Bye-Law 83B shall continue to apply for so long as the
Special Share is outstanding.
83C. Prior to the Conversion Date and from and after the Conversion
Date during the Post-Conversion Period, the Holder alone will
be entitled by and upon written notice to the Secretary of the
Company to remove any Investor-Appointed Directors, with such
notice and such removal to become effective immediately upon
receipt thereof either at the office at which the Secretary of
the Company normally resides or at the office referred to in
Bye-Law 2; provided, however, that the Holder (in its capacity
as such) shall not be entitled to remove any
non-Investor-Appointed Directors.
90
This Bye-Law 83C shall continue to apply for so long as the
Special Share is outstanding.
83D Prior to the Conversion Date and from and after the Conversion
Date during the Post-Conversion Period, the provisions of
Bye-Laws 84 and 85 shall not apply to the Company.
This Bye-Law 83D shall continue to apply for so long as the
Special Share is outstanding.
83E Until such time as the Minority Investors collectively
beneficially own less than ten (10%) percent of the then
outstanding Common Shares, each of the Minority Investors that
is a beneficial owner of shares shall have the right to
appoint one non-voting representative who shall be allowed to
attend all meetings of the Board.
86. Except as permitted in Bye-Laws 83A and 83B, no person other than a
Director retiring by rotation shall be appointed a Director at any
general meeting unless:-
(a) he is recommended by the Board or recommended, appointed or
elected by the Holder; or
(b) not less than ten nor more than twenty-five clear days before
the date appointed for the meeting, notice executed by a
Shareholder qualified to vote at the meeting (not being the
person to be proposed) has been given to the Company of the
intention to propose that person for appointment setting forth
as to each person whom the Shareholders proposed to nominate
for election or re-election as a Director, (i) the name, age,
business address and residence address of the person, (ii) the
principal occupation or employment of the person, (iii) the
class, series and number of shares of the Company which are
beneficially owned by the person, (iv) particulars which
would, if he were so appointed, be required to be included in
the Company's register of Directors and Officers, and (v) all
other information relating to that person that is required to
be disclosed in solicitations for proxies for the election of
Directors pursuant to the Rules and Regulations of the
Securities and Exchange
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Commission under Section 14 of the Securities Exchange Act of
1934 of the United States of America as amended, together with
notice executed by that person of his willingness to serve as
a Director if so elected.
87. Subject to Bye-Laws 83A and 83B, except as otherwise authorised by the
Companies Acts, the appointment of any person proposed as a Director at
a general meeting shall be effected by a separate resolution.
89. Subject to Bye-Laws 83A, 83B and 83C, the Company shall at the
Annual General Meeting and may by resolution determine the minimum
number of Directors, which shall not be less than two (2) and the
maximum number of Directors, which shall not be more than thirteen
(13), and may by resolution determine that one or more vacancies in the
Board shall be deemed casual vacancies for the purposes of these
Bye-Laws. Without prejudice to the power of the Company by resolution
in pursuance of any of the provisions of these Bye-Laws to appoint any
person to be a Director, the Board, so long as a quorum of Directors
remains in office, shall have power at any time and from time to time
to appoint any individual to be a Director so as to fill any vacancy on
the Board resulting from the resignation or removal of a Director
except a vacancy resulting from the increase in the size of the Board
pursuant to Bye-Law 83A, or the death, disability, resignation,
retirement, removal, expiration of term or any other vacancy of office
of an Investor-Appointed Director which vacancy must be filled in
accordance with Bye-Law 83C. A Director so appointed shall hold office
only until the next following Annual General Meeting and shall not be
taken into account in determining the Directors who are to retire by
rotation at the meeting. If not reappointed at such Annual General
Meeting, he shall vacate office at the conclusion thereof.
