<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 13, 1996
REGISTRATION NO. 333-9609
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM F-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
OCCIDENTE Y CARIBE CELULAR S.A.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
WESTERN & CARIBBEAN CELLULAR INC.
(TRANSLATION OF REGISTRANT NAME INTO ENGLISH)
COLOMBIA
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)
4812
(PRIMARY STANDARD INDUSTRIAL CLASSIFICATION CODE NUMBER)
CARRERA 55 NO. 49-101
MEDELLIN, COLOMBIA
57-4-512-9090
(ADDRESS AND TELEPHONE NUMBER OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
<TABLE>
<S> <C>
With a copy to:
CT CORPORATION SYSTEM TIMOTHY G. MASSAD, ESQ.
1633 BROADWAY, NEW YORK, NEW YORK 10019 CRAVATH, SWAINE & MOORE
(212) 664-1666 WORLDWIDE PLAZA
(NAME, ADDRESS, INCLUDING ZIP CODE, AND 825 EIGHTH AVENUE
TELEPHONE NUMBER, NEW YORK, NY 10019-7475
INCLUDING AREA CODE, OF AGENT FOR SERVICE OF (212) 474-1000
PROCESS)
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the
Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION (THE "SEC"),
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE> 2
OCCIDENTE Y CARIBE CELULAR S.A.
CROSS-REFERENCE TABLE
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEM NO. FORM F-4 CAPTION LOCATION IN PROSPECTUS
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<S> <C>
A. INFORMATION ABOUT THE TRANSACTION
Item 1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus.... Outside Front Cover Page of Prospectus
Item 2. Inside Front and Outside Back Cover Pages
of Prospectus............................. Inside Front and Outside Back Cover
Pages of Prospectus; Enforcement of
Foreign Judgments in Colombia
Item 3. Risk Factors, Ratio of Earnings to Fixed
Charges, and Other Information............ Summary; Risk Factors; Selected
Financial Information; Taxation
Item 4. Terms of the Transaction.................. Summary; The Exchange Offer; Use of
Proceeds; Description of the Notes;
Taxation; Description of Company
Indebtedness
Item 5. Pro Forma Financial Information........... Not Applicable
Item 6. Material Contracts with the Company Being
Acquired.................................. Not Applicable
Item 7. Additional Information Required for
Reoffering by Persons and Parties Deemed
to be Underwriters........................ Not Applicable
Item 8. Interests of Named Experts and Counsel.... Legal Matters; Experts
Item 9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................... Not Applicable
B. INFORMATION ABOUT THE REGISTRANT
Item 10. Information with Respect to F-3
Registrants............................... Not Applicable
Item 11. Incorporation of Certain Information by
Reference................................. Not Applicable
Item 12. Information with Respect to F-2 or F-3
Registrants............................... Not Applicable
Item 13. Incorporation of Certain Information by
Reference................................. Not Applicable
Item 14. Information with Respect to Registrants
Other Than F-3 or F-2 Registrants......... Summary; Risk Factors; Capitalization;
Selected Financial Information;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; The Refinancing; Business;
Management; Principal Shareholders;
Certain Transactions with Related
Parties; Description of Company
Indebtedness; Taxation; Foreign Exchange
Controls in Colombia; Regulation;
Exchange Rates; Financial Statements
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
ITEM NO. FORM F-4 CAPTION LOCATION IN PROSPECTUS
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<S> <C>
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
Item 15. Information with Respect to F-3
Companies................................. Not Applicable
Item 16. Information with Respect to F-2 or F-3
Companies................................. Not Applicable
Item 17. Information with Respect to Companies
Other Than F-3 or F-2 Companies........... Not Applicable
D. VOTING AND MANAGEMENT INFORMATION
Item 18. Information if Proxies, Consents or
Authorizations are to be Solicited........ Not Applicable
Item 19. Information if Proxies, Consents or
Authorizations are not to be Solicited, or
in an Exchange Offer...................... Management; Principal Shareholders
</TABLE>
<PAGE> 4
SUBJECT TO COMPLETION, DATED NOVEMBER 13, 1996
PRELIMINARY PROSPECTUS OFFER FOR ALL OUTSTANDING LOGO
14% SENIOR DISCOUNT NOTES DUE 2004,
IN EXCHANGE FOR
14% SERIES B SENIOR DISCOUNT NOTES DUE 2004
OF
OCCIDENTE Y CARIBE CELULAR S.A.
(A CORPORATION ORGANIZED UNDER THE LAWS OF THE REPUBLIC OF COLOMBIA)
The Exchange Offer
and withdrawal rights will expire at 5:00 p.m., New York City time,
on , 1996 (as such date may be extended,
the "Expiration Date").
------------------------
Occidente y Caribe Celular S.A., a Colombian corporation (the "Company" or
"Occel"), is hereby offering to exchange an aggregate principal amount at
maturity of up to US$190,745,000 of its 14% Series B Senior Discount Notes due
2004 (the "New Notes") for a like principal amount at maturity of its 14% Senior
Discount Notes due 2004 (the "Old Notes") outstanding on the date hereof upon
the terms and subject to the conditions set forth in this Prospectus and in the
accompanying Letter of Transmittal (which together will constitute the "Exchange
Offer"). The New Notes and Old Notes are collectively hereinafter referred to as
the "Notes".
The terms of the New Notes are identical in all material respects to those
of the Old Notes, except for certain transfer restrictions and registration
rights relating to the Old Notes. The New Notes will be issued pursuant to, and
entitled to the benefits of, the Indenture (as defined) governing the Old Notes.
The Accreted Value (as defined herein) of the New Notes initially will be
equal to the Accreted Value of the Old Notes at the time of exchange. Cash
interest will not accrue on the New Notes prior to March 15, 2001, from which
time cash interest will accrue on the New Notes at a rate of 14% per annum.
Interest on the New Notes is payable semiannually on each March 15 and September
15, commencing September 15, 2001. The Company will redeem 50% of the original
aggregate principal amount at maturity of the New Notes, on March 15, 2003, at
100% of the principal amount thereof. The New Notes will mature on March 15,
2004. The New Notes will be redeemable at the option of the Company, in whole or
in part, at 100% of the principal amount thereof if redeemed prior to September
15, 2000 and, thereafter, at the redemption prices set forth herein, in each
case together with accrued and unpaid interest, if any, to the date of
redemption. In addition, at any time prior to March 15, 1999, the Company may
redeem up to 33% of the original aggregate principal amount at maturity of the
New Notes from the net proceeds of any Public Equity Offering (as defined
herein) at a redemption price equal to 114% of the Accreted Value (as defined
herein) thereof. The New Notes will be redeemable at the option of the Company,
as a whole, but not in part, in the event of certain changes in Colombian tax
law. Upon the occurrence of a Change of Control, each holder of New Notes may
require the Company to purchase all or a portion of such holder's New Notes at a
purchase price in cash equal to 101% of the Accreted Value thereof, together
with accrued and unpaid interest, if any, to the date of purchase. The Company's
ability to redeem the New Notes is subject to certain limitations under
Colombian law. See "Description of the Notes".
The New Notes will be senior unsecured obligations of the Company ranking
pari passu in right of payment with all other existing and future unsubordinated
obligations of the Company (other than obligations preferred by statute or by
operation of law), except as described in the "Description of the
Notes -- Ranking", and senior in right of payment to all existing and future
obligations of the Company expressly subordinated in right of payment to the New
Notes. The New Notes, however, will be effectively subordinated to senior
secured obligations of the Company with respect to the assets of the Company
securing such obligations. As of June 30, 1996, on a pro forma basis, after
giving effect to Exchange Offer, Indebtedness of the Company would have been
approximately US$ 185.3 million, of which US$ 80.0 million would have been
senior secured Indebtedness and US$ 105.3 million would have been senior
unsecured Indebtedness.
(Continued on next page)
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 16 HEREIN FOR A DISCUSSION OF CERTAIN
FACTORS THAT HOLDERS OF OLD NOTES SHOULD CONSIDER IN CONNECTION WITH THE
EXCHANGE OFFER.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OF OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------------
The date of this Prospectus is , 1996.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such state.
<PAGE> 5
(Continued from previous page)
The Company will not receive any proceeds from the Exchange Offer. The
Company will pay all the expenses incident to the Exchange Offer. Tenders of Old
Notes pursuant to the Exchange Offer may be withdrawn at any time prior to the
Expiration Date (as defined) for the Exchange Offer. In the event the Company
terminates the Exchange Offer and does not accept for exchange any Old Notes
with respect to the Exchange Offer, the Company will promptly return such Old
Notes to the holder thereof. See "The Exchange Offer".
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. The Letter of Transmittal states
that by so acknowledging and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"). This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of New Notes received in exchange for
Old Notes where such Old Notes were acquired by such broker-dealer as a result
of market-making activities or other trading activities. The Company has agreed
that, for a period of 180 days after the Expiration Date, it will make this
Prospectus available to any broker-dealer for use in connection with any such
resale. See "Plan of Distribution".
Prior to the Exchange Offer, there has been no public market for the Old
Notes. If a market for the New Notes should develop, such New Notes could trade
at a discount from their accreted value. The Company currently does not intend
to list the New Notes on any securities exchange or to seek approval for
quotation through any automated quotation system and no active public market for
the New Notes is currently anticipated.
The Exchange Offer is not conditioned upon any minimal principal amount of
Old Notes being tendered for exchange pursuant to the Exchange Offer.
The New Notes are being offered hereunder in order to satisfy certain
obligations of the Company under the Purchase Agreement dated as of May 31, 1996
between the Company and the initial purchasers of the Old Notes (the "Initial
Purchasers") and the Registration Rights Agreement dated June 7, 1996 (the
"Registration Rights Agreement") between the Company and the Initial Purchasers.
The Old Notes were issued in a transaction (the "Offering") pursuant to
which the Company issued US$190,745,000 principal amount at maturity of the Old
Notes. The Old Notes were sold by the Company to the Initial Purchasers on June
7, 1996 (the "Issue Date") pursuant to the Purchase Agreement. The Initial
Purchasers subsequently resold the Old Units in reliance on Rule 144A and
certain other exemptions under the Securities Act.
<PAGE> 6
THE ISSUANCE OF THE NOTES HAS BEEN APPROVED BY THE COLOMBIAN
SUPERINTENDENCY OF CORPORATIONS (SUPERINTENDENCIA DE SOCIEDADES) (THE
"SUPERINTENDENCY OF CORPORATIONS"). SUCH APPROVAL DOES NOT IMPLY AN APPROVAL OF
THE QUALITY OF THE NOTES OR THE SOLVENCY OF THE COMPANY. THE NOTES MAY NOT BE
OFFERED OR SOLD IN THE REPUBLIC OF COLOMBIA ("COLOMBIA").
------------------------
AVAILABLE INFORMATION
The Company has filed with the United States Securities and Exchange
Commission (the "SEC") a Registration Statement (which term includes any
amendments thereto) on Form F-4 under the Securities Act with respect to the New
Notes offered by this Prospectus. This Prospectus does not contain all
information set forth in the Registration Statement and the exhibits thereto, to
which reference is hereby made. Statements made in this Prospectus as to the
contents of any contract, agreement, or other document are not necessarily
complete. With respect to each such contract, agreement, or other document filed
as an exhibit to the Registration Statement, reference is made to such exhibit
for a more complete description of the matter involved.
As a result of the filing of the Registration Statement with the SEC, the
Company will become subject to the informational requirements of the United
States Securities and Exchange Act of 1934, as amended (the "Exchange Act") and
in accordance therewith will be required to file with or furnish to the SEC
certain reports and other information. The Registration Statement, the exhibits
and schedules thereto, reports, and other information filed with or furnished to
the SEC by the Company may be inspected and copied at the public reference
facilities maintained by the SEC at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the SEC's Regional Offices at 7
World Trade Center, 13th Floor, New York, New York 10048 and Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511.
Copies of such material may be obtained by mail from the Public Reference
Section of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates.
Notwithstanding that the Company may not be required to remain subject to
the reporting requirements of Section 13(a) or 15(d) of the Exchange Act or
otherwise report on an annual and quarterly basis on forms provided for such
annual and quarterly reporting pursuant to rules and regulations promulgated by
the SEC, the Company has agreed that, for so long as any of the Notes remain
outstanding, it will file with or furnish to the SEC and provide to the Trustee
and the holders of the Notes and potential purchasers of Notes upon written
request to the Trustee by any holder of Notes, potential purchaser of Notes or
Initial Purchaser: (i) within 140 days after the end of each fiscal year, annual
reports on Form 20-F, (ii) within 60 days after the end of each of the first
three fiscal quarters of each fiscal year, reports on Form 6-K containing
substantially the same information required by Form 10-Q, and (iii) promptly
from time to time after the occurrence of an event required to be therein
reported, such other reports on Form 6-K containing substantially the same
information required by Form 8-K. Financial statements of the Company contained
in any such report will be prepared in accordance with Colombian GAAP and each
such report referred to in clauses (i) or (ii) will contain a reconciliation to
U.S. GAAP consistently applied and will be prepared in accordance with the
applicable rules and regulations of the SEC. See "Description of
Notes -- Certain Covenants -- Reports".
As a foreign private issuer, the Company is exempt from certain provisions
of the Exchange Act, including, among other things, those prescribing the
furnishing and content of proxy statements.
2
<PAGE> 7
ENFORCEABILITY OF CIVIL LIABILITIES
The Company is a sociedad anonima organized under the laws of Colombia. All
of the directors and officers of the Company and certain of the experts named in
this Prospectus reside outside of the United States, and all or a substantial
portion of the assets of such persons and the Company are located outside the
United States. As a result, it may not be possible for investors to effect
service of process within the United States upon such persons, including with
respect to matters arising under the Securities Act of 1933, as amended (the
"Securities Act"), or to enforce against the Company or any of them judgments
obtained in United States courts predicated upon the civil liability provisions
of the federal securities laws of the United States. The Company has been
advised by its Colombian legal counsel, Holguin, Neira y Pombo, that there is
doubt as to the enforceability, in original actions in Colombian courts, of
liabilities predicated solely on the United States federal securities laws and
as to the enforceability in Colombian courts, of judgments of United States
courts obtained in actions predicated upon the civil liability provisions of the
United States federal securities laws. The Company has appointed CT Corporation
System, New York, New York, as its agent to receive service of process with
respect to any action brought against it in any federal or state court in the
State of New York arising from the Exchange Offer. The Company has been advised
by its Colombian legal counsel that a claim by a holder of Notes or Warrants in
connection with the Exchange Offer may be brought in such courts. See
"Enforcement of Foreign Judgments in Colombia".
------------------------
NOTICE TO NEW HAMPSHIRE RESIDENTS
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A
LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED STATUTES
WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY
REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A
FINDING BY THE SECRETARY OF STATE THAT ANY DOCUMENT FILED UNDER RSA 421-B IS
TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN
EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT
THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS
OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY OR TRANSACTION. IT
IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER
OR CLIENT, ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS
PARAGRAPH.
------------------------
POPULATION DATA
Data regarding population in Colombia and the Western Region (as defined
herein) are based on projections of 1995 population figures calculated by the
Colombian National Administrative Department of Statistics (Departamento
Administrativo Nacional de Estadistica) ("DANE") on the basis of the 1985
census. The results of the 1993 census are not officially available yet. There
can be no assurance that these projections accurately reflect the current
population in the Western Region.
3
<PAGE> 8
EXCHANGE RATES
Until 1991, the Colombian Central Bank (Banco de la Republica) (the
"Central Bank") set an official exchange rate (the "Official Rate") applicable
to all foreign exchange transactions, based on its prevailing economic policy.
Since October 1991, exchange rates have been freely set by the market. The
Colombian Superintendency of Banking (Superintendencia Bancaria) (the
"Superintendency of Banking") calculates and publishes daily the Representative
Market Rate (Tasa Representativa del Mercado) (the "Representative Market Rate")
which is the weighted average of the foreign exchange buy and sell rates quoted
on the previous business day by certain commercial banks and financial
institutions in Santafe de Bogota, Cali, Medellin and Barranquilla for the
purchase and sale of foreign currency. The Representative Market Rate serves as
a basis for establishing the rate used in many foreign exchange transactions
conducted on the foreign exchange market and the free market as defined under
Law 9/1991. From October 1991 through January 1995, the Central Bank set the
Official Rate for certain limited purposes. Since February 1995, the Central
Bank has not established an Official Rate. See "Annex B -- Republic of
Colombia -- Monetary System and Monetary Aggregates -- Foreign Exchange Rates
and International Reserves".
The following table sets forth the Peso/Dollar Official Rate (as defined
below) at the end of each period indicated and, for each such period, the high,
low, average and end of period Representative Market Rate for Dollars. The
Federal Reserve Bank of New York does not report a noon buying rate for Pesos.
<TABLE>
<CAPTION>
PESO/DOLLAR
-----------------------------------------------------------------------------------------------
OFFICIAL REPRESENTATIVE MARKET(1)
------------------------ ------------------------------------------------------------------
% CHANGE % CHANGE
PERIOD FROM PRIOR PERIOD FROM PRIOR
END PERIOD END LOW HIGH AVERAGE(2) END PERIOD END
--------- ---------- -------- ---------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1990....... Ps 568.7 31.3% Ps --(1) Ps --(1) Ps --(1) Ps --(1) --%(1)
1991....... 706.9 24.3 620.62(3) 643.42(3) 630.41(4) 632.37 --
1992....... 811.8 14.8 632.37 720.47 682.54 737.98 16.7
1993....... 917.3 13.0 738.65 819.55 786.54 804.33 9.0
1994....... 1,018.8 11.0 804.33 843.24 829.44 831.27 3.3
1995....... N/A N/A 831.27 1,003.47 987.12 987.65 18.8
</TABLE>
- ---------------
(1) Did not exist prior to 1991.
(2) The weighted average rate during the relevant period.
(3) This reflects the low and high, as the case may be, for December 1991.
(4) The weighted average rate for the entire year ended 1991.
Sources: Banco de la Republica, Superintendencia Bancaria
The Representative Market Rate calculated by the Superintendency of Banking
for December 31, 1995 and June 30, 1996 was Ps 987.65 for one Dollar and Ps
1,069.73 for one Dollar, respectively. For the convenience of the reader, this
Prospectus contains translations of Peso amounts into Dollars, unless otherwise
indicated, at the Representative Market Rate as of June 30, 1996. The
Representative Market Rate on July 31, 1996, was Ps 1,056.74 for one Dollar.
Unless otherwise noted, all financial information included in this Prospectus
has, for comparability purposes, been restated in constant Pesos as of the
latest balance sheet date (June 30, 1996) by indexing historical amounts using
the Colombian Consumer Price Index (the "Colombian CPI"). No representation is
made that the Peso or Dollar amounts shown in this Prospectus could have been or
could be converted into Dollars or Pesos, as the case may be, at any particular
rate or at all.
4
<PAGE> 9
SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, included
elsewhere in this Prospectus. The Company publishes its financial statements in
Colombian pesos and in accordance with Colombian generally accepted accounting
principles. In this Prospectus, unless otherwise indicated, amounts are
expressed in Colombian pesos ("Ps" or "Pesos") and in United States dollars
("US$" or "Dollars"). The term "billion" as used in this Prospectus means one
thousand million (in Dollars and in Pesos). The "Company" or "Occel" means
Occidente y Caribe Celular S.A.
The term "reported subscribers" means subscribers as reported by the
Company to the Colombian Ministry of Communications. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- General". Consistent with the Company's interpretation of the
Ministry's reporting guidelines and with what the Company believes to be the
common interpretation of cellular operators in Colombia, the Company currently
includes in such term subscribers who have been temporarily disconnected and are
under evaluation by the Company for reconnection or permanent deactivation.
"Active subscribers" is the Company's internal measure of customers currently
generating revenue. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- General" and "-- Price Competition and
Related Matters," for a discussion of the differences between reported and
active subscribers. See also the "Glossary of Certain Telecommunications Terms"
attached as Annex A hereto for a definition of certain terms.
THE COMPANY
GENERAL
Occel is one of only two providers of cellular telecommunications services
in the densely populated western region of Colombia (the "Western Region"). The
Western Region has a population of approximately 12.8 million people (or
approximately 36% of the country's population), and includes the cities of
Medellin and Cali, the second and third largest metropolitan areas in the
country, as well as thirteen other cities with populations in excess of 100,000
each. The Company commenced commercial cellular service in September 1994,
pursuant to a ten-year concession effective as of March 28, 1994, and has
subsequently generated significant growth in total subscribers and revenues. As
of December 31, 1995 and June 30, 1996, the Company had 40,887 and 56,741
reported subscribers, respectively, and realized average monthly revenue per
active subscriber for the quarters ended December 31, 1995 and June 30, 1996 of
US$141.76 and US$130.42, respectively (in actual Pesos translated at the average
Representative Market Rates for the respective quarters).
Since the launch of its service, the Company has sought to rapidly increase
its coverage areas, establish recognition of its "Vozavoz" brand name and
provide a superior quality of service that is equivalent to that provided by
world class operators. As of June 30, 1996, the Company had reached a
penetration level of 0.65% of the population covered by its cellular network,
which included the metropolitan areas of Medellin (with approximately 2.4
million pops), Cali (with approximately 1.8 million pops), Pereira (with
approximately 0.5 million pops), Manizales (with approximately 0.4 million
pops), Armenia (with approximately 0.2 million pops) and other urban areas
(having in the aggregate approximately 0.7 million pops). In addition, the
Company has roaming agreements with other cellular operators which provide its
customers with nationwide coverage throughout Colombia as well as access in
several other countries.
The Company has invested heavily in constructing a state-of-the-art network
which has dual analog and digital capacity and which can support continued
growth in subscribers as well as technologically advanced new services. As of
June 30, 1996, the Company's cellular telecommunications network covered
approximately 67% of the population of the Western Region. The Company had
incurred approximately Ps 58 billion (US$54 million) in capital expenditures
through June 30, 1996 to build its network, and expects to incur approximately
an additional US$50 million to substantially complete its build-out (including
planned upgrades) by 1999.
The Company's headquarters are located at Carrera 55 No. 49-101, Medellin,
Colombia, and its telephone and fax numbers are 574-512-9090 and 574-513-0199,
respectively.
5
<PAGE> 10
SHAREHOLDERS
The Company was organized in 1992 and its shareholders include Cable and
Wireless plc ("C&W"), Itochu Corporation ("Itochu") and, through holding
companies, the second and fourth largest wireline telephone companies in
Colombia as well as several other major Colombian public sector and private
sector enterprises (collectively, the "Shareholders"). C&W is an international
telecommunications company with revenues of L5.5 billion for the fiscal year
ended March 31, 1996 and operations in over 50 countries including the United
Kingdom, Hong Kong, Australia, Colombia and certain Caribbean countries. Itochu
is one of the largest Japanese trading companies with operations in
approximately 90 countries throughout the world, including the United States and
Colombia. In addition, the Company's local shareholders include Empresas
Departamentales de Antioquia (providing telephone services to 102 municipalities
in Antioquia), Telearmenia (a telecommunications company in the city of
Armenia), and Empresas Municipales de Cali, Empresas Publicas de Medellin, de
Manizales and de Pereira (public utility companies providing electric power,
water, telecommunications and gas distribution to Cali, Medellin, Manizales and
Pereira, respectively). Approximately 78% of the Company's capital stock is
beneficially owned by private-sector companies and 22% is beneficially owned by
public sector entities. As of June 30, 1996, the Shareholders had contributed Ps
96.6 billion (US$115.0 million based on the Representative Market Rate on the
date of each contribution) of equity capital to the Company. The Shareholders
have also provided substantial technical, financial and other expertise to the
Company, and a C&W executive was seconded to, and is employed by, the Company as
a member of the Company's senior management team.
THE COLOMBIAN CELLULAR INDUSTRY
Colombia's cellular industry was launched in early 1994, when the Colombian
government conducted a public auction to grant a limited number of long-term
concessions to operate cellular telecommunications networks. For this purpose,
Colombia was divided into three regions: (i) the Western Region, (ii) the
eastern region, which includes Santafe de Bogota, the capital of Colombia (the
"Eastern Region"), and (iii) the Atlantic coast region, which includes the
cities of Barranquilla, Cartagena and Santa Marta (the "Atlantic Region" and
together with the Western Region and the Eastern Region, the "Regions"). The
government awarded a total of six concessions, with two concessions on two
frequencies (the "A Band" and "B Band") in each of the Regions, as follows:
<TABLE>
<CAPTION>
WESTERN REGION EASTERN REGION ATLANTIC REGION
------------------------------------ ----------------------------------- -----------------------------------
<S> <C> <C> <C>
A Band:.... Occel Comunicacion Celular S.A ("Comcel") Celcaribe S.A. ("Celcaribe")
B Band:.... Compania Celular de Colombia S.A. Union Temporal Celumovil S.A. y Union Temporal Celumovil de la
("Cocelco") Celumovil de la Costa S.A. Costa S.A. y Celumovil S.A.
("Celumovil") ("Celumovil de la Costa")
</TABLE>
The densely populated Western Region, for which Occel has one of the two
concessions, encompasses 18% of the territory of Colombia and 36% of its
population. The Western Region contributes approximately 36% of Colombia's gross
domestic product (based on 1993 data) and encompasses a large portion of the
nation's commerce and manufacturing and agricultural industries, including many
of the main export-oriented industries of Colombia, such as coffee, bananas,
sugar and textiles. In addition, the Western Region has an extensive
transportation infrastructure, which includes four major airports and Colombia's
most important industrial seaport, the Buenaventura Port, which handles
approximately half of Colombian exports.
The Company believes that Colombia is a very attractive market for cellular
services and provides a substantial business opportunity for the following
reasons:
- Potentially Growing Economy. Colombia is one of the oldest
democracies and most stable economies in Latin America. Since 1950,
Colombia has enjoyed positive real economic growth in every year, with real
compounded average annual growth in its GDP of approximately 4.5% from 1986
to 1995, one of the highest growth rates in Latin America. In addition,
annual inflation has declined steadily in each of the past five years from
26.8% in 1991 to 22.6% and 19.5% in 1994 and 1995, respectively. In recent
years, the government's economic growth strategy has encouraged foreign
investment and exports through reduced foreign exchange controls and lower
import quotas and tariffs. The government has also begun to open certain
public services to private sector investment and has commenced
privatization of certain state-owned industries in the power and banking
sectors, and is considering other sectors for
6
<PAGE> 11
privatization. In part as a result of these policies, foreign investment in
Colombia has grown from US$3.5 billion in 1990 to US$6.6 billion in 1995.
During the same period, Colombia has achieved increased diversification of
its export base and the value of its exports has grown from US$6.7 billion
to US $9.8 billion. However, Colombia is currently experiencing political
turmoil which is having an adverse effect on the economy. In addition,
since the Columbian government failed to reach its inflation goal for 1996,
the economy has suffered a severe contraction and foreign investment has
decreased in the last few months. See "Risk Factors -- Risk Related to
Colombian Political, Economic and Social Factors".
- High Demand Potential. The Company believes there is significant
demand for cellular service in Colombia as evidenced by the growth in the
number of subscribers since the concessions were awarded in 1994. Reported
subscribers in Colombia grew from 81,895 as of December 31, 1994 to 187,514
as of June 30, 1995 and 274,590 as of December 31, 1995, representing
growth rates of 129% and 46% for the respective six-month periods. As of
December 31, 1995, cellular penetration (based on reported subscribers) in
Colombia was 0.78%. This compares favorably with penetration rates achieved
at comparable developmental stages in other Latin American countries and a
penetration rate of 12.96% in the United States. See "Business -- Colombian
Telecommunications Industry". The Company believes that there are several
factors, in addition to the recent growth in Colombia's economy and
particularly its infrastructure, which will support continued growth in
cellular subscribers. For example, Colombia has a low wireline penetration
rate, with an average of only approximately ten telephone lines per 100
persons as of December 31, 1994. Additionally, there is typically a long
waiting time for wireline telephone connection, which ranges from a few
weeks or months in the best markets (including Medellin) to two years or
longer. This can be contrasted with cellular service, where, in the case of
the Company, new customers generally are connected to its cellular network
within a few days (shortly after the completion of a credit check).
Moreover, the Company believes that cellular service is popular even where
wireline service is relatively good because of advantages such as
convenience, personal safety and mobility. This is illustrated by the fact
that Medellin, which has the highest wireline penetration rate in the
country, is also the Company's best market.
- Limited Cellular Competition. The Company faces limited cellular
competition because the cellular industry in each Region is a regulated
duopoly. Each concessionaire has the exclusive right for a minimum of ten
years to use a defined frequency band within its region. The terms of the
concessions provide that the government may not award additional
concessions for cellular services prior to 1999.
- Supportive Regulatory Environment. The Colombian government has
adopted several policies and practices that the Company believes will help
stimulate industry growth. These include the fact that the concessions are
limited to two operators per region through 1999 and are awarded for terms
of ten years, subject to renewal as described herein. The government has
also mandated a "calling party pays" system which requires that the
originator pay for the call. The Company believes that the policy of
calling party pays has resulted in a much higher percentage of incoming
traffic and more usage overall by its subscribers as they are more likely
to give their telephone number to callers since they are not charged for
the incoming call. The policy also encourages subscribers to keep their
phones turned on. In addition, the government does not currently regulate
pricing, although the Company is required to notify the government and its
subscribers of price changes.
- Industry Cooperation. The Company and other Colombian cellular
phone operators benefit from government policies which permit industry
cooperation to facilitate high quality, nationwide service. Through roaming
and other agreements, the Company and the other A Band operators in the
Eastern and Atlantic Regions have formed "REDCEL", a national cellular
network which enables their respective subscribers to make calls from each
other's coverage areas. These companies also cooperate on issues of common
interest including, among other things, customer service, collections,
technical assistance, other services to customers and procedures for fraud
prevention.
COMPANY STRENGTHS
Since its inception in 1992, the Company has capitalized on the market
opportunity created by the aforementioned factors. The Company has constructed a
network that covers most of the major population areas in the Western Region,
built its subscriber base and recognition of its "Vozavoz" brand name, and
7
<PAGE> 12
developed a variety of service offerings to appeal to diverse groups of
consumers. The Company believes that it is well positioned to achieve continued
growth in its subscriber base and cash flow by virtue of a number of factors,
including the following:
- Attractive Concession Area. The Western Region has many
characteristics which create an attractive cellular market, including
principally a diverse and well developed economy. The region generates over
one third of Colombia's gross national product and includes a substantial
part of the country's commerce and manufacturing and agricultural
industries. Approximately 71% of the national coffee production and 55% of
the national banana production, the country's two largest agricultural
commodities, are produced in the Western Region. Approximately half of
Colombia's hydro-electric power is produced in the Western Region and
approximately half of the country's exports pass through the Western
Region's Buenaventura Port. The Western Region also houses the Colombian
headquarters of 21 of the top 50 industrial and commercial companies in
Colombia, including Carvajal S.A., Noel S.A. and Colgate Palmolive y Cia
S.A. In addition, the headquarters of 11 of the top 25 financial
institutions in Colombia, including Banco Industrial Colombiano S.A.,
Conavi S.A. and Banco Popular S.A., are located in the Western Region.
- Favorable Demographics. The metropolitan areas of Medellin and
Cali, with populations of 2.4 million and 1.8 million, respectively, are
major economic centers in the country, are densely populated and have
significant concentrations of affluence. The Company has experienced
considerable demand in these areas despite their relatively high wireline
penetration rates. The Company believes this reflects the advantages of
cellular service, such as personal safety, convenience and mobility, to
diverse segments of the population, including professional workers as well
as small businessmen, contractors and other tradesmen who work on location.
- Superior Customer Service. The Company believes that quality of
customer service is a key competitive factor in the Colombian duopolistic
market. The provision of excellent customer service is an essential element
in the Company's business strategy and an inherent part of its corporate
culture. Staff in all areas of the Company attend a five-day customer
service training program, and the Company's specialized customer service
team (consisting of 92 members as of June 30, 1996) provide service 24
hours per day, responding to telephone queries from three regional centers.
On average, the customer service team answers 3220 calls per working day
(71.7% within 20 seconds in June 1996) and answers 1100 letters per month.
New customers generally receive service within a few days, as well as
individual welcome calls to confirm that they are not experiencing
problems. The Company's dedication to customer service is also illustrated
by the provision of its free "*911" emergency service and by the provision
of nationwide service through roaming agreements.
- High Quality Advanced Network. Due to the recent development of the
cellular telecommunications industry in Colombia, Occel has been able to
construct a dual analog/digital network from inception using state of the
art technology under a TDMA platform with equipment supplied by Northern
Telecom. The Company believes a significant component of offering the
highest quality of customer service entails providing its customers
continual access to its network. The Company measures this in terms of the
customers' ability to make a call whenever desired and the probability that
a call will not fail (a "dropped call") once it is connected. During the
six-month period ended June 30, 1996, the Company connected more than 97%
of attempted calls and dropped less than 3% of total calls made. The
Company believes its dual analog/digital network provides it with the
ability to quickly and cost-effectively offer more digital capacity in its
network as the demand for digital service increases without incurring the
problems and costs experienced by many North American operators who are
encountering operational difficulties and significant expenses as they seek
to upgrade their networks to digital. As of June 30, 1996, approximately
42% of the Company's subscribers used digital handsets and the Company
expects that more than half of its customers will be using digital
equipment by the end of 1997. The Company expects to realize significant
benefits from increasing the usage of digital equipment, such as increased
system capacity, reduced operating expenses and additional revenue from the
sale of digital-specific services such as "caller i.d." and voice mail
message waiting notification. The Company believes its network has
sufficient capacity to accommodate projected growth in subscribers and has
the flexibility to handle new services.
8
<PAGE> 13
- Numerous Service Offerings. The Company provides the basic cellular
service options offered by world class operators, such as call transfer,
call waiting, voice mail and national and international roaming. In
addition, the Company offers several other services that are aimed at the
particular needs of its customer base and that enhance the Company's brand
name and image as a provider of the highest quality service. These include
its free "*911" emergency service (which is trademarked within Colombia),
where a customer can call *911 at any time and be connected to a Company
representative who can then contact the police, the fire department, an
automobile towing service or any other emergency service desired by the
customer. This service has proved especially popular because the Colombian
wireline companies do not have a universal emergency service such as the
911 service in the United States. The Company also offers value-priced
services that it believes attract different segments of the population than
traditional users of cellular services, thereby enhancing its penetration
rate. The Company offers "Beepervoz", a budget service in which the
customer can only receive calls and make outgoing calls to the Company's
*911 emergency service. This service provides a low-cost introduction to
cellular service and is also designed to compete with pagers. In addition,
the Company's "Fijovoz" service provides cellular service from a fixed
wireless phone in the home or office for a lower price than its mobile
cellular service. This option is designed to appeal to customers seeking to
avoid the long waiting time for wireline service or who are otherwise
dissatisfied with wireline service but who do not need the mobility of full
cellular service. The Company also believes a number of these
budget-conscious customers will ultimately upgrade to higher classes of
service over time.
- Management of Churn. The Company's monthly average churn rate for
the year ended December 31, 1995, was 3.2%. This reflected a churn rate of
approximately 2% per month for most of the year, except between August and
October when churn was approximately 8% per month. This temporary increase
in churn resulted from Company-initiated disconnections in order to upgrade
the quality of its customer base. The monthly churn rate for the first six
months of 1996 averaged 2.9%, in part because there was a similar month of
Company-initiated disconnections, which may occur from time to time in the
future. The Company recognizes that managing customer churn is an important
factor in maximizing revenues and cash flow. In order to minimize churn
caused by customers voluntarily terminating service, the Company aims to
ensure that its services remain competitive and has one-year customer
contracts that contain penalties for early termination. To reduce
Company-initiated disconnections resulting from non-payment, beginning in
August 1995, the Company implemented policies which require thorough credit
checks for new customers, encourage direct debit payment plans, and impose
gradual restrictions on service once payment dates have been missed. For
instance, customers' outgoing calls are automatically routed to customer
service if payment is not received within ten days of the final due date,
and service is temporarily disconnected in the event payment is not
received within ten more days. The Company believes that these policies
reduce the likelihood that customers will run up excessive debts, thus
enhancing the likelihood of settlement and reconnection.
- Experienced Management Team. The members of the Company's senior
management team have substantial experience in the telecommunications
industry as well as in the public and private sectors in the Western
Region. Many of them worked for local telephone companies and public
utilities in the Western Region and participated in the development of
Colombia's cellular regulatory regime. In addition, an executive of C&W,
was seconded to, and is employed by, the Company as a member of the
Company's senior management.
BUSINESS STRATEGY
The Company's strategy is to continue to capitalize on the high potential
demand for cellular telecommunication services and favorable demographic
characteristics of its concession area to maximize revenues and cash flow from
its cellular business through increased market penetration and subscriber usage.
The Company intends to achieve these objectives by completing construction of
its network, implementing aggressive marketing efforts to attract and retain
additional subscribers and continuing to provide superior customer service,
reliability and a wide range of value-added optional services. The Company's
commercial slogan is "Seriousness, Security and Service", which is intended to
convey the high degree of professionalism with which the Company seeks to
provide its services, the security (i.e., increased personal safety) such
services provide to its customers, and the Company's responsiveness to its
customers. The Company will also evaluate and may participate in future
opportunities in related wireless technology businesses in order to enhance its
position as a leading provider of such services.
9
<PAGE> 14
THE REFINANCING
The Old Notes were issued on June 7, 1996 pursuant to the Offering of
190,745 units (the "Units"), each of which consisted of US$1,000 principal
amount at maturity of Old Notes and four warrants to purchase 5.709 shares of
Class B Common Stock with a par value of 1,000 Pesos per share, at a price of
US$1.00 per share (or, if greater, the U.S. dollar equivalent of 1,000 Pesos),
subject to adjustment (the "Warrants"). The Old Notes and the Warrants will
become separately transferable as of the date of this Prospectus.