90. The Company may, subject to Bye-Law 83C, in a Special General Meeting
called for that purpose remove a Director (other than an
Investor-Appointed Director for so long as Bye-Law 83C continues to
apply) provided that notice of any such meeting shall be served upon
the Director concerned not less than fourteen days before the meeting
and he shall be entitled to be heard at that meeting. Except with
respect to Investor-Appointed Directors, for so long as Bye-Laws, 83B
and 83C apply, any vacancy created by the removal of a Director at a
Special General Meeting may be
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filled at the Meeting by the election or appointment of another
Director in his place or, in the absence of any such election or
appointment, by the Board. Prior to the Conversion Date, and after the
Conversion Date during the Post Conversion Period (for so long as
Bye-Laws 83A, 83B and 83C continue to apply) vacancies created by the
death, disability, removal, resignation, retirement, expiration of the
term or other vacancy of office of any Investor-Appointed Director may
not be filled by the Board or by Shareholders other than the Holder.
92. Any Director (other than an Alternate Director) may appoint any other
Director, or any other person approved by resolution of the Board and
willing to act, to be an alternate director ("Alternate Director") and
may remove from office an Alternate Director so appointed by him. Any
appointment or removal of an Alternate Director by a Director shall be
effected by depositing a notice of appointment or removal with the
Secretary at the Registered Office, signed by such Director, and such
appointment or removal shall become effective on the date of receipt by
the Secretary. Any Alternate Director (other than one deemed to be an
Investor-Appointed Director) may also be removed by resolution of the
Board. An Alternate Director may also be a Director in his own right
and may act as alternate to more than one Director.
97. (1) A Director may hold any other office or place of profit with
the Company (except that of auditor) in conjunction with his
office of Director for such period and upon such terms as the
Board may determine, and may be paid such extra remuneration
therefor (whether by way of salary, commission, participation
in profits or otherwise) as the Board may determine, and such
extra remuneration shall be in addition to any remuneration
provided for by or pursuant to any other Bye-Law.
(2) A Director may act by himself or his firm in a professional
capacity for the Company (otherwise than as auditor) and he or
his firm shall be entitled to remuneration for professional
services as if he were not a Director.
(3) Subject to the provisions of the Companies Acts, a Director
may notwithstanding his office be a party to, or otherwise
interested in, any transaction or arrangement with the Company
or in which the Company is otherwise interested; and be a
director or other officer of, or employed by, or a party to
any transaction or arrangement with, or otherwise interested
in, any
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body corporate promoted by the Company or in which the Company
is interested. The Board may also cause the voting power
conferred by the shares in any other company held or owned by
the Company to be exercised in such manner in all respects as
it thinks fit, including the exercise thereof in favour of any
resolution appointing the Directors or any of them to be
directors or officers of such other company, or voting or
providing for the payment of remuneration to the directors or
officers of such other company.
(4) So long as, where it is necessary, he declares the nature of
his interest at the first opportunity at a meeting of the
Board or by writing to the Directors as required by the
Companies Acts, a Director shall not by reason of his office
be accountable to the Company for any benefit which he derives
from any office or employment to which these Bye-Laws allow
him to be appointed or from any transaction or arrangement in
which these Bye-Laws allow him to be interested, and no such
transaction or arrangement shall be liable to be avoided on
the ground of any interest or benefit.
(5) 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
(6) Subject to the Companies Acts and any further disclosure
required thereby, a general notice to the Directors by a
Director or Officer declaring that he is a director or officer
or has an interest in a person and is to be regarded as
interested in any transaction or arrangement made with that
person, shall be a sufficient declaration of interest in
relation to any transaction or arrangement so made.
(7) For the purposes of these Bye-Laws, without limiting the
generality of the foregoing, a Director is deemed to have an
interest in a transaction or arrangement with the Company if
he is the holder of or beneficially interested in one per cent
or more of any class of the equity share capital of any body
corporate (or any other body corporate through which his
interest is derived) or of the voting rights available to
members of the relevant body corporate with which the Company
is proposing to enter into a transaction or arrangement,
provided that there shall be disregarded any shares held by
such
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Director as bare or custodian trustee and in which he has no
beneficial interest, any shares comprised in a trust in which
the Director's interest is in reversion or remainder if and so
long as some other person is entitled to receive the income
thereof, and any shares comprised in an authorised unit trust
in which the Director is only interested as a unit holder. For
the purposes of this Bye-Law, an interest of a person who is
connected with a Director shall be treated as an interest of
the Director.
98. Subject to the provisions of the Companies Acts, to Bye-Law 76A, and
generally to these Bye-Laws and to any directions given by the Company
by Resolution, the Board shall manage the business of the Company and
may pay all expenses incurred in promoting and incorporating the
Company and may exercise all the powers of the Company. No alteration
of these Bye-Laws and no such direction shall invalidate any prior act
of the Board which would have been valid if that alteration had not
been made or that direction had not been given. The powers given by
this Bye-Law shall not be limited by any special power given to the
Board by these Bye-Laws and a meeting of the Board at which a quorum is
present shall be competent to exercise all the powers, authorities and
discretions for the time being vested in or exercisable by the Board.
99. Subject to Bye-Law 76A, the Board may exercise all 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 persons.
115. The Company may by Resolution suspend or relax to any extent, either
generally or in respect of any particular matter, any provision of
these Bye-Laws prohibiting a Director from voting at a meeting of the
Board or of a committee of the Board, or ratify any transaction not
duly authorised by reason of a contravention of any such provisions.
116. Where proposals are under consideration concerning the appointment
(including fixing or varying the terms of appointment) of two or more
Directors to offices or
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employments with the Company or any body corporate in which the Company
is interested, the proposals may be divided and considered in relation
to each Director separately and in such cases each of the Directors
concerned shall be entitled to vote and be counted in the quorum in
respect of each resolution except that concerning his own appointment.
126. Subject to Bye-Law 76A, the Board may from time to time declare
dividends or distributions out of contributed surplus to be paid to the
Shareholders according to their rights and interests including such
interim dividends as appear to the Board to be justified by the
position of the Company. The Board, in its discretion, may determine
that any dividend shall be paid in cash or shall be satisfied, subject
to Bye-Law 134, in paying up in full shares in the Company to be issued
to the Shareholders credited as fully paid or partly paid or partly in
one way and partly the other. The Board may also pay any fixed cash
dividend which is payable on any shares of the Company half yearly or
on such other dates, whenever the position of the Company, in the
opinion of the Board, justifies such payment.
141. Any notice or other document (including a share certificate) may be
served on or delivered to any Shareholder by the Company either
personally or by sending it through the post (by airmail where
applicable) in a pre-paid letter addressed to such Shareholder at his
address as appearing in the Register or by delivering it to or leaving
it at such registered address (by private air courier where
applicable). In the case of joint holders of a share, service or
delivery of any notice or other document on or to one of the joint
holders shall for all purposes be deemed as sufficient service on or
delivery to all the joint holders. Any notice or other document if sent
by post shall be deemed to have been served or delivered seven days
after it was put in the post, and in proving such service or delivery,
it shall be sufficient to prove that the notice or document was
properly addressed, stamped and put in the post.
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152. Subject to Bye-Law 76A, any resolution proposed for consideration at
any general meeting to approve the amalgamation of the Company with any
other company, wherever incorporated, shall require the approval of a
simple majority of the votes cast at the general meeting.
153. Subject to the Companies Acts, the Shareholders may, by Resolution,
which shall require the affirmative vote of the simple majority of the
votes cast at a general meeting, approve the discontinuation of the
Company in Bermuda and the continuation of the Company in a
jurisdiction outside Bermuda. The Shareholders, having resolved to
approve the discontinuation of the Company, may by resolution further
resolve not to proceed with any application to discontinue the Company
in Bermuda or may vary such application as they see fit.
154. These Bye-Laws may be amended, from time to time by resolution of the
Board, subject to approval by resolution at a General Meeting of the
Shareholders (except where an amendment is made to these Bye-Laws
pursuant to Bye-Law 3.3 in which case the approval of the Shareholders
shall not be required), but in any event subject to Bye-Law 76A (and to
the extent any such matters may be considered voting, as provided in
Bye-Laws 83A, 83B and 83C).
SCHEDULE 2
RIGHTS OF SPECIAL SHARE
1. The Special Share shall not be entitled to vote at, or be required to
count towards the quorum of any meeting of the Shareholders, or a Class
Meeting of Shareholders except as provided in the Bye-Laws, including
without limitation Bye-Laws 54, 55, 58 and 76A.
2. The Special Share is being held in trust by the Holder for the benefit
of the Investors, the Qualified Shareholders and their respective
direct or indirect transferees, as appropriate. The Special Share shall
not be transferable except to a party acting with respect to the
Special Share solely in the capacity of trustee for the Investors,
Qualified Shareholders and their respective transferees, as
appropriate.