Concurrently with the issuance of the Units, the Company borrowed US$80.0
million under the Bank Facility (as defined under "Description of Company
Indebtedness -- Bank Facility"), which loans are secured by security interests
in, among other things, (i) all receivables originated from the provision of
cellular communications and roaming and interconnection services, (ii) the
pledge of 99.99% of the Company's outstanding stock, and (iii) the Concession.
The aggregate net proceeds of the Offering and the borrowings under the Bank
Facility were US$171.5 million. Such net proceeds were used to repay
substantially all existing indebtedness of the Company and for working capital.
See "Description of Company Indebtedness -- Bank Facility".
THE EXCHANGE OFFER
Securities Offered......... Up to US $190,745,000 aggregate principal amount at
maturity of 14% Series B Senior Discount Notes due
2004 (the "New Notes"). The terms of the New Notes
and Old Notes are identical in all material
respects, except for certain transfer restrictions
and registration rights relating to the Old Notes.
The Exchange Offer......... The New Notes are being offered in exchange for a
like principal amount of Old Notes. Old Notes may
be exchanged only in integral multiples of $1,000.
The issuance of the new Notes is intended to
satisfy obligations of the Company contained in the
Registration Rights Agreement.
Expiration Date;
Withdrawal of Tender..... The Exchange Offer will expire 5:00 p.m. New York
City time, on [ ], 1996, or such later
date and time to which it is extended by the
Company. The tender of Old Notes pursuant to the
Exchange Offer may be withdrawn at any time prior
to the Expiration Date. Any Old Notes not accepted
for exchange for any reason will be returned
without expense to the tendering holder thereof as
promptly as practicable after the expiration or
termination of the Exchange Offer.
Certain Conditions
to the Exchange Offer.... The Exchange Offer is subject to certain customary
conditions, which may be waived by the Company. The
Company currently expects that each of the
conditions will be satisfied and that no waivers
will be necessary. See "The Exchange
Offer -- Certain Conditions to the Exchange Offer".
Procedures for Tendering
Old Notes................ Each holder of Old Notes wishing to accept the
Exchange Offer must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, in
accordance with the instruction contained herein
and therein, and mail or otherwise deliver such
Letter of Transmittal, or such facsimile, together
with such Old Notes and any other required
documentation, to the Exchange Agent (as defined)
at the address set forth herein. See "The Exchange
Offer -- Procedures for Tendering Old Notes".
Use of Proceeds............ There will be no proceeds to the Company from the
exchange of Notes pursuant to the Exchange Offer.
Exchange Agent............. The Bank of New York (the "Exchange Agent") is
serving as the Exchange Agent in connection with
the Exchange Offer.
10
<PAGE> 15
Federal Income Tax
Consequences............. The exchange of Notes pursuant to the Exchange
Offer will not be a taxable event for federal
income tax purposes. See "Taxation".
Warrants Not Part
of Exchange Offer........ The Old Notes were originally issued as part of
Units each consisting of US$1,000 principal amount
at maturity of Old Notes and the Warrants. The
Warrants are not part of the Exchange Offer and
should not be tendered to the Exchange Agent. As of
the date of this Prospectus, the Old Notes and the
Warrants are separately transferable.
Liquidated Damages......... Pursuant to the Registration Rights Agreement, the
Company will be liable for liquidated damages to
holders of Transfer Restricted Securities (as
defined) as a result of the fact that the Exchange
Offer will not be consummated prior to December 4,
1996. See "The Exchange Offer."
CONSEQUENCES OF EXCHANGING OLD NOTES PURSUANT TO THE EXCHANGE OFFER
Based on certain interpretive letters issued by the staff of the SEC to
third parties in unrelated transactions, holders of Old Notes (other than any
holder who is an "affiliate" of the Company within the meaning of Rule 405 under
the Securities Act) who exchange their Old Notes for New Notes pursuant to the
Exchange Offer generally may offer such New Notes for resale, resell such New
Notes, and otherwise transfer such Notes without compliance with the
registration and prospectus delivery provisions of the Securities Act provided
such New Notes are acquired in the ordinary course of the holders' business and
such holders are not participating in, and have no arrangement or understanding
with any person to participate in, a distribution of such New Notes. Each
broker-dealer that receives New Notes for its own account in exchange for Old
Notes, where such Old Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such New Notes. See
"Plan of Distribution". If a holder of Old Notes does not exchange such Old
Notes for New Notes pursuant to the Exchange Offer, such Old Notes will continue
to be subject to the restrictions on transfer contained in the legend thereon.
In general, the Old Notes may not be offered or sold, unless registered under
the Securities Act, except pursuant to an exemption from, or in a transaction
not subject to, the Securities Act and applicable state securities laws. See
"The Exchange Offer -- Consequences of Failure to Exchange; Resale of New
Notes".
The Old Notes are currently eligible for trading in the Private Offerings,
Resales and Trading through Automated Linkages ("PORTAL") market. Following
commencement of the Exchange Offer but prior to its consummation, the Old Notes
may continue to be traded in the PORTAL market. However, to the extent that Old
Notes are tendered and accepted in connection with the Exchange Offer, any
trading market for remaining Old Notes will be adversely affected. Following
consummation of the Exchange Offer, the New Notes will not be eligible for
PORTAL trading.
THE NEW NOTES
The terms of the New Notes are identical in all material respects to the
Old Notes, except for certain transfer restrictions and registration rights
relating to the Old Notes.
Issuer..................... Occidente y Caribe Celular S.A.
Notes Offered.............. US$190,745,000 principal amount at maturity of 14%
Series B Senior Discount Notes due 2004.
Maturity Date.............. March 15, 2004.
Yield and Interest......... 14% per annum (computed on a semiannual bond
equivalent basis) calculated from June 7, 1996 (the
"Issue Date"). Cash interest will not accrue on the
New Notes prior to March 15, 2001, at which time
cash interest will accrue on the New Notes at a
rate of 14% per annum, payable semiannually on
March 15 and September 15 of each year, commencing
September 15, 2001.
11
<PAGE> 16
Optional Redemption........ The New Notes will be redeemable at the option of
the Company, in whole or in part, at 100% of the
principal amount thereof if redeemed prior to
September 15, 2000 and, thereafter, at the
redemption prices set forth herein together with
accrued and unpaid interest, if any, to the date of
redemption. In addition, at any time prior to March
15, 1999, the Company may redeem up to 33% of the
original aggregate principal amount at maturity of
the New Notes from the net proceeds of any Public
Equity Offering (as defined herein), within 45 days
of such Public Equity Offering, at a redemption
price equal to 114% of the Accreted Value thereof,
together with accrued and unpaid interest, if any,
to the date of redemption, provided that no less
than 67% of the original aggregate principal amount
at maturity of the New Notes remains outstanding.
The New Notes will be redeemable at the option of
the Company, as a whole, but not in part, in the
event of certain changes in Colombian tax law. The
Company's ability to redeem the New Notes is
subject to certain limitations under Colombian law.
See "Description of the Notes -- Optional
Redemption".
Mandatory Redemption....... The Company will redeem 50% of the original
aggregate principal amount at maturity of the New
Notes on March 15, 2003 at 100% of the principal
amount thereof.
Colombian Withholding
Taxes...................... Interest on the New Notes, including the accretion
of value thereof, is not currently subject to
Colombian Withholding Taxes (as defined herein).
See "Taxation -- Colombia".
Additional Amounts......... Subject to limited exceptions, if Colombian
Withholding Taxes are deducted or withheld from
payments on the New Notes, the Company will pay
Additional Amounts (as defined herein) to the
extent necessary so that, after such deduction or
withholding, holders of the New Notes receive the
stated amount due. Currently, no Additional Amounts
are required to be paid. See "Description of the
Notes -- Additional Amounts" and
"Taxation -- Colombia".
Change of Control.......... Upon the occurrence of a Change of Control (as
defined herein), each holder of New Notes may
require the Company to purchase all or a portion of
such holder's New Notes at a purchase price in cash
equal to 101% of the Accreted Value thereof,
together with accrued and unpaid interest, if any,
to the date of purchase. The Company's ability to
purchase New Notes upon the occurrence of a Change
of Control is subject to certain limitations under
Colombian law. See "Description of the
Notes -- Certain Covenants -- Purchase of Notes
upon a Change of Control".
Ranking.................... The New Notes will be senior unsecured obligations
of the Company, ranking pari passu in right of
payment with all other existing and future
unsubordinated obligations of the Company (other
than obligations preferred by statute or by
operation of law), except to the extent the
provisions of the Indenture require the Trustee to
turn over to the collateral agents for the lenders
under the Bank Facility all amounts that constitute
proceeds of the Concession received pursuant to a
bankruptcy reorganization (concordato) or
liquidation of the Company until all claims under
the Bank Facility are satisfied during the period
from the Issue Date until the restriction on the
right of the Lenders to exercise their remedies
under the pledge of the Concession expires, and
senior in right of payment to all existing and
future obligations of the Company expressly
subordinated in right of payment to the New Notes.
The New
12
<PAGE> 17
Notes, however, will be effectively subordinated to
senior secured obligations of the Company with
respect to the assets of the Company securing such
obligations, including Indebtedness under the Bank
Facility which is secured by, among other things,
(i) all of the Company's receivables originated
from the provision of cellular communications and
roaming and interconnection services and (ii) the
pledge of the Concession to operate its business,
provided that the Lenders may not exercise any
remedies thereunder prior to March 28, 1997. The
Indebtedness under the Bank Facility is also
secured by a pledge of 99.99% (as of the date
thereof) of the Company's outstanding common stock.
See "Description of Company Indebtedness -- Bank
Facility". As of June 30, 1996, Indebtedness of the
Company was approximately US$185.3 million, of
which US$80.0 million was senior secured
Indebtedness and US$105.3 million was senior
unsecured Indebtedness. Subject to certain
limitations, the Company and any Restricted
Subsidiary (as defined herein) may incur additional
Indebtedness, including secured Indebtedness, in
the future.
Original Issue Discount.... Both the Old Notes and the New Notes will be
treated as having been issued at an original issue
discount for United States federal income tax
purposes. Thus, although cash interest will not
begin to accrue on the Notes until March 15, 2001,
and there will be no periodic payments of interest
on the Notes prior to September 15, 2001, original
issue discount (i.e., the difference between the
stated redemption price at maturity and the portion
of the issue price of the Units allocated, for
federal income tax purposes, to the Notes) will
accrue from the Issue Date and will be includible
as interest income periodically in a Note holder's
gross income for federal income tax purposes in
advance of receipt of the cash payments to which
the income is attributable. See "Taxation -- United
States".
Restrictive Covenants...... The Indenture (as defined herein) contains certain
covenants, including, but not limited to, covenants
with respect to the following matters: (i)
limitation on indebtedness; (ii) limitation on
restricted payments; (iii) limitation on issuances
and sale of capital stock of restricted
subsidiaries; (iv) limitation on transactions with
affiliates; (v) limitation on liens; (vi)
limitation on sale of assets; (vi) limitation on
sale and leaseback transactions; (vii) limitation
on the activities of the Company; (viii) limitation
on dividends and other payment restrictions
affecting subsidiaries; and (ix) reports. See
"Description of the Notes -- Certain Covenants".
Absence of a Public Market
for the New Notes.......... The New Notes are new securities and there is
currently no established market for the New Notes.
Accordingly, there can be no assurance as to the
development or liquidity of any market for the New
Notes. The Company does not intend to apply for
listing of the New Notes on any securities exchange
or for quotation through NASDAQ.
RISK FACTORS
See "Risk Factors" beginning on page 16 for a discussion of certain factors
that holders of Old Notes should consider in connection with the Exchange Offer.
13
<PAGE> 18
SUMMARY FINANCIAL AND OPERATING DATA
The Company was incorporated in 1992 and commenced offering commercial
cellular services in September 1994. Accordingly, the Company has no commercial
operating history prior to such time, and results for 1994 are not directly
comparable to those of 1995. The summary statement of operations data for each
of the fiscal years ended December 31, 1993, 1994 and 1995, and the summary
balance sheet data as of December 31, 1994 and 1995 are derived from financial
statements which are prepared in accordance with Colombian generally accepted
accounting principles and which have been audited by KPMG Peat Marwick,
independent auditors. The historical information for the six months ended June
30, 1995 and 1996 has been derived from the unaudited financial statements of
the Company included herein. In the opinion of management, the information for
the six months ended June 30, 1995 and 1996 includes all material adjustments
(consisting only of adjustments of a normal and recurring nature) necessary for
a fair presentation of the results for such periods. The results of operations
for any interim period are not necessarily indicative of the results of
operations for a full year. Colombian generally accepted accounting principles
differ in certain significant respects from United States generally accepted
accounting principles. See note 17 to the financial statements of the Company
included elsewhere in this Prospectus. This information should be read in
conjunction with, and is qualified in its entirety by reference to,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements of the Company, including the notes
thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF AND FOR THE SIX MONTHS
ENDED JUNE 30,
AS OF AND FOR THE YEAR ENDED DECEMBER 31, (UNAUDITED)
-------------------------------------------- ----------------------------------
1993(1) 1994(2) 1995 1995(3) 1995 1996 1996(3)
------- --------- --------- ---------- --------- --------- ----------
(IN MILLIONS OF CONSTANT JUNE 30, 1996 PESOS AND THOUSANDS OF DOLLARS,
EXCEPT NETWORK AND OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
COLOMBIAN GAAP
Revenues
Cellular service...................... Ps -- Ps 6,694 Ps 34,857 US$ 32,585 Ps 10,958 Ps 29,484 US$ 27,562
Equipment sales....................... -- 3,817 10,302 9,630 6,681 4,039 3,776
Total revenues...................... Ps -- 10,511 45,159 42,215 17,639 33,523 31,338
Costs and expenses
Costs of cellular service............. -- 814 12,066 11,278 1,640 11,514 10,763
Costs of equipment sales.............. -- 3,279 9,834 9,192 6,489 4,694 4,388
Marketing and selling expenses........ -- 4,760 12,443 11,632 6,830 5,885 5,501
General and administrative expenses... -- 4,160 19,903 18,606 7,059 8,654 8,090
Depreciation and amortization(4)...... -- 1,670 12,606 11,784 5,648 8,204 7,669
Total costs and expenses............ -- 14,683 66,852 62,492 27,666 38,951 36,412
Operating loss.......................... -- (4,172) (21,693) (20,277) (10,027) (5,428) (5,074)
Net income (loss)....................... Ps 222 Ps (3,237) Ps(45,948) US$(42,953) (10,229) (8,761) (8,190)
U.S. GAAP
Revenues................................ -- 10,511 45,159 42,215 17,639 33,523 31,338
Operating loss.......................... (3,958 ) (19,453) (33,881) (31,672) (18,127) (7,677) (7,177)
Net loss................................ (3,871 ) (17,240) (54,791) (51,219) (14,573) (10,824) (10,118)
OTHER FINANCIAL DATA AND RATIOS
EBITDA(5)............................... -- (2,502) (9,087) (8,496) (4,379) 2,776 2,595
EBITDA (U.S. GAAP)(5)................... -- (2,133) (6,564) (6,136) (4,112) (7,369) (6,889)
Capital expenditures.................... 61 39,738 26,029 24,333 10,205 3,816 3,567
Fixed charge coverage deficiency(6)..... -- (3,237) (45,948) (42,953) (10,229) (8,090) (7,563)
NETWORK AND OPERATING DATA
Population covered (at end of period in
millions)............................. -- 7.1 8.6 8.6 8.3 8.7 8.7
Reported subscribers (at end of
period)(7)............................ -- 9,356 40,887 40,887 30,826 56,741 56,741
Penetration (at end of period)(8)....... -- 0.13% 0.48% 0.48% 0.36% 0.65% 0.65%
Total minutes of use during period (in
millions)............................. -- 3.47 69.70 69.70 30.18 47.96 47.96
Average monthly revenue per active
subscriber during period(9)........... Ps -- Ps120,777 Ps111,930 US$ 107.01 82,134 139,514 132.10
</TABLE>
14
<PAGE> 19
<TABLE>
<CAPTION>
AS OF AND FOR THE SIX MONTHS
ENDED JUNE 30,
AS OF AND FOR THE YEAR ENDED DECEMBER 31, (UNAUDITED)
1993(1) 1994(2) 1995 1995(3) 1995 1996 1996(3)
--------- --------- --------- --------- --------- --------- ---------
(IN MILLIONS OF CONSTANT JUNE 30, 1996 PESOS AND THOUSANDS OF DOLLARS,
EXCEPT NETWORK AND OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Colombian GAAP
Property, plant and equipment, net...... Ps 174 Ps 42,723 Ps 66,849 US$ 62,492 Ps 57,352 Ps 67,192 US$ 62,812
Total assets............................ 6,526 275,096 292,417 273,357 284,166 315,869 295,279
Total debt.............................. -- 117,236 175,662 164,210 140,947 198,186 185,267
Shareholders' equity.................... 5,659 127,919 82,705 77,317 118,035 88,251 82,498
U.S. GAAP
Property, plant and equipment, net...... 174 43,167 88,751 82,966 62,789 89,595 83,755
Total assets............................ 1,371 245,572 274,506 256,612 254,737 294,557 275,356
Total debt.............................. -- 117,486 196,319 183,522 145,609 203,958 190,663
Shareholders' equity.................... 1,054 109,290 55,072 51,482 94,890 70,147 65,574
</TABLE>
- ---------------
(1) Represents pre-operating period during which the Company earned interest
income on investments.
(2) Represents four months of commercial operations.
(3) Translations of Pesos into Dollars have been made at the rate of Ps 1,069.73
= US$1.00 (the Representative Market Rate on June 30, 1996). Such
translations are provided solely for the convenience of the reader. See note
1 to the financial statements of the Company included elsewhere in this
Prospectus.
(4) Depreciation and amortization include their respective inflation
adjustments. The Company amortizes the Concession using the units of
activation method. See note 1(e) to the financial statements of the Company.
(5) EBITDA represents earnings before interest and financial charges, income
taxes, depreciation and amortization. The Company has included information
concerning EBITDA (which is not a measure of financial performance under
generally accepted accounting principles), because it understands that it is
used by certain investors as one measure of an issuer's ability to service
or incur indebtedness. EBITDA should not be construed as an alternative to
operating income (as determined in accordance with generally accepted
accounting principles) as an indicator of the Company's performance or to
cash flows from operating activities (as determined in accordance with
generally accepted accounting principles) as a measure of liquidity. EBITDA
is calculated using financial statement information included herein and,
accordingly, is in constant Colombian pesos and includes inflation
adjustments.
(6) The fixed charge coverage deficiency covers continuing operations, and for
this purpose (i) earnings consist of income (loss) before income taxes plus
fixed charges and (ii) fixed charges consist of interest expense on all debt
(including capitalized interest), amortization of deferred financing costs
and a percentage of rental expense deemed to be interest. There were no
fixed charges in 1993. Earnings were inadequate to cover fixed charges in
1994 and 1995 and in the six months ended June 30, 1995 and 1996.
(7) As reported by the Company to the Colombian Ministry of Communications. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- General" and "-- Price Competition and Related Matters".
(8) "Penetration" is defined as reported subscribers divided by population
covered within the Concession area. See also the Glossary of Certain
Telecommunications Terms in Annex B hereto.
(9) Represented in constant Pesos. "Active subscribers" is the Company's
internal measure of customers currently generating revenue. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- General" and "-- Price Competition and Related Matters".
15
<PAGE> 20
RISK FACTORS
Holders of Old Notes should consider carefully all the information set
forth herein and, in particular, the following risks in connection with the
Exchange Offer. For additional information concerning Colombia and certain
matters discussed below, see "Annex B -- Republic of Colombia". In general,
investing in the securities of issuers in emerging markets such as Colombia
involves a higher degree of risk than investing in the securities of issuers in
the United States and other jurisdictions.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the issuance of the Old Notes pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities Act
and applicable states securities laws. In general, the Old Notes may not be
offered or sold, unless registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. The Company does not currently anticipate that
it will register Old Notes under the Securities Act. See "The Exchange
Offer -- Consequences of Failure to Exchange; Resale of New Notes".
POSSIBLE LIMITATIONS ON SALE OF NEW NOTES
To comply with the securities laws of certain jurisdictions, if applicable,
the New Notes may not be offered or sold unless they have been registered or
qualified for sale in such jurisdictions or an exemption from registration or
qualification is available and is complied with. The Company has agreed to
register or qualify the sale of the New Notes in such jurisdictions only in
limited circumstances and subject to certain conditions. See "The Exchange
Offer -- Consequences of Failure to Exchange; Resale of New Notes".
HIGH LEVERAGE AND ABILITY TO SERVICE DEBT
The Company is highly leveraged. As of June 30, 1996, the Company's total
indebtedness was US$185.3 million or, approximately 69% of its total
capitalization. The Exchange Offer will not increase or decrease the Company's
total indebtedness.
The Company's high degree of leverage will have important consequences to
holders of the Notes, including the following: (i) the ability of the Company to
obtain additional financing in the future for working capital, capital
expenditures, acquisitions or other purposes, may be impaired; (ii) a
substantial portion of the Company's cash flow from operations will be required
to be dedicated to meet the Company's debt service obligations, which will
reduce the funds available to the Company for its operations and future business
opportunities; (iii) the Company may be more highly leveraged than its
competitors which may place it at a competitive disadvantage; (iv) the Company's
high degree of leverage may make it more vulnerable to a downturn in its
business and may limit its ability to respond to price competition or changes in
the economy generally; (v) the Company may not have sufficient funds to repay
the Notes at maturity or may not be able to refinance the indebtedness
thereunder at maturity; and (vi) the Company's ability to invest in or develop
new technologies or take advantage of new opportunities may be restricted.
The ability of the Company to meet its debt service obligations will depend
on the future operating performance and financial results of the Company
(requiring a significant and sustained growth in cash flow), which will be
subject in part to factors beyond the control of the Company, such as prevailing
economic conditions and financial, business and other factors. Management
believes that the Company's cash flow from operations will be adequate to meet
its anticipated requirements for working capital, capital expenditures, interest
payments and scheduled principal payments. There can be no assurance, however,
that the Company's business will generate cash flow at the necessary levels. If
the Company is unable to generate sufficient cash flow from operations in the
future to service its debt, it may be required to reduce capital expenditures,
refinance all or a portion of its existing debt (including the Notes), or obtain
additional financing. There can be no assurance that any such refinancing would
be possible or that any additional financing can be obtained on satisfactory
terms, in which case the Company might not be able to meet its obligations under
the Notes.
16
<PAGE> 21
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources".
RISKS RELATED TO COLOMBIAN POLITICAL, ECONOMIC AND SOCIAL FACTORS
Colombia is currently experiencing political turmoil stemming principally
from allegations that President Samper's 1994 election campaign received
contributions from the Cali drug cartel. On December 15, 1995, the Congressional
committee that had been examining evidence of such allegations ruled that there
was insufficient evidence to open a formal investigation against President
Samper. However, on January 22, 1996, the campaign manager and former Minister
of Defense, who (together with two other senior campaign officials) was arrested
in connection with such allegations, made a public statement alleging that
contributions from the Cali drug cartel had, in fact, been received and that
President Samper was aware of them. Consequently, the Attorney General's Office
formally accused the President before Congress and a new investigation began.
This investigation concluded last June with the Congress' decision to preclude
the process against President Samper, as recommended by the Congressional
committee in charge of the investigation. This political crisis has had and may
continue to have an adverse effect on the country's economy. Industry
associations have reported declines in sales, investments and other economic
activities. Many of the country's business leaders have called on President
Samper to resign. In September 1996, Vice-president Humberto de la Calle
resigned after President Samper rejected his proposal to resolve the political
crisis through the resignation of both officers. Although the crisis has not led
to repeal of the actions taken in recent years to open and liberalize the
economy, it has weakened the government and could result in a change in
government. This in turn could lead to a change in public policy generally
regarding economic development and the economy.
The political crisis has occurred against a backdrop of periodic violence
related to both drug activities and guerilla movements in Colombia and was
aggravated by the announcement by President Clinton on March 1, 1996 that the
United States was "decertifying" Colombia for failing to take sufficient action
to stem the production and export of narcotics. Under United States law, the
President was required to certify to the U.S. Congress which nations that are
major producers or major transit points for drugs were cooperating with efforts
to stem the flow of narcotics into the United States. As a result of such
decertification, the following policies are in effect: (i) the United States
representatives on the boards of certain multilateral development banks, such as
the International Bank for Reconstruction and Development and the Interamerican
Development Bank, are instructed to vote against lending to Colombia, (ii) the
United States government may impose trade sanctions on Colombian products
exported to the United States and (iii) United States credit institutions, such
as the Export-Import Bank and the Overseas Private Investment Corporation, will
not lend funds, or issue insurance (including political risk insurance), for
Colombian projects. For example, subsequent to President Clinton's announcement,
the Export-Import Bank withdrew support for a US$296 million loan to Ecopetrol,
the state-owned oil company, intended to help finance the Cusiana Oil pipeline,
a major development project in Colombia. On July 11, 1996, the United States
government announced the cancellation of President Samper's visa to enter the
United States based on the allegation that Mr. Samper had cooperated with
illegal drug traffickers. In addition the United States government has announced
that if the Columbian Congress does not approve measures against drug
trafficking it will impose economic sanctions. Although the United States has
not imposed further sanctions at this time, there can be no assurance that
additional sanctions will not be imposed in the future.
For the past 40 years, various guerrilla groups have waged campaigns
against the Colombian governmental system. The actions of guerilla groups have
included terrorist attacks, kidnapping and extortion. Recently, guerilla
activity has increased during the political and economic crisis. There is no
assurance that continued guerrilla activity will not have a material adverse
effect on the general economic, social or political situation in Colombia and
the Company's operations, in particular.
Medellin and Cali have been the centers of operations of Colombia's most
powerful drug cartel groups and are also the Company's largest markets. These
areas have suffered from the violence and the costs of attempting to curb the
drug trade, but may also have benefitted from the capital generated by it, to
the extent reinvested locally. The Company believes that its business has
historically not been materially adversely
17
<PAGE> 22
affected either by the drug activity or by efforts to curb it. However, no
assurance can be given that drug activity in the future will not materially
adversely affect the Company or that the efforts to curb such activity will not
have an adverse effect on the economy of the region and thereby on the Company.
It is impossible to predict what effect these events and conditions, which
are entirely outside the control of the Company, will have on the country or the
Company. Holders of the Notes should recognize that these conditions and events
create significant uncertainties and risks, which could result in material
adverse effects on the Company and its ability to meet its obligations,
including obligations under the Notes.
INFLATION
Throughout most of the 1980s and 1990s, Colombia experienced high levels of
inflation. While the Colombian government adopted policies which resulted in
reducing the inflation rate from 26.8% in 1991 to 22.6% and 19.5% in 1994 and
1995, respectively, there can be no assurance that the performance of the
Colombian economy or its securities markets, the operating results of the
Company or the value of the Notes will not be adversely affected by continuing
or increased levels of inflation.
LIMITED OPERATING HISTORY; OPERATING LOSSES
The Company is a new enterprise. The Company was incorporated in 1992 and
commenced offering commercial cellular services in September 1994. Since such
commencement date, the Company has experienced cumulative net negative cash flow
resulting principally from high operating expenses associated with the start up
of the Company's business, as well as cumulative net losses resulting from the
foregoing. Although the Company expects to generate positive cash flow from
operations by 1997, it expects to incur net losses in the near-term. There can
be no assurance that the Company will achieve positive cash flow from operations
within its projected time frame, or that it will generate net income upon
completion of its network.
CURRENCY FLUCTUATIONS, FOREIGN EXCHANGE CONTROLS AND DEVALUATION
Substantially all of the Company's debt obligations are denominated in
Dollars while the Company generates revenues in Pesos. In addition, the Company
has incurred and expects to incur a significant portion of its equipment costs
in Dollars. Therefore, the Company is exposed to currency exchange rate risks
which could significantly impact the Company's ability to meet its obligations
and finance its network construction. The Company currently does not plan to
enter into hedging transactions with respect to these foreign currency risks and
it is unlikely that the Company would be able to obtain hedging arrangements on
commercially satisfactory terms with respect to all such risks. The exchange
rate of the Peso to the Dollar has declined in recent years, and any further
decrease in the value of the Peso relative to the Dollar may have a material
adverse effect on the Company and on its ability to meet its obligations under
the Notes.
The Colombian government does not currently restrict the ability of
Colombian persons or entities to convert Pesos into Dollars. See "Foreign
Investment and Exchange Controls in Colombia". However, Colombian law permits
the government to impose foreign exchange controls on dividend payments and
repatriation of capital in the event that the foreign currency reserves of the
Central Bank fall below a level equal to the value of three months of imports
into Colombia. No such foreign exchange controls are currently applicable to
payments on debt instruments such as the Notes. As of December 31, 1995, the
Central Bank's currency reserves were sufficient for approximately seven months
of imports. Nevertheless, there is no assurance such restrictions will not be
imposed in the future, and any such restrictions could prevent or restrict the
Company's access to Dollars with which to meet its obligations, including its
obligations under the Notes.
Colombian law prohibits the prepayment of the Notes within one year of
their issuance, whether by redemption, repurchase, acceleration or otherwise.
Any redemption, repurchase, acceleration or other event requiring repayment
occurring on or prior to the first anniversary of the Issue Date will require
the Company, in lieu of such redemption, repurchase, acceleration or other
prepayment, to deposit with the Trustee cash and/or United States Government
Obligations in an amount (without taking into account the payment of interest
thereon) sufficient to make such prepayment with respect to the Notes on the
first Business Day after the first anniversary of the Issue Date at a price
which the Company would have had to pay with respect to
18
<PAGE> 23
such a prepayment occurring on the first anniversary date, provided that in the
event of an offer to purchase under a Change of Control, the Company would have
to deposit with the Trustee an amount (without taking into account the payment
of interest thereon) sufficient to repurchase all of the Notes.
Central Bank regulations require that, as a general rule, borrowers
incurring indebtedness in a foreign currency with a term of 36 months or less
make deposits in Pesos at the Central Bank in order to be able to remit payments
in such foreign currency. As the scheduled repayment of the Notes will begin
after the third anniversary of the Issue Date, the Company does not currently
have an obligation to make such a deposit. However, if the Company desires or is
required to make a prepayment of the Notes in an amount exceeding 40% of the
principal amount thereof prior to the third anniversary of the Issue Date, the
Company would be required to make such a deposit, in which case the Company may
elect to deposit with the Trustee amounts sufficient to redeem the remainder of
the Notes on the first business day after the third anniversary of the Issue
Date. There can be no assurance that the necessary Peso funds for such a deposit
will be available to the Company at the time of any such requirement to make a
prepayment. See "Foreign Investment and Exchange Controls in Colombia" and
"Description of the Notes".
ECONOMY OF COLOMBIA AND THE WESTERN REGION
The Company's operations are dependent upon the performance of the
Colombian economy and the Western Region, in particular. The economy of Colombia
and of the Western Region is in a stage of development and structural reform and
the possibility exists that rapid fluctuations in consumer prices, gross
domestic product and interest rates will occur. The Company's financial results
may be subject to such fluctuations in the economy of Colombia and of the
Western Region and the effect of such fluctuations on the ability of customers
to pay for the Company's services and on the ability of the market to support
the growth of cellular telephone operations.
The Colombian government has historically exercised significant influence
over the Colombian economy. Governmental actions concerning the economy could
continue to have an important effect on Colombian entities, including the
Company, and on market conditions, prices and returns on Colombian securities,
including the Notes. There can be no assurance that recent policies that have
resulted in favorable economic growth in Colombia will be maintained by this
government or any new government or that such growth will continue.
RISKS ASSOCIATED WITH NEW INDUSTRY AND GROWTH
The success of the Company's operating strategy is subject to factors that
are beyond the control of the Company and impossible to predict, in part because
cellular telecommunications is a new industry in Colombia. Although the Company
has experienced significant growth in the number of its subscribers since
commencing operations in 1994, the Company is unable to predict how consumer
demand for cellular telecommunications services may develop over time. The size
of the Colombian market for cellular telecommunications, the rates of
penetration of the market and the sensitivity of potential subscribers to
changes in prices, among other factors, are uncertain. In addition, the
Company's continued rapid growth will require the training of new personnel, the
expansion of its management information systems and effective control of its
expenses related to operations and systems construction and effective controls
over the quality of new subscribers and churn rate. If the Company is unable to
satisfy these requirements, if it is unable to generate sufficient revenue to
meet its current expenses and future obligations or if it is otherwise unable to
manage growth effectively, the Company's ability to meet its obligations under
the Notes may be materially adversely affected.
COMPETITION; RAPID TECHNOLOGICAL CHANGE
The Company faces competition primarily from Cocelco, the other Western
Region cellular operator, and from wireline telephone services. Cocelco's
principal shareholders include the Organizacion Luis Carlos Sarmiento, one of
the largest commercial groups in Colombia, and Telefonica de Espana, a major
Spanish telecommunications organization actively involved in Latin America.
Cocelco may have greater financial and
19
<PAGE> 24
other resources than the Company, and may be in a better position to fund
operating deficits or unexpected capital costs. Competition in the Western
Region between the Company and Cocelco, and to a lesser extent with wireline
telephone services, is based on price, services offered, quality of service and
coverage area. During the first quarter of 1995, there was significant price
competition between the Company and Cocelco, and there is no assurance that
additional periods of price competition will not follow or that they will not
result in substantial operating losses for the Company. Moreover, there can be
no assurance that, in the event of an aggressive price competition resulting in
substantial losses, the Company will be able to raise the necessary capital or
financing to finance such losses. See "Management Discussion and Analysis of
Financial Condition and Results of Operations". In addition, after March 28,
1999, the fifth anniversary of the Concession, additional concessions for
cellular services in the Western Region may be granted by the Ministry of
Communications which could mean that the Company would no longer enjoy a
duopolistic position in the Western Region.
The Company also faces competition from other existing wireless services,
such as mobile radio and beeper services, and may face competition from emerging
technologies and services which might be introduced in the future, including
enhanced specialized mobile radio, Personal Communication Services ("PCS") or
satellite telephone. Insofar as such services require the granting of new
concessions by the Colombian government, it is possible that the government
could grant such concessions prior to 1999 (i.e., prior to the date that
additional concessions for cellular services in the Western Region may be
granted by the Ministry of Communications). In addition, to the extent that
substantial capital is invested in the wireline telephone industry and results
in improved service and increased wireline density, some of the Company's
existing and potential subscribers may choose wireline service rather than the
Company's cellular services. There can be no assurance that the Company will be
able to compete successfully against existing competitors or new entrants.
CHURN RATE RISKS
The Company's churn rate (the rate at which subscribers leave the system,
calculated as a percentage of active subscribers at the end of a calculation
period) in 1995 averaged 2% per month except between August and October when
churn was approximately 8% per month. During the months of August through
October 1995, in order to upgrade the quality of its customer base, the Company
disconnected a number of customers with nonperforming accounts, many of whom
subscribed to the Company's service during promotions offered in the early part
of 1995. The monthly churn rate for the first six months of 1996 averaged 2.9%,
in part because there was a similar month of Company-initiated disconnections,
which may occur from time to time in the future. To reduce churn and to deal
with its associated risks, such as the difficulty in collecting receivables, the
Company has since implemented more rigorous customer credit checks, gradual
restrictions on service in the event of nonpayment and other measures to
minimize the risk of bad debts. If the Company is not able to maintain these
measures, or is not otherwise able to maintain churn at a low level, it could
have an adverse effect on its financial condition and may adversely affect its
ability to meet its obligations under the Notes.
FUTURE CAPITAL NEEDS
The Company expects to increase operating expenses and capital expenditures
as it continues to pursue its strategy of completing the construction of its
network, increasing its existing base of subscribers and expanding its
operations to provide a wider array of value-added services. The Company expects
to incur capital expenditures of approximately US$50 million to substantially
complete by 1999 the build-out of its network (including planned upgrades). The
Company currently expects to fund all of such capital expenditures with
internally generated cash flow, although there can be no assurance that such
cash flow will be sufficient. In addition, if the Company were to decide to
pursue other investments, including PCS or satellite services, additional
resources would be required. If the Company is unable to fund such expenditures
or investments, or if the Company's cash flow from operations does not increase
from its present level or decreases even further, the Company might not be able
to continue to pursue its network construction and subscriber growth strategy.
Moreover, in any such circumstance, the Company could experience difficulty in
20
<PAGE> 25
meeting its debt service requirements. If the Company were unable to meet its
debt service requirements in the future, it may, depending upon the
circumstances which then exist, seek additional equity and/or debt financing or
refinance its existing indebtedness. There can be no assurance that the Company
could refinance existing indebtedness or raise sufficient funds. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources".
REGULATORY AND CONCESSION MATTERS
The construction, ownership and operation of the Company's cellular
telephone system, the maintenance and renewal of the Concession, the pricing of
the Company's services and related matters are subject to regulation by the
Ministry of Communications and the Colombian Telecommunications Regulatory
Commission (Comision de Regulacion de Telecomunicaciones) (the "TRC"). Changes
in the regulation of, or the interpretation thereof, the Company's activities
could have a material adverse effect on the Company. Although the TRC has the
authority to determine the pricing of cellular services, cellular operators have
not been subject to tariff regulation. The Company believes that cellular
operators will continue to have the flexibility to set prices freely, although
there can be no assurance that the TRC will not impose price regulation in the
future.