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3. The Special Share shall not be entitled to participate in dividends
and, on the winding up of the Company, the Holder shall only be
entitled to the return of the par value that has been paid in respect
of the Special Share.
4. The Holder shall be entitled:-
a. prior to the Conversion Date and from and after the Conversion
Date during the Post-Conversion Period, to vote on the matters
provided for in Bye-Laws 76A(3)(e) and (j) (and to the extent
any such matters may be considered voting, as provided in
Bye-Laws 83A, 83B 83C); and
b. prior to the Conversion Date and from and after the Conversion
Date during the Post-Conversion Period, to vote on any of the
matters set out in Bye-Laws 76A(3)(a) to (d) inclusive,
76A(3)(f) to (i) inclusive and 76A(3)(k) to (m) inclusive, all
of which require its prior consent in writing pursuant to
Bye-Law 76A(2); and
c. before the Conversion Date and from and after the Conversion
Date during the Post-Conversion Period to increase the exact
number of Directors constituting the Board from time to time
to any number up to thirteen and to appoint, remove and
replace Directors, in the manner provided for in Bye-Laws 83A,
83B and 83C.
5. The Special Share may be repurchased at par, at the option of the
Company, upon 15 days notice in writing to the Holder, at any time on
and from a Redemption Date.
6. Subject to the Bermuda Companies Acts, any vote of the Special Share
may be expressed in the form of a written consent.
7. The Special Share, and the Holder, shall also have all such other
rights, privileges and remedies as are specifically provided therefore
in the Bye-Laws.
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SCHEDULE 2
BYE-LAWS
(AGENDA ITEM 6)
50. An Annual General Meeting shall be called by not less than twenty-one
days notice in writing and a Special General Meeting shall be called by
not less than ten days notice in writing; provided that any Special
General Meeting called for the purpose of removing a Director shall be
called by not less than twenty-one days notice. The notice shall be
exclusive of the day on which it is served or deemed to be served and
of the day for which it is given, and shall specify the place, day and
time of the meeting, and, the nature of the business to be considered.
Notice of every general meeting shall be given in any manner permitted
by Bye-Laws 141 and 142 to all Shareholders other than such as, under
the provisions of these Bye-Laws or the terms of issue of the shares
they hold, are not entitled to receive such notice from the Company and
to each Director, and to any Resident Representative who or which has
delivered a written notice upon the Registered Office requiring that
such notice be sent to him or it.
Any Shareholder may request that a matter (other than the appointment
of a new Director, the procedure for which is prescribed by Bye-Law 86)
be considered at an Annual General Meeting and such matter shall be
included in any notice of, and shall be considered at, an Annual
General Meeting provided that: (i) the request is in writing signed by
the Shareholder; (ii) the request is delivered to the Secretary at
least (5) business days prior to the Board meeting convening the Annual
General Meeting; and (iii) the matter to be considered is clear from
the language of the request and would not, if approved, contravene the
Memorandum of Association of the Company or the Bye-Laws.
86. No person other than a Director retiring by rotation shall be appointed
a Director at any general meeting unless:-
(a) he is recommended by the Board; or
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(b) not less than five nor more than twenty-five clear days before
the date appointed for the meeting, notice ==== executed by a
Shareholder qualified to vote at the meeting (not being the
person to be proposed) has been given to the Company of the
intention to propose that person for appointment setting forth
as to each person whom the Shareholders proposed to nominate
for election or re-election as a Director, (i) the name, age,
business address and residence address of the person, (ii) the
principal occupation or employment of the person, (iii) the
class, series and number of shares of the Company which are
beneficially owned by the person, (iv) particulars which
would, if he were so appointed, be required to be included in
the Company's register of Directors and Officers, and (v) all
other information relating to that person that is required to
be disclosed in solicitations for proxies for the election of
Directors pursuant to the Rules and Regulations of the
Securities and Exchange Commission under Section 14 of the
Securities Exchange Act of 1934 of the United States of
America as amended, together with notice executed by that
person of his willingness to serve as a Director if so
elected.