The continued existence and terms of the Concession are subject to ongoing
review by regulatory authorities in Colombia and to interpretation, modification
or termination by such authorities. The terms of the Concession provide for an
initial term of ten years, and the Concession may be renewed for another ten
years if the Company has complied with the terms of the Concession and neither
the Ministry of Communications nor the Company has expressed an intention not to
renew during the eighth year of the Concession's ten-year term. The terms and
conditions of any such renewal, including the amount of any necessary payment to
the Colombian government, are not specified. Although the Company intends to
seek amendments to the Concession to eliminate uncertainties regarding renewal,
there is no assurance such amendments can be obtained. While the Company would
not normally expect to be required to cease operations at or prior to the end of
the ten-year term of the Concession, there can be no assurance that the
Concession will not be terminated or that renewal will be effected at all or on
acceptable economical terms.
The Company's assets that are directly related to the Concession are to
revert to the Ministry of Communications at the end of the Concession's term
without compensation to the Company. The Ministry of Communications is also
entitled to a reversion of such assets upon an event of termination of the
Concession for default in performance by the Company. If such reversion were to
occur, it will have a material adverse effect on the Company's ability to meet
its obligations under the Notes. See "Business -- Regulation -- Termination upon
Default in Performance -- Reversion of Assets".
The Concession, as well as certain other Colombian government contracts, is
subject to unilateral interpretation, modification and termination by the
Colombian government under certain circumstances. In the event of such
unilateral interpretation, modification or termination, based on circumstances
not attributable to the Company, the Company would be entitled to compensation
from the Ministry of Communications. However, there can be no assurance that any
such compensation would be sufficient to enable the Company to meet its
obligations under the Notes. See "Regulation -- Unilateral Interpretation,
Modification and Termination of Government Contracts". In addition, the Ministry
of Communications may, without compensation, terminate the Concession for
certain events of default under the Concession; in the event of such
termination, the Ministry of Communications would also be entitled to a payment
by the Company in the amount of the performance bond posted by the Company under
the Concession. See "Regulation--Termination upon Default in Performance". The
Ministry of Communications may also seek payment from the Company for any
damages suffered in excess of the amount covered by such performance bond.
ASSET ENCUMBRANCES AND PLEDGE OF STOCK
The Company's obligations under the Bank Facility are secured by liens on
the Company's receivables and a pledge of the Concession, provided that the
Lenders may not exercise any remedies with respect to the pledge of the
Concession prior to March 28, 1997. If an event of default occurs under the Bank
Facility, the
21
<PAGE> 26
Lenders will have a prior right to such collateral and may foreclose upon such
collateral to the exclusion of the holders of the Notes, notwithstanding the
existence of an event of default with respect to the Notes. Accordingly, in such
event, such collateral would first be used to repay in full amounts outstanding
under the Bank Facility, and there can be no assurance that there would be
sufficient assets remaining to satisfy the claims of holders of the Notes.
For the period until the restriction on the right of the Lenders to
exercise their remedies under the pledge of the Concession expires, the
Indenture provides that should the Company enter into a bankruptcy
reorganization (concordato) or liquidation under the laws of Colombia during
such period, the Trustee will turn over to the collateral agents for the lenders
under the Bank Facility all amounts that constitute proceeds of the Concession
received pursuant to a bankruptcy reorganization (concordato) or liquidation of
the Company until all claims under the Bank Facility are satisfied. The
Shareholders have also pledged substantially all of the capital stock of the
Company to the Lenders. If an event of default occurs under the Bank Facility,
the Lenders could foreclose upon such stock, which could result in a change of
control of the Company.
RESTRICTIONS UNDER DEBT INSTRUMENTS
The Company's operations and financial performance are subject to covenants
contained in the Bank Facility and the Indenture that, among other things, limit
the Company's ability to incur liens, incur additional indebtedness, dispose of
assets, engage in mergers or engage in certain other transactions, and redeem or
purchase the Notes. In addition, the Bank Facility requires the Company to
maintain certain financial ratios and to meet certain financial and operating
performance tests. There can be no assurance that these requirements will be met
in the future. If the covenants under the Bank Facility are not met, the Lenders
will be entitled to declare such indebtedness immediately due and payable. See
"Description of the Notes" and "Description of Company Indebtedness".
TAX LITIGATION
The Company is currently in litigation with the tax authorities of Medellin
with respect to the municipality's efforts to require the Company and Cocelco to
collect a monthly tax on cellular subscribers whose calls use base stations
located in Medellin. As of May 17, 1996, the amount in dispute for the period
through March 30, 1996 was Ps 565 million (US$528,170), including interest
accrued thereon. While the Company believes it will prevail in this litigation,
if it does not the Company believes that it would be able to collect from its
subscribers a portion of this tax. To the extent the Company is unsuccessful in
its attempts to collect such tax from its subscribers, it will pay such amount
to the tax authorities of Medellin. Although no other city has proposed to
implement a similar tax, there is no assurance that other cities will not do so.
An adverse outcome in the legal proceedings and the imposition of a similar tax
in other cities could have an adverse effect on the Company's financial
condition and may adversely affect its ability to meet its obligations under the
Notes. See "Business -- Legal Proceedings -- Medellin's Cellular Services Tax".
LIMITATIONS ON CHANGE OF CONTROL
The Indenture requires the Company, in the event of a Change of Control, to
make an offer to purchase the Notes at 101% of the Accreted Value thereof, plus
accrued interest, if any, to the purchase date. Certain events involving a
Change of Control may be an event of default under the Bank Facility or
indebtedness of the Company that may be incurred in the future. Moreover, the
exercise by the holders of the Notes of their right to require the Company to
purchase the Notes may cause a default under the Bank Facility or such other
indebtedness, even if the Change of Control does not. Finally, there can be no
assurance that the Company will have the financial resources necessary to
repurchase the Notes upon a Change of Control. See "Description of the
Notes -- Certain Covenants -- Change of Control".
22
<PAGE> 27
ORIGINAL ISSUE DISCOUNT
Both the Old Notes and the New Notes will be treated as having been issued
at a substantial discount from their principal amount at maturity. Consequently,
United States Holders of the Notes generally will be required to include amounts
in gross income for United States federal income tax purposes in advance of
receipt of the cash payments to which such income is attributable. See
"Taxation -- United States -- Notes -- Original Issue Discount" for a more
detailed discussion of the United States federal income tax consequences to
United States Holders of the purchase, ownership and disposition of the Notes.
LACK OF ESTABLISHED MARKET FOR THE NOTES
The New Notes are new securities for which there currently is no trading
market. The Company does not intend to apply for listing of the New Notes on any
national securities exchange or to seek admission thereof to trading on the
National Association of Securities Dealers Automated Quotation System. Although
the Initial Purchasers have informed the Company that they currently intend to
make a market in the New Notes, they are not obligated to do so, and any such
market-making may be discontinued at any time without notice. The liquidity of
any market for the New Notes will depend upon the number of holders of the New
Notes, the interest of securities dealers in making a market in the New Notes
and other factors. Accordingly, there can be no assurance as to the development
or liquidity of any trading market for the New Notes. The Old Notes are eligible
for trading in the PORTAL market. To the extent that Old Notes are tendered and
accepted in connection with the Exchange Offer, any trading market for remaining
Old Notes will be adversely affected.
Historically, the market for non-investment grade debt has been subject to
disruptions that have caused substantial volatility in the prices of securities
similar to the Notes. There can be no assurance that the market, if any, for the
Notes will not be subject to similar disruptions. Any such disruptions may have
an adverse effect on the holders of the Notes. In addition, Colombia is
generally considered by international investors to be an "emerging market".
Political, economic, social and other developments in other "emerging markets"
may have an adverse effect on the market value and liquidity of the Notes.
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<PAGE> 28
USE OF PROCEEDS
The Company will not receive any cash proceeds from the Exchange Offer.
THE REFINANCING
The Old Notes were issued on June 7, 1996 pursuant to the Offering of the
Units, each of which consisted of US$1,000 principal amount at maturity of Old
Notes and the Warrants. The Old Notes and the Warrants will become separately
transferable as of the date of this Prospectus.
Concurrently with the issuance of the Units, the Company borrowed US$80.0
million under the Bank Facility, which loans are secured by security interests
in, among other things, (i) all receivables originated from the provision of
cellular communications and roaming and interconnection services, (ii) the
pledge of 99.99% of the Company's outstanding stock, and (iii) the Concession.
The aggregate net proceeds of the Offering and the borrowings under the Bank
Facility were US$171.5 million. Such net proceeds were used to repay
substantially all existing indebtedness of the Company and for working capital.
See "Description of Company Indebtedness -- Bank Facility".
24
<PAGE> 29
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1996 on an actual basis. This table should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
----------------------------------------
ACTUAL ACTUAL
--------------------- --------------
(MILLIONS OF CONSTANT (THOUSANDS OF
COLOMBIAN PESOS) US DOLLARS)(1)
<S> <C> <C>
Long-term debt (including current portion of long-term debt
and notes payable)(2):
U.S. dollar-denominated loans(3).......................... Ps 193,080 US$ 180,494
Other(4).................................................. 5,106 4,773
---------- -----------
Total long-term debt.............................. 198,186 185,267
Shareholders' equity, net................................... 88,251 82,498
---------- -----------
Total capitalization.............................. Ps 286,437 US$ 267,765
========== ===========
</TABLE>
- ---------------
(1) Translations of Pesos into Dollars have been made at the rate of Ps 1,069.73
= US$1.00 (the Representative Market Rate on June 30, 1996). Such
translations are provided solely for the convenience of the reader. See note
1 to the financial statements of the Company.
(2) As of June 30, 1996, the Company also had obligations of Ps 36.6 billion
(US$34.2 million) under leases which are not capitalized in accordance with
Colombian GAAP. This represents the aggregate amount (without discount to
present value) of minimum payments under the lease agreements. See note 7 to
the financial statements of the Company.
(3) Includes US$100.0 million of gross proceeds from the sale of Units. In
accordance with Colombian financial and tax accounting principles no value
has been ascribed to the Warrants. This treatment may be different from that
accorded to the sale of the Units based on United States tax law. See
"Taxation -- United States". Under U.S. GAAP for financial accounting
purposes, the Company has ascribed a fair value of US$11.4 million to the
Warrants.
(4) Represents bank overdrafts and letters of credit.
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<PAGE> 30
THE EXCHANGE OFFER
GENERAL
The Company hereby offers upon the terms and subject to the conditions set
forth in this Prospectus and in the accompanying Letter of Transmittal (which
together constitute the "Exchange Offer"), to exchange up to US$190,745,000
aggregate principal amount at maturity of New Notes for a like aggregate
principal amount at maturity of Old Notes properly tendered on or prior to the
Expiration Date and not withdrawn as permitted pursuant to the procedures
described below. The Exchange Offer is being made with respect to all of the Old
Notes; the total aggregate principal amount at maturity of Old Notes and New
Notes will in no event exceed US$190,745,000, except as provided in the
Indenture.
As of the date of this Prospectus, US$190,745,000 aggregate principal
amount at maturity of the Old Notes was outstanding. This Prospectus, together
with the Letter of Transmittal, is first being sent on or about [ ],
1996, to all holders of Old Notes known to the Company. The Company's obligation
to accept Old Notes for exchange pursuant to the Exchange Offer is subject to
certain conditions set forth under "-- Certain Conditions to the Exchange Offer"
below and to the terms and provisions of the Registration Rights Agreement.
PURPOSE OF THE EXCHANGE OFFER
The Old Notes were issued by the Company on June 7, 1996 in transactions
exempt from the registration requirements of the Securities Act. Accordingly,
the Old Notes may not be reoffered, resold, or otherwise transferred in the
United States unless so registered or unless an applicable exception from the
registration and prospectus delivery requirements of the Securities Act is
available.
In connection with the issuance and sale of the Old Notes, the Company
entered into an Exchange and Registration Rights Agreement, dated as of June 7,
1996, (the "Registration Rights Agreement"), which requires the Company to use
its best efforts to file with the SEC a registration statement relating to the
Exchange Offer within 60 days after the Issue Date, and to use its best efforts
to cause the registration relating to the Exchange Offer to become effective
under the Securities Act within 150 days after the Issue Date and the Exchange
Offer to be consummated within 180 days after the Issue Date. The Exchange Offer
is being made by the Company to satisfy its obligations with respect to the
Registration Rights Agreement.
EXPIRATION DATE; EXTENSION; TERMINATION; AMENDMENT
The Exchange Offer will expire at 5:00 p.m., New York City time, on [30
days after mailing of notice], 1996, unless the Company, in its sole discretion,
has extended the period of time for which the Exchange Offer is open (such date,
as it may be extended, is referred to herein as the "Expiration Date"). The
Company expressly reserves the right, at any time or from time to time, to
extend the period of time during which the Exchange Offer is open, and thereby
delay acceptance for exchange of any Old Notes, by giving oral notice (promptly
confirmed in writing) or written notice to the Exchange Agent and by giving
written notice of such extension to the holders thereof or by timely public
announcement communicated, unless otherwise required by applicable law or
regulation, by making a release through the Dow Jones News Service, in each
case, no later than 9:00 a.m. New York City time, on the next business day after
the previously scheduled Expiration Date. During any such extension, all Old
Notes previously tendered will remain subject to the Exchange Offer unless
properly withdrawn.
In addition, the Company expressly reserves the right to terminate or to
amend the Exchange Offer, and not to accept for exchange any Old Notes not
theretofore accepted for exchange, upon the occurrence of any of the events
specified below under "-- Certain Conditions to the Exchange Offer". If any such
termination or amendment occurs, the Company will notify the Exchange Agent and
will either issue a press release or give oral or written notice to the holders
of the Old Notes as promptly as practicable in the manner set forth above with
respect to an extension of the Expiration Date.
26
<PAGE> 31
For purposes of the Exchange Offer, a "business day" means any day other
than a Saturday, a Sunday or a date on which banking institutions in New York
City are not required to be open, and consists of the time period from 12:01
a.m. through 12:00 midnight, New York City time.
PROCEDURES FOR TENDERING OLD NOTES
The tender to the Company of Old Notes by a holder thereof as set forth
below and the acceptance thereof by the Company will constitute a binding
agreement between the tendering holder and the Company upon the terms and
subject to the conditions set forth in this Prospectus and in the accompanying
Letter of Transmittal.
Except as set forth below, a holder of Old Notes who wishes to tender Old
Notes for exchange pursuant to the Exchange Offer must transmit a properly
completed and duly executed Letter of Transmittal, including all other documents
required by such Letter of Transmittal to the Exchange Agent at one of the
addresses set forth below under "Exchange Agent" on or prior to the Expiration
Date. In addition, either (i) certificates for such Old Notes must be received
by the Exchange Agent along with the Letter of Transmittal, or (ii) a timely
confirmation of a book-entry transfer (a "Book-Entry Confirmation") of such Old
Notes, if such procedure is available, into the Exchange Agent's account at The
Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to the
procedure for book-entry transfer described below, must be received by the
Exchange Agent prior to the Expiration Date, or (iii) the holder of Old Notes
must comply with the guaranteed delivery procedures described below.
THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS. IF SUCH DELIVERY
IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL PROPERLY INSURED, WITH RETURN
RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO
INSURE TIMELY DELIVERY. NO OLD NOTES OR LETTERS OF TRANSMITTAL SHOULD BE SENT TO
THE COMPANY.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the Old Notes surrendered for exchange
pursuant thereto are tendered (i) by a registered holder of the Old Notes who
has not completed the box entitled "Special Issuance Instructions" or "Special
Delivery Instructions" on the Letter of Transmittal or (ii) for the account of
an Eligible Institution (as defined below). In the event that signatures on a
Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantees must be by a firm which is a member
of a registered national securities exchange or a member of the National
Association of Securities Dealers, Inc. or by a clearing agency, an insured
credit union, a savings association or a commercial bank or trust company having
an office or a correspondent in the United States (collectively, "Eligible
Institutions"). If Old Notes are registered in the name of a person other than a
signer of the Letter of Transmittal, the Old Notes surrendered for exchange must
be endorsed by, or be accompanied by a written instrument or instruments of
transfer or exchange, in satisfactory form as determined by the Company in its
sole discretion, duly executed by the registered holder thereof with the
signature thereon guaranteed by an Eligible Institution.
A tender will be deemed to have been received as of the date when the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by (i) the Old Notes (or a confirmation of book-entry transfer of
such Old Notes into the Exchange Agent's account at the Book-Entry Transfer
Facility) is received by the Exchange Agent, or (ii) a Notice of Guaranteed
Delivery or letter, telegram or facsimile transmission to similar effect (as
provided above) from an Eligible Institution is received by the Exchange Agent.
Issuances of New Notes in exchange for Old Notes tendered pursuant to a Notice
of Guaranteed Delivery or letter, telegram or facsimile transmission to similar
effect (as provided above) by an Eligible Institution will be made only against
timely deposit of the Letter of Transmittal (and any other required documents)
and the tendered Old Notes.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Old Notes tendered for exchange will be determined by
the Company in its sole discretion, which determination shall be final and
binding. The Company reserves the absolute right to reject any and all tenders
of any particular Old Notes not properly tendered or to not accept any
particular Old Notes which acceptance might, in the judgment of the Company or
its counsel, be unlawful. The Company also reserves the absolute right to waive
27
<PAGE> 32
any defects or irregularities or conditions of the Exchange Offer as to any
particular Old Notes either before or after the Expiration Date (including the
right to waive the ineligibility of any holder who seeks to tender Old Notes in
the Exchange Offer). The interpretation of the terms and conditions of the
Exchange Offer as to any particular Old Notes either before or after the
Expiration Date (including the Letter of Transmittal and the instructions
thereto) by the Company shall be final and binding on all parties. Unless
waived, any defects or irregularities in connection with tenders of Old Notes
for exchange must be cured within such reasonable period of time as the Company
shall determine. Neither the Company, the Exchange Agent nor any other person
shall be under any duty to give notification of any defect or irregularity with
respect to any tender of Old Notes for exchange, nor shall any of them incur any
liability for failure to give such notification.
If the Letter of Transmittal is signed by a person or persons other than
the registered holder or holders of Old Notes, such Old Notes must be endorsed
or accompanied by appropriate powers of attorney, in either case signed exactly
as the name or names of the registered holder or holders appear on the Old
Notes.
If the Letter of Transmittal or any Old Notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and, unless waived by
the Company, proper evidence satisfactory to the Company of their authority to
so act must be submitted.
By tendering, each holder will represent to the Company that, among other
things, the New Notes acquired pursuant to the Exchange Offer are being acquired
in the ordinary course of business of the person receiving such New Notes,
whether or not such person is the holder, that neither the holder nor any such
other person has an arrangement or understanding with any person to participate
in the distribution of such New Notes and that neither the holder nor any such
other person is an "affiliate" as defined under Rule 405 of the Securities Act,
of the Company, or if it is an affiliate it will comply with the registration
and prospectus requirements of the Securities Act to the extent applicable.
Each broker-dealer that receives New Notes for its own account in exchange
for Old Notes where such Old Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities must acknowledge
that it will deliver a prospectus in connection with any resale of such New
Notes. See "Plan of Distribution".
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request within two business days after the
date of this Prospectus to establish accounts with respect to the Old Notes at
the Book-Entry Transfer Facility. The Depository Trust Company, for the purpose
of facilitating the Exchange Offer, and subject to the establishment thereof,
any financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Old Notes by causing the
Book-Entry Transfer Facility to transfer such Old Notes into the Exchange
Agent's account with respect to the Old Notes in accordance with the Book-Entry
Transfer Facility's procedures for such transfer. Although delivery of Old Notes
may be effected through book-entry transfer into the Exchange Agent's account at
the Book-Entry Transfer Facility, an appropriate Letter of Transmittal with any
required signature guarantee and all other required documents must in each case
be transmitted to and received or confirmed by the Exchange Agent at its address
set forth below on or prior to the Expiration Date, or, if the guaranteed
delivery procedures described below are complied with, within the time period
provided under such procedures.
GUARANTEED DELIVERY PROCEDURES
If a holder of Old Notes desires to accept the Exchange Offer and time will
not permit a Letter of Transmittal or Old Notes to reach the Exchange Agent
before the Expiration Date or the procedure for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if the Exchange Agent has
received at its address set forth below on or prior to the Expiration Date, a
letter, telegram or facsimile transmission from an Eligible Institution setting
forth the name and address of the tendering holder, the names in which the Old
Notes are registered and, if possible, the certificate numbers of the Old Notes
to be tendered, and stating that the tender is being made thereby and
guaranteeing that within three business days after the
28
<PAGE> 33
Expiration Date, the certificates for all physically tendered Old Notes, in
proper form for transfer, or a Book-Entry Confirmation of such Old Notes into
the Exchange Agent's account at the Book-Entry Transfer Facility, will be
delivered by such Eligible Institution together with a properly completed and
duly executed Letter of Transmittal (and any other required documents). Unless
Old Notes being tendered by the above-described method are deposited with the
Exchange Agent within the time period set forth above (accompanied or preceded
by a properly completed Letter of Transmittal and any other required documents),
the Company may, at its option, reject the tender. Copies of Notice of
Guaranteed Delivery which may be used by Eligible Institutions for the purposes
described in this paragraph are available from the Exchange Agent.
WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to the Expiration
Date.
For a withdrawal to be effective, a written notice of withdrawal sent by
telegram, facsimile transmission (receipt confirmed by telephone) or letter must
be received by the Exchange Agent prior to the Expiration Date at its address
set forth below. Any such notice of withdrawal must specify the name of the
person having tendered the Old Notes to be withdrawn, identify the Old Notes to
be withdrawn (including the amount of such Old Notes), and (where certificates
for Old Notes have been transmitted) specify the name in which such Old Notes
are registered, if different from that of the withdrawing holder thereof. If
certificates for Old Notes have been delivered or otherwise identified to the
Exchange Agent, then, prior to the release of such certificates the withdrawing
holder thereof must also submit the serial numbers of the particular
certificates to be withdrawn and a signed notice of withdrawal with signatures
guaranteed by an Eligible Institution unless such holder is an Eligible
Institution. If Old Notes have been tendered pursuant to the procedure for book-
entry transfer described above, any notice of withdrawal must specify the name
and number of the account at the Book-Entry Transfer Facility to be credited
with the withdrawn Old Notes and otherwise comply with the procedures of such
facility. All questions as to the validity, form and eligibility (including time
of receipt) of such notices will be determined by the Company in its sole
discretion, which determination will be final and binding on all parties. Any
Old Notes so withdrawn will be deemed not to have been validly tendered for
exchange for purposes of the Exchange Offer. Any Old Notes which have been
tendered for exchange but which are not exchanged for any reason will be
returned to the holder thereof without cost to such holder (or, in the case of
Old Notes tendered by book-entry transfer into the Exchange Agent's account at
the Book-Entry Transfer Facility pursuant to the book-entry transfer procedures
described above, such Old Notes will be credited to an account with such
Book-Entry Transfer Facility specified by the holder thereof) as soon as
practicable after such withdrawal, rejection of tender or termination of the
Exchange Offer. Properly withdrawn Old Notes may be retendered by following one
of the procedures described under "-- Procedures for Tendering Old Notes" above
at any time on or prior to the Expiration Date.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
the Company will accept, promptly after the Expiration Date, all Old Notes
properly tendered prior to 5:00 p.m., New York City time, on the Expiration Date
and will issue the New Notes promptly after such acceptance. See "-- Certain
Conditions to the Exchange Offer" below. For purposes of the Exchange Offer, the
Company shall be deemed to have accepted properly tendered Old Notes for
exchange when, as and if the Company has given oral and written notice thereof
to the Exchange Agent, with written confirmation of any oral notice to be given
promptly thereafter.
For each Old Note accepted for exchange, the holder of such Old Note will
receive a New Note having a principal amount equal to that of the surrendered
Old Note.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of certificates for such Old Notes or a timely Book-Entry
Confirmation of such Old Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility, a properly completed and duly executed Letter of
Transmittal and all other required documents. If any tendered Old Notes are not
accepted for any reason set forth in the terms and
29
<PAGE> 34
conditions of the Exchange Offer or if Old Notes are submitted for a greater
principal amount than the holder desires to exchange, such unaccepted or
non-exchanged Old Notes will be returned without expense to the tendering holder
thereof (or, in the case of Old Notes tendered by book-entry transfer into the
Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the
book-entry transfer procedures described below, such non-exchanged Old Notes
will be credited to an account maintained with such Book-Entry Transfer
Facility) as promptly as practicable after the expiration of the Exchange Offer.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, the Company
shall not be required to accept for exchange, or to issue New Notes in exchange
for, any Old Notes and may terminate or amend the Exchange Offer if at any time
before the acceptance of such Old Notes for exchange or the exchange of the New
Notes for such Old Notes, any of the following events shall occur:
(i) there shall be threatened, instituted or pending any action or
proceeding before, or any injunction, order or decree shall have been
issued by, any court or any governmental agency seeking to restrain or
prohibit or prevent the Company from proceeding with the Exchange Offer or
assessing or seeking any damages as a result thereof, or that might result
in a material adverse effect on the contemplated benefits of the Exchange
Offer to the Company; or
(ii) there shall be proposed, enacted, promulgated or deemed
applicable to the Exchange Offer by any government or governmental agency
or authority any law or regulation, including any applicable interpretation
of the staff of the SEC, that might in the sole judgment of the Company
result in any of the consequences described in clause (i).
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any such
condition or may be waived by the Company in whole or in part at any time and
from time to time in its reasonable judgment. The failure by the Company at any
time to exercise any of the foregoing rights shall not be deemed a waiver of any
such right and each such right shall be deemed an ongoing right which may be
asserted at any time and from time to time.
In addition, the Company will not accept for exchange any Old Notes
tendered, and no New Notes will be issued in exchange for any such Old Notes, if
at such time any stop order shall be threatened or in effect with respect to the
Registration Statement of which this Prospectus constitutes a part or the
qualification of the Indenture under the Trust Indenture Act of 1939 (the
"TIA"). In any such event the Company is required to use every reasonable effort
to obtain the withdrawal of any stop order at the earliest possible time.
The Exchange Offer is not conditioned upon any minimum principal amount of
Old Notes being tendered for exchange.
EXCHANGE AGENT
The Bank of New York has been appointed as the Exchange Agent for the
Exchange Offer. All tendered Old Notes, executed Letters of Transmittal, and
other related documents should be directed to the Exchange Agent at one of the
addresses set forth in the Letter of Transmittal. Questions and requests for
assistance, requests for additional copies of this Prospectus or of the Letter
of Transmittal and requests for Notices of Guaranteed Delivery should be
directed to the Exchange Agent at the address set forth in the Letter of
Transmittal.
The Bank of New York also acts as Trustee under the Indenture.
SOLICITATION OF TENDERS; FEES AND EXPENSES
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith. The
Company will also pay brokerage houses and other custodians, nominees and
fiduciaries the reasonable out-of-pocket expenses incurred by them in forwarding
copies of this and other related documents to the beneficial owners of the Old
Notes and in handling or forwarding tenders for their customers.
30
<PAGE> 35
The estimated cash expenses to be incurred in connection with the Exchange
Offer will be paid by the Company and are estimated in the aggregate to be
approximately $400,000, which includes fees and expenses of the Exchange
Agent, Trustee, registration fees, accounting, legal, printing and related fees
and expenses.
No person has been authorized to give any information or to make any
representations in connection with the Exchange Offer other than those contained
in this Prospectus. If given or made, such information or representations should
not be relied upon as having been authorized by the Company. Neither the
delivery of this Prospectus nor any exchange made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Company since the respective dates as of which information is
given herein. The Exchange Offer is not being made to (nor will tenders be
accepted from or on behalf of) holders of Old Notes in any jurisdiction in which
the making of the Exchange Offer or the acceptance thereof would not be in
compliance with the laws of such jurisdiction.
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to
pay any transfer taxes in connection therewith except that holders who instruct
the Company to register New Notes in the name of, or request Old Notes not
tendered or not accepted in the Exchange Offer be returned to, a person other
than the registered tendering holder will be responsible for the payment of any
applicable transfer tax thereon.
ACCRETED VALUE OF THE NEW NOTES
No cash interest is payable on the Notes prior to March 15, 2001. Thus,
holders of Old Notes that are accepted for exchange will not receive accrued
interest thereon at the time of exchange. The Accreted Value of the New Notes
initially will be equal to the Accreted Value of the Old Notes at the time of
the exchange. See "Description of the Notes -- Certain Definitions" for the
definition of "Accreted Value".
ACCOUNTING TREATMENT
The New Notes will be recorded at the carrying value of the Old Notes as
reflected in the Company's accounting records on the date of the exchange.
Accordingly, no gain or loss for accounting purposes will be recognized by the
Company upon the exchange of New Notes for Old Notes. Expenses incurred in
connection with the issuance of the New Notes will be amortized over the term of
the New Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE; RESALE OF NEW NOTES
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the issuance of the Old Notes pursuant to the exemptions from, or
in transactions not subject to, the registration requirements of the Securities
Act and applicable state securities laws. Old Notes not exchanged pursuant to
the Exchange Offer will continue to remain outstanding in accordance with their
terms. In general, the Old Notes may not be offered or sold unless registered
under the Securities Act, except pursuant to an exemption from, or in a
transaction not subject to, the Securities Act and applicable state securities
laws. The Company does not currently anticipate that it will register the Old
Notes under the Securities Act. However, (i) if the Initial Purchaser so
requests with respect to Old Notes not eligible to be exchanged for New Notes in
the Exchange Offer and held by it following consummation of the Exchange Offer
or (ii) if any holder of Old Notes is not eligible to participate in the
Exchange Offer or, in the case of any holder of Old Notes that participates in
the Exchange Offer, does not receive freely tradeable New Notes in exchange for
Old Notes, the Company is obligated to file a registration statement on the
appropriate form under the Securities Act relating to the Old Notes held by such
persons.
Based on certain no-action letters issued by the staff of the SEC to third
parties in unrelated transactions, the Company believes that New Notes issued
pursuant to the Exchange Offer may be offered for resale, resold or otherwise
transferred by holders thereof (other than (i) any such holder that is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act or (ii) any broker-dealer that purchases
31
<PAGE> 36
Notes from the Company to resell pursuant to Rule 144A or any other available
exemption) without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such New Notes are acquired in
the ordinary course of such holders' business and such holders have no
arrangement or understanding with any person to participate in the distribution
of such New Notes. If any holder has any arrangement or understanding with
respect to the distribution of the New Notes to be acquired pursuant to the
Exchange Offer, such holder (i) could not rely on the applicable interpretations
of the staff of the SEC and (ii) must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction. Thus, any New Notes acquired by such holder will
not be freely transferable except in compliance with the Securities Act. A
broker-dealer who holds Old Notes that were acquired for its own account as a
result of market-making or other trading activities may be deemed to be an
"underwriter" within the meaning of the Securities Act and must, therefore,
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of New Notes. Each such broker-dealer that receives
New Notes for its own account in exchange for Old Notes, where such Old Notes
were acquired by such broker-dealer as a result of market-making activities or
other trading activities, must acknowledge in the Letter of Transmittal that it
will deliver a prospectus in connection with any resale of such New Notes. See
"Plan of Distribution".
In addition, to comply with the securities laws of certain jurisdictions,
if applicable, the New Notes may not be offered or sold unless they have been
registered or qualified for sale in such jurisdiction or an exemption from
registration or qualification is available and is complied with. The Company has
agreed, pursuant to the Registration Rights Agreement and subject to certain
specific limitations therein, to register or qualify the New Notes for offer or
sale under the securities or blue sky laws of such jurisdictions as any holder
of the Notes reasonably requests in writing.
Participation in the Exchange Offer is voluntary, and holders of Old Notes
should carefully consider whether to participate. Holders of the Old Notes are
urged to consult their financial and tax advisors in making their own decision
on what action to take.
As a result of the making of, and upon acceptance for exchange of all
validly tendered Old Notes pursuant to the terms of this Exchange Offer, the
Company will have fulfilled a covenant contained in the Registration Rights
Agreement. Holders of Old Notes who do not tender their Old Notes in the
Exchange Offer will continue to hold such Old Notes and will be entitled to all
the rights, and limitations applicable thereto, under the Indenture, except for
any such rights under the Registration Rights Agreement that by their terms
terminate or cease to have further effectiveness as a result of the making of
this Exchange Offer. See "Description of Notes". All untendered Old Notes will
continue to be subject to the restrictions on transfer set forth in the
Indenture. To the extent that Old Notes are tendered and accepted in the
Exchange Offer, the trading market for untendered Old Notes could be adversely
affected.
The Company may in the future seek to acquire untendered Old Notes in open
market or privately negotiated transactions, through subsequent exchange offers
or otherwise. The Company has no present plan to acquire any Old Notes which are
not tendered in the Exchange Offer.
LIQUIDATED DAMAGES
Pursuant to the Registration Rights Agreement, the Company is obligated to
pay liquidated damages to each holder of Transfer Restricted Securities (defined
below), during the period of the Applicable Registration Default (defined
below), in an amount equal to one-half of one percent (0.5%) per annum of the
Accreted Value of the Notes constituting Transfer Restricted Securities held by
such holder until the Exchange Offer is consummated. "Transfer Restricted
Securities" means each Old Note until the date on which such Old Note has been
exchanged for a freely transferable New Note in the Exchange Offer. The
"Applicable Registration Default" is the failure to consummate the Exchange
Offer within 180 days after the Issue Date (i.e. December 4, 1996). Because the
Exchange Offer will not be consummated prior to December 4, 1996, the Company
will be liable for liquidated damages to holders of Transfer Restricted
Securities.
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<PAGE> 37
SELECTED FINANCIAL AND OPERATING DATA
The selected statement of operations data for each of the fiscal years
ended December 31, 1993, 1994 and 1995, and the balance sheet data dated as of
December 31, 1994 and 1995 are derived from the Company's financial statements
which have been audited by KPMG Peat Marwick, independent auditors. The
historical information for the six months ended June 30, 1995 and 1996 has been
derived from the unaudited financial statements of the Company included herein.
In the opinion of management, the information for the six month periods ended
June 30, 1995 and 1996 includes all material adjustments (consisting only of
adjustments of a normal and recurring nature) necessary for a fair presentation
of the results for such periods. The results of operations for any interim
period are not necessarily indicative of the results of operations for a full
year. This information should be read in conjunction with, and is qualified in
its entirety by reference to, such financial statements, including the notes
thereto, which are included elsewhere in this Prospectus.
The Company was organized in February 1992 to participate in the auctioning
of cellular concessions by the Colombian government. The Company commenced
commercial cellular telephone service operations in September 1994. Accordingly,
the Company had no commercial operating history prior to such time, and results
for 1994 are not directly comparable to those of 1995.
The financial statements included in this Prospectus have been prepared in
conformity with generally accepted accounting principles in Colombia ("Colombian
GAAP"), which differ in certain significant respects from generally accepted
accounting principles in the United States ("U.S. GAAP"). Note 17 to the
financial statements provides a description of the principal differences between
Colombian GAAP and U.S. GAAP as they relate to the Company, as well as a
reconciliation of the Company's net income (loss) and shareholders' equity
calculated in accordance with Colombian GAAP to amounts calculated in accordance
with U.S. GAAP.
In accordance with the requirements of the SEC, the selected financial
information included herein and in the accompanying financial statements and
notes thereto for all periods presented has been restated into constant Pesos as
of the latest balance sheet date (June 30, 1996), using the Colombian consumer
price index, in order to express all financial information in purchasing power
as of the date of the latest balance sheet. Because of such requirements, the
Company's historical financial information will be revised from time to time in
the future when it publishes a new balance sheet so that such information is
restated in constant Pesos as of such latest date.
<TABLE>
<CAPTION>
AS OF AND FOR THE SIX MONTHS
ENDED JUNE 30,
AS OF AND FOR THE YEAR ENDED DECEMBER 31, (UNAUDITED)
---------------------------------------------- ----------------------------------
1993(1) 1994(2) 1995 1995(3) 1995 1996 1996(3)
-------- --------- --------- ----------- --------- --------- ----------
(IN MILLIONS OF CONSTANT JUNE 30, 1996 PESOS AND THOUSANDS OF DOLLARS,
EXCEPT NETWORK AND OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
COLOMBIAN GAAP
Revenues
Cellular service..................... Ps -- Ps 6,694 Ps 34,857 US$ 32,585 Ps 10,958 Ps 29,484 US$ 27,562
Equipment sales...................... -- 3,817 10,302 9,630 6,681 4,039 3,776
-------- --------- --------- ----------- --------- --------- ----------
Total revenues................. -- 10,511 45,159 42,215 17,639 33,523 31,338
======== ========= ========= =========== ========= ========= ===========
Costs and expenses
Costs of cellular service............ -- 814 12,066 11,278 1,640 11,514 10,763
Costs of equipment sales............. -- 3,279 9,834 9,192 6,489 4,694 4,388
Marketing and selling expenses....... -- 4,760 12,443 11,632 6,830 5,885 5,501
General and administrative
expenses........................... -- 4,160 19,903 18,606 7,059 8,654 8,090
Depreciation and amortization(4)..... -- 1,670 12,606 11,784 5,648 8,204 7,669
-------- --------- --------- ----------- --------- --------- ----------
Total costs and expenses....... -- 14,683 66,852 62,492 27,666 38,951 36,412
-------- --------- --------- ----------- --------- --------- ----------
Operating Loss......................... -- (4,172) (21,693) (20,277) (10,027) (5,428) (5,074)
======== ========= ========= =========== ========= ========= ===========
Other income (expense)
Interest expense..................... -- (5,213) (27,919) (26,099) (7,313) (15,641) (14,621)
Foreign exchange(5).................. -- (2,939) (21,223) (19,839) (7,256) (10,219) (9,553)
Interest income(6)................... 239 6,246 2,353 2,200 320 1,521 1,422
Net monetary correction(7)........... (17) 3,025 22,864 21,373 15,212 22,461 20,997
</TABLE>
33
<PAGE> 38
<TABLE>
<CAPTION>
AS OF AND FOR THE SIX MONTHS
ENDED JUNE 30,
AS OF AND FOR THE YEAR ENDED DECEMBER 31, (UNAUDITED)
---------------------------------------------- ----------------------------------
1993(1) 1994(2) 1995 1995(3) 1995 1996 1996(3)
-------- --------- --------- ----------- --------- --------- ----------
(IN MILLIONS OF CONSTANT JUNE 30, 1996 PESOS AND THOUSANDS OF DOLLARS,
EXCEPT NETWORK AND OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Other................................ -- (185) (330) (311) (1,165) (784) (734)
-------- --------- --------- ----------- --------- --------- ----------
Other income (expense), net.......... 222 935 (24,255) (22,676) (202) (2,662) (2,489)
Income Tax Provision................... -- -- -- -- (671) (627)
-------- --------- --------- ----------- --------- --------- ----------
Net income (loss).............. Ps 222 Ps (3,237) Ps(45,948) US$ (42,953) (10,229) (8,761) (8,190)
======== ========= ========= =========== ========= ========= ===========
U.S. GAAP
Revenues............................... -- 10,511 45,159 42,215 17,639 33,523 31,338
Operating Loss......................... (3,958) (19,453) (33,881) (31,672) (18,127) (7,677) (7,177)
Net loss............................... (3,871) (17,240) (54,791) (51,219) (14,573) (10,824) (10,118)
OTHER FINANCIAL DATA AND RATIOS
EBITDA(8).............................. -- (2,502) (9,087) (8,496) (4,379) 2,776 2,595
EBITDA (U.S. GAAP)(8).................. (2,133) (6,564) (6,136) (4,112) (7,369) (6,889)
Capital Expenditures................... 61 39,738 26,029 24,333 10,205 3,816 3,567
Fixed charge coverage deficiency(9).... -- (3,237) (45,948) (42,953) (10,229) (8,090) (7,563)
NETWORK AND OPERATING DATA
Population covered (at end of period
in millions)......................... -- 7.1 8.6 8.6 8.3 8.7 8.7
Reported subscribers (at end of
period)(10).......................... -- 9,356 40,887 40,877 30,826 56,741 56,741
Penetration (at end of period)(11)..... -- 0.13% 0.48% 0.48% 0.36% 0.65% 0.65%
Total minutes of use during period
(in millions)........................ -- 3.47 69.70 69.70 30.18 47.96 47.96
Average monthly revenue per active
subscriber during period(12)......... Ps -- Ps120,777 Ps111,930 US$ 107.01 Ps 82,134 Ps139,514 US$ 132.10
BALANCE SHEET DATA
COLOMBIAN GAAP
Property, plant and equipment, net..... 174 42,723 66,849 62,492 57,352 67,192 62,812
Total assets........................... 6,526 275,096 292,417 273,357 284,166 315,869 295,279
Total debt............................. -- 117,236 175,662 164,210 140,947 198,186 185,267
Shareholders' equity................... 5,659 127,919 82,705 77,317 118,035 88,251 82,498
U.S. GAAP
Property, plant and equipment, net..... 174 43,167 88,751 82,966 62,789 89,595 83,755
Total assets........................... 1,371 245,572 274,506 256,612 254,737 294,557 275,356
Total debt............................. -- 117,486 196,319 183,522 145,609 203,958 190,663
Shareholders' equity................... 1,054 109,290 55,072 51,482 94,890 70,147 65,574
</TABLE>
- ---------------
(1) Represents pre-operating period during which the Company earned interest
income on investments.
(2) Represents four months of commercial operations.
(3) Translations of Pesos into Dollars have been made at the rate of Ps
1,069.73 = US$1.00 (the Representative Market Rate on June 30, 1996). Such
translations are provided solely for the convenience of the reader. See
note 1 to the financial statements of the Company included elsewhere in
this Prospectus.
(4) Depreciation and amortization include their respective inflation
adjustments. The Company amortizes the Concession using the units of
activation method. See note 1(e) to the financial statements of the
Company.
(5) Includes only foreign exchange losses.
(6) Includes interest income and foreign exchange gains.
(7) Represents net inflation adjustments to the financial statements. See note
15 to the financial statements of the Company.
(8) EBITDA represents earnings before interest and financial charges, income
taxes, depreciation and amortization. The Company has included information
concerning EBITDA (which is not a measure of financial performance under
generally accepted accounting principles), because it understands that it
is used by certain investors as one measure of an issuer's ability to
service or incur indebtedness. EBITDA should not be construed as an
alternative to operating income (as determined in accordance with generally
accepted accounting principles) as an indicator of the Company's
performance or to cash flows from operating activities (as determined in
accordance with generally accepted accounting principles) as a measure of
liquidity. EBITDA is calculated using financial statement information
included herein and, accordingly, is in constant Colombian Pesos and
includes inflation adjustments.
34
<PAGE> 39
(9) The fixed charge coverage deficiency covers continuing operations, and for
this purpose (i) earnings consist of income (loss) before income taxes plus
fixed charges and (ii) fixed charges consist of interest expense on all
debt (including capitalized interest), amortization of deferred financing
costs and a percentage of rental expense deemed to be interest. There were
no fixed charges in 1993. Earnings were inadequate to cover fixed charges
in 1994 and 1995 and in the six months ended June 30, 1995 and 1996.
(10) As reported by the Company to the Colombian Ministry of Communications. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- General" and "Price Competition and Related Matters".
(11) "Penetration" is defined as reported subscribers divided by population
covered within the Concession area. See also the Glossary of Certain
Telecommunications Terms in Annex B hereto.
(12) Represented in constant Pesos. "Active subscribers" is the Company's
internal measure of customers currently generating revenue. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- General" and "Price Competition and Related Matters".
35
<PAGE> 40
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following is a discussion of the financial condition and results of
operations of the Company as of and for the fiscal years ended December 31, 1995
and December 31, 1994 and the six-month periods ended June 30, 1996 and June 30,
1995. The discussion should be read in conjunction with the financial statements
of the Company and the notes thereto included elsewhere in this Prospectus. The
financial statements have been prepared in accordance with Colombian GAAP, which
differs in certain significant respects from US GAAP. Note 17 to the Company's
financial statements provides a description of the differences between US GAAP
and Colombian GAAP, as well as a reconciliation to US GAAP of the Company's net
income (loss) and shareholders' equity. In accordance with the requirements of
the SEC, unless otherwise indicated, the financial information has been
presented in constant Pesos as of the latest balance sheet date (June 30, 1996)
in order to express all financial information in purchasing power as of such
date. See note 1 to the Company's financial statements for a description of such
constant Peso adjustments. The following discussion gives all amounts in Pesos
as well as in U.S. dollars. Such U.S. dollar amounts are convenience
translations of the Peso amounts at the Representative Market Rate for June 30,
1996, which was 1,069.73 Pesos to one U.S. dollar.
GENERAL
The Company was awarded the Concession in March 1994 and began its
commercial service in September of the same year. Therefore, the balance sheet
and income statement as of and for the year ended December 31, 1994, reflect the
fact that the Company was in a pre-operative, development stage during the first
eight months of 1994 and was in commercial operation during the last four months
of such year. In light of the foregoing, the financial information for 1994 is
not directly comparable to that for 1995.
On April 13, 1994, the Company paid Ps 123.1 billion (actual Pesos)
(US$148.5 million at the April 13, 1994 Representative Market Rate) to the
government for the Concession. This amount is being amortized over nine years
and seven months beginning September 1994, which period is the remaining term of
the Concession as of such date, using the units of activation method. To
calculate the monthly amortization charge, this method utilizes the sum of the
projected subscribers per month for each month during the term of the Concession
as the denominator and the sum of the subscribers per month for each month in
the reporting period as the numerator. The Company will revise the underlying
projections of subscribers on a periodic basis, and any resulting impact on
amortization expense will be accounted for in subsequent periods. The Company is
also obligated to pay the government a quarterly royalty payment during the term
of the Concession equal to 5% of the sum of activation fees, monthly fixed fees,
airtime charges, interconnection fees and supplementary services, minus
interconnection costs paid by the Company to other telecommunications operators.
Such royalty payment is included in operating costs in the Company's financial
statements.
The Company generates revenue from (i) activation fees, which are the
initial charges paid by a new subscriber for service, (ii) monthly fixed fees,
which vary depending on the tariff plan chosen by the subscriber, (iii) airtime
charges, which are billed based on usage, vary depending upon the tariff plan
chosen and, under Colombia's calling party pays system, include airtime charges
received from other cellular and wireline operators for calls routed to the
Company's network, (iv) revenues from the sale of equipment to subscribers,
consisting of handsets and accessories and (v) other revenues generated from
roaming, domestic long-distance and value-added and supplementary services.
Equipment sales are made directly by the Company to its customers or to its
independent distributors. The Company believes its roaming, long-distance and
value-added and supplementary services are an important element in attracting
customers, although such services have not been a significant component of total
revenue thus far.
The Company has varied the pricing of all the components of its services in
accordance with its marketing plan and in light of competitive factors, and
expects to continue to do so in the future. In particular, the Company
introduced a short-term pricing initiative in the first quarter of 1995 during a
period of price competition with its principal competitor, Cocelco, pursuant to
which it significantly reduced prices in order to capture market share as
discussed below. Following such period, the Company's airtime and monthly fixed
fees have returned to levels approximating those in effect at the end of 1994,
although the Company has kept
36
<PAGE> 41
its activation fees low in order to attract subscribers. In December 1995, the
Company began a promotional campaign pursuant to which it does not charge any
activation fee.
Consistent with cellular start-up environments, the Company believes that
the current fees and airtime tariffs charged by Colombian operators, including
the Company, are generally higher than those charged in more mature cellular
markets outside of Colombia. Accordingly, the Company believes that as the
market for cellular services in Colombia matures, prices will generally fall,
but at the same time the number of subscribers in Colombia should increase.
The term "reported subscribers" means subscribers as reported by the
Company to the Colombian Ministry of Communications. Prior to September 1995, in
accordance with the reporting guidelines of the Ministry of Communications, the
Company filed quarterly reports which did not cover calendar quarters, but
lagged by approximately one month. For purposes of consistency, reported
subscribers set forth herein for periods prior to September 1995 have been
calculated to conform to calendar quarters. Consistent with the Company's
interpretation of the Ministry's reporting guidelines and with what the Company
believes to be the common interpretation of cellular operators in Colombia, the
Company includes in such term subscribers who have been temporarily
disconnected, and are under evaluation by the Company for reconnection or
permanent deactivation. Prior to September 1995, "reported subscribers" also
included permanently deactivated customers. See also the discussion under
"-- Price Competition and Related Matters" in the comparison of 1995 to 1994.
Active subscribers is the Company's internal measure of subscribers
currently generating revenue, and thus is equal to reported subscribers less all
disconnected subscribers. Calculations of revenue per subscriber, monthly fees
per subscriber and usage per subscriber are made on the basis of active
subscribers. Activation fees per new subscriber and equipment sales per new
subscriber for a period are calculated based on the incremental increase in
reported subscribers for such period.
See the discussion under "Price Competition and Related Matters" in the
comparison of 1995 to 1994 for a discussion of the differences between total
reported and active subscribers.
Cellular operators typically experience losses and negative cash flow in
their initial years of operation due to the large capital investments required
for construction of their networks and the significant advertising and other
expenses needed to start the business. Consistent with this pattern, the Company
has incurred cumulative losses and negative cash flow from operations since
inception. The Company reported net losses for the years ended December 31, 1994
and, December 31, 1995 and the six months ended June 30, 1996 of Ps 3.2 billion
(US$3.0 million), Ps 46.0 billion (US$43.0 million) and Ps 8.8 billion (US$8.2
million), respectively. In addition, the purchase price for the Concession has
been capitalized and is being amortized over its term as described above.
Effective January 1, 1996, according to Law 223/1995, the Company is liable
for income tax at a statutory tax rate of 35%. Before this change in the law,
the Company was not liable for income tax and, therefore, no provision was
recorded for income taxes. Fiscal losses may be carried forward for tax purposes
for five years. In 1996 and future years, the Company's tax liability will be
calculated based on the greater of (i) net taxable income and (ii) presumed
income, which is the greater of 5% of shareholders' fiscal equity and 1.5% of
total assets, in each case at the end of the previous fiscal year.
CURRENCY FLUCTUATIONS AND DEVALUATION
Substantially all of the Company's debt obligations are denominated in
Dollars while the Company generates revenues in Pesos. In addition, the Company
has incurred and expects to incur a significant portion of its equipment costs
in Dollars. Therefore, the Company is exposed to currency exchange rate risks
which could significantly impact the Company's ability to meet its obligations
and finance its network construction. The Company currently does not plan to
enter into hedging transactions with respect to these foreign currency risks and
it is unlikely that the Company would be able to obtain hedging arrangements on
commercially satisfactory terms with respect to all such risks. The exchange
rate of the Peso to the Dollar has declined in
37
<PAGE> 42
recent years, and any further decrease in the value of the Peso relative to the
Dollar may have a material adverse effect on the Company and on its ability to
meet its obligations under the Notes.
INFLATION
Throughout most of the 1980s and 1990s, Colombia experienced high levels of
inflation. While the Colombian government adopted policies which resulted in
reducing the inflation rate from 26.8% in 1991 to 22.1% and 19.5% in 1994 and
1995, respectively, there can be no assurance that the performance of the
Colombian economy or its securities markets, the operating results of the
Company or the value of the Notes will not be adversely affected by continuing
or increased levels of inflation.
ACCOUNTING FOR INFLATION
As a Colombian company, the Company maintains its financial records in
Colombian pesos. Effective January 1, 1992, Colombian GAAP required that the
financial statements of Colombian companies be adjusted to account for
inflation. Financial statements are adjusted for the effects of inflation on the
basis of changes in the Colombian CPI. This index is applied, on a one-month
lagging basis, to non-monetary assets and liabilities, shareholders' equity,
revenues and expense accounts. Monetary balances are not adjusted because they
reflect the purchasing power of the currency at the date of the balance sheet.
Foreign currency balances are not adjusted because they are translated into
Pesos at the exchange rate in effect on the date of the balance sheet and
consequently reflect the purchasing power of the currency on that date. The
resulting net gain or loss from exposure to inflation is reflected as "Net
monetary correction" in the income statement for the period in question. See
notes 1 and 15 to the Company's financial statements.
RESULTS OF OPERATION
YEAR ENDED DECEMBER 31, 1994 (FOUR MONTHS OF COMMERCIAL OPERATIONS)
For the period from January 1, 1994 through August 31, 1994, the Company
was in a pre-operating phase. Accordingly, the Company did not generate any
revenues (although it had income from investments of excess cash), and
substantially all expenses during this period were capitalized in accordance
with Colombian GAAP. Such preoperating capitalized expenses consisted primarily
of expenses related to the construction of the Company's cellular network as
well as the development of the Company's corporate infrastructure. Such amount,
which is amortized as discussed below, totalled Ps 14.8 billion (US$14.1
million).
Except as noted below, all references to 1994 mean the four months of
commercial operation.
Revenues
Revenues during 1994 were Ps 10.5 billion (US$9.8 million), all of which
were realized during the last four months of the year. Of such total, Ps 4.6
billion (US$4.3 million), or 44%, came from activation fees from new
subscribers, and Ps 3.8 billion (US$3.6 million), or 36%, came from sales of
equipment. The remainder came from airtime charges (8%) and monthly fixed fees
(12%).
As of December 31, 1994, the Company had 9,356 reported subscribers.
Average monthly revenue per subscriber for 1994 was Ps 120,777 (US$113).
Average activation charges per new subscriber in 1994 were Ps 488,931
(US$457). As is typical for cellular operators in the start-up period, this rate
was significantly higher than the rates the Company expects to realize in future
periods. Equipment sales were also made at average prices higher than those the
Company expects to realize in the future. Average airtime per subscriber was 207
minutes. Minutes in excess of those included in the basic service were charged
at an average of Ps 278 (US$0.26) per minute. Average monthly fixed fees per
subscriber were Ps 77,551 (US$72).
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<PAGE> 43
Costs and Expenses
Costs and expenses for 1994 were Ps 14.7 billion (US$13.7 million),
substantially all of which were incurred during the last four months of the
year.
Operating costs were Ps 4.1 billion (US$3.8 million), or 39% of revenue.
Such expenses consist of cost of equipment sales, interconnection fees paid to
local wireline operators (for calls routed through their networks) and the
quarterly royalty payment to the government pursuant to the Concession. Cost of
equipment sales, which were Ps 3.3 billion (US$3.0 million), represent costs of
handsets and accessories sold by the Company directly to its subscribers or to
its distributors. Interconnection charges and the royalty payment (which
totalled Ps 0.8 billion (US$0.8 million)) were low because the Company commenced
commercial operations during this period.
The largest component of costs and expenses (32%) was marketing and selling
expenses, which were Ps 4.8 billion (US$4.4 million), reflecting the Company's
emphasis on marketing efforts to build awareness among potential subscribers of
its "Vozavoz" brand name, its services and its image. Such expenses consisted
principally of advertising and publicity costs as well as incentives and
commissions paid to salespeople.
General and administrative expenses were Ps 4.2 billion (US$3.9 million),
or 29% of total costs and expenses.
Depreciation and amortization, which totalled Ps 1.7 billion (US$1.6
million) and represented 11% of total costs and expenses, consisted of (i)
amortization of intangibles (consisting of the purchase price of the
Concession), (ii) amortization of deferred charges (principally pre-operating
expenses) and (iii) depreciation.
EBITDA
As a result of the foregoing, EBITDA for 1994 was a negative Ps 2.5 billion
(US$2.3 million). See note 8 under "Selected Financial and Operating Data".
Operating Loss
As a result of the foregoing, the Company had an operating loss of Ps 4.2
billion (US$3.9 million) for 1994.
Other Income (Expense)
Other income, net, was Ps 0.9 billion (US$0.9 million). This was comprised
of interest income of Ps 6.2 billion (US$5.8 million), of which 52% resulted
from investments of excess cash and 48% from foreign exchange gains and other
adjustments, and net monetary correction of Ps 3.0 billion (US$2.8 million).
Other income was offset in part primarily by interest expense on indebtedness of
Ps 5.2 billion (US$4.9 million) and foreign exchange losses on the U.S.
dollar-denominated portion of such indebtedness of $2.9 billion (US$2.7
million). Such indebtedness was used to fund capital expenditures, working
capital and other operating costs and a portion of the purchase price of the
Concession. The foreign exchange losses resulted from the devaluation of the
Peso during this period from 816.08 Pesos to one U.S. dollar as of September 1,
1994 to 831.27 Pesos to one U.S. dollar as of December 31, 1994.
Substantially all of the monetary correction, which represents the
aggregate impact of inflation adjustments to non-monetary assets and
liabilities, income statement accounts and shareholders' equity, reflected
inflation adjustments to balance sheet accounts. (See also note 15 to the
financial statements of the Company.)
Net Loss
As a result of the foregoing, the Company incurred a net loss of Ps 3.2
billion (US$3.0 million) during 1994.
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<PAGE> 44
YEAR ENDED DECEMBER 31, 1995 COMPARED WITH YEAR ENDED DECEMBER 31, 1994
Because 1995 reflects a full year of commercial operations, it is not
directly comparable to 1994, which includes only four months of commercial
operations. References to 1994 mean such four months unless otherwise noted.
Revenues
Revenues for 1995 were Ps 45.2 billion (US$42.2 million), an increase of
330% over 1994 revenues of Ps 10.5 billion (US$9.8 million). Such increase
reflected the full year of operations and the significant growth in reported
subscribers, which increased from 9,356 as of December 31, 1994 to 40,887 as of
December 31, 1995.
The composition of revenue changed significantly as a result of the full
year of operations and the significant growth of subscribers, as well as certain
pricing changes and the price competition discussed below. Airtime charges
represented 41% of total revenue in 1995 compared to 8% in 1994, and monthly
fixed fees were 31% of revenue in 1995 compared to 12% in 1994. Equipment sales
represented 23% of revenue in 1995 compared to 36% in 1994, and activation fees
were 3% of revenue in 1995 compared to 44% in 1994. The remaining 2% of revenues
in 1995 consisted of other revenues, principally attributable to roaming charges
for which the Company did not charge prior to 1995.
Revenue in all categories except activation fees increased significantly in
1995 compared to 1994. Airtime charges were Ps 18.4 billion (US$17.2 million) in
1995, compared to Ps 0.8 billion (US$0.8 million) in 1994. This reflected the
full year of operations, the increased number of subscribers, and an increase in
average usage per subscriber. Average minutes per subscriber increased
approximately 18% from 207 minutes in 1994 to 244 minutes in 1995. In addition,
the average billed rate per minute increased 41% from Ps 278 (US$0.26) in 1994
to Ps 393 (US$0.37) in 1995 primarily because of the inclusion of
interconnection revenues for incoming calls. This was partially offset by a
reduction in prices discussed below.
Monthly fixed fees were Ps 13.9 billion (US$13.0 million) in 1995, compared
to Ps 1.3 billion (US$1.2 million) in 1994. This again reflected the full year
of operations and the increased subscriber base. The average monthly fixed fee
per subscriber was Ps 48,900 (US$46) in 1995, a 37% decrease compared to the
1994 rate of Ps 77,551 (US$72). The Company reduced its monthly fixed fees in
order to increase its subscriber base and stimulate usage.
Revenue from equipment sales was Ps 10.3 billion (US$9.6 million) in 1995,
an increase of 172% over 1994, which reflected the increase in subscribers,
partially offset by certain decreases in equipment prices.
Activation fees were Ps 1.3 billion (US$1.2 million), compared to Ps 4.6
billion (US$4.3 million) in 1994. This reflected the substantial drop in average
activation fees per customer from Ps 488,930 (US$457) in 1994 to Ps 42,484
(US$40) in 1995, the effect of which was offset in part by the growth in
subscribers. Such decline was in part planned as the Company sought to broaden
its subscriber base in order to increase total revenues and was in part due to
price competition discussed below.
Price Competition and Related Matters
Beginning in January 1995, the Company substantially reduced its subscriber
charges in all categories in order to respond to price reductions by its
principal competitor, Cocelco. The Company reduced activation fees from Ps
650,000 (US$608) as of December 31, 1994 to Ps 290,000 (US$271) as of January
31, 1995, kept monthly fixed fees for its basic service at Ps 37,000 (US$35) and
reduced airtime charges for its basic service per peak minute from Ps 370
(US$0.35) as of December 31, 1994 to Ps 250 (US$0.23) as of January 31, 1995 and
per off peak minute from Ps 190 (US$0.18) as of December 31, 1994 to Ps 125
(US$0.12) as of January 31, 1995. Subsequently, the Company charged customers a
fee of Ps 290,000 (US$271) for activation as well as equipment, which
effectively reduced activation fees to zero. The Company believes these
reductions were the primary reason for the substantial increase in reported
customers in the first quarter of 1995, from 9,356 as of December 31, 1994 to
31,080 as of March 31, 1995. The price competition abated in the second quarter
of 1995, and the Company began at the end of the second quarter to increase its
40
<PAGE> 45
average activation price, monthly fixed fees and airtime charges. The Company
also began to promote the use of digital handsets by setting the activation
charge for digital users lower than the activation charge for analog users. As
of December 31, 1995, airtime and monthly fixed fees returned to approximate
December 31, 1994 levels; however, in December, 1995, the Company began a
promotional campaign pursuant to which it does not charge any activation fee.
The foregoing prices are in actual Pesos and are translated into Dollars at the
Representative Market Rate on June 30, 1996.
In order to rapidly establish awareness of cellular services and to respond
to the price competition, the Company's top priority during this period was to
increase its subscriber base. In order to accomplish this objective, management
did not strictly enforce its policies for managing customer credit checks, late
payments and collections. As a result, the Company found that its customer
accounts receivable were increasing at a fast rate because many of the customers
who joined in the first quarter of 1995 in particular were behind in payments.
The Company believes this reflected, among other things, a lower average credit
quality among those new customers as well as the fact that many of them did not
intend to be long-term customers, especially as prices increased.
Beginning in August 1995, the Company implemented a variety of measures to
deal with late payments, collections and credit standards. The Company took more
aggressive action to temporarily disconnect customers who were behind in their
payments and to evaluate the reasons for late payments. Such actions included
enforcement of gradual restrictions on a subscriber's service, temporary
disconnection generally after 45 days, and, where appropriate, permanent
disconnection after 120 days, following the billing date. The Company also
implemented more thorough credit checks on new subscribers requiring credit
approval before activating service. All these measures were designed to upgrade
the credit quality of the Company's customers, minimize churn and minimize the
risk that subscribers would accumulate large unpaid balances.
Through the Company actions described above, as well as voluntary
terminations, the Company expects that a significant number of its subscribers
(including approximately half of the customers who joined in the first quarter
of 1995) will ultimately be permanently deactivated or will otherwise leave its
subscriber base, although this will only be determined over time. As a result,
approximately 12,000 of the approximately 41,000 reported subscribers as of
December 31, 1995 are not considered active subscribers. Approximately 12,500 of
the approximately 48,500 reported subscribers as of March 31, 1996 are not
considered active subscribers.
The Company believes that as a result of its actions it has increased the
overall credit quality of its customers and it has the policies and systems in
place to effectively manage subscriber growth. In connection with these efforts,
the Company in late 1995 implemented a new software package for general
accounting. The Company also expects to implement by the end of the second
quarter of 1996 a new software package designed to further improve the
administration of collections.
Costs and Expenses
Costs and expenses were Ps 66.9 billion (US$62.5 million), an increase of
355% over Ps 14.7 billion (US$13.7 million) in 1994. Such increase reflected the
overall growth in the business and, in particular, an increase in operating
costs because of the substantial increase in the number of subscribers.
Operating costs were Ps 21.9 billion (US$20.5 million), compared to the
1994 amount of Ps 4.1 billion (US$3.8 million), and represented 49% of revenue
compared to 39% in 1994, primarily reflecting the leasing of equipment,
long-distance and interconnection fees and leased lines, none of which were
incurred in 1994. Included in operating costs were cost of equipment sold of Ps
9.8 billion (US$9.2 million) in 1995, compared to Ps 3.3 billion (US$3.1
million) in 1994, and interconnection charges and the quarterly royalty payment
to the government which totalled Ps 4.6 billion (US$4.3 million) in 1995
compared to Ps 0.8 billion (US$0.8 million) in 1994.
Marketing and selling expenses were Ps 12.4 billion (US$11.6 million),
compared to Ps 4.8 billion (US$4.4 million) in 1994. Such costs were 28% of
revenue in 1995 compared to 45% in 1994, reflecting the realization of economies
of scale in sales and marketing.
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<PAGE> 46
General and administrative costs were Ps 19.9 billion (US$18.6 million),
compared to the 1994 amount of Ps 4.2 billion (US$3.9 million), reflecting the
growth of the Company. Approximately 27% of such total constituted a provision
for bad debt of Ps 5.4 billion (US$5.0 million) which was related to the actions
by the Company to upgrade the quality of its customer base discussed above.
General and administrative costs were 44% of revenue in 1995 compared to 40% in
1994, primarily because of such provision.
Depreciation and amortization was Ps 12.6 billion (US$11.8 million),
compared to Ps 1.7 billion (US$1.6 million) in 1994. Such charges were 28% of
revenues in 1995 compared to 16% in 1994, primarily because the growth in
subscribers increased amortization of intangibles under the units of activation
method as discussed above, and depreciation increased because of the increase in
property, plant and equipment from Ps $42.7 billion (US$39.9 million) as of
December 31, 1994 to Ps 66.8 billion (US$62.5 million) as of December 31, 1995.
EBITDA
As a result of the foregoing, EBITDA for 1995 was a negative Ps 9.1 billion
(US$8.5 million), compared to a negative Ps 2.5 billion (US$2.3 million) in
1994. See note 8 under "Selected Financial and Operating Data".
Operating Loss
As a result of the foregoing, the Company incurred an operating loss of Ps
21.7 billion (US$20.3 million) in 1995 compared to an operating loss of Ps 4.2
billion (US$3.9 million) in 1994.
Other Income (Expense)
Other expense, net, in 1995 amounted to Ps 24.3 billion (US$22.7 million),
compared to other income, net, of Ps 0.9 billion (US$0.9 million) in 1994. Other
expense consisted of interest expense on indebtedness of Ps 27.9 billion
(US$26.1 million) in 1995 compared to Ps 5.2 billion (US$4.9 million) in 1994
and foreign exchange losses on U.S. dollar-denominated indebtedness of Ps 21.2
billion (US$19.8 million) in 1995 compared to Ps 2.9 billion (US$2.7 million) in
1994. Such increases were primarily due to the devaluation of the Peso, as well
as the effect of the full year of interest expense in 1995 as opposed to four
months in 1994. The foreign exchange losses reflected devaluation of the Peso
from 831.27 Pesos to one U.S. dollar at December 31, 1994 to 987.65 Pesos to one
U.S. dollar at December 31, 1995. Such other expenses were offset in part
primarily by interest income of Ps 2.4 billion (US$2.2 million) compared to Ps
6.2 billion (US$5.8 million) in 1994, and a net monetary correction of Ps 22.9
billion (US$21.4 million) in 1995 compared to Ps 3.0 billion (US$2.8 million) in
1994. Of the total interest income in 1995, 37% resulted from investments of
excess cash compared to 52% in 1994 and 63% resulted from foreign exchange gains
and other adjustments compared to 48% in 1994.
The increase in the monetary correction resulted primarily from an increase
in the valuation of intangibles and property, plant and equipment, partially
offset by an increase in shareholders' equity in 1994. Of the total monetary
correction, 85% was attributable to balance sheet account adjustments and the
remainder to income statement account adjustments.
Net Loss
As a result of the foregoing, the Company had a net loss of Ps 45.9 billion
(US$43.0 million), compared to a net loss of Ps 3.2 billion (US$3.0 million) in
1994.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1995
Revenues
Revenues for the six months ended June 30, 1996 were Ps 33.5 billion
(US$31.3 million), an increase of 90% over the revenues for the six months ended
June 30, 1995 of Ps 17.6 billion (US$16.5 million). Such increase reflected the
significant growth in monthly fixed fees and airtime charges.
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<PAGE> 47
Monthly fixed fees increased from Ps 5.2 billion (US$4.8 million) for the
six months ended June 30, 1995 to Ps 9.3 billion (US$8.6 million) for the six
months ended of June 30, 1996 and total airtime charges increased from Ps 4.5
billion (US$4.2 million) for the six months ended June 30, 1995 to Ps 16.7
billion (US$15.6 million) for the six months ended June 30, 1996.
Revenue from equipment sales was Ps 4.0 billion (US$3.8 million) for the
six months ended June 30, 1996, a decrease of 39% over the same period in 1995,
which reflected subsidies given by the company as an incentive to new
subscribers.
Activation fees were Ps 0.2 million (US$0.15 million), compared to Ps 1.0
billion (US$1.0 million) for the six months ended June 30, 1995 partly as a
result of the promotional campaign commenced by the company in December 1995
pursuant to which the company gradually stopped charging activation fees and
partly as a result of price competition, (no activation fees were charged after
February 1996).
Revenue from other services increased from Ps. .2 billion (US$0.2 million)
for the six months ended June 30, 1995 to Ps 3.3 billion (US$3.1 million) for
the same period in 1996. These services include roaming, domestic, long-distance
and value-added and supplementary services.
Costs and Expenses
Costs and expenses were Ps 38.9 billion (US$36.4 million) for the six
months ended in June 30, 1996, an increase of 41% over Ps 27.6 billion (US$25.8
million) for the same period in 1995.
Operating costs were Ps 16.2 billion (US$15.1 million), an increase of 100%
over the amount for the six months ended June 30, 1995 of Ps 8.1 billion (US$7.5
million), and represented 48% of revenue compared to 46% for the 1995 period,
primarily reflecting the leasing of new equipment of Ps 3.7 billion (US$3.5
million) which was not included as operating cost for the 1995 six months
period, and leased lines which increased from Ps 175 million (US$0.16 million)
in the first six months in 1995 to Ps 2.4 billion (US$2.3 million) for the same
period in 1996.
Included in operating costs were cost of equipment sold of Ps 4.7 billion
(US$4.4 million) for the six months ended June 30, 1996, compared to Ps 6.5
billion (US$6.1 million) for the six months period ended June 30, 1995, and the
quarterly royalty payment to the Ministry of Communications which increased 236%
due to the increased revenue, to Ps 0.9 billion (US$0.8 million) for the six
months ended June 30, 1996 compared to Ps 0.3 billion (US$0.2 million) for the
same period in 1995.
Marketing and selling expenses were Ps 5.9 billion (US$5.5 million),
compared to Ps 6.8 billion (US$6.4 million) for the six months ended June 30,
1995. Such costs were 17% of revenue for the six months ended June 30, 1996
compared to 39% for same period in 1995, reflecting the realization of economies
of scale in sales and marketing.
Administrative costs were Ps 8.6 billion (US$8.0 million), a decrease over
the amount for the same period in 1995 of Ps 7.0 billion (US$6.6 million), and
were 26% of revenue for the six months ended June 30, 1996 compared to 40.0% for
the same period in 1995.
Depreciation and amortization was Ps 8.2 billion (US$7.7 million), compared
to Ps 5.6 billion (US$5.3 million) for the six months ended June 30, 1995. Such
charges were 24% of revenues for the six months ended June 30 1996 compared to
32.0% for the six months ended June 30, 1995.
EBITDA
As a result of the foregoing, EBITDA for the period ended June 30, 1996 was
Ps 2.8 billion (US$2.6 million), compared to a negative Ps 4.4 billion (US$4.1
million) for the same period in 1995.
Operating loss
As a result of the foregoing, OCCEL incurred an operating loss of Ps 5.4
billion (US$5.0 million) for the six months ended June 30, 1996 compared to an
operating loss of Ps 10.0 billion (US$9.4 million) for the six months ended June
30, 1995.
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<PAGE> 48
Other Income (Expense)
Other expense, net, amounted to Ps 2.7 billion (US$2.5 million), compared
to other expense of Ps 0.2 billion (US$0.2 million) for the six months ended
June 30, 1995. Other expense consisted of interest expense of Ps 15.6 billion
(US$14.6 million) for the six months ended June 30, 1996 compared to Ps 7.3
billion (US$6.8 million) for the same period in 1995, and foreign exchange
losses of Ps 10.2 billion (US$9.5 million) for the six months ended June 30,
1996 period, compared to Ps 7.2 billion (US$6.8 million) for the six months
ended June 30, 1995. Such other expenses were offset primarily by interest
income and monetary correction. Interest income was Ps 1.5 billion (US$1.4
million) for the six months ended June 30, 1996 compared with Ps 0.3 billion
(US$0.3 million) for the same period in 1995. The net monetary correction was Ps
22.4 billion (US$21.0 million), an increased of 48% over the six months ended
June 30, 1995.
Net loss
As a result of the foregoing, the company had a net loss of Ps 8.8 billion
(US$8.2 million), for the six months ended June 30, 1996 compared to a net loss
of Ps 10.2 billion (US$9.6 million) for the six months ended June 30, 1995.
LIQUIDITY AND CAPITAL RESOURCES
As is typical with the commencement of a cellular business, the Company has
required substantial capital to purchase the Concession, construct its network
and fund operations. Because of the start-up nature of its operations, such
requirements have been largely funded through capital contributions from
shareholders and debt financing rather than cash flow.
The Company's uses of funds to date have included Ps 123.1 billion (actual
Pesos) (US$148.5 million at the April 13, 1994 Representative Market Rate) to
pay for the Concession in 1994, capital expenditures to construct the network of
Ps 39.7 billion (US$37.2 million) in 1994 and Ps 26.0 billion (US$24.3 million)
in 1995, and funds for operations. For the years ended December 31, 1994, and
1995 and the six month period ended June 30, 1996, net cash used in operating
activities was Ps 3.9 billion (US$3.6 million), Ps 48.3 billion (US$45.2
million) and Ps 32.1 billion (US$30.0 million), respectively. For the years
ended December 31, 1994 and 1995 and the six month period ended June 30, 1996,
net cash used in investing activities was Ps 217.5 billion (US$203.3 million)
and Ps 28.6 billion (US$26.7 million) and Ps 11.8 billion (US$11.1 million),
respectively.
As of June 30, 1996 the Company had raised from its shareholders through
the issuance of common stock an aggregate amount of Ps 96.6 billion historical
pesos (US$90.3 million).
During 1994, the Company borrowed, net of repayments, Ps 117.2 billion
(US$109.6 million) under bank loans, of which approximately 95% was U.S.
dollar-denominated indebtedness. During 1995, the Company borrowed, net of
repayments, Ps 78.0 billion (US$72.9 million), of which approximately 95% was
Peso-denominated indebtedness. During the six month period ended June 30, 1996,
the Company borrowed, net of repayments, Ps 44.7 billion (US$41.8 million, of
which approximately 31% was Peso-denominated indebtedness.
As of December 31, 1995 and June 30, 1996, the Company's total indebtedness
was Ps 175.7 billion (US$164.2 million) and Ps 198.2 billion (US$185.3 million),
respectively. Of such total, Ps 87.8 billion (US$82.1 million) and Ps 193.1
billion (US$180.5 million), respectively was long-term debt and Ps 87.8 billion
(US$82.1 million) and Ps 5.1 billion (US$4.8 million), respectively was
short-term debt. In addition, of the total indebtedness, Ps 56.1 billion and Ps
15.9 billion, respectively, was Peso-denominated debt and Ps 119.6 billion and
Ps 182.3 billion, respectively, was U.S. dollar-denominated debt. The Company's
cash and cash equivalents as of December 31, 1995 and June 30, 1996 was Ps 7.1
billion (US$6.6 million) and Ps 20.0 billion (US$18.7 million), respectively.
In addition to the indebtedness represented by the Notes and the Bank
Facility, the Company as of June 30, 1996 had approximately US$1.8 million of
other indebtedness consisting primarily of letters of credit.
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<PAGE> 49
The Company also has obligations under leases which are not capitalized in
accordance with Colombian GAAP. See note 7 to the financial statements of the
Company.
The Company expects that the capital expenditures needed to complete
construction of its network (including planned upgrades by 1999) will aggregate
approximately US$50 million, of which approximately US$13.0 million is expected
to be incurred in each of fiscal 1996 and fiscal 1997. The Company expects that
its internally generated funds will be sufficient to satisfy debt service
requirements and operational needs as well as such capital requirements needed
to complete the build-out of its network through 1999, and, therefore, does not
expect to need additional financing. However, there can be no assurance that
such funds will be sufficient to satisfy such requirements and needs, and,
accordingly, the Company may need to obtain additional financing.
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<PAGE> 50
BUSINESS
Occel is one of only two providers of cellular telecommunications services
in the densely populated western region of Colombia (the "Western Region"). The
Western Region has a population of approximately 12.8 million people (or
approximately 36% of the country's population), and includes the cities of
Medellin and Cali, the second and third largest metropolitan areas in the
country, as well as thirteen other cities with populations in excess of 100,000
each. The Company commenced commercial cellular service in September 1994,
pursuant to a ten-year concession effective as of March 28, 1994, and has
subsequently generated significant growth in total subscribers and revenues. As
of December 31, 1995 and June 30, 1996, the Company had 40,887 and 56,741
reported subscribers, respectively, and realized average monthly revenue per
active subscriber for the quarters ended December 31, 1995 and June 30, 1996 of
US$141.76 and US$130.42, respectively (in actual Pesos translated at the average
Representative Market Rates for the respective quarters).
Since the launch of its service, the Company has sought to rapidly increase
its coverage areas, establish recognition of its "Vozavoz" brand name and
provide a superior quality of service that is equivalent to that provided by
world class operators. As of June 30, 1996, the Company had reached a
penetration level of 0.65% of the population covered by its cellular network,
which included the metropolitan areas of Medellin (with approximately 2.4
million pops), Cali (with approximately 1.8 million pops), Pereira (with
approximately 0.5 million pops), Manizales (with approximately 0.4 million
pops), Armenia (with approximately 0.2 million pops) and other urban areas
(having in the aggregate approximately 0.7 million pops). In addition, the
Company has roaming agreements with other cellular operators which provide its
customers with nationwide coverage throughout Colombia as well as access in
several other countries.
The Company has invested heavily in constructing a state-of-the-art network
which has dual analog and digital capacity and which can support continued
growth in subscribers as well as technologically advanced new services. As of
June 30, 1996, the Company's cellular telecommunications network covered
approximately 67% of the population of the Western Region. The Company had
incurred approximately Ps 58 billion (US$54 million) in capital expenditures
through June 30, 1996 to build its network, and expects to incur approximately
an additional US$50 million to substantially complete its build-out (including
planned upgrades) by 1999.
The Company's headquarters are located at Carrera 55 No. 49-101, Medellin,
Colombia, and its telephone and fax numbers are 574-512-9090 and 574-513-0199,
respectively.
COLOMBIAN TELECOMMUNICATIONS INDUSTRY
Overview
Colombia is one of the oldest democracies and most stable economies in
Latin America. Since 1950, Colombia has enjoyed positive real economic growth in
every year, with real compounded average annual growth in its GDP of
approximately 4.5% from 1986 to 1995, one of the highest growth rates in Latin
America. In addition, annual inflation has declined steadily in each of the past
five years from 26.8% in 1991 to 22.6% and 19.5% in 1994 and 1995, respectively.
In recent years, the government's economic growth strategy has encouraged
foreign investment and exports through reduced foreign exchange controls and
lower import quotas and tariffs. The government has also begun to open certain
public services to private sector investment and has commenced privatization of
certain state-owned industries in the power and banking sectors, and is
considering other sectors for privatization. In part as a result of these
policies, foreign investment in Colombia has grown from US$3.5 billion in 1990
to US$6.6 billion in 1995. During the same period, Colombia has achieved
increased diversification of its export base and the value of its exports has
grown from US $6.7 billion to US $9.8 billion. However, Colombia is currently
experiencing political turmoil which could have an adverse effect on the
economy. See "Risk Factors -- Risks Related to Colombian Political, Economic and
Social Factors".
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<PAGE> 51
Despite the growth in the economy and, in particular, the infrastructure in
Colombia in recent years, the country is significantly underserved by existing
wireline operators and demand for phone service substantially outweighs supply
of wireline phone service. As of December 31, 1994, as reported by International
Telecommunication Union, Colombia had only approximately 10 telephone lines per
100 persons. Colombia's wireline penetration compares with other Latin American
countries as follows:
<TABLE>
<CAPTION>
TELEPHONE
LINES PER
COUNTRY 100 PERSONS
-------------------------------------------------------------- --------------
<S> <C>
Argentina..................................................... 14.1
Chile......................................................... 11.0
Venezuela..................................................... 10.9
Colombia...................................................... 9.7
Mexico........................................................ 9.3
Brazil........................................................ 7.4
</TABLE>
Source: International Telecommunication Union: World Telecommunication
Development Report 1995
The Colombian government, recognizing the importance of an effective
telecommunications infrastructure and the role that the telecommunications
industry plays in national development, has taken steps in the last several
years to liberalize Colombia's telecommunications regulatory framework in order
to support the government's goals of increased coverage, modernization and
service diversification. In 1991, the Ministry of Communications opened the
value-added services market to competition. "Value-added services" are defined
as services other than basic telephone service, such as data transmission. In
1992, the Colombian government authorized the granting of cellular
telecommunications service concessions to public-sector, mixed-economy and
private-sector companies and subsequent legislation adopted in 1993 created the
framework for the provision of cellular telecommunications services.
Currently, local wireline telephone service in the Western Region is
provided by six main local and municipal operators, who, through holding
companies, are also shareholders of the Company, as well as by several other
operators which service smaller cities. Wireline penetration in Colombia varies
significantly by city as does the waiting time for wireline service, which
ranges from a few weeks or months in the best markets (including Medellin) to
two years or longer. This can be contrasted with cellular service, where in the
case of the Company to date, service to new customers has generally commenced
within a few days.
Domestic and international long distance wireline service is provided
exclusively by the state-owned Telecom, which has a monopoly on both
international calls and telex services. Cellular operators, pursuant to their
Concessions, can route domestic long-distance calls through their own networks
or through those of the other cellular companies. However, cellular operators
must route all international long distance service through Telecom. In 1995, the
Colombian government announced the opening of the domestic and international
long distance market to competition beginning in 1997, at which time there will
be up to two other licensed operators in addition to Telecom. The Company
believes that the deregulation of the long distance market will, as it has in
other countries, serve to stimulate phone usage, including the usage of cellular
phones, due to the fact that price competition is likely to lower tariffs to the
consumer.
Cellular Concessions
In 1993, the Colombian government initiated an auction process to grant a
limited number of long-term cellular telecommunications concessions throughout
the country. For purposes of this process, Colombia was divided into three
regions (i) the Western Region, (ii) the Eastern Region and (iii) the Atlantic
Region, with each Region having an A Band and a B Band. The government organized
two parallel, but separate, bidding processes for the concessions available in
each Region: (i) public-sector and mixed-economy companies (companies which have
both public sector and private sector shareholders, engage in commercial
activities and are created by special legislation) were permitted to bid for the
A Band concession and (ii) wholly private-sector companies were permitted to bid
for the B Band concession. The Colombian government first
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<PAGE> 52
awarded the B Band concessions and then, forty days later, awarded the A Band
concessions, which were priced at a minimum of 95% of the related winning B Band
bids.
In awarding these concessions, the Colombian government considered not only
financial factors, but the underlying technical and operational capabilities of
the various bidders. The completion of the auction process has resulted in a
cellular duopoly similar to that which characterizes the United States, Canada
and most Latin American countries. The government awarded a total of six
concessions, with two concessions in each of the Regions, as follows:
<TABLE>
<CAPTION>
WESTERN EASTERN ATLANTIC
REGION REGION REGION
----------------------- ----------------------- -----------------------
<S> <C> <C> <C>
A Band: Occel Comcel Celcaribe
B Band: Cocelco Celumovil Celumovil de la Costa
</TABLE>
The concessions were awarded for ten years, with a renewal option, subject
to certain conditions, for an additional ten-year period. The government may
issue additional concessions (though not on the frequencies awarded) after 1999.
The following significant factors distinguish cellular systems in the
Western Region from those in the United States: (i) the early introduction of
digital technology, (ii) the policy of calling party pays and (iii) the ability
to deliver domestic long distance calls without routing such calls through a
long distance carrier. In the United States, cellular networks were originally
constructed using analog technologies. Cellular operators in many United States
markets either have implemented, have begun to implement or today face the need
to implement digital cellular technology, in each case often at significant
cost. In Colombia, the government mandated that cellular operators meet certain
digitalization targets as a condition of their concessions with a requirement
that 10% of the cellular operators' networks be digital by the third year of
operation, 30% by the fifth year and 50% by the eighth year. Cellular networks
in Colombia, including the Company's, are being constructed using TDMA
technology, the most widely used cellular digital standard in North America. The
policy of calling party pays differs from that in the United States where the
cellular subscriber pays for the incoming call. The Company believes that the
policy of calling party pays has resulted in a much higher percentage of
incoming traffic and more usage overall by its subscribers as they are more
likely to give their telephone number to callers since they are not charged for
the incoming call. The policy also encourages people to keep their phones turned
on. In the United States, cellular operators are required to route long-distance
calls through a long distance carrier and then share the resulting revenue. In
contrast, the Concession allows the Company to deliver calls anywhere in the
Western Region when it has the capability to do so, without routing such calls
through a long distance carrier. Accordingly, the Company is not required to
share revenues for such calls with another carrier.
The Western Region
The Western Region includes the departments of Antioquia, Caldas, Cauca,
Choco, Narino, Quindio, Risaralda and Valle. It has an area of 209,000 square
kilometers, representing 18% of the country's total area. The population of 12.8
million inhabitants represents 36% of the total population of Colombia. The
region is bounded by 1,300 kilometers of Pacific and 290 kilometers of Atlantic
coastline making it a strategically important area. The Western Region includes
the metropolitan areas of Medellin and Cali, the second and third largest cities
in Colombia, with populations of 2.4 million and 1.8 million, respectively. The
Western Region includes the Buenaventura Port, on the Pacific coast, which
handles approximately half of all exports of the country.
The Western Region generates one third of Colombia's Gross National
Product, mainly with urban economic activities. Many of the largest national
manufacturing, agricultural and commercial companies are located in the Western
Region. Additionally, 50% of Colombia's hydro-electric power, which represents
76% of the total electric power, is produced in the region.
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The following are some of the Western Region's principal products and the
estimated percentage of total Colombian production of such products which occurs
in the Western Region for the year ended December 31, 1995:
<TABLE>
<CAPTION>
WESTERN REGION
ECONOMIC SECTORS PRODUCTION
--------------------------------------------------------------- --------------
<S> <C>
Coffee......................................................... 71.0%(1)
Bananas........................................................ 55.0%(2)
Sugar.......................................................... 99.5%(2)
</TABLE>
- ---------------
(1) Source: 1980 census of Federacion Nacional de Cafeteros de Colombia
(2) Source: Ministry of Agriculture, Ministry of Economic Development
In the Western Region there are four major and many smaller airports, and
four industrial and commercial "free zones" designed to attract industry and
commerce. The Western Railroad, which is undergoing a modernization and
enhancement program, runs through about 75% of the Western Region. In addition,
the Panamerican Highway, which runs from Alaska to the southern tip of Latin
America, covers the entire length of the Western Region.
According to published reports, the headquarters of the following 11 of the
top 25 financial institutions in Colombia are located in the Western Region:
<TABLE>
<CAPTION>
TOTAL REPORTED ASSETS AS OF
DECEMBER 31, 1995
COMPANY NAME (IN BILLIONS OF ACTUAL PESOS)
-------------------------------------------------------------- -----------------------------
<S> <C>
Banco Industrial Colombiano S.A............................... 1,610.8
Conavi S.A.................................................... 1,587.4
Banco Popular S.A............................................. 1,407.3
Seguros Suramericana Generales S.A............................ 1,303.7
Banco Comercial Antioqueno S.A................................ 1,282.1
Corporacion Financiera del Valle S.A.......................... 1,254.1
Banco de Occidente S.A........................................ 1,091.8
Corporacion Financiera Nacional y Suramericana S.A............ 1,072.5
Suramericana Capitalizacion S.A............................... 994.2
Banco del Estado S.A.......................................... 822.3
Suramericana de Seguros de Vida S.A........................... 780.8
</TABLE>
Source: Revista Semana, April 30 to May 7, 1996
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<PAGE> 54
According to published reports, the Colombian headquarters of the following
21 of the top 50 companies (in terms of sales volume) in Colombia are located in
the Western Region:
<TABLE>
<CAPTION>
TOTAL REPORTED SALES
IN 1995
(IN BILLIONS OF
COMPANY NAME TYPE OF BUSINESS ACTUAL PESOS)
---------------------------------------------- ---------------- -----------------------
<S> <C> <C>
Gran Cadena de Almacenes Colombianos S.A...... Retail 618.6
Almacenes Exito S.A........................... Retail 590.3
Carvajal S.A. ................................ Printing 424.9
Cia Nacional de Chocolates S.A................ Food 324.7
Industrias Alimenticias Noel S.A.............. Food 278.7
C.I. Uniban S.A............................... Bananas 270.1
Colgate Palmolive y Cia S.A................... Home Products 252.8
Enka de Colombia S.A.......................... Textiles 245.1
Coltejer S.A.................................. Textiles 242.8
Smurfit Carton de Colombia S.A................ Paper 235.7
Cacharreria La 14 Ltda........................ Retail 231.0
Lloreda Grasas S.A............................ Food 202.8
Productores de Papel S.A...................... Paper 201.5
Industria Colombiana de Llantas S.A........... Tires 180.4
Ingenio del Cauca S.A......................... Sugar 177.5
Colanta Ltda.................................. Food 170.2
Cacharreria Mundial S.A....................... Retail 169.9
Cristaleria Peldar S.A........................ Glass 165.1
Fabricato S.A................................. Textiles 163.4
Gaseosas Posada Tobon S.A..................... Beverages 157.7
Tecnoquimicas S.A............................. Food and drugs 155.4
</TABLE>
Source: Revista Semana, April 30 to May 7, 1996
Other Regions
The Eastern Region covers 73% of Colombia's territory and 44% of its
population. The main economic activities in this region are governmental,
commercial, mining and oil production, and agriculture and its related
industries. The Atlantic Region covers 9% of Colombia's territory and 20% of its
population. The main economic activities in this region are agriculture,
fishing, trading and tourism.
Growth of Cellular Industry
Since the commencement of service in 1994, the Colombian cellular industry
has experienced significant growth. On September 30, 1994, total reported
subscribers in Colombia equaled 25,243. By December 31, 1995, the most recently
available period, the total number of reported subscribers had grown to 274,590,
according to the Ministry of Communications, and represents a penetration rate
for the total Colombian population of 0.78%. This compares favorably with
estimated penetration and growth rates in other Latin
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<PAGE> 55
American countries, most of which began offering cellular service prior to its
introduction in Colombia as evidenced below:
<TABLE>
<CAPTION>
ESTIMATED PENETRATION RATES OF CELLULAR SERVICE IN SELECTED LATIN AMERICAN COUNTRIES BY YEAR
MEASUREMENT PERIOD
(FISCAL YEAR COVERED) ARGENTINA BRAZIL CHILE MEXICO VENEZUELA COLOMBIA
<S> <C> <C> <C> <C> <C> <C>
1989 0.004 0.041 0.009 0.019
1990 0.032 0.112 0.078 0.044
1991 0.071 0.004 0.223 0.206 0.190
1992 0.133 0.020 0.465 0.325 0.429
1993 0.383 0.121 0.641 0.428 0.857
1994 0.714 0.406 0.966 0.616 1.556 0.230
1995 1.275 0.819 1.371 0.747 2.205 0.816
</TABLE>
Source: MTA-EMCI
- ---------------
(1) Colombian figures are based on reported, not active, subscribers. Estimated
penetration rates for countries other than Colombia are based on private
market research, which may be based on different methods of calculating
subscribers than those used in Colombia. Estimated 1994 population figures
are used to calculate penetration rates for all years.
In the past year, the Western Region has experienced significant growth in
the number of reported subscribers as demonstrated in the following table:
<TABLE>
<CAPTION>
COMPOUND
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, GROWTH
1994 1995 1995 1995 1995 RATE
------------ --------- -------- ------------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Total Western Region
Subscribers.................. 31,079 69,948 80,958 83,963 88,803 185.7%
Total Colombian Subscribers.... 81,895 145,683 187,514 215,954 274,590 235.3%
</TABLE>
Sources: Ministry of Communications; El Colombiano
On a per subscriber basis, of the reported subscribers for the quarter
ended December 31, 1995, the Company processed more calls and minutes than its
competitor in the Western Region which it believes are the most indicative
measures of revenue generation. The following chart illustrates the reported
subscribers, calls processed, air time, calls processed per reported subscriber
and air time per reported subscriber for the
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<PAGE> 56
Western Region as well as for Colombia as reported to the Ministry of
Communications for the quarter ended December 31, 1995:
<TABLE>
<CAPTION>
CALLS PROCESSED AIR TIME
REPORTED CALLS PER REPORTED PER REPORTED
SUBSCRIBERS PROCESSED AIR TIME SUBSCRIBER SUBSCRIBER
----------- ---------- ------------ --------------- ---------------
(IN MINUTES)
Western Region
<S> <C> <C> <C> <C> <C>
Occel...................... 40,887 14,232,156 24,094,514 348 589
Cocelco.................... 47,916 12,239,890 23,514,719 255 491
Total Colombia............... 274,590 79,627,392 157,289,191 290 573
</TABLE>
The Company's market share of the Western Region based on reported
subscribers, calls processed and airtime minutes for the quarter ended December
31, 1995 was 46%, 54%, and 51%, respectively.
Industry Cooperation
The Company is part of REDCEL, a national cellular association composed of
the three mixed-economy operators of the A Band in Colombia: Occel in the
Western Region, Comcel in the Eastern Region, and Celcaribe in the Atlantic
Region. The main purpose of REDCEL is to establish a strong competitive position
for the mixed-economy cellular companies by offering to their users access to
nationwide cellular coverage through roaming agreements. The three companies
also cooperate to provide to their respective customers (i) technical assistance
throughout Colombia, (ii) access to international roaming with a greater number
of North, Central and South American countries, (iii) access to common
information lines and short code access numbers throughout Colombia, (iv) a
nationwide payment system through selected banks and (v) a membership card that
will offer special discounts at selective outlets. They also intend to cooperate
in handling customer complaints and in fraud detection and prevention
procedures.
In July 1995, the Colombian cellular companies formed the Colombian
Cellular Industry Association (Asociacion de la Industria Celular de Colombia)
("ASOCEL"), an industry association, and appointed Carlos Holguin, a former
Minister of Communications and a former President of the Colombian Senate, as
its president. ASOCEL was created to promote the development and consolidation
of the cellular industry in Colombia and focus on common industry concerns.
ASOCEL also plans to (i) address operational issues, including fraud control and
credit checking procedures, (ii) participate in the drafting of and the
promotion of laws and regulations that benefit the cellular industry and (iii)
promote research on cellular and telecommunications issues.
COMPANY STRENGTHS
Since its inception in 1992, the Company has capitalized on the market
opportunity created by the aforementioned factors. The Company has constructed a
network that covers most of the major population areas in the Western Region,
built its subscriber base and recognition of its "Vozavoz" brand name, and
developed a variety of service offerings to appeal to diverse groups of
consumers. The Company believes that it is well positioned to achieve continued
growth in its subscriber base and cash flow by virtue of a number of factors,
including the following:
- Attractive Concession Area. The Western Region has many
characteristics which create an attractive cellular market, including
principally a diverse and well developed economy. The region generates over
one third of Colombia's gross national product and includes a substantial
part of the country's commerce and manufacturing and agricultural
industries. Approximately 71% of the national coffee production and 55% of
the national banana production, the country's two largest agricultural
commodities, are produced in the Western Region. Approximately half of
Colombia's hydro-electric power is produced in the Western Region and
approximately half of the country's exports pass through the Western
Region's Buenaventura Port. The Western Region also houses the Colombian
headquarters of 21 of the top 50 industrial and commercial companies in
Colombia, including Carvajal S.A., Noel S.A. and Colgate Palmolive y Cia
S.A. In addition, the headquarters of 11 of the top 25 financial
institutions in
52
<PAGE> 57
Colombia, including Banco Industrial Colombiano S.A., Conavi S.A. and Banco
Popular S.A., are located in the Western Region.
- Favorable Demographics. The metropolitan areas of Medellin and
Cali, with populations of 2.4 million and 1.8 million, respectively, are
major economic centers in the country, are densely populated and have
significant concentrations of affluence. The Company has experienced
considerable demand in these areas despite their relatively high wireline
penetration rates. The Company believes this reflects the advantages of
cellular service, such as personal safety, convenience and mobility, to
diverse segments of the population, including professional workers as well
as small businessmen, contractors and other tradesmen who work on location.
- Superior Customer Service. The Company believes that quality of
customer service is a key competitive factor in the Colombian duopolistic
market. The provision of excellent customer service is an essential element
in the Company's business strategy and an inherent part of its corporate
culture. Staff in all areas of the Company attend a five-day customer
service training program, and the Company's specialized customer service
team (consisting of 92 members as of June 30, 1996) provide service 24
hours per day, responding to telephone queries from three regional centers.
On average, the customer service team answers 3220 calls per working day
(71.7% within 20 seconds in June 1996) and answers 1150 letters per month.
New customers generally receive service within a few days, as well as
individual welcome calls to confirm that they are not experiencing
problems. The Company's dedication to customer service is also illustrated
by the provision of its free "*911" emergency service and by the provision
of nationwide service through roaming agreements.
- High Quality Advanced Network. Due to the recent development of the
cellular telecommunications industry in Colombia, Occel has been able to
construct a dual analog/digital network from inception using state of the
art technology under a TDMA platform with equipment supplied by Northern
Telecom. The Company believes a significant component of offering the
highest quality of customer service entails providing its customers
continual access to its network. The Company measures this in terms of the
customers' ability to make a call whenever desired and the probability that
a call will not fail (a "dropped call") once it is connected. During the
six-month period ended June 30, 1996, the Company connected more than 97%
of attempted calls and dropped less than 3% of total calls made. The
Company believes its dual analog/digital network provides it with the
ability to quickly and cost-effectively offer more digital capacity in its
network as the demand for digital service increases without incurring the
problems and costs experienced by many North American operators who are
encountering operational difficulties and significant expenses as they seek
to upgrade their networks to digital. As of June 30, 1996, approximately
42% of the Company's subscribers used digital handsets and the Company
expects that more than half of its customers will be using digital
equipment by the end of 1997. The Company expects to realize significant
benefits from increasing the usage of digital equipment, such as increased
system capacity, reduced operating expenses and additional revenue from the
sale of digital-specific services such as "caller i.d." and voice mail
message waiting notification. The Company believes its network has
sufficient capacity to accommodate projected growth in subscribers and has
the flexibility to handle new services.
- Numerous Service Offerings. The Company provides the basic cellular
service options offered by world class operators, such as call transfer,
call waiting, voice mail and national and international roaming. In
addition, the Company offers several other services that are aimed at the
particular needs of its customer base and that enhance the Company's brand
name and image as a provider of the highest quality service. These include
its free "*911" emergency service (which is trademarked within Colombia),
where a customer can call *911 at any time and be connected to a Company
representative who can then contact the police, the fire department, an
automobile towing service or any other emergency service desired by the
customer. This service has proved especially popular because the Colombian
wireline companies do not have a universal emergency service such as the
911 service in the United States. The Company also offers value-priced
services that it believes attract different segments of the population than
traditional users of cellular services, thereby enhancing its penetration
rate. The Company offers "Beepervoz", a budget service in which the
customer can only receive calls and make outgoing calls to the Company's
*911 emergency service. This service provides a low-cost introduction to
53
<PAGE> 58
cellular service and is also designed to compete with pagers. In addition,
the Company's "Fijovoz" service provides cellular service from a fixed
wireless phone in the home or office for a lower price than its mobile
cellular service. This option is designed to appeal to customers seeking to
avoid the long waiting time for wireline service or who are otherwise
dissatisfied with wireline service but who do not need the mobility of full
cellular service. The Company also believes a number of these
budget-conscious customers will ultimately upgrade to higher classes of
service over time.
- Management of Churn. The Company's monthly average churn rate for
the year ended December 31, 1995, was 3.2%. This reflected a churn rate of
approximately 2% per month for most of the year, except between August and
October when churn was approximately 8% per month. This temporary increase
in churn resulted from Company-initiated disconnections in order to upgrade
the quality of its customer base. The monthly churn rate for the first six
months of 1996 averaged 2.9%, in part because there was a similar month of
Company-initiated disconnections, which may occur from time to time in the
future. The Company recognizes that managing customer churn is an important
factor in maximizing revenues and cash flow. In order to minimize churn
caused by customers voluntarily terminating service, the Company aims to
ensure that its services remain competitive and has one-year customer
contracts that contain penalties for early termination. To reduce
Company-initiated disconnections resulting from non-payment, beginning in
August 1995, the Company implemented policies which require thorough credit
checks for new customers, encourage direct debit payment plans, and impose
gradual restrictions on service once payment dates have been missed. For
instance, customers' outgoing calls are automatically routed to customer
service if payment is not received within ten days of the final due date,
and service is temporarily disconnected in the event payment is not
received within ten more days. The Company believes that these policies
reduce the likelihood that customers will run up excessive debts, thus
enhancing the likelihood of settlement and reconnection.
- Experienced Management Team. The members of the Company's senior
management team have substantial experience in the telecommunications
industry as well as in the public and private sectors in the Western
Region. Many of them worked for local telephone companies and public
utilities in the Western Region and participated in the development of
Colombia's cellular regulatory regime. In addition, an executive of C&W,
was seconded to, and is employed by, the Company as a member of the
Company's senior management.
BUSINESS STRATEGY
The Company's strategy is to continue to capitalize on the high potential
demand for cellular telecommunication services and favorable demographic
characteristics of its concession area to maximize revenues and cash flow from
its cellular business through increased market penetration and subscriber usage.
The Company intends to achieve these objectives by completing construction of
its network, implementing aggressive marketing efforts to attract and retain
additional subscribers and continuing to provide superior customer service,
reliability and a wide range of value-added optional services. The Company's
commercial slogan is "Seriousness, Security and Service", which is intended to
convey the high degree of professionalism with which the Company seeks to
provide its services, the security (i.e., increased personal safety) such
services provide to its customers, and the Company's responsiveness to its
customers. The Company will also evaluate and may participate in, future
opportunities in related wireless technology businesses in order to enhance its
position as a leading provider of such services.
SALES AND MARKETING
In order to implement its business strategy effectively, the Company has
focused its marketing efforts on (i) establishing brandname image and
recognition of its primary "Vozavoz" service and related product offerings, (ii)
targeting high quality, high use customer segments which have specific
identifiable needs through the use of a well trained sales network, and (iii)
differentiating the Company from its competitor on the basis of a superior
quality of service rather than price.
54
<PAGE> 59
Marketing Programs
The Company uses both mass media campaigns and direct marketing through its
internal sales force and independent distributors to reach potential customers.
Mass media campaigns have been used by the Company to create awareness and
promote the benefits of cellular services and to position its Vozavoz brandname
and commercial slogan. The Company employs, among other media, billboards,
television, radio and direct mail as well as the sponsorship of sporting events
and educational seminars. Direct marketing efforts have been used by the Company
to reach priority segments of its target market, such as professionals and small
businessmen who travel or work on location. The initial selection of the
priority segments within the Company's target market was made using a demand
model created by the Company with the help of C&W, which has utilized similar
models in other emerging markets. The model took into account factors such as
market size, adoption rate, income levels and the need for mobile
communications, for various segments of the population. Over time, the Company
has identified additional factors that promote the use of cellular services,
such as personal safety, and broadened its marketing efforts to target
additional population groups.
Sales Network
The Company offers its cellular services to potential subscribers
principally through (i) direct marketing activities by its internal sales
representatives, which primarily target corporate accounts, government accounts
and high volume customers, and (ii) through its sales centers and its exclusive
network of independent distributors, both of which target residential customers
and small businesses. The Company believes that this mixed distribution approach
allows the Company to reach a broader customer base while avoiding the cost of a
large direct sales force. It also allows the Company to capitalize on the
distributors' knowledge of local markets and reduce inventory risks. As of
December 31, 1995, approximately 60% of new subscriber activations were effected
through the Company's distributor network and 40% through its internal sales
representatives.
As of June 30, 1996, the Company's sales and distribution network consisted
of approximately 110 internal sales people and approximately 400 sales people
from independent distributors and subdistributors. The Company operates five
primary sales centers which are centrally located in Cali, Medellin, Pereira,
Manizales and Armenia and which provide both sales and customer support services
such as payment reception, repairs, insurance and billing claims attention. The
independent distributors operate 23 satellite distribution sales offices
primarily serving regional areas, suburbs and smaller towns. Although most of
the distributors' sales offices do not provide customer support services,
customers needing assistance are referred to centralized customer service
representatives. In addition to the Company-owned and operated sales offices and
the independent distributors' sales offices, customers can sign up for the
Company's service through 36 subdistributors, who operate 20 retail stores
selling cellular services, telephones and complementary products. The breadth
and diversity of the Company's sales and distribution network provide its
potential and existing customers with the benefits of convenient locations,
extended service hours, comprehensive phone and accessory selection and highly
trained sales and service staff.
The Company's current independent distributors are locally established
firms, most of them dedicated to the communications business. Some specialized
distributors, such as Cellstar, are new in the Colombian market and are
dedicated exclusively to the cellular business. The independent distributors may
not represent the Company's competitor in the Western Region, but may and do
engage in other related businesses. The Company has contracts with the
independent distributors which are subject to certain sales, service and quality
standards. The independent distributors are paid a commission for upfront
revenues which could be affected if performance standards are not met. The
independent distributors also receive an ongoing residual commission which is
based on the collected revenues of airtime charges and monthly fixed fees. A
portion of the independent distributors' sales commission is pooled and used for
promotion and advertising pursuant to a cooperative marketing program. The
Company believes these arrangements encourage its distributors to attract and
retain long-term, high-quality customers. Subdistributors have contracts with
the independent distributors. The subdistributors are paid a commission based on
their sales, directly by the independent distributors.
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<PAGE> 60
Customer Service and Expanded Service Offerings
The Company's commitment to the provision of excellent customer service, as
reflected in the slogan, "Service, Seriousness and Security" is an intrinsic
element of its corporate strategy. The Company believes that in the cellular
market, the provision of superior customer service is the only differentiating
factor which can be continuously sustained, and has accordingly developed a
strategy which is service orientated. The high levels of service which the
Company provides and will continue to provide have been realized by setting
exacting service related performance objectives, by employing a skilled and
qualified workforce which is trained to rapidly resolve problems, by providing
customer service training for all staff and by investing in the technology,
products and processes required to deliver world class performance levels.
Service related performance targets relate to the times required for
responding to customer queries and requests, to the quality of such responses
and to the performance of the network. The Company's specialized customer
service team of 92 members (as of June 30, 1996) provides 24 hour response to
telephone queries from three regional centers, answering 3220 calls per working
day (71.7% within 20 seconds during June 1996), answering 1150 letters per month
and attending customer queries in eight different sales and service locations.
To aid its customer service team, the Company has invested in an advanced
Automatic Call Distribution system (ACD) for managing customers' calls, and a
state of the art Network Management Center which is staffed 24 hours a day to
enable rapid identification and resolution of network problems. An electronic
network links the Company's main sites providing access to E-mail and to the
main databases to provide rapid access to information required to solve customer
problems. Customer handset repairs are carried out by trained staff at the main
repair center in Medellin and at local centers in Cali and Pereira with only the
more complex problems being sent to the manufacturers for resolution. Customers
are typically activated within an hour of credit approval, and time for the
credit approval takes between an hour and a couple of days depending on the
complexity of the case and the amount of supplementary information required. In
addition, the network has been designed and is maintained for optimum
reliability, and during the six-month period prior to June 1996 the Company
connected more than 97% of attempted calls and dropped less than 3% of total
calls made.
All Company employees attend a five-day customer service training program
which provides standards and formal skills to support the Company's commitment
to achieving the highest customer service standards. Employees are also actively
encouraged to take initiative to facilitate the resolution of customer problems.
OPERATIONS
Services Offered
In addition to basic incoming and outgoing service, the Company currently
provides all of the supplemental types of cellular services, such as call
transfer, call waiting, three-way conference calling and voice mail, that are
typically offered by most cellular operators in major industrial economies. In
addition to these services, the Company currently offers services not
customarily offered by cellular operators in other countries which are specially
suited to the needs of the Colombian market. Furthermore, certain of these
services are not available to Colombian wireline customers generally. By
offering such services, the Company believes it enhances its image as a provider
of the highest quality service. Some of these services are value-priced services
that the Company believes attract a different segment of the population than the
typical customer of traditional United States cellular services, thereby
enhancing the Company's penetration rate and generating additional revenue. The
Company also believes a number of the budget-conscious customers who currently
subscribe to the value-priced services offered by the Company will upgrade to
higher classes of service over time. In the future, the Company also plans to
offer additional services that capitalize on the digital capabilities of its
TDMA network, as described below.
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<PAGE> 61
The Company's current primary and supplemental services are listed
below:
Primary Services
Vozavoz. The Company's basic cellular service consists primarily of its
"Vozavoz" service. The basic features of Vozavoz include local cellular
service, national coverage and 24-hour customer service. The Company
offers to its Vozavoz customers automatic roaming coverage services
throughout Colombia in association with the A Band operators. In
addition, the Company offers automatic connection with wireline services
and local and long distance wireline providers, giving its customers
access to all Colombian wireline subscribers. In addition, the Company
offers personalized customer service and information services 24 hours a
day, seven days a week, which can be reached by cellular and wireline
telephones.
Fijovoz. Fijovoz is a value-priced basic service offered by the Company
that consists of a fixed cellular phone. Fijovoz is designed to appeal
in particular to customers in areas with waiting lists for wireline
services or who are otherwise dissatisfied with wireline services and
who do not need the mobility of a traditional cellular phone. This
service offers the same cellular technology of mobile handsets but using
a set that is fixed at the subscriber location, providing an
economically priced cellular service to subscribers which can be
activated generally within a few days.
Beepervoz. With Beepervoz, which is another value-priced primary
service offered by the Company, the subscriber receives a handset that
is programmed only to receive incoming calls and to make outgoing calls
only to the Company's *911 emergency service, customer service and,
optionally, voice mail. This service is designed to appeal in particular
to customers with safety and security concerns, customers with
travelling sales forces and customers who need permanent contact with
their offices. Beepervoz provides a low-cost introduction to cellular
service and is also designed to compete with paging services. Certain of
the Company's Beepervoz customers have upgraded to higher classes of
service, and the Company believes that additional Beepervoz customers
will ultimately upgrade in the future.
Supplemental Services
In addition to traditional premium cellular services such as call
transfer, call waiting and three-way conference calling, which the
Company offers its subscribers for an additional cost, the Company
currently offers the following supplemental services, some of which
produce additional revenue for the Company as noted below:
Vozexpress. Vozexpress is a voice mail service which receives and
stores messages for subscribers when they do not answer the incoming
calls. Vozexpress can be obtained for a fee as a supplement to any of
the Company's basic services.
*911 Vozavoz Emergency Service. Centralized emergency services like the
"911" emergency service in the United States are not available in
Colombia, where the population has to call directly to the respective
emergency service. The Company offers to its subscriber its "*911"
service, in which a subscriber can call the Company at any time by
dialing *911 and then be transferred by one of the Company's operators
to the appropriate emergency service, including the fire department,
police, medical emergency services and vehicle towing services. The
Company's *911 service is trademarked within Colombia. The Company
believes that this service, which is free to its customers who have
purchased any of its basic services, is particularly important to, and
is a primary driver in attracting, many of its customers given the high
value placed on security and safety in Colombia.
Detailed Billing Services. As part of its customer service orientation,
the Company provides free of charge a wide array of billing details to
its subscribers. This information includes a list of all calls made
(including free calls), the date and time of calls and the duration and
the cost of calls. By contrast, local wireline companies typically
provide such information only for long distance calls.
International Roaming. As a convenience to its Vozavoz customers who
are travelling, the Company offers roaming services in other countries,
including currently the United States, Canada,
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Venezuela, Ecuador and certain countries in the Caribbean where C&W is
the mobile operator. This service allows the Company's customers to
place calls from another country to participating countries or to
Colombia. In some cases, the Company has roaming arrangements with
operators in such countries pursuant to which the Company collects from
the subscriber and forwards to such operators the charges for such
calls. In other cases, the Company's subscribers pay for such calls
directly. The Company does not charge an additional fee for this
service.
International Long Distance. The Company offers connection to the
Colombian international long distance operator, Telecom. This service
allows calls to be made from Colombia to another country. The Company
conducts a supplementary credit check on any customer applying for this
service. However, the Company does not charge any fee (other than
airtime) for the provision of this service.
Vozseguro. Vozseguro is an insurance service for the cellular handsets
and other supplementary equipment which protects against theft and
damage. More than 40% of new customers purchase this service.
Future Services
The Company is also planning to introduce new value-added services such
as data transmission, internet access, caller identification and
messaging services. These products capitalize on the digital
capabilities of TDMA and make use of the handset screen to display
information such as the calling party's identification, a brief message
or information from a central data base.
Pricing Plans
The pricing structure of the Company's services consists of four basic
components: (i) activation fees, (ii) monthly service fees, (iii) airtime fees
and roaming charges and (iv) fees for supplemental value-added services. In
addition, subscribers are required to purchase a mobile cellular telephone and
to pay usage charges with respect to interconnection to the national wireline
network.
Currently, the Company's subscribers pay a monthly service fee which ranges
from Ps 17,500 (US$16.36) for Beepervoz to Ps 44,000 (US$41.13) for Vozavoz or
as much as Ps 80,000 (US$74.79) for Vozavoz with 155 free minutes of service per
month. Airtime charges for outgoing calls range from Ps 275 (US$0.26) per minute
to Ps 790 (US$0.74) per minute during peak hours and from Ps 230 (US$0.22) per
minute to Ps 630 (US$0.59) per minute during nonpeak hours, in each case
depending on the tariff plan selected. As of December, 1995, the Company began a
promotional campaign pursuant to which it does not charge any activation fee.
See "Management's Discussion and Analysis of Financial Conditions and Results of
Operations".
The Company modifies its prices from time to time to correspond with
marketing campaigns, to respond to competitive pressures, as well as to adjust
to inflation. In the first quarter of 1995, there was a significant price
competition between the Company and Cocelco, which resulted in significant,
temporary reductions in most categories of charges. The Company's prices have
since returned to levels approximating those in effect at the end of 1994. Such
price competition resulted in a significant increase in subscribers, although
many of these were later removed by the Company from its active subscriber
rolls. Currently, both the Company and Cocelco are offering promotions in which
activation fees are free, but airtime charges have actually been raised. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".
Although the rates and fees charged by cellular operators in Colombia are
currently not fixed by the Colombian government, cellular operators must
communicate to the TRC all their rates and fees and advise existing customers of
any changes.
Billing and Subscriber Management
The Company uses a billing and customer management system developed by SEMA
UK Limited, a specialized United Kingdom company whose systems are utilized by
numerous international cellular companies. The accuracy and flexibility of the
Company's billing and customer management system are key to
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efficiently serve its subscribers and to generate subscriber information vital
to the Company's management. The system currently permits the Company to bill
its customers monthly with a detailed billing statement, including itemized
local and long-distance calls. In contrast, local wireline companies typically
give equivalent details only with respect to long-distance calls, and Cocelco
currently charges a fee for such service. The Company also uses information from
the system to analyze the effects of price changes and promotional and
advertising campaigns as well as subscriber use patterns and to prevent fraud.
Management of Churn
The Company's monthly average churn rate for the year ended December 31,
1995, was 3.2%. This reflected a churn rate of approximately 2% per month for
most of the year, except between August and October when churn was approximately
8% per month. This temporary increase in churn resulted from Company-initiated
disconnections in order to upgrade the quality of its customer base. In
particular, the Company disconnected many customers who joined during the price
competition of the first quarter of 1995 who were behind in payments. The
monthly churn rate for the first six months of 1996 averaged 2.9%, in part
because there was a similar month of Company-initiated disconnections, which may
occur from time to time in the future. The Company recognizes that managing
customer churn is an important factor in maximizing revenues and cash flow. In
order to minimize churn caused by customers voluntarily terminating service, the
Company aims to ensure that its services remain competitive and has one-year
customer contracts that contain penalties for early termination. To reduce
Company-initiated disconnections resulting from non-payment, beginning in August
1995, the Company implemented policies which require thorough credit checks for
new customers, encourage direct debit payment plans, and impose gradual
restrictions on service once payment dates are missed. For instance, customers'
outgoing calls are automatically routed to customer service if payment is not
received within ten days of the final due date, and service is temporarily
disconnected in the event payment is not received within ten more days. The
Company believes that these policies should reduce the likelihood that customers
will run up excessive debts, thus enhancing the likelihood of settlement and
reconnection.
Fraud Detection and Prevention
The Company currently uses a fraud detection system developed by C&W which
analyzes call data records to identify abnormal calling patterns and cloned
cellular phones and to take corrective actions promptly. In addition, the
Company's billing system generates daily reports on customers that have exceeded
their preassigned credit limits. Based on these reports, customers are contacted
by credit control staff of the Company or deactivated, depending on the
circumstances.
To reduce the incidence of fraud in its operations, the Company has
developed a fraud prevention program that includes (i) background checks of its
employees, (ii) fraud awareness and prevention training, (iii) restrictions on
international calls to certain high risk destinations and restrictions on
three-way calling by customers with international direct dial access. The latter
restrictions prevent a caller from calling a cloned phone with three-way calling
and international access and thereby make an unbillable international call.
In addition to the mentioned fraud detection and prevention methods, the
Company conducts credit checks and verifies the identity of each new subscriber
to reduce the incidence of fraudulent application. Moreover, as mandated by the
Colombian government, the Company is required to ensure that, at the time of
activation, all its subscribers register their phone with the police and carry
an identification card with the phone specifications. The Company and the other
A Band operators also share information on bad accounts and cooperate in
developing and implementing fraud detection systems.
Equipment Supply
The mobile equipment used by the Company consists of handsets and
accessories which are available for purchase from multiple sources. In order to
achieve significant cost savings from volume purchases, the Company currently
purchases its mobile equipment from Cellstar (a distributor for Motorola) and
Nokia under short-term arrangements. The Company has not experienced material
disruptions in supply and
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anticipates that equipment will continue to be available to the Company from
many sources in the foreseeable future.
Although the Company generally sells digital handsets at cost, it has
offered subsidies for purchasing such handsets during specific promotional
periods. At present, the Company sells only digital handsets to new Vozavoz
customers, and encourages its existing customers to trade in analog handsets.
Analog handsets are currently sold principally to Beepervoz and Fijovoz
subscribers. In addition, the Company recently commenced a handset leasing
program to expand its subscriber base.
NETWORK DESIGN AND OPERATION
Network Design
The Company developed its network design in conjunction with C&W. The
Company also incorporated service quality, redundancy and coverage objectives
based on the best practices in North America. To help meet these objectives, the
Company has employed sophisticated network design tools such as PLANET, a
software-based planning tool developed by Mobile System International ("MSI").
In addition, the Company's network was designed to take advantage of its
microwave transmission system along with multiple interconnect points with
wireline telephone companies in order to ensure that the Company has the ability
to carry a significant portion of its traffic on its own network and,
correspondingly, to reduce the Company's reliance on other networks over which
the Company has no control. In addition, the Company's design objectives require
that the network be sufficiently versatile to support a variety of desired
value-added cellular services such as call forwarding, call transfer, call
waiting, three-way conference calling, voice mail, caller identification,
cellular data transmission and technical support for fixed cellular operations.
Capacity
Each cellular telecommunications network is planned and constructed to meet
a certain level of subscriber density and traffic demand. Once this level is
exceeded, a cellular operator must take steps to increase network capacity in
order to maintain service standards. Such capacity increases can be accomplished
by increasing digital penetration and by using such techniques as sectorization
and cell splitting. Other techniques have been developed by operators and
infrastructure manufacturers to ensure service quality at minimal cost,
including microcells. Cellular telecommunications networks are typically
characterized by relatively high fixed costs and relatively low variable costs.
Until technological limitations on network capacity are reached, additional
capacity can usually be added in increments that closely match demand and at
less than the proportionate cost of initial capacity. At December 31, 1995, the
Company had a capacity margin of approximately 20%, with 65% of the network
capacity being analog and the rest digital.
Network Expansion and Coverage
The Company develops its cellular service areas by building new base
stations and adding cells to existing base stations. Such development is done
for the purpose of increasing capacity and improving coverage in direct response
to projected subscriber demand. The Company initially focused on providing
service to the top five cities in the Western Region -- Medellin, Cali, Pereira,
Manizales and Armenia -- and their surrounding metropolitan areas. The Company
continues to expand its network to cover as broad a geographical area as is
economically feasible, as geographic coverage is a key variable in the consumer
purchasing decision. Expansion of the network capacity also enhances the
Company's ability to provide service in the Cali and Medellin metropolitan areas
where the demand for cellular services continues to increase. As of December 31,
1995 the Company's network covered 65% of the population of the Western Region.
The Company has incurred approximately Ps 58 billion (US$54 million) in capital
expenditures through June 30, 1996 to build its network, and expects to incur an
additional US$50 million to substantially complete the build-out (including
planned upgrade) by 1999.
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Digitalization
In building its cellular network, the Company, along with the majority of
other Colombian cellular operators, selected TDMA technology and offered digital
cellular service from the commencement of operations. Colombian subscribers have
bought digital handsets in significant quantities. Because of the benefits of
digitalization, including additional revenue through the sale of
digital-specific value-added cellular services, reduced operating expenses and
greater network capacity, the Company has sought to increase the digitalization
of its subscriber base. Under the Concession, the Company's network is required
to have 10% digital voice channels by the third year of operation, 30% by the
fifth year and 50% by the eighth year. As of December 31, 1995, 35% of the voice
channels in the Company's network were programmed to be digital. Digitalization
represents one of the key marketing and technical variables in the Company's
ongoing network rollout plan.
Equipment
In building its cellular network, the Company has purchased cellular
equipment manufactured by Northern Telecom. Each of the Company's three
switching centers, located in Medellin, Cali and Pereira, respectively, is
equipped with a Super Node SE DMS-MTX. As of December 31, 1995, the Company's
cellular telecommunications network consisted of three cellular switching
centers, 65 base stations, 125 cells and four cellular repeaters. The network is
connected primarily by its own microwave transmission system provided by
Microwave Network Incorporated and Ericsson consisting of 70 microwave hops as
of December 31, 1995. Interconnection with local PSTNs occurs at six locations.
The Company has recently introduced a new software package which increases
network efficiency and provides new services. In addition, the Company maintains
a network management center in Medellin capable of monitoring the performance of
the switching centers in Medellin, Cali and Pereira, the radio base stations,
the microwave transmission links and the leased circuits provided by third
parties. The Company also had a supply agreement with Nortel for network
equipment which expired on April 15, 1996, although the Company intends, and is
currently in negotiations, to renew such agreement until December 31, 1999. The
supply agreement with Nortel contains provisions for guaranteed prices and
volume-related discounts. Although the Company is not bound by the provisions of
any supply agreement to purchase from a particular supplier, the compatibility
of any newly acquired equipment with the Company's existing equipment
effectively may limit the Company's options.
Performance Monitoring
The Company continuously monitors the network's performance to ensure that
cellular telecommunications service quality meets its published standards. These
standards are derived from the standards specified by the Colombian government
and are in line with high international standards.
As of December 31, 1995, the Company was able to limit average dropped
calls (which reflects the ability of the system to sustain a call in progress)
to less than 3% and achieved an average call blockage rate (which reflects the
percentage of subscriber calls that are unable to access the network during peak
usage periods) between 1% to 2%.
COMPETITION
The cellular telecommunications business in the Western Region is a
regulated duopoly. Each of the two operators awarded a concession for the
Western Region has the exclusive use for 10 years of a defined frequency band
within the region. Competition is principally based on price, network coverage
and technical quality, value-added cellular services, quality and responsiveness
of customer service. The Company's primary competitor, Cocelco, is the holder of
the other concession for the Western Region. Cocelco is controlled by
Organizacion Luis Carlos Sarmiento-Angulo Ltda., one of Colombia's largest
conglomerates, and counts Telefonica de Espana and Chile's CTC
telecommunications groups among its other shareholders. The Company may also
face additional cellular competition after 1999 when the Colombian government
may auction additional cellular concessions in the Western Region, depending on
the technical availability at that time.
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The Company also competes with traditional wireline telephone service
operators. Wireline density in Colombia as of December 31, 1994 is estimated by
the International Telecommunication Union at approximately 10 telephone lines
per 100 persons compared to a wireline density of approximately 60 lines per 100
persons in the United States. If substantial capital were to be invested in the
wireline telephone industry, resulting in increased wireline density and
improved service, certain of the Company's existing and potential subscribers
might shift to wireline service providers due to a number of factors, some of
which are price related. Empresas Publicas de Medellin ("EPM") has reported that
its wireline density in Medellin was 30 lines per 100 persons as of December 31,
1995 and is expected to increase to approximately 34 lines per 100 persons by
the year 2000. Empresas Municipales de Cali ("EMCALI"), on the other hand, has
reported that its wireline density in Cali was approximately 20 lines per 100
persons as of December 31, 1995, and is expected to increase to approximately 30
lines per 100 persons by the year 2000. Although competition in local wireline
services was authorized in 1990, first with the previous authorization from the
Ministry of Communications and in 1994 with free entrance into the market, no
new wireline operators have entered into the industry. The entrance of new
wireline operators would result in additional competition for the Company.
The Company also competes with certain other wireless communication
services, such as mobile radio, paging or beeper services, which are widely used
in Colombia as a substitute for wireline services in order to improve
productivity and to address security concerns. These services have certain
disadvantages compared to cellular services because of factors such as lack of
coverage, lack of handset portability, lack of privacy, lower transmission
quality, network overloading and lack of customer service. These competing
wireless communication services are nevertheless considerably less expensive
than cellular services.
Technological advances in the communications field, such as the possible
introduction of PCS and mobile satellite services, continue to occur and make it
difficult to predict the extent of additional future competition for cellular
systems. For example, several mobile satellite-based phone systems are planning
to initiate service by the year 2000. While such services may offer worldwide
coverage, significant technological and other hurdles need to be overcome before
such services may be offered in Colombia.
OPERATING AGREEMENTS
Interconnection Agreements
The Company has executed interconnection agreements with EPM, EMCALI,
Empresas Publicas de Manizales, Telearmenia and Empresas Publicas de Pereira,
the wireline companies serving such areas, and has letters of intent to enter
into interconnection agreements with other wireline operators, such as Telecom
and Empresas Departamentales de Antioquia ("EDA"). All these operators other
than Telecom are also shareholders of the Company. The terms of the
interconnection agreements include provisions for the number of connection
points, the method by which signals must be received and transmitted, fraud
control, billing, damage liability, and the assumption of responsibility for the
costs of interconnection. Under such interconnection agreements, which reflect
regulations issued by the TRC, wireline telephone companies charge cellular
operators a fee per minute when a cellular subscriber places a call to a
wireline subscriber. The Company believes the terms of the interconnection
agreements are similar to those of interconnection agreements executed by such
companies and Cocelco.
Currently, negotiations are in process for leasing transmission
infrastructure with Empresa Cafetera Celular S.A. ("ECCEL S.A.") for the coffee
region and Empresa Regional de Telecomunicaciones del Valle S.A. ("ERT").
Roaming Agreements
Agreements for automatic roaming have been entered into with the other two
A Band concessionaires in Colombia, Comcel and Celcaribe. See "-- Industry
Cooperation". The Company also has roaming agreements that permit its
subscribers to use their cellular telephones in the United States, Canada and
Ecuador and subscribers can roam in Venezuela pursuant to a letter of intent. In
addition, the Company has understandings regarding the provision of roaming
services with certain countries in the Caribbean where
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C&W is the mobile operator. See "-- Operations -- Services
Offered -- Supplemental Services -- International Roaming".
Other Agreements
The Company is currently in negotiations to regulate the billing process
for cellular calls from wireline telephone companies to the Company's cellular
customers with several wireline telephone operators such as ETB, Empresas
Publicas de Popayan, Empresas Publicas de Palmira and Empresas Publicas de
Buenaventura. These operators do not require interconnection agreements.
LEGAL PROCEEDINGS
Medellin's Cellular Services Tax
On August 17, 1994, the municipality of Medellin through Resolution No. 019
imposed a monthly tax (the "Cellular Services Tax") on cellular subscribers
placing calls through base stations located in Medellin. Subsequently, the Mayor
of Medellin, on January 23, 1995, regulated the billing and collection of the
Cellular Services Tax through Municipal Decree 1244 (the "Decree"), which
imposed upon the two cellular operators of the Western Region the obligation to,
in each of their billing systems, determine, bill, collect and transfer the
Cellular Services Tax. Both regulations have been judicially challenged on the
grounds of not being consistent and in conformity with current higher ranking
law. Medellin's tax authorities through Resolution No. 005 and Resolution No.
006, issued on March 6, 1996 and May 17, 1996, respectively, determined that
Occel's transfer obligation under the Decree for the period through March 30,
1996, together with interest through May 17, 1996, is Ps 565 million
(US$528,170). The Company appealed this determination on March 14, 1996 and June
11, 1996, and a decision is still pending. Occel has not collected the Cellular
Services Tax from its customers because it believes that the tax is illegal
based on the advice of counsel, on the grounds that the law underpinning
Resolution 019 (item j, Article 1 Law 97 of 1913) was revoked prior to 1932 and
that the tax, which is applicable to fixed urban phone service, cannot legally
be extended to cellular mobile phone service. The Company has obtained an
opinion from Doctor Lucy Cruz de Quinones to that effect. Moreover, the
Santander Administrative Tribunal recently upheld a challenge brought by the
Mayor of the City of Bucaramanga against the imposition of a cellular service
tax in that city based primarily on the Tribunal's finding that the fixed urban
tax cannot be extended to cellular service. Consequently, the Company believes
that the challenges against Resolution No. 019 and the Decree will be successful
and, consequently, Resolution No. 005 and Resolution No. 006 will not be upheld.
In the event of unfavorable decisions in such challenges, the Company believes
that it would be able to collect from its customers a portion of the Cellular
Services Tax. See "Risk Factors -- Tax Litigation".
Other
The Company is involved in other litigation from time to time in the
ordinary course of business. In management's opinion, the litigation in which
the Company is currently involved, individually and in the aggregate, is not
material to the Company's financial condition or results of operations.
EMPLOYEES
As of December 31, 1995, the Company had 490 permanent full-time employees
and an additional 82 temporary full-time employees. None of the Company's
employees are unionized. The Company believes its employee relations are good.
PROPERTIES
The Company has offices in Medellin, Cali, Pereira, Manizales and Armenia.
The Company owns the building in Medellin where its headquarters are located
(approximately 3,000 square meters) and leases approximately 2,500 square meters
of office space in Cali, Pereira, Manizales, Armenia, Rionegro, Cartago and
Apartado.
The Company also owns or leases the sites where its cellular network
equipment is installed. As of December 31, 1995, the Company had 65 sites, 18 of
which were owned by the Company and the remainder of which were leased. Most of
these leases do not expire prior to 2000. In addition, the Company leases nine
and owns one of the sites where its cellular repeater (including its microwave
repeater) stations are located.
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REGULATION
Regulatory Authorities and Legislation
The Ministry of Communications and the Telecommunications Regulation
Commission ("TRC") are responsible for the regulation and oversight of the
telecommunications sector, including cellular operations. The Ministry of
Communications, which granted the cellular concessions in 1994, supervises and
audits the performance of the concessionaires' legal and contractual
obligations, in particular those related to the technical standards established
in the bid conditions and to the concessionaires' duty to answer their
subscribers' questions and complaints. The Ministry of Communications also has
general authority to issue regulations for cellular operations, subject to their
being in accordance with applicable law. The TRC is chaired by the Minister of
Communications and its other members are the Director of the National Planning
Department (Departamento Nacional de Planeacion) and three full-time experts
appointed by the President of Colombia. The TRC, which has jurisdiction over the
pricing of cellular services, has decided that tariffs be freely set by the
cellular operators with prior notice to the TRC and their subscribers. The TRC
is also charged with issuing regulations intended to promote free competition in
the cellular industry. In addition, the TRC regulates the pricing aspects of the
relationship between cellular and wireline operators, including interconnection
terms and tariffs.
The Company's activities are also subject to the oversight of the Colombian
Superintendency of Industry and Commerce (Superintendencia de Industria y
Comercio) ("SIC"), which is empowered to enforce anti-trust regulations, protect
free competition in the marketplace and protect consumer rights on a
case-by-case basis.
Finally, the Superintendency of Corporations (Superintendencia de
Sociedades) is entitled by Colombian Commercial Law to exercise legal control
over certain activities of the Company such as shares issuance, bonds placement
and equity reductions.
The operations of the Company as a cellular operator are principally
governed by Law 37 of 1993 ("Law 37") and Decree 741 of 1993 ("Decree 741") and
the terms and conditions of the Concession and related documents. Law 37 sets
forth the basic framework for the introduction of cellular telecommunications
services in Colombia. Law 37 established a public bidding process open to
private-sector, public-sector and mixed-economy companies. Mixed-economy
companies have both public-sector and private-sector shareholders, engage in
commercial business activities and are created pursuant to special legislation.
For purposes of the bidding process, the country was divided into three regions,
(i) the Eastern Region, (ii) the Western Region, and (iii) the Atlantic Region.
Each Region has two competing operators: (i) one public-sector or mixed-economy
company and (ii) one wholly private-sector company. This effectively resulted in
a cellular duopoly similar to that which characterizes the United States, Canada
and most Latin American countries. Law 37 also authorized foreign investment in
certain areas of the telecommunications industry, including cellular operations.
Subsequently, Decree 741 established detailed rules for the bidding process and
developed provisions contained in Law 37 regarding matters such as the corporate
structure of cellular operators, the assignment of frequencies, the concession
agreements to be entered into between the winner of the bidding process and the
Ministry of Communications and the rules for interconnection between wireline
and cellular operators. Cellular operators are also subject to Decree 1900 of
1990 ("Decree 1900"), which regulates telecommunications services in general, to
the extent that Decree 1900 does not contradict the terms of Law 37.
Terms of the Concession
The Concession consists of the right to establish and develop a cellular
telecommunications business in the Western Region over a ten-year period in
exchange for a one-time Concession fee combined with quarterly royalty payments
to the Ministry of Communications for the use of cellular frequencies. The
Company was awarded the Concession in a competitive bidding process, based upon
not only the price offered by the Company, but also its technical capabilities
and operational capacity, the mobile cellular experience of its affiliates, and
its financial and planning capability. The Concession's term is 10 years
commencing March 28,
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1994. The purchase price for the Concession was Ps 123.1 billion (actual Pesos)
(US$148.5 million at the April 13, 1994 Representative Market Rate), of which Ps
105.8 billion (US$127.7 million at the April 13, 1994 Representative Market
Rate) represented the actual fee paid for the Concession, while the remaining Ps
17.3 billion (actual Pesos) (US$20.8 million at the April 13, 1994
Representative Market Rate) represented the amount contributed by the Company to
a special expansion plan for municipalities with unsatisfied basic needs. In
addition, the Company makes a quarterly royalty payment to the Ministry of
Communications for the right to use its assigned frequencies in an amount equal
to 5% of the sum of activation fees, monthly fixed fees, airtime charges,
interconnection fees and supplementary services, minus interconnection costs
paid by the Company to other telecommunications operators.
The Concession may be renewed for an additional 10-year term provided that
the Company has met the terms of the Concession and neither the Ministry of
Communications nor the Company has expressed an intention not to renew during
the Concession's eighth year. If renewed, an extension of the concession
agreement will be executed during the first year of renewal, containing the
economic conditions agreed upon by the licensees and the government.
The Concession requires the Company to guarantee the performance of its
obligations thereunder and the payment of any liquidated damages or fines (as
described below) by obtaining a performance bond from a Colombian insurance
company or bank in an amount equal to approximately Ps 11.4 billion (US$10.6
million) (the "Performance Bond"). The Company has also obtained third party
liability insurance for Ps 1.1 billion (US$1.0 million) as required by the
Concession. Finally, the Company obtained a renewal bond of approximately Ps 1.0
billion (US$0.9 million) to support its obligation to maintain in force the
Performance Bond and the third party liability insurance policy.
The Company and Cocelco, the Company's Western Region competitor, will
operate their cellular networks with no additional competition for five years.
After March 1999, the fifth anniversary of the Concession, the Ministry of
Communications may grant additional concessions for cellular telecommunications
services or other competing services in each of the Regions, depending on
technical availability at that time.
The ability to provide national roaming (between concessioned cellular
telecommunications networks) is required by the Concession. Cellular companies
are also required to enter into interconnection agreements with wireline
telephone companies.
The terms of the Concession and applicable Colombian law prohibit the
Company from assigning the Concession, and the shareholders from transferring
any shares of capital stock of the Company, for a period of three years.
Thereafter, assignment of the Concession is permitted only with the prior
approval of the Ministry of Communications, and shares of capital stock of the
Company may be transferred pursuant to the Company's Bylaws.
The terms of the Concession bid required the Company to submit a detailed
timetable of its expansion plan, identifying the key cities, highways and other
areas to be covered by its network in the Western Region. During the second half
of the fifth year of the Concession, the Ministry of Communications, together
with the Company, will review the expansion plan. During this review, the
parties will determine if adjustments to the timetable are needed as a result of
developments in Colombia during the intervening years.
Colombia is one of three Latin American countries which mandate "calling
party pays" policy. Contrary to North American practice, where a cellular user
generally pays for both outgoing and incoming calls, the "calling party pays"
policy requires the originator of the call to pay for the total cost of the
call. This policy reduces the cost of cellular services to cellular users. The
Company believes that the policy of calling party pays stimulates additional
usage by effectively spreading the cost of cellular service among cellular phone
subscribers and wireline phone subscribers.
The Concession allows the Company to provide certain services not typically
permitted to be offered by cellular operators in North America. Unlike the North
American model, the Company is permitted to deliver calls anywhere in the
Western Region when it has the capability to do so, without routing such calls
through a long distance carrier and then sharing the resulting revenue. The
Company may also deliver calls to any
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Region provided that it has a reciprocal agreement with an operator in such
Region. In addition, the bid conditions contemplated the possibility of
providing cellular service to subscribers using fixed equipment rather than
mobile handsets. The Company is thus offering fixed cellular services under the
trade name "Fijovoz". The Company has also successfully marketed the product
"Beepervoz" which enables the user to have a cellular phone only for incoming
calls, outgoing calls only to the Company's *911 emergency service and
optionally, voice mail (for an additional charge).
Service Standards. The Company files a written quarterly report on
technical performance indicators designed by the Ministry of Communications to
ensure that the service provided to subscribers is consistent with the
concession standards. Performance indicators include network congestion levels,
percentage of dropped calls, cell availability and microwave availability. The
Company also provides general network indicators such as details of cellular
traffic flows, cell site traffic loads and network status updates. Additionally,
the Ministry of Communications requires from all cellular companies to provide a
quarterly report on adjusted gross revenues for the period in order to liquidate
the 5% amount due to the Ministry.
Digital Technology Requirements. In its bidding specifications, the
Colombian government required the initial use of analog AMPS technology or
AMPS-compatible technology in order to ensure compatibility with cellular
systems in neighboring countries and in North America. There are two types of
digital multiplexing technologies: (i) TDMA, which is currently commercially
available and is being deployed in Colombia and in North America and (ii) CDMA,
which is under development. Pursuant to the Concession, on March 28, 1996 (the
second anniversary thereof), the Ministry of Communications decided that each
cellular operator is free to choose between TDMA and CDMA. Under the terms of
the Concession, the Company's network is required to have 10% digital voice
channels by the third year of operation, 30% by the fifth year and 50% by the
eighth year. As of December 31, 1995, 35% of the voice channels in the Company's
network were programmed to be digital.
Social Sector Participation. Colombian law requires that concessionaires
operating cellular telecommunications systems authorize for issuance 10% of
their total share capital (on a fully-diluted basis) to organizations belonging
to the "Social Solidarity Sector", of the economy consisting of unions,
foundations, non-profit or charitable corporations, employees' funds, credit
unions and savings cooperatives. The issuance of shares is to be made at the
option of the Social Solidarity Sector entities and may be exercised at any time
prior to March 28, 1998. The exercise price of this option would be at fair
market value. The Ministry of Communications has not issued complete regulations
for the implementation of this requirement.
Restriction on Transfer of Shares by Certain Shareholders. Pursuant to the
terms of the Concession, the shareholders of the Company are subject to
restrictions in the transfer of shares of common stock. The Concession requires
that the aggregate percentage of the capital stock of the Company held by
shareholders registered as "operators" and "traders" during the license
auctioning process remain constant for the term of the Concession. Consequently,
absent the Ministry of Telecommunications' approval, no transfers of shares of
the Company by those shareholders registered as "operators" or "traders",
respectively, are allowed if as a result such aggregate percentages would vary.
Fines. The Ministry of Communications may impose fines for noncompliance
with the terms and conditions of the Concession. The fine for nonperformance
depends on the gravity of the offense, the damage done and any recurrence and
can reach up to Ps 142 million (US$132,884) upon the occurrence of any event of
default. Breaches that may subject the Company to fines include: (i)
nonperformance or delay in the performance of the timetable established for the
expansion of the cellular services after the Ministry of Communications has
formally notified the Company that compliance is required, except where non-
performance or delays are caused by force majeure or by acts of God; (ii) the
installation or connection of equipment with wireline networks that does not
meet interconnection standards and plans, or damages the wireline network as a
result of using unauthorized connections or installations, without prejudice to
compensation due to injured parties; (iii) the Company unjustifiably fails to
provide the information and cooperation required by the Ministry of
Communications; and (iv) the Company fails to perform its obligations under the
Concession and applicable regulations that, in the Ministry of Communications'
opinion, do not justify the termination of the Concession.
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Termination upon Default in Performance. Defaults which directly and
materially impair the ability of the Company to perform the services under the
Concession constitute grounds for its termination by the Ministry of
Communications. In addition, certain specific events are defined as constituting
grounds for such termination, including (i) providing false information at the
time of submission of the bid or prequalification document; (ii) assigning of
the Concession without the Ministry of Communications' approval; (iii)
suspending service without the Ministry of Communications' approval or without a
justifying cause; (iv) defaulting on required payments to the Ministry of
Communications; (v) providing false information which affects the calculation of
required payments to the Ministry of Communications; (vi) transferring shares
during the first three years of the concession and (vii) anti-competitive
behaviors. In the event of termination for default in performance, the Company
would not be entitled to compensation for loss of the Concession for the
remaining term. In addition, the Ministry of Communications would be entitled to
reversion of the assets directly related to the Concession and to payment of the
Performance Bond. The Ministry of Communications may also seek payment from the
Company for any damages suffered in excess of the amount covered by the
Performance Bond.
Reversion of Assets. At the end of the Concession's term, the Company's
assets directly related to the Concession are to revert to the Ministry of
Communications without compensation. During the concession bidding process, most
bidders expressed their concern regarding the extent of any such reversion. The
bidders, including the Company, argued that the interpretation of this clause
should be limited to the cellular frequencies assigned to each concessionaire
which are the basis for the concessions and for which each concessionaire pays a
quarterly fee. There can be no assurance that the concessionaires will be
successful in persuading the Ministry of Communications to limit this
interpretation to cellular frequencies. However, as a support to the Company's
interpretation, under recently issued regulations enacted in relation to the
long distance bidding process that will take place in 1996, reversion of assets
will not apply to such concessions. Although these rules apply only to long
distance service concessions, the Company believes they may establish the
government's policy on the interpretation of the reversion of assets issue. See
"Risk Factors -- Regulatory and Concession Matters".
Unilateral Interpretation, Modification and Termination of Government
Contracts. The Concession is subject to unilateral interpretation, modification
and termination under Law 80 of 1993 ("Law 80"), which is applicable to
Colombian government contracts. Pursuant to Law 80, in the event that a dispute
arises as to the interpretation of the Concession between the Ministry of
Communications and the Company, and an agreement cannot be reached between the
parties, the Ministry of Communications has the right to unilaterally interpret
the Concession if necessary in order to prevent a suspension of cellular service
to the public. If during the performance of the Concession, the need arises to
modify it in order to avoid a suspension of the public service contemplated
therein, and agreement cannot be reached between the parties, then the
government may unilaterally modify the relevant provisions. In addition, the
Ministry of Communications may unilaterally terminate the Concession in the
event that public service or public policy so requires, or if the Company
becomes legally unable (because of bankruptcy or dissolution of the Company or
attachment of a substantial portion of its assets which has a material adverse
effect on the Company's ability to render its cellular services) of performing
its obligations under the Concession. In the event of unilateral interpretation,
modification or termination, based on circumstances not attributable to the
Company, the Company may judicially challenge such decision and demand fair
compensation from the Ministry of Communications. In addition, the Ministry of
Communications may, without compensation, terminate the concession for certain
events of default under the Concession; in the event of such termination, the
Ministry of Communications would also be entitled to a payment by the Company in
the amount of the performance bond posted by the Company under the Concession.
See "Risk Factors -- Regulatory and Concession Matters".
Arbitration. Except for those disputes discussed above under
"-- Termination Upon Default in Performance" and "-- Unilateral Interpretation,
Modification and Termination of Government Contracts", any other disputes
related to the granting, execution, development or termination and liquidation
of the Concession, which cannot be directly resolved between the Company and the
Ministry of Communications, must be submitted to a three-member arbitration
panel which will decide in accordance with Colombian law.
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MANAGEMENT
BOARD OF DIRECTORS
The Board of Directors is composed of nine principal members, each with one
vote. Each principal director has two alternates who replace the principal
director during any absences. The principal and alternate members of the Board
of Directors are elected for one-year terms and may be removed by the
Shareholders' General Assembly. Any member may be reelected indefinitely.
The following table sets forth the current members of the Board of
Directors of the Company.
<TABLE>
<CAPTION>
DIRECTORS AGE DIRECTOR SINCE
------------------------------------- --- --------------
<S> <C> <C>
Julio M. Ayerbe-Munoz............................................ 51 1994
Raul Canal-Cardenas.............................................. 51 1992
Ana I. Jaramillo-Mejia........................................... 35 1994
Luis F. Dangond-Lacoutoure....................................... 29 1992
Jabib Char Abdala................................................ 54 1992
Mauricio Restrepo-Gutierrez...................................... 32 1995
Luis Esteban Echavarria.......................................... 49 1992
Jon R. Hill...................................................... 55 1995
Dominic Crolla................................................... 35 1996
</TABLE>
EXECUTIVE OFFICERS
The current executive officers of the Company are set forth below. The
President and the General Secretary are appointed and can be removed by the
Board of Directors; the other officers are appointed and can be removed by the
President.
EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
NAME AGE POSITION HELD SINCE
- ------------------------------------------ --- --------------------------- ----------
<S> <C> <C> <C>
Gilberto Echeverri-Mejia.................. 60 President 1992
Mauricio Campillo-Orozco.................. 33 General Secretary & 1992
Administrative Vice
President
Jorge Ospina-Restrepo..................... 44 Technical Vice President 1992
Juan Carlos Barvo-Barcenas................ 41 Regions Vice President 1993
Alvaro Munoz-Ramirez...................... 42 Financial Vice President 1993
David Paul Whitten........................ 49 Operations Vice President 1994
Jorge Echandia-Tobon...................... 43 Sales & Marketing Vice 1995
President
</TABLE>
The following is certain information regarding the current directors and
executive officers of the Company.
DIRECTORS:
Julio M. Ayerbe-Munoz, B.A. in Industrial Economics from Universidad de los
Andes. He joined Corporacion Financiera del Valle in 1969 and was appointed
President in 1984, after serving in a number of positions with the Company. He
has also served as representative of the President of Colombia in the Board of
Fogafin, the entity established in 1985 to deal with financial institutions in
distress. Currently, he is also a director of Capital International Inc.,
Icollantas S.A., Sucromiles S.A., Cementos Rio Claro S.A., and Hoteles Estelares
S.A.
Raul Canal-Cardenas, B.S. in Electronic Engineering from Pontificia
Universidad Javeriana. Since October 1995, he has been the Senior General
Manager in the Area of the Information and Telecommunications of Sycom S.A. He
worked with Carvajal S.A. and held several positions, including General Manager
of
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the Control Department, General Manager for Panama and Venezuela and Senior
General Manager for the Electronic Department.
Ana I. Jaramillo-Mejia, B.S. in Civil Engineering from Universidad del
Quindio. She is currently the General Manager of Eccel S.A. Formerly, she was
General Manager of La Cronica Ltda., a local newspaper in Armenia, Chief of the
Economic Department of and Manager of Camacol, Quindio.
Luis F. Dangond-Lacoutoure, B.S., in Mining Engineering from The
Pennsylvania State University. He is member of the Board of Directors of
Promotora de Empresas Agroexportadoras S.A. and Sociedad Promotora Hotel Holiday
Inn Select Barranquilla S.A.
Jabib Char Abdala. Mr. Char is a merchant and owner of several companies
in the country, including Supertiendas y Droguerias Olimpicas S.A., one of the
largest supermarkets in the country. Currently, Mr. Char is member of the Board
of Directors of Supertiendas y Droguerias Olimpicas S.A., Char Hermanos Ltda.,
Servicios Financieros S.A. SERFINANSA Compania de Financiamiento Comercial, and
Organizacion Radial Olimpica S.A.
Mauricio Restrepo-Gutierrez, B.S. Degree in Civil Engineering from
Universidad de Medellin. He has been the General Manager of the EPM since
January 1995. He has held several positions with municipal and state
governments, including Chief of the Planning Department, Public Works Secretary
for Medellin and Public Works Secretary for the state of Antioquia.
Luis Esteban Echavarria, B.A. in Economics from Universidad de Antioquia,
and M.B.A. from Boston University. From 1978 to 1981, he was General Manager of
Federacion Antioquena de Ganaderos, FADEGAN. Since 1981 he has been President of
Gilseguros Ltda. which has issued insurance policies for the Company. The
Company has paid approximately US$680,000 in respect of such policies for the
six months ended June 1996 and approximately US$376,000 in the year 1995.
Currently, Mr. Echavarria is a member of the Board of Directors of Cadenalco
S.A., Ancel S.A., Bedout Editores S.A., and Agroindustrias Colombianas S.A.
Jon R. Hill. He joined C&W 26 years ago, and is currently Regional
Director, Regional Business, Cable & Wireless Mobile. Mr. Hill was appointed
Regional Director, Regional Business following the formation of the mobile line
of business in April 1995. Previously he had been Director of Mobile for C&W
since 1993. He had held several positions in C&W including Managing Director of
Compunet Corporation and officer of Hong Kong Telecom Limited.
Dominic Crolla, B. Comm Hons in Business Studies and Spanish from the
University of Edinburgh. He joined C&W five years ago to advise on, structure
and negotiate project and asset financings. He is currently a Corporate Finance
Manager for C&W where he is involved in the world-wide mergers and acquisition
activity of the C&W Group as well as providing advice on the funding needs of
the subsidiary and associated companies of C&W. Prior to joining C&W he worked
for five years for Midland Montagu in London in the field of export and project
finance.
EXECUTIVE OFFICERS:
Gilberto Echeverri-Mejia, President. B.S. Degree in Electrical Engineering
from Universidad Pontificia Bolivariana. From 1975 to 1977 he was Ambassador of
Colombia to Ecuador. From 1978 to 1980, he was Minister of Economic Development.
From 1980 to 1988, he was President of Proantioquia, a private entity that
promotes the economic and commercial interests of the state of Antioquia. From
1990 to 1991, he was governor of the state of Antioquia and during the first
semester of 1992 served as Presidential Adviser for Social Issues to the
President of Colombia. He was appointed to his current position in August 1992.
Mauricio Campillo-Orozco, Corporate General Secretary/Administrative Vice
President, J.D. from Universidad de Medellin. Degrees in Public Law from
Universita di Estudi Europei di Torino, Italy, in Commercial Law from Pontificia
Universidad Bolivariana, and in Tax Law from EAFIT. He joined the EPM in 1987 as
attorney in the Legal Department and held other positions such as Human
Resources Manager and Head of the Legal Department. He is also Professor of
Administrative Law and Telecommunications Law in Universidad de Medellin and
Universidad Libre de Pereira.
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Jorge Ospina-Restrepo, Technical Vice President. B.S. Degree in Electrical
Engineering from Universidad Pontificia Bolivariana. From 1975 to 1991, he
served as EPM's Director of the Planning Division. He was also Ancel S.A.'s
General Manager and Professor of Telecommunications at the Universidad
Pontificia Bolivariana. He was appointed to his current position in August,
1992.
Juan Carlos Barvo-Barcenas, Regions' Vice President. B.S. Degree in
Economics from Pontificia Universidad Javeriana and A.L.M. in French Literature
from Harvard University. From 1981 to 1987 he worked with The Gillette Company
in Boston and Cali as Brand Manager. From 1987 to 1992, he was Head of the
National Marketing Office of Familia Products (formerly Scott Paper
Corporation). He joined the Company in 1993, first as Sales & Marketing Vice
President and from July 1995 as Regions' Vice President.
Alvaro Munoz-Ramirez. Financial Vice President. B.S. Degree in Industrial
Engineering from Universidad Autonoma Latinoamericana and Degree in Financial
Principles from the American Institute of Banking. From 1977 to 1993, he worked
at Trust Company Bank in Atlanta, Georgia, serving in several departments such
as international transactions, operations, marketing, and human resources. His
last position was Assistant to the International Department Vice President. He
was appointed to his current position in November 1993.
David Paul Whitten, Operations Vice President. B.S. Degree in Electric
Engineering from The University of Surrey in the United Kingdom. He has 26 years
of experience in various positions with Cable & Wireless, plc. and Mercury
Communications, one of its affiliates. From 1987 to 1994 he held several
positions with Mercury Communications including Manager of the Microwave
Department, Manager of Trunk, PCN Interconnect and Technological Planning
Departments. From 1984 to 1987, he served as Chief Officer of the Radio Studies
Department. From 1982 to 1984, he served as Manager of Radio Transmission. From
1972 to 1978 he was Radio Project Manager. He was seconded from C&W and has been
employed by the Company since 1994.
Jorge Echandia-Tobon, Marketing and Sales Vice President. B.S. Degree in
Electronic Engineering from the Pontificia Universidad Bolivariana. Degrees in
Finance, Foreign Trade and Marketing from Universidad Javeriana and EAFIT. From
1985 to 1994 he worked with Carvajal S.A. as Sales Manager for Medellin,
National Marketing Manager and Commercial Manager for Cali, Medellin and
Barranquilla. He joined the Company in 1994 as assistant to the Presidency and
later on he was appointed to his current position.
STATUTORY AUDITOR
The Company, as required by the Colombian Code of Commerce (Codigo de
Comercio) (the "Code of Commerce"), has a statutory auditor ("Revisor Fiscal").
The statutory auditor is elected by the Shareholders' General Assembly for a
one-year period beginning on the date of election. The statutory auditor may be
reelected indefinitely. Pursuant to the Code of Commerce, the statutory auditor
has the obligation to review the Company's financial statements, its tax filings
and all other related documents in order to attest to their conformity with the
accounting records. The statutory auditor also verifies the Company's compliance
with shareholders and board of directors resolutions, applicable Colombian laws
and regulations and orders or requests by Colombian government entities. The
statutory auditor, who has no power over the Company's operations, is authorized
to investigate and require correction of any irregularities, including by
convening an extraordinary session of the Board of Directors or the
Shareholders' General Assembly. The current statutory auditor is KPMG Peat
Marwick, independent auditors.
MANAGEMENT COMPENSATION; PENSION
While the Company's directors are not compensated for their services, as of
December 31, 1995, the Company's officers were compensated according to the
Colombian salary standards for executive officers in the telecommunications
sector.
For the year ended December 31, 1995, the aggregate compensation of all
directors and executive officers of the Company was approximately Ps666 million.
The Company is obligated by law to pay 10.125% of an employee's salary to
the pension system chosen by the employee. The Company has no other retirement
plan for employees.
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PRINCIPAL SHAREHOLDERS
Based upon the Company's shareholder's register, the following table sets
forth, as of March 31, 1996, each owner of more than 5% of any class of the
Company's voting securities. No shares of the Company's voting securities are
owned by the Company's directors or officers. See "Description of Capital
Stock".
<TABLE>
<CAPTION>
NUMBER OF
SHARES PERCENT
OWNED OF CAPITAL STOCK
---------- ----------------
<S> <C> <C>
CLASS B SHARES:
Antioquia Celular S.A.................................... 19,864,154 24.00%
Empresa Regional de Telecomunicaciones Celulares S.A..... 19,864,248 24.00%
Empresa Cafetera Celular S.A............................. 8,069,863 9.75%
Caribe Celular S.A....................................... 14,277,451 17.25%
Cable and Wireless plc................................... 18,457,226 22.30%
</TABLE>
Antioquia Celular S.A., which owns 24.00% of the Company's outstanding
voting securities, has among its principal shareholders Empresas Publicas de
Medellin, the second largest public utility company in Colombia ("EPM"), and
Empresas Departamentales de Antioquia, a state telecommunications company.
Empresa Regional de Telecommunicaciones Celulares S.A., which owns 24.00% of the
Company's outstanding voting securities, has among its principal shareholders
Empresas Municipales de Cali, the fourth largest public utility company in
Colombia ("EMCALI"), and private companies such as Carvajal S.A., one of the
largest industrial companies in Colombia, and Corporacion Financiera del Valle
S.A. ("Corfivalle"), one of the largest financial institutions in Colombia.
Empresa Cafetera Celular S.A. ("ECCEL S.A."), which owns 9.75% of the Company's
outstanding voting securities, has among its principal shareholders, Empresas
Publicas de Pereira, Empresas Publicas de Manizales and Telearmenia, three
telecommunication public utilities in the Western Region. Caribe Celular S.A.,
which owns 17.25% of the Company's outstanding voting securities, has among its
principal shareholders many of the largest private enterprises that operate in
the Caribbean region. C&W, which owns 22.30% of the Company's outstanding voting
securities, is an international telecommunications company with revenues of L5.5
billion for the fiscal year ended March 31, 1996 and operations in over 50
countries including the United Kingdom, Hong Kong, Australia, Colombia and
certain Caribbean countries. A C&W executive was seconded to, and is employed
by, the Company as a member of the Company's senior management team.
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CERTAIN TRANSACTIONS WITH RELATED PARTIES
INTERCONNECTION AGREEMENTS
The Company has entered into interconnection agreements with wireline
operators which include EPM, EMCALI, Empresas Publicas de Manizales, Telearmenia
and Empresas Publicas de Pereira and has executed a letter of intent to enter
into an interconnection agreement with Empresas Departamentales de Antioquia and
Telecom. All of these wireline operators beneficially own capital stock of the
Company. The terms of the interconnection agreements include provisions for,
among other things, the number of connection points, the method by which signals
must be received and transmitted, and the assumption of responsibility for the
cost of interconnection. The Company believes that these interconnection
agreements contain terms substantially similar to the terms of the
interconnection agreements between Cocelco and such wireline operators. In
addition, the Company is currently negotiating lease agreements with ECCEL S.A.,
which owns 9.75% of the capital stock of the Company, and ERT (a shareholder of
Empresa Regional de Telecomunicaciones Celulares S.A.), which beneficially owns
approximately 3.84% of the capital stock of the Company, for the leasing of
transmission capacity.
AGREEMENTS WITH CABLE AND WIRELESS plc
The Company has had in the past several consulting arrangements with C&W
for the provision of technical, commercial, financial, marketing and billing
support. Although currently the Company does not have any consulting arrangement
with C&W, the latter continues to provide advice with respect to technical,
financial and equipment purchasing matters. As of December 31, 1995, the Company
had paid C&W an aggregate amount of approximately, Ps2.1 billion (US$2.0
million) for services rendered in the last three years.
DESCRIPTION OF COMPANY INDEBTEDNESS
BANK FACILITY
The description set forth below does not purport to be complete and is
qualified by reference to the definitive documentation for the Credit Agreement
entered into by the Company, ING Baring (U.S.) Securities, Inc. and Merrill
Lynch & Co., as arrangers (the "Arrangers"), ING Bank, N.V. and ING (U.S.)
Capital Corporation, as administrative and collateral agents (the "Agents"), and
the financial institutions party thereto (the "Credit Agreement"), which is
filed as exhibits to the Registration Statement of which this Prospectus is a
part.
The Agents and the Arrangers have provided the Company with a term loan in
an aggregate principal amount of U.S.$80.0 million (the "Term Loan"). The
principal amount of the Term Loan is scheduled to be repaid in four semiannual
amortizations, each equal to 10% of the principal amount thereof, commencing on
the third anniversary of the closing date under the Credit Agreement, with the
remaining 60% of the principal amount of the Term Loan due five years and one
day after disbursement thereof. The interest rate per annum applicable to the
Bank Facility is the sum of the Applicable Margin plus the applicable Eurodollar
Rate. Such sum was equal to 9.3125% as of June 30, 1996. The Applicable Margin
shall be 3.75%; provided, however, that if the Company satisfies certain
leverage ratios, the Applicable Margin may be reduced by as much as 1%.
The Company is required to make mandatory prepayments of the Term Loan in
amounts, at times and subject to certain exceptions, (i) in respect of 100% of
the cash proceeds of the issuance of equity in the Borrower in excess of
U.S.$30.0 million or the issuance or incurrence of indebtedness not permitted
pursuant to the Credit Agreement and (ii) in respect of 50% of the excess cash
flow of the Company.
The obligations of the Company under the Credit Agreement are secured by,
among other things, (i) all of the Company's receivables originated from the
provision of cellular communications and roaming and interconnection services,
(ii) the pledge of 99.99% (as of the date thereof) of the Company's outstanding
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common stock and (iii) the pledge of the Concession to operate its business,
provided that the Lenders may not exercise any remedies thereunder prior to
March 28, 1997.
For the period described above until the restriction on the right of the
Lenders to exercise their remedies under the pledge of the Concession expires,
the Indenture will provide that should the Company enter into a bankruptcy
reorganization (concordato) or liquidation under the laws of Colombia during
such period, the Trustee will turn over to the Agents for the lenders under the
Bank Facility all amounts that constitute proceeds of the Concession received
pursuant to a bankruptcy reorganization (concordato)or liquidation until all the
claims under the Bank Facility are satisfied.
The Credit Agreement contains a number of significant covenants that, among
other things, restrict the ability of the Company to create liens on assets, pay
dividends, incur additional indebtedness, make investments or advances, engage
in mergers or consolidations and otherwise restrict corporate activities. In
addition, under the Credit Agreement, the Company is required to comply with
specified financial ratios and tests, including quarterly recurring revenue,
fixed charge coverage, interest coverage and maximum leverage.
The Credit Agreement also contains provisions that limit the Company's
ability to modify the Indenture relating to the Notes and to refinance the
Notes.
OTHER INDEBTEDNESS
As of June 30, 1996, the Company also had Ps 36.6 billion (US$34.2 million)
of aggregate payments (without discount to present value) relating to leases and
US$1.8 million of letters of credit.
DESCRIPTION OF THE NOTES
The Old Notes were issued and the New Notes offered hereby will be issued
under an indenture dated as of June 1, 1996 (the "Indenture") between the
Company, as issuer, and The Bank of New York, as trustee (the "Trustee"), a copy
of which is filed as an exhibit to the Registration Statement of which this
Prospectus is a part. The Indenture is subject to and governed by the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"). The following
summary of the material provisions of the Indenture does not purport to be
complete and is subject to, and qualified by reference to, the provisions of the
Indenture, including the definitions of certain terms contained therein and
those terms made part of the Indenture by reference to the Trust Indenture Act.
For definitions of certain capitalized terms used in the following summary, see
"-- Certain Definitions".
GENERAL
The Notes will mature on March 15, 2004, will be limited to US$190,745,000
aggregate principal amount at maturity and will be general senior unsecured
obligations of the Company. Based on the issue price thereof, the yield to
maturity of the Notes is 14% per annum (computed on a semiannual bond equivalent
basis) calculated from June 7, 1996.
The Old Notes have been offered at a substantial discount from their
principal amount at maturity. Cash interest will not accrue on the Notes prior
to March 15, 2001. Thereafter, cash interest on the Notes will be payable at the
applicable rate set forth on the front cover of this Prospectus, semiannually in
arrears on each March 15 and September 15, commencing September 15, 2001, until
the principal thereof is paid or duly provided for, to the Person in whose name
the Note (or any predecessor Note) is registered at the close of business on the
March 1 or September 1 next preceding such interest payment date. Cash interest
will accrue from the most recent interest payment date to which interest has
been paid or, if no interest has been paid, from March 15, 2001. Cash interest
will be computed on the basis of a 360-day year of twelve 30-day months.
Principal of, premium, if any, and interest on the Notes will be payable,
and the Notes will be exchangeable and transferable, at the office or agency of
the Company in The City of New York maintained for such purposes (which
initially will be the Trustee); provided, however, that, at the option of the
Company, interest may be paid by check mailed to the address of the Person
entitled thereto as such address shall appear on the security register.
(Sections 301, 305 and 1002) The Old Notes have been and the New Notes will be
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issued only in registered form without coupons and only in denominations of
US$1,000 and any integral multiple thereof. (Section 302) No service charge will
be made for any registration of transfer or exchange or redemption of Notes, but
the Company may require payment in certain circumstances of a sum sufficient to
cover any tax or other governmental charge that may be imposed in connection
therewith. (Section 305)
ADDITIONAL AMOUNTS
The Notes provide that any and all payments thereunder will be made free
and clear of and without deduction for or on account of any and all present or
future taxes, levies, imposts, deductions, charges or withholdings and all
liabilities with respect thereto imposed by Colombia or any political
subdivision thereof excluding any taxes, levies, imposts, deductions, charges or
withholdings and all liabilities with respect thereto (i) resulting from the
holder of a Note having some connection with Colombia or any political
subdivision thereof other than the mere holding of or enforcement of or receipt
of any payment with respect to such Note, (ii) the payment of which may be
avoided by the holder of a Note complying with any certification, declaration or
other reporting requirement concerning the nationality, residence, identity or
connection with any taxing authority of such holder as the beneficial owner of
such Note, (iii) that would not have been imposed but for the presentation
(where presentation is required) of such Note for payment more than 30 days
after the date such payment became due and payable or was duly provided for,
whichever occurs later, (iv) in the nature of estate, inheritance, gift, sale,
transfer, personal property or similar taxes, or (v) imposed on or with respect
to any payment by the Company to the holder of a Note if such holder is a
fiduciary or partnership or person other than the sole beneficial owner of such
payment to the extent such tax, levy, impost, deduction, charge or withholding
would not have been imposed on a beneficiary or settlor with respect to such
fiduciary, member of such partnership or the beneficial owner of such payment
had such beneficiary, settlor, member or beneficial owner been the holder of
such Note (all such non-excluded taxes, levies, imposts, deductions, charges,
withholdings and liabilities being referred to collectively or individually as
"Colombian Withholding Taxes"). If the Company is required by law to deduct any
Colombian Withholding Taxes from or in respect of any sum payable under a Note,
the sum payable thereunder shall be increased by the amount necessary so that
after making all required deductions the holder of a Note will receive an amount
equal to the sum it would have received had no such deductions been made (such
additional amounts to be paid by the Company in accordance with the foregoing
being "Additional Amounts").
At least 30 calendar days prior to each date on which any payment under or
with respect to the Notes is due and payable, if the Company will be obligated
to pay Additional Amounts with respect to such payment, the Company will deliver
to the Trustee an Officers' Certificate stating the fact that such Additional
Amounts will be payable and the amounts so payable and will set forth such other
information necessary to enable the Trustee to pay such Additional Amounts to
holders of Notes on the payment date. Whenever in the Indenture or in this
"Description of the Notes" there is mentioned, in any context, the payment of
principal, interest, if any, or any other amount payable, under or with respect
to any Note, such mention shall be deemed to include mention of the payment of
Additional Amounts to the extent that, in such context, Additional Amounts are,
were or would be payable in respect thereof.
RANKING
The Notes are senior unsecured obligations of the Company, and the
Indebtedness evidenced by the Notes ranks pari passu in right of payment with
all other existing and future unsubordinated obligations of the Company (other
than obligations preferred by statute or by operation of law), except to the
extent that the provisions of the Indenture require the Trustee, during the
period from the Issue Date until the restriction on the right of the Lenders to
exercise their remedies under the pledge of the Concession expires, to turn over
to the collateral agents for the lenders under the Bank Facility all amounts
that constitute proceeds of the Concession received pursuant to a bankruptcy
reorganization (concordato) or liquidation of the Company until all claims under
the Bank Facility are satisfied, and senior in right of payment to all existing
and future Indebtedness of the Company expressly subordinated in right of
payment to any other Indebtedness of the Company. The Company currently has no
subordinated Indebtedness outstanding. The Notes, however, are effectively
subordinated to senior secured obligations of the Company with respect to the
assets of the
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Company securing such obligations, including Indebtedness under the Bank
Facility, which are secured by, among other things, (i) all of the Company's
receivables originated from the provision of cellular communications and roaming
and interconnection services and (ii) when such pledge is permitted by law, but
not earlier than May 1, 1997, the Concession to operate its business. The
Indebtedness under the Bank Facility is also secured by a pledge of 99.99% of
the Company's outstanding common stock. See "Description of Company
Indebtedness -- Bank Facility". As of June 30, 1996, Indebtedness of the Company
was approximately US$181.8 million, of which US$80.0 million was senior secured
Indebtedness and US$101.8 million was senior unsecured Indebtedness. Subject to
certain limitations, the Company and any Restricted Subsidiary may incur
additional Indebtedness, including secured Indebtedness, in the future.
MANDATORY REDEMPTION
The Company will redeem 50% of the original aggregate principal amount at
maturity of the Notes on March 15, 2003 at 100% of the principal amount thereof,
together with accrued and unpaid interest to the redemption date on a pro rata
basis from Persons in whose name the Notes (or any predecessor Note) are
registered at the close of business on March 1, 2003. Notice of redemption will
be mailed, first-class postage prepaid, at least 30 but not more than 60 days
before the redemption date to each holder of Notes to be redeemed at its
registered address. On and after the redemption date, interest will cease to
accrue on Notes or portions thereof called for redemption and accepted for
payment.
OPTIONAL REDEMPTION
Redemption at the Option of the Company. The Notes are redeemable at the
option of the Company, as a whole or from time to time in part, on not less than
30 nor more than 60 days' prior notice (i) at 100% of the principal amount
thereof if redeemed prior to September 15, 2000, (ii) 107.5% of the Accreted
Value thereof if redeemed during the six months beginning September 15, 2000 and
(iii) at the redemption prices (expressed as percentages of principal amount)
set forth below, in each case together with accrued interest, if any, to the
redemption date, if redeemed during the 12-month period beginning on March 15 of
the years indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
-------------------------------------------------------------------------- ----------
<S> <C>
2001...................................................................... 107.0%
2002...................................................................... 103.5%
2003 and thereafter....................................................... 100.0%
</TABLE>
In addition, at any time prior to March 15, 1999 the Company may redeem up
to 33% of the original aggregate principal amount at maturity of the Notes
within 45 days of one or more Public Equity Offerings with the net proceeds of
such offering at a redemption price equal to 114% of the Accreted Value thereof,
provided that no less than 67% of the original aggregate principal amount at
maturity of the Notes remains outstanding.
For certain restrictions on the Company's ability to redeem the Notes, see
"-- Prepayment Events Prior to First Anniversary", "-- Prepayment Events Prior
to Third Anniversary" and "Foreign Investment and Exchange Controls".
Redemption at the Option of the Company for Changes in Colombian
Withholding Tax. The Notes are redeemable at the option of the Company, as a
whole, but not in part, at any time upon not less than 30 nor more than 60 days'
prior notice at 100% of the Accreted Value on the date of redemption, together
with accrued interest, if any, to the date of redemption, in the event the
Company has become or would be obligated to pay, on any date on which any amount
would be payable with respect to the Notes, any Additional Amounts as a result
of a change in the laws (including any regulations promulgated thereunder) of
Colombia (or any political subdivision or taxing authority thereof or therein),
or any change in any official position regarding the application or
interpretation of such laws or regulations, which change is announced or becomes
effective on or after the Issue Date (a "Tax Redemption").
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<PAGE> 80
For certain restrictions on the Company's ability to redeem the Notes, see
"-- Prepayment Events Prior to First Anniversary", "-- Prepayment Events Prior
to Third Anniversary" and "Foreign Investment and Exchange Controls in
Colombia".
Selection and Notice. If less than all the Notes are to be redeemed, the
particular Notes to be redeemed will be selected not more than 60 days prior to
the redemption date by the Trustee by such method as the Trustee deems fair and
appropriate; provided, however, that no such partial redemption will reduce the
principal amount of a Note not redeemed to less than US$1,000. Notice of
redemption will be mailed, first-class postage prepaid, at least 30 but not more
than 60 days before the redemption date to each holder of Notes to be redeemed
at its registered address. On and after the redemption date, interest will cease
to accrue on Notes or portions thereof called for redemption and accepted for
payment. (Sections 1104, 1105, 1107 and 1108).
Prepayment Events Prior to First Anniversary. Colombian law currently
prohibits the prepayment of the Notes within one year of their issuance, whether
by redemption, repurchase, acceleration or otherwise. Accordingly, the Company
will not be able to effect an optional redemption, including a Tax Redemption,
during such period as long as such limitation is in effect. In addition, as long
as such limitation under Colombian law is in effect, in the event any mandatory
redemption, repurchase, acceleration or other event requiring repayment occurs
on or prior to the first anniversary of the Issue Date, in lieu of such
redemption, repurchase, acceleration or other prepayment, the Company will be
required to deposit with the Trustee cash and/or United States Government
Obligations in an amount (without taking into account the payment of interest
thereon) sufficient to make such prepayment with respect to the Notes on the
first Business Day after the first anniversary of the Issue Date ("First
Anniversary Date") at a price which the Company would have had to pay with
respect to such a prepayment occurring on the First Anniversary Date; provided,
however, that in the event of an offer to purchase described under "Certain
Covenants -- Purchase of Notes upon a Change of Control," the Company would have
to deposit with the Trustee an amount (without taking into account the payment
of interest thereon) sufficient to repurchase all of the Notes. Any funds
deposited with the Trustee (together with any additional funds provided by the
Company, if necessary) will be used by the Trustee to make the required
prepayment on the Notes on the First Anniversary Date. If the Company shall have
made the deposit with the Trustee as described in this paragraph, it will not be
in default of its obligations to redeem or repurchase the Notes prior to the day
on which the Notes are to be redeemed or repurchased as provided in the
preceding sentence.
Prepayment Events Prior to Third Anniversary. Colombian law currently
imposes certain deposit requirements on the Company upon a redemption,
repurchase, acceleration or other event requiring repayment on or prior to the
third anniversary of the Issue Date. See "Foreign Investment and Exchange
Controls in Colombia". Accordingly, in the event of an optional redemption,
including a Tax Redemption, a repurchase described under "Certain
Covenants -- Purchase of Notes upon a Change of Control" or any prepayment of
Notes upon acceleration on or prior to the third anniversary of the Issue Date
and after the one-year period described in the preceding paragraph, the Company
must comply with applicable law, including making the deposit required by the
Central Bank as described under "Foreign Investment and Exchange Controls in
Colombia" should such requirement then exist, prior to such redemption, purchase
or acceleration of the Notes. In addition, the Indenture provides that in the
event of any Excess Proceeds Offer from any Asset Sale on or prior to the third
anniversary of the Issue Date in which more than 40% of the aggregate principal
amount at maturity of the Notes (or such lesser amount that, when added to the
Notes previously redeemed or purchased, would exceed 40% of the aggregate
principal amount at maturity of the Notes) have been tendered for purchase, the
Company may (i) make the deposit required by the Central Bank as described under
"Foreign Investment and Exchange Controls in Colombia" and thereafter complete
the repurchase pursuant to the Excess Proceeds Offer or (ii) purchase pro rata
40% of the aggregate principal amount at maturity of the Notes (or such lesser
amount that would result, together with any prior redemption or purchase, in an
aggregate of 40% of the aggregate principal amount at maturity of the Notes
having been redeemed or purchased) and in lieu of the redemption of the
remainder of such tendered Notes, deposit with the Trustee cash or United States
Government Obligations in an amount (without taking into account the payment of
interest thereon) sufficient to purchase such remaining Notes on the first
Business Day after the
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<PAGE> 81
third anniversary of the Issue Date at a purchase price equal to the Accreted
Value of the Notes together with accrued interest to the date of purchase. Any
funds deposited with the Trustee (together with any additional funds provided by
the Company, if necessary) will be used by the Trustee to make the required
prepayment on the Notes on the first Business Day after the third anniversary of
the Issue Date. If the Company shall have made the deposit with the Trustee as
described in this paragraph, it will not be in default of its obligations to
redeem or repurchase the Notes prior to the day on which the Notes are to be
redeemed or repurchased as provided in the preceding sentence.
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants:
Limitation on Indebtedness. (a) The Company will not create, issue,
assume, guarantee or in any manner become directly or indirectly liable for the
payment of, or otherwise incur (collectively, "incur"), any Indebtedness
(including any Acquired Indebtedness), other than Permitted Indebtedness, unless
at the time of such incurrence the ratio of (x) the aggregate consolidated
principal amount of Indebtedness of the Company and its Restricted Subsidiaries
outstanding as of the most recent available quarterly or annual balance sheet,
after giving pro forma effect to the incurrence of such Indebtedness and any
other Indebtedness incurred since such balance sheet date and the receipt and
application of the proceeds thereof and the repayment of any other Indebtedness
repaid since such balance sheet date to (y) Annualized Pro Forma Consolidated
Cash Flow would be less than or equal to (i) 7.5 to 1 from the Issue Date until
June 7, 1998 and (ii) 6.5 to 1 thereafter. (Section 1010(a))
(b) The Company will not permit any Restricted Subsidiary to incur any
Indebtedness (including any Acquired Indebtedness), other than Permitted
Subsidiary Indebtedness. (Section 1010(b))
Limitation on Restricted Payments. (a) The Company will not, and will not
permit any Restricted Subsidiary to, directly or indirectly, take any of the
following actions:
(i) declare or pay any dividend on, or make any distribution to
holders of, any shares of the Capital Stock of the Company (other than
dividends or distributions payable solely in shares of its Qualified
Capital Stock or in options, warrants or other rights to acquire such
shares of Qualified Capital Stock);
(ii) purchase, redeem or otherwise acquire or retire for value,
directly or indirectly, any shares of Capital Stock of the Company or any
Capital Stock of any Restricted Subsidiary (other than Capital Stock of any
Wholly Owned Restricted Subsidiary or Capital Stock of the Company held by
any Wholly Owned Restricted Subsidiary) or any options, warrants or other
rights to acquire such shares of Capital Stock;
(iii) make any principal payment on, or repurchase, redeem, defease or
otherwise acquire or retire for value, prior to any scheduled principal
payment, sinking fund payment or maturity, any Subordinated Indebtedness;
or
(iv) make any Investment (other than any Permitted Investment) in any
Person (such payments or other actions described in (but not excluded from)
clauses (i) through (iv) are collectively referred to as "Restricted
Payments"), unless at the time of, and immediately after giving effect to,
the proposed Restricted Payment (the amount of any such Restricted Payment,
if other than cash, as determined by the Board of Directors of the Company,
whose determination shall be conclusive and evidenced by a Board
Resolution) (1) no Default or Event of Default shall have occurred and be
continuing, (2) the Company could incur at least US$1.00 of additional
Indebtedness (other than Permitted Indebtedness) pursuant to the
"Limitation on Indebtedness" covenant and (3) the aggregate amount of all
Restricted Payments declared or made after the Issue Date shall not exceed
the sum of:
(A) the remainder of (x) cumulative Consolidated Cash Flow of the
Company during the period (taken as a single accounting period) beginning
on the first day of the fiscal quarter of the Company beginning after the
Issue Date and ending on the last day of the last full fiscal quarter
immediately preceding the date of such Restricted Payment for which
quarterly or annual financial statements of the
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Company are available minus (y) the product of 1.75 times cumulative
Consolidated Interest Expense of the Company during such period, plus
(B) the aggregate Net Cash Proceeds and the Fair Market Value of
marketable securities and property received after the Issue Date by the
Company as capital contributions or from the issuance or sale (other than
to any Restricted Subsidiary) of shares of Qualified Capital Stock of the
Company or warrants, options or rights to purchase shares of Qualified
Capital Stock of the Company, plus
(C) the aggregate Net Cash Proceeds and the Fair Market Value of
marketable securities and property received after the Issue Date by the
Company from the issuance or sale (other than to any Restricted Subsidiary)
of debt securities or Redeemable Capital Stock that have been converted
into or exchanged for Qualified Capital Stock of the Company, together with
the aggregate Net Cash Proceeds and the Fair Market Value of property
received by the Company at the time of such conversion or exchange, plus
(D) to the extent not otherwise included in the Consolidated Cash Flow
of the Company, an amount equal to the sum of (i) the net reduction in
Investments in any Person (other than the Permitted Investments) resulting
from the payment in cash of dividends, repayments of loans or advances or
other transfers of assets, in each case to the Company or any Restricted
Subsidiary after the Issue Date from such Person and (ii) the portion
(proportionate to the Company's equity interest in such Subsidiary) of the
fair market value of the net assets of any Unrestricted Subsidiary at the
time such Unrestricted Subsidiary is designated a Restricted Subsidiary;
provided, however, that in the case of (i) or (ii) above the foregoing sum
shall not exceed the amount of Investments previously made (and treated as
a Restricted Payment) by the Company or any Restricted Subsidiary in such
Person or Unrestricted Subsidiary, plus
(E) US$2.5 million.
(b) Notwithstanding paragraph (a) above, the Company and any Restricted
Subsidiary may take the following actions so long as (with respect to clauses
(ii), (iii), (iv) and (v) below) no Default or Event of Default shall have
occurred and be continuing:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at such date of declaration the payment of such
dividend would have complied with the provisions of paragraph (a) above
(such payment will be deemed to have been paid on such date of declaration
for purposes of the calculation required by paragraph (a) above), provided,
however, that such dividend (but not the declaration thereof) shall be
included in the calculation of the amount of Restricted Payments;
(ii) the purchase, redemption or other acquisition or retirement for
value of any shares of Capital Stock of the Company in exchange for, or out
of the net cash proceeds of a substantially concurrent issuance and sale
(other than to a Restricted Subsidiary) of, shares of Qualified Capital
Stock of the Company, provided, however, that (A) such purchase, redemption
or other acquisition or retirement shall be excluded in the calculation of
the amount of Restricted Payments, and (B) the aggregate net cash proceeds
(to the extent used for such purchase, redemption, acquisition or
retirement) and the Fair Market Value of such Capital Stock received by the
Company from such issuance and sale shall be excluded from the calculation
of amounts available for Restricted Payments under clause (3) of paragraph
(a) above;
(iii) the purchase, redemption, defeasance or other acquisition or
retirement for value of any Subordinated Indebtedness in exchange for, or
out of the net cash proceeds of a substantially concurrent issuance and
sale (other than to a Restricted Subsidiary) of, shares of Qualified
Capital Stock of the Company, provided, however, that (A) such purchase,
redemption, defeasance or other acquisition or retirement shall be excluded
in the calculation of the amount of Restricted Payments, and (B) the
aggregate net cash proceeds (to the extent used for such purchase,
redemption, defeasance, acquisition or retirement) and the Fair Market
Value of such Subordinated Indebtedness received by the Company from such
issuance and sale shall be excluded from the calculation of amounts
available for Restricted Payments under clause (3) of paragraph (a) above;
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<PAGE> 83
(iv) the purchase, redemption, defeasance or other acquisition or
retirement for value of Subordinated Indebtedness in exchange for, or out
of the net cash proceeds of a substantially concurrent incurrence (other
than to a Restricted Subsidiary) of, new Subordinated Indebtedness so long
as (A) the principal amount of such new Indebtedness does not exceed (1)
the principal amount (or, if such Subordinated Indebtedness being
refinanced was incurred with original issue discount, the aggregate
accreted value as of the date of determination) of the Subordinated
Indebtedness being so purchased, redeemed, defeased, acquired or retired,
plus (2) the lesser of the amount of any premium required to be paid in
connection with such refinancing pursuant to the terms of the Subordinated
Indebtedness being refinanced or the amount of any premium reasonably
determined by the Company as necessary to accomplish such refinancing plus
(3) the amount of any fees and expenses incurred to accomplish such
refinancing, (B) such new Subordinated Indebtedness is subordinated to the
Notes to the same extent as such Subordinated Indebtedness so purchased,
redeemed, defeased, acquired or retired and (C) such new Subordinated
Indebtedness has an Average Life equal to or greater than the Average Life
of the Indebtedness being refinanced and a final Stated Maturity of
principal later than the final Stated Maturity of principal of the
Indebtedness being refinanced, provided, however, that such purchase,
redemption, defeasance or other acquisition or retirement shall be excluded
in the calculation of the amount of Restricted Payments; and
(v) the repurchase of Warrants in accordance with the terms of the
Warrant Agreement, provided, however, that such repurchase shall be
excluded in the calculation of the amount of Restricted Payments.
(c) In computing Consolidated Cash Flow and Consolidated Interest Expense
of the Company under paragraph (a) above, (1) the Company shall use audited
financial statements for the portions of the relevant period for which audited
financial statements are available on the date of determination and unaudited
financial statements and other current financial data based on the books and
records of the Company for the remaining portion of such period and (2) the
Company shall be permitted to rely in good faith on the financial statements and
other financial data derived from the books and records of the Company that are
available on the date of determination. If the Company makes a Restricted
Payment which, at the time of the making of such Restricted Payment would in the
good faith determination of the Company be permitted under the requirements of
the Indenture, such Restricted Payment shall be deemed to have been made in
compliance with the Indenture notwithstanding any subsequent adjustments made in
good faith to the Company's financial statements affecting Consolidated Cash
Flow and Consolidated Interest Expense of the Company for any period. (Section
1011)
Limitation on Issuances and Sales of Capital Stock of Restricted
Subsidiaries. The Company (a) will not permit any Restricted Subsidiary to
issue any Capital Stock (other than to the Company or a Wholly Owned Restricted
Subsidiary) and (b) will not permit any Person (other than the Company or a
Wholly Owned Restricted Subsidiary) to own any Capital Stock of any Restricted
Subsidiary; provided, however, that this covenant shall not prohibit (i) the
sale or other disposition of all, but not less than all, of the issued and
outstanding Capital Stock of any Restricted Subsidiary owned by the Company and
all Restricted Subsidiaries in compliance with the other provisions of the
Indenture and (ii) the ownership by directors of director's qualifying shares or
the ownership by foreign nationals of Capital Stock of any Restricted
Subsidiary, to the extent mandated by applicable law. (Section 1012)
Limitation on Transactions with Affiliates. The Company will not, and will
not permit any Restricted Subsidiary to enter into or suffer to exist, directly
or indirectly, any transaction or series of related transactions (including,
without limitation, the sale, purchase, exchange or lease of assets, property or
services) with, or for the benefit of, any Affiliate of the Company or any
Restricted Subsidiary (other than the Company or a Wholly Owned Restricted
Subsidiary) unless such transaction is entered into in good faith and (i) such
transaction or series of transactions are fair and reasonable to the Company or
such Restricted Subsidiary, as the case may be, and are on terms that are no
less favorable to the Company or such Restricted Subsidiary, as the case may be,
than those that could have been obtained in an arm's-length transaction with a
third party that is not an Affiliate, (ii) with respect to any transaction or
series of related transactions involving aggregate consideration equal to or
greater than US$5 million, the Company will deliver an Officers' Certificate to
the Trustee certifying that such transaction or series of transactions complies
with clause (i) above and such transaction or series of related transactions has
been approved by a majority of the Disinterested Directors of
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the Company or, in the event no members of the Board of Directors of the Company
are Disinterested Directors with respect to such transaction or series of
transactions, the Company will obtain a written opinion from an internationally
recognized United States, United Kingdom or European investment banking firm to
the effect that such transaction or series of related transactions is fair to
the Company or its Restricted Subsidiary, as the case may be, from a financial
point of view and (iii) with respect to any transaction or series of related
transactions involving aggregate consideration in excess of US $10 million, the
Board of Directors will approve the fairness of such transaction after the
Company has obtained a written opinion from an internationally recognized United
States, United Kingdom or European investment banking firm to the effect set
forth in the preceding clause (ii); provided, however, that no opinion from an
investment banking firm will be required with respect to interconnection
agreements entered into by the Company or any Restricted Subsidiary in the
ordinary course of business and provided further that this covenant will not
restrict (1) the Company from paying reasonable and customary regular
compensation and fees to directors of the Company or any Restricted Subsidiary
who are not employees of the Company or any Restricted Subsidiary, (2) the
performance of the Company's obligations under agreements existing on the Issue
Date and listed on a schedule to the Indenture; provided that any amendments or
modifications to the terms of such agreements shall be no less favorable to the
Company than the terms existing on the Issue Date, (3) the grant of stock
options or similar rights to acquire Capital Stock to employees and directors of
the Company pursuant to plans approved by the Board of Directors provided that,
in the aggregate, the shares underlying such options or similar rights issued
since the Issue Date (exclusive of any shares underlying such options or similar
rights required to be issued by law) shall not exceed 5% of the outstanding
Common Stock of the Company on a fully diluted basis at the date of
determination, (4) loans or advances to employees in the ordinary course of
business in an aggregate amount not to exceed US$1 million at any one time
outstanding and (5) any Restricted Payment permitted to be paid pursuant to the
covenant described under "-- Limitation on Restricted Payments". (Section 1013)
Limitation on Liens. The Company will not, and will not permit any
Restricted Subsidiary to, directly or indirectly, create, incur, assume or
suffer to exist any Lien of any kind (other than Permitted Liens) on or with
respect to any of its property or assets, including any shares of stock or
indebtedness of any Restricted Subsidiary, whether owned at the date of the
Indenture or thereafter acquired, or any income, profits or proceeds therefrom,
or assign or otherwise convey any right to receive income thereon, unless (x) in
the case of any Lien securing Subordinated Indebtedness, the Notes are secured
by a Lien on such property, assets or proceeds that is senior in priority to
such Lien and (y) in the case of any other Lien, the Notes are equally and
ratably secured with the obligation or liability secured by such Lien. (Section
1014)
Purchase of Notes upon a Change of Control. If a Change of Control shall
occur at any time, then each holder of Notes will have the right to require that
the Company purchase such holder's Notes, in whole or in part in integral
multiples of US$1,000, at a purchase price (the "Change of Control Purchase
Price") in cash in an amount equal to 101% of the Accreted Value thereof plus
accrued interest, if any, to the date of purchase (the "Change of Control
Purchase Date"), pursuant to the offer described below (the "Change of Control
Offer") and the other procedures set forth in the Indenture.
Within 15 days following any Change of Control, the Company shall notify
the Trustee thereof and give written notice of such Change of Control to each
holder of Notes by first-class mail, postage prepaid, at the address of such
holder appearing in the security register, stating, among other things, (i) the
purchase price and the purchase date, which shall be a Business Day no earlier
than 30 days nor later than 60 days from the date such notice is mailed, or such
later date as is necessary to comply with requirements under the Exchange Act or
any applicable securities laws or regulations; (ii) that any Note not tendered
will continue to accrue interest or accrete in value, as the case may be; (iii)
that, unless the Company defaults in the payment of the purchase price, any
Notes accepted for payment pursuant to the Change of Control Offer shall cease
to accrue interest or accrete in value after the Change of Control Purchase
Date; and (iv) certain other procedures that a holder of Notes must follow to
accept a Change of Control Offer or to withdraw such acceptance. (Section 1015)
If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the Change of Control
Purchase Price for all of the Notes that might be delivered by
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holders of the Notes seeking to accept the Change of Control Offer. The failure
of the Company to make or consummate the Change of Control Offer or pay the
Change of Control Purchase Price when due would result in an Event of Default
and would give the Trustee and the holders of the Notes the rights described
under "-- Events of Default".
The existence of a holder's right to require the Company to purchase such
holder's Notes upon a Change of Control may deter a third party from acquiring
the Company in a transaction that constitutes a Change of Control.
The Change of Control purchase feature is a result of negotiations between
the Company and the Initial Purchasers. Management has no present intention to
engage in a transaction involving a Change of Control, although it is possible
that the Company would decide to do so in the future. Subject to the limitations
discussed below, the Company could, in the future, enter into certain
transactions, including acquisitions, refinancings or other recapitalizations,
that would not constitute a Change of Control under the Indenture, but that
could increase the amount of indebtedness outstanding at such time or otherwise
affect the Company's capital structure or credit ratings. Restrictions on the
ability of the Company to incur additional Indebtedness are contained in the
covenants described under "-- Certain Covenants -- Limitation on Indebtedness",
"-- Limitation on Dividends and Other Payment Restrictions Affecting Restricted
Subsidiaries", "-- Limitation on Liens" and "-- Limitation on Sale and Leaseback
Transactions". Such restrictions can only be waived with the consent of the
holders of a majority in principal amount of the Notes then outstanding. Except
for the limitations contained in such covenants, however, the Indenture will not
contain any covenants or provisions that may afford holders of the Notes
protection in the event of a highly leveraged transaction.
As indicated under "-- Prepayment Events Prior to First Anniversary," the
Company is currently prohibited under Colombian law from making any prepayment
of the Notes, including pursuant to a Change of Control Offer, on or prior to
the first anniversary of the Issue Date, and if the Company is required to make
a Change of Control Offer while such prohibition is in effect, the Company will
be required to deposit with the Trustee cash and/or United States Government
Obligations in an amount sufficient (without taking into account the payment of
interest thereon) to acquire all of the Notes on the first Business Day after
the first anniversary of the Issue Date. Under current Colombian law, any
prepayment of the Notes within three years of the Issue Date and after the
one-year period described in the preceding sentence resulting in more than 40%
of the aggregate principal amount at maturity of the Notes being redeemed would
impose certain deposit requirements on the Company, and the Company will be
required to comply with applicable law, including making such deposit should
such requirement then exist, prior to consummating any Change of Control Offer.
See "-- Prepayment Events Prior to Third Anniversary" and "Foreign Investment
and Exchange Controls in Colombia".
The Company will comply with any applicable securities laws and regulations
in connection with a Change of Control Offer. (Section 1015)
The Company will not enter into any agreement (other than the Bank Credit
Agreement or agreements governing Indebtedness in effect on the date of the
Indenture) that would prohibit the Company from making a Change of Control Offer
to purchase the Notes or, if such Change of Control Offer is made, to pay for
the Notes tendered for purchase. (Section 1015)
Limitation on Sale of Assets. (a) The Company will not, and will not
permit any Restricted Subsidiary to, engage in any Asset Sale unless (i) the
consideration received by the Company or such Restricted Subsidiary for such
Asset Sale is not less than the Fair Market Value of the assets subject to such
Asset Sale (as determined by the Board of Directors of the Company, whose
determination shall be conclusive and evidenced by a Board Resolution), (ii) the
consideration received by the Company or the relevant Restricted Subsidiary in
respect of such Asset Sale consists of at least 85% cash or Cash Equivalents and
(iii) immediately before and immediately after giving effect to such Asset Sale,
no Default or Event of Default shall have occurred and be continuing or be
anticipated to occur.
(b) If the Company or any Restricted Subsidiary engages in an Asset Sale,
the Company may use the Net Cash Proceeds thereof, within 12 months after the
later of such Asset Sale or the receipt of such Net
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Cash Proceeds, to (i) permanently repay or prepay any then outstanding secured
Indebtedness of the Company under the Bank Credit Agreement or other secured
Indebtedness of the Company that is not subordinated to payment of the Notes or
Indebtedness of any Restricted Subsidiary or (ii) invest (or enter into a
legally binding agreement to invest) in properties and assets that will be used
in businesses of the Company or its Restricted Subsidiaries, as the case may be,
that (x) existed on the date of the Indenture or (y) is a Permitted
Telecommunications Business. If any such legally binding agreement to invest
such Net Cash Proceeds is terminated, then the Company may, within 90 days of
such termination or within 12 months of such Asset Sale, whichever is later,
invest such Net Cash Proceeds as provided in clause (i) or (ii) (without regard
to the parenthetical contained in such clause (ii)) above. The amount of such
Net Cash Proceeds not so used as set forth above in this paragraph (b)
constitutes "Excess Proceeds".
(c) When the aggregate amount of Excess Proceeds exceeds US$10 million, the
Company shall, within 15 business days, make an offer to purchase (an "Excess
Proceeds Offer") from all holders of Notes, on a pro rata basis, in accordance
with the procedures set forth below, the maximum principal amount of Notes that
may be purchased with the Excess Proceeds (rounded down to the nearest multiple
of $1,000). The offer price as to each Note shall be payable in cash in an
amount equal to 100% of the Accreted Value of such Note plus accrued interest,
if any, to the date such Excess Proceeds Offer is consummated. To the extent
that the aggregate principal amount of Notes tendered pursuant to an Excess
Proceeds Offer is less than the Excess Proceeds, the Company may use such
deficiency for general corporate purposes. If the aggregate principal amount of
Notes validly tendered and not withdrawn by holders thereof exceeds the Excess
Proceeds, Notes to be purchased will be selected on a pro rata basis. Upon
completion of such Excess Proceeds Offer, the amount of Excess Proceeds shall be
reset to zero. (Section 1016)
As indicated under "-- Prepayment Events Prior to First Anniversary," the
Company's ability to prepay the Notes, including pursuant to an Excess Proceeds
Offer, on or prior to the first anniversary of the Issue Date is prohibited by
Colombian law, and if the Company is required to make an Excess Proceeds Offer
while such prohibition is in effect, the Company will be required to deposit
with the Trustee cash and/or United States Government Obligations in an amount
sufficient (without taking into account the payment of interest thereon) to
acquire the Notes on the first Business Day after the first anniversary of the
Issue Date. Under current Colombian law, any purchase of the Notes within three
years of the Issue Date and after the one-year period described in the preceding
sentence resulting in more than 40% of the aggregate principal amount at
maturity of the Notes being redeemed or repurchased would impose certain deposit
requirements on the Company, and the Company may elect to make such deposits or
purchase the Notes up to such limit and deposit with the Trustee amounts
sufficient to acquire the remainder of the Notes on the first Business Day after
the third anniversary of the Issue Date. If the Company shall have made the
deposit with the Trustee as described in this paragraph, it will not be in
default of its obligations to make an Excess Proceeds Offer prior to the day on
which the applicable Notes are to be acquired pursuant to this paragraph. See
"-- Prepayment Events Prior to Third Anniversary" and "Foreign Investment and
Exchange Controls in Colombia".
Limitation on Sale and Leaseback Transactions. The Company will not, and
will not permit any Restricted Subsidiary to, directly or indirectly, enter into
any Sale and Leaseback Transaction with respect to any property or assets
(whether now owned or hereafter acquired), unless the sale or transfer of such
property or assets to be leased is treated as an Asset Sale and the Company
complies with the "Limitation on Sale of Assets" covenant. (Section 1017)
Limitation on the Activities of the Company. The Company and its
Restricted Subsidiaries will not engage in any business other than the business
of the Company or its Restricted Subsidiaries existing on the Issue Date and any
Permitted Telecommunications Business and the making of Investments permitted by
Section 1011. (Section 1018)
Limitation on Dividends and Other Payment Restrictions Affecting Restricted
Subsidiaries. The Company will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any consensual encumbrance or restriction on the
ability of any Restricted Subsidiary to (a) pay dividends, in cash or otherwise,
or make any other distributions on or in respect of its Capital Stock, (b) pay
any Indebtedness owed to the Company or any other Restricted
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Subsidiary that, directly or indirectly, owns any Capital Stock of such
Restricted Subsidiary, (c) make loans or advances to the Company or any other
Restricted Subsidiary that, directly or indirectly, owns any Capital Stock of
such Restricted Subsidiary or (d) transfer any of its properties or assets to
the Company or any other Restricted Subsidiary that, directly or indirectly,
owns any Capital Stock of such Restricted Subsidiary (other than customary
restrictions on transfers of property subject to a Lien permitted under the
Indenture that would not materially adversely affect the Company's ability to
satisfy its obligations under the Notes and the Indenture), except, in each
case, for such encumbrances or restrictions existing under or by reason of (i)
the Notes and the Indenture, (ii) any agreement in effect on the Issue Date,
(iii) applicable law, (iv) customary provisions restricting subletting or
assignment of any lease or assignment of any other contract to which the Company
or any Restricted Subsidiary is a party or to which any of their respective
properties or assets are subject, (v) any agreement or other instrument of a
Person, or pertaining to property or assets, acquired by the Company or any
Restricted Subsidiary in existence at the time of such acquisition (but not
created in contemplation thereof), which encumbrance or restriction is not
applicable to any Person, or the properties or assets of any Person, other than
the Person, or the property or assets of the Person, so acquired, (vi) any Lien
permitted by the "Limitation on Liens" covenant, (vii) any encumbrance or
restriction contained in contracts for sales of assets or Capital Stock of a
person with respect to the assets or Capital Stock to be sold (or the assets
owned by the Person whose Capital Stock is to be sold) pursuant to such contract
that terminates upon the earlier of the termination of such agreement or the
consummation of such sale and (viii) any encumbrance or restriction existing
under any agreement that extends, renews, refinances or replaces the agreements
containing the encumbrances or restrictions in the foregoing clauses (i), (ii)
and (v); provided that the terms and conditions of any such encumbrances or
restrictions are not materially less favorable to the holders of the Notes than
those under or pursuant to the agreement so extended, renewed, refinanced or
replaced. (Section 1019)
Reports. The Company will file with the Trustee and provide the holders of
Notes, within 15 days after it files them with the SEC, copies of its annual and
quarterly reports and other information, documents and other reports (or copies
of such portions of any of the foregoing as the SEC may by rules and regulations
prescribe) which the Company is required to file with the SEC pursuant to
Section 13(a) or 15(d) of the Exchange Act. Notwithstanding that the Company may
not be required to remain subject to the reporting requirements of Section 13(a)
or 15(d) of the Exchange Act or otherwise report on an annual and quarterly
basis on forms provided for such annual and quarterly reporting pursuant to
rules and regulations promulgated by the SEC, the Company will file with or
furnish to the SEC and provide to the Trustee and to the holders of Notes and
potential purchasers of Notes upon written request to the Trustee by any holder
of Notes, potential purchaser of Notes or Initial Purchaser: (i) within 140 days
after the end of each fiscal year, annual reports on Form 20-F (or any successor
form) containing the information required to be contained therein (or required
in such successor form); (ii) within 60 days after the end of each of the first
three fiscal quarters of each fiscal year, reports on Form 6-K (or any successor
form) containing substantially the same information required to be contained in
Form 10-Q (or required in any successor form); and (iii) promptly from time to
time after the occurrence of an event required to be therein reported, such
other reports on Form 6-K (or any successor form) containing substantially the
same information required to be contained in Form 8-K (or required in any
successor form). Financial statements of the Company contained in any such
report will be prepared in accordance with Colombian GAAP and each such report
referred to in clauses (i) and (ii) above will contain a reconciliation to U.S.
GAAP consistently applied and will be prepared in accordance with the applicable
rules and regulations of the SEC. (Section 1009)
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company will not, in a single transaction or through a series of
transactions, consolidate with or merge with or into any other Person or sell,
assign, convey, transfer, lease or otherwise dispose of all or substantially all
of its properties and assets as an entirety to any other Person or Persons or
permit any of its Restricted Subsidiaries to enter into any such transaction or
series of transactions if such transaction or series of transactions, in the
aggregate, would result in the sale, assignment, conveyance, transfer, lease or
other disposition of all or substantially all of the properties and assets of
the Company and its Restricted Subsidiaries on a consolidated basis as an
entirety to any other Person or Persons, unless at the time and immediately
after
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giving effect thereto (i) either (a) the Company will be the continuing
corporation or (b) the Person (if other than the Company) formed by such
consolidation or into which the Company or such Restricted Subsidiary is merged
or the Person that acquires by sale, assignment, conveyance, transfer, lease or
disposition all or substantially all the properties and assets of the Company
and its Restricted Subsidiaries on a consolidated basis as an entirety (the
"Surviving Entity") (1) will be a corporation duly organized and validly
existing under the laws of Colombia and (2) will expressly assume, by a
supplemental indenture in form satisfactory to the Trustee, the Company's
obligation for the due and punctual payment of the principal of, premium, if
any, and interest on all the Notes and the performance and observance of every
covenant of the Indenture on the part of the Company to be performed or
observed; (ii) immediately before and immediately after giving effect to such
transaction or series of transactions on a pro forma basis (and treating any
obligation of the Company or any Restricted Subsidiary incurred in connection
with or as a result of such transaction or series of transactions as having been
incurred at the time of such transaction), no Default or Event of Default will
have occurred and be continuing; (iii) immediately after giving effect to such
transaction or series of transactions on a pro forma basis (and treating any
obligation of the Company or any Restricted Subsidiary incurred in connection
with or as a result of such transaction or series of transactions as having been
incurred at the time of such transaction), the Consolidated Net Worth of the
Company (or of the Surviving Entity if the Company is not the continuing obligor
under the Indenture) is equal to or greater than the Consolidated Net Worth of
the Company immediately prior to such transaction or series of transactions; and
(iv) immediately after giving effect to such transaction or series of
transactions on a pro forma basis (on the assumption that the transaction or
series of transactions occurred on the first day of the most recent full fiscal
quarter for which financial statements are available prior to the consummation
of such transaction or series of transactions with the appropriate adjustments
with respect to the transaction or series of transactions being included in such
pro forma calculation), the Company (or the Surviving Entity if the Company is
not the continuing obligor under the Indenture) could incur at least US$1.00 of
additional Indebtedness (other than Permitted Indebtedness) under the provisions
of the "Limitation on Indebtedness" covenant. (Section 801)
In connection with any such consolidation, merger, sale, assignment,
conveyance, transfer, lease or other disposition, the Company or the Surviving
Entity shall have delivered to the Trustee, in form and substance reasonably
satisfactory to the Trustee, an Officers' Certificate (attaching the authentic
computations to demonstrate compliance with clauses (iii) and (iv) above) and an
opinion of counsel, each stating that such consolidation, merger, sale,
assignment, conveyance, transfer, lease or other disposition, and if a
supplemental indenture is required in connection with such transaction, such
supplemental indenture, comply with the requirements of the Indenture and that
all conditions precedent therein provided for relating to such transaction have
been complied with. (Section 801)
Upon any consolidation or merger, or any sale, assignment, conveyance,
transfer, lease or disposition of all or substantially all of the properties and
assets of the Company in accordance with the immediately preceding paragraphs in
which the Company is not the continuing obligor under the Indenture, the
Surviving Entity shall succeed to, and be substituted for, and may exercise
every right and power of, the Company under the Indenture with the same effect
as if such successor had been named as the Company therein. When a successor
assumes all the obligations of its predecessor under the Indenture or the Notes,
the predecessor shall be released from those obligations; provided that in the
case of a transfer by lease, the predecessor shall not be released from the
payment of principal and interest on the Notes. (Section 802)
EVENTS OF DEFAULT
The following will be "Events of Default" under the Indenture:
(i) default in the payment of any interest on any Note when it becomes
due and payable and continuance of such default for a period of 30 days;
(ii) default in the payment of the principal of or premium, if any, on
any Note at its Maturity (upon acceleration, optional redemption, required
purchase or otherwise);
(iii) default in the performance, or breach, of the provisions
described in "Consolidation, Merger and Sale of Assets," the failure to
make or consummate a Change of Control Offer in accordance with
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the provisions of the "Purchase of Notes upon a Change of Control" covenant
or the failure to make or consummate an Excess Proceeds Offer in accordance
with the provisions of the "Limitation on Disposition of Proceeds of Asset
Sales" covenant;
(iv) default in the performance, or breach, of any covenant or
warranty of the Company contained in the Indenture (other than a default in
the performance, or breach, of a covenant or warranty which is specifically
dealt with in clauses (i), (ii) or (iii) above) and continuance of such
default or breach for a period of 30 days after written notice shall have
been given to the Company by the Trustee or to the Company and the Trustee
by the holders of at least 25% in aggregate principal amount of the Notes
then outstanding;
(v) (A) one or more defaults in the payment of principal of or
premium, if any, on Indebtedness of the Company or any Subsidiary
aggregating US$3 million or more, when the same becomes due and payable at
the stated maturity thereof, and such default or defaults shall have
continued after any applicable grace period and shall not have been cured
or waived or (B) Indebtedness of the Company or any Subsidiary aggregating
US$3 million or more shall have been accelerated or otherwise declared due
and payable, or required to be prepaid or repurchased (other than by
regularly scheduled required prepayment prior to the stated maturity
thereof);
(vi) any holder of any Indebtedness in excess of US$3 million in the
aggregate of the Company or any Subsidiary shall commence judicial
proceedings, or take other action to foreclose on any assets of the Company
or any Subsidiary that have been pledged to or for the benefit of such
Person to secure such Indebtedness pursuant to the terms of any agreement
or instrument evidencing any such Indebtedness of the Company or any
Subsidiary or in accordance with applicable law subsequent to a default in
the performance, or breach, of any covenant or warranty of the Company
contained in any agreement or instrument evidencing any such Indebtedness;
(vii) one or more final judgments or orders shall be rendered against
the Company or any Subsidiary for the payment of money, either individually
or in an aggregate amount, in excess of US$3 million and shall not be
discharged and either (A) an enforcement proceeding shall have been
commenced by any creditor upon such judgment or order and shall not have
been stayed or (B) there shall have been a period of 60 consecutive days
during which a stay of enforcement of such judgment or order, by reason of
a pending appeal or otherwise, was not in effect;
(viii) the occurrence of certain events of bankruptcy, insolvency or
reorganization with respect to the Company or any Subsidiary; or
(ix) the Company does not continue to be the holder of the Concession
(provided that the pledge of the Concession as security under the Bank
Facility shall not be deemed to be a transfer of the Concession) or the
Concession to provide cellular service is not in full force and effect.
(Section 501)
If an Event of Default (other than as specified in clause (viii) above)
shall occur and be continuing, the Trustee or the holders of not less than 25%
in aggregate principal amount of the Notes then outstanding, by written notice
to the Company (and to the Trustee if such notice is given by the holders), may,
and the Trustee upon the written request of such holders shall, declare the
principal of, premium, if any, and accrued interest on all of the outstanding
Notes immediately due and payable, and upon any such declaration all such
amounts payable in respect of the Notes shall become immediately due and
payable. If an Event of Default specified in clause (viii) above occurs and is
continuing, then the principal of, premium, if any, and accrued interest on all
of the outstanding Notes shall ipso facto become and be immediately due and
payable without any declaration or other act on the part of the Trustee or any
holder of Notes. (Section 502)
At any time after a declaration of acceleration under the Indenture, but
before a judgment or decree for payment of the money due has been obtained by
the Trustee, the holders of a majority in aggregate principal amount of the
outstanding Notes, by written notice to the Company and the Trustee, may rescind
such declaration and its consequences if (a) the Company has paid or deposited
with the Trustee a sum sufficient to pay (i) all overdue interest on all Notes,
(ii) all unpaid principal of and premium, if any, on any outstanding Notes that
has become due otherwise than by such declaration of acceleration and interest
thereon at the rate
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borne by the Notes, (iii) to the extent that payment of such interest is lawful,
interest upon overdue interest and overdue principal at the rate borne by the
Notes, (iv) all sums paid or advanced by the Trustee under the Indenture and the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel; and (b) all Events of Default, other than the
non-payment of amounts of principal of, premium, if any, or interest on the
Notes that has become due solely by such declaration of acceleration, have been
cured or waived. No such rescission shall affect any subsequent default or
impair any right consequent thereon. (Section 502)
The holders of not less than a majority in aggregate principal amount of
the outstanding Notes may, on behalf of the holders of all the Notes, waive any
past defaults under the Indenture, except a default in the payment of the
principal of, premium, if any, or interest on any Note, or in respect of a
covenant or provision which under the Indenture cannot be modified or amended
without the consent of the holder of each Note outstanding. (Section 513)
If a Default or an Event of Default occurs and is continuing and is known
to the Trustee, the Trustee will mail to each holder of the Notes notice of the
Default or Event of Default within 30 days after the occurrence thereof. Except
in the case of a Default or an Event of Default in payment of principal of,
premium, if any, or interest on any Notes, the Trustee may withhold the notice
to the holders of such Notes if a committee of its trust officers in good faith
determines that withholding the notice is in the interests of the holders of the
Notes. (Section 601)
The Company is required to furnish to the Trustee annual statements as to
the performance by the Company of its obligations under the Indenture and as to
any default in such performance. The Company is also required to notify the
Trustee within five Business Days of the occurrence of any Default.
The Trust Indenture Act contains limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases or to realize on certain property received by it in respect of any
such claims, as security or otherwise. The Trustee is permitted to engage in
other transactions; provided that if it acquired any conflicting interest, it
must eliminate such conflict upon the occurrence of an Event of Default or else
resign.
BANKRUPTCY ("CONCORDATO")
Under Colombian law, the procedure for bankruptcy differs from that in the
United States. Under Law 222/1995, which will come into effect as of June 21,
1996, upon admittance of the Company to the "concordato" proceeding the Company
cannot make any payment or settle any of its obligations (including the Notes
and the Bank Facility) without obtaining a written consent of the
Superintendency of Corporations. Furthermore, the Company is restricted from
making any payments, as from the same date of admission to "concordato" and
until (i) the "concordato" proceeding is terminated by the Superintendency of
Corporations because of failure to reach any agreement or (ii) an agreement is
reached between the Company and its creditors during the "concordato" and is
declared by the Superintendency of Corporations to have been (x) fulfilled or
(y) terminated due to a breach of obligations under such agreement. Any creditor
who fails to file a timely claim under the "concordato" will be barred from the
"concordato" proceeding (except if during any hearing such creditor is accepted
to be a party of the "concordato" agreement) and cannot receive any payment from
the debtor during the period referred to in the preceding sentence, although the
statute of limitations applicable to such creditor's claim will be tolled during
such period. The Concession cannot be terminated by the Ministry of
Communications based on the grounds that the Company is then the subject of a
"concordato" proceeding (See "Regulation -- Termination Upon Default in
Performance").
DEFEASANCE OR COVENANT DEFEASANCE OF INDENTURE
The Company may, at its option and at any time, elect to have the
obligations of the Company upon the Notes discharged with respect to the
outstanding Notes ("legal defeasance"). Such defeasance means that the Company
will be deemed to have paid and discharged the entire Indebtedness represented
by the outstanding Notes and to have satisfied all their other obligations under
such Notes and the Indenture insofar as such Notes are concerned except for (i)
the rights of holders of outstanding Notes to receive payments in
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respect of the principal of, premium, if any, and interest on such Notes when
such payments are due, (ii) the Company's obligations to issue temporary Notes,
register the transfer or exchange of any Notes, replace mutilated, destroyed,
lost or stolen Notes, maintain an office or agency for payments in respect of
the Notes and segregate and hold such payments in trust, (iii) the rights,
powers, trusts, duties and immunities of the Trustee and (iv) the defeasance
provisions of the Indenture. In addition, the Company may, at its option and at
any time, elect to have the obligations of the Company released with respect to
certain covenants set forth in the Indenture, and any omission to comply with
such obligations will not constitute a Default or an Event of Default with
respect to the Notes ("covenant defeasance"). (Sections 1301, 1302 and 1303)
In order to exercise either legal defeasance or covenant defeasance, (i)
the Company must irrevocably deposit or cause to be deposited with the Trustee,
as trust funds in trust, specifically pledged as security for, and dedicated
solely to, the benefit of the holders of the Notes, cash in United States
dollars, U.S. Government Obligations (as defined in the Indenture), or a
combination thereof, in such amounts as will be sufficient, in the opinion of a
nationally recognized firm of independent public accountants, to pay and
discharge the principal of, premium, if any, and interest on the outstanding
Notes on the Stated Maturity (or upon redemption, if applicable) of such
principal, premium, if any, or installment of interest; (ii) no (a) Default in
the payment of principal of or premium, if any, or interest on any Note or a
Default resulting from the occurrence of certain events of bankruptcy,
insolvency or reorganization, or (b) Event of Default with respect to the Notes
(other than as a result of a breach of the provisions described under
"Consolidation, Merger and Sale of Assets" arising from a merger or
consolidation occurring contemporaneously with such defeasance) will have
occurred and be continuing on the date of, or immediately after, such deposit
or, insofar as an event of bankruptcy, insolvency or reorganization is
concerned, at any time during the period ending on the 91st day after the date
of such deposit; (iii) such legal defeasance or covenant defeasance will not
result in a breach or violation of, or constitute a default under, any material
agreement or instrument to which the Company is a party or by which it is bound;
(iv) in the case of legal defeasance, the Company shall have delivered to the
Trustee an Opinion of Counsel stating that the Company has received from, or
there has been published by, the Internal Revenue Service a ruling, or since May
31, 1996, there has been a change in applicable federal income tax law, in
either case to the effect that, and based thereon such opinion shall confirm
that, the holders of the outstanding Notes will not recognize income, gain or
loss for federal income tax purposes as a result of such defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such defeasance had not occurred; (v)
in the case of covenant defeasance, the Company shall have delivered to the
Trustee an Opinion of Counsel to the effect that the holders of the Notes
outstanding will not recognize income, gain or loss for federal income tax
purposes as a result of such covenant defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such covenant defeasance had not occurred; and (vi)
the Company shall have delivered to the Trustee an Officers' Certificate and an
Opinion of Counsel, each stating that all conditions precedent provided for
relating to either the legal defeasance or the covenant defeasance, as the case
may be, have been complied with. (Section 1304)
SATISFACTION AND DISCHARGE
The Indenture will cease to be of further effect (except as to surviving
rights of registration of transfer or exchange of the Notes as expressly
provided for in the Indenture) and the Trustee, at the expense of the Company,
will execute proper instruments acknowledging satisfaction and discharge of the
Indenture when (i) either (a) all the Notes theretofore authenticated and
delivered (other than destroyed, lost or stolen Notes which have been replaced
or paid and Notes for whose payment money has been deposited in trust with the
Trustee or any Paying Agent or segregated and held in trust by the Company and
thereafter repaid to the Company or discharged from such trust as provided for
in the Indenture) have been delivered to the Trustee for cancellation or (b) all
Notes not theretofore delivered to the Trustee for cancellation (x) have become
due and payable, (y) will become due and payable at Stated Maturity within one
year or (z) are to be called for redemption within one year under arrangements
satisfactory to the Trustee for the giving of notice of redemption by the
Trustee in the name, and at the expense, of the Company, and the Company has
irrevocably deposited or caused to be deposited with the Trustee as trust funds
in trust for such purpose an amount sufficient to pay and discharge the entire
Indebtedness on such Notes not theretofore delivered to the
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Trustee for cancellation, for principal of, premium, if any, and interest on the
Notes to the date of such deposit (in the case of Notes which have become due
and payable) or to the Stated Maturity or Redemption Date, as the case may be;
(ii) the Company has paid or caused to be paid all sums payable under the
Indenture by the Company; and (iii) the Company has delivered to the Trustee an
Officer's Certificate and an Opinion of Counsel, each stating that all
conditions precedent provided in the Indenture relating to the satisfaction and
discharge of the Indenture have been complied with. (Section 401)
MODIFICATIONS AND AMENDMENTS
Modifications and amendments of the Indenture may be made by a supplemental
indenture entered into by the Company and the Trustee with the consent
(including consents obtained in connection with a tender offer or exchange for
the Notes) of the holders of a majority in aggregate outstanding principal
amount of the Notes then outstanding; provided, however, that no such
modification or amendment may, without the consent of the holder of each
outstanding Note affected thereby: (i) change the Stated Maturity of the
principal of, or any installment of interest on, any Note, or reduce the
principal amount thereof (or premium, if any) or the rate of interest thereon or
change the coin or currency in which the principal of any Note or any premium or
the interest thereon is payable, or impair the right to institute suit for the
enforcement of any such payment after the Stated Maturity thereof (or, in the
case of redemption, on or after the Redemption Date); (ii) amend, change or
modify in any material respect the obligation of the Company to make and
consummate an Excess Proceeds Offer with respect to any Asset Sale in accordance
with the "Limitation on Sale of Assets" covenant or the obligation of the
Company to make and consummate a Change of Control Offer in the event of a
Change of Control in accordance with the "Purchase of Notes Upon a Change of
Control" covenant, including, in each case, amending, changing or modifying in
any material respect any definition relating thereto; (iii) reduce the
percentage in principal amount of outstanding Notes, the consent of whose
holders is required for any such supplemental indenture or the consent of whose
holders is required for any waiver of compliance with certain provisions of the
Indenture; (iv) modify any of the provisions relating to supplemental indentures
requiring the consent of holders or relating to the waiver of past defaults or
relating to the waiver of certain covenants, except to increase the percentage
of outstanding Notes required for such actions or to provide that certain other
provisions of the Indenture cannot be modified or waived without the consent of
the holder of each Note affected thereby; or (v) except as otherwise permitted
under "Consolidation, Merger and Sale of Assets," consent to the assignment or
transfer by the Company of any of its obligations under the Indenture. (Sections
901 and 902)
Notwithstanding the foregoing, without the consent of any holder of the
Notes, the Company and the Trustee may modify or amend the Indenture: (a) to
evidence the succession of another Person to the Company or any other obligor on
the Notes, and the assumption by any such successor of the covenants of the
Company or such obligor in the Indenture and in the Notes in accordance with
"-- Consolidation, Merger, Sale of Assets;" (b) to add to the covenants of the
Company or any other obligor upon the Notes for the benefit of the holders of
the Notes or to surrender any right or power conferred upon the Company or any
other obligor upon the Notes, as applicable, in the Indenture or in the Notes;
(c) to cure any ambiguity, or to correct or supplement any provision in the
Indenture or the Notes which may be defective or inconsistent with any other
provision in the Indenture or the Notes or make any other provisions with
respect to matters or questions arising under the Indenture or the Notes;
provided that, in each case, such provisions shall not adversely affect the
interest of the holders of the Notes; (d) to comply with the requirements of the
Commission in order to effect or maintain the qualification of the Indenture
under the Trust Indenture Act; (e) to add a guarantor of the Notes under the
Indenture; (f) to evidence and provide the acceptance of the appointment of a
successor Trustee under the Indenture; or (g) to mortgage, pledge, hypothecate
or grant a security interest in favor of the Trustee for the benefit of the
holders of the Notes as additional security for the payment and performance of
the Company's and any guarantor's obligations under the Indenture, in any
property, or assets, including any of which are required to be mortgaged,
pledged or hypothecated, or in which a security interest is required to be
granted to the Trustee pursuant to the Indenture or otherwise. (Section 901)
The holders of a majority in aggregate principal amount of the Notes
outstanding may waive compliance with certain restrictive covenants and
provisions of the Indenture. (Section 1021)
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THE TRUSTEE
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set forth
in the Indenture. If an Event of Default has occurred and is continuing, the
Trustee will exercise such rights and powers vested in it under the Indenture
and use the same degree of care and skill in its exercise as a prudent Person
would exercise under the circumstances in the conduct of such Person's own
affairs. (Section 602)
The Indenture and provisions of the Trust Indenture Act of 1939, as
amended, incorporated by reference therein contain limitations on the rights of
the Trustee thereunder, should it become a creditor of the Company, to obtain
payment of claims in certain cases or to realize on certain property received by
it in respect of any such claims, as security or otherwise. The Trustee is
permitted to engage in other transactions; provided, however, that if it
acquires any conflicting interest (as defined) it must eliminate such conflict
or resign.
GOVERNING LAW AND SUBMISSION TO JURISDICTION
The Indenture and the Notes are governed by, and construed in accordance
with, the laws of the State of New York. The Indenture is subject to the
provisions of the Trust Indenture Act of 1939, as amended, that are required to
be part of the Indenture and shall, to the extent applicable, be governed by
such provisions. The Company has submitted to the jurisdiction of any United
States federal or state court located in New York, New York for the purposes of
all legal actions and proceedings instituted in connection with Notes and the
Indenture. The Company has appointed CT Corporation System as its authorized
agent upon which process may be served in any such action. See "Enforceability
of Civil Liabilities" and "Enforcement of Foreign Judgments in Colombia".
CERTAIN DEFINITIONS
"Accreted Value" is defined to mean, for any specified date, the amount
provided below for each US $1,000 principal amount at final maturity of Notes:
(i) if the specified date occurs on one of the following dates (each a
"Semiannual Accrual Date"), the Accreted Value will equal the amount set
forth below for such Semiannual Accrual Date:
<TABLE>
<CAPTION>
SEMIANNUAL ACCRUAL DATE ACCRETED VALUE
--------------------------------------------------------------- --------------
<S> <C>
September 15, 1996............................................. US $543.93
March 15, 1997................................................. 582.01
September 15, 1997............................................. 622.75
March 15, 1998................................................. 666.34
September 15, 1998............................................. 712.99
March 15, 1999................................................. 762.90
September 15, 1999............................................. 816.30
March 15, 2000................................................. 873.44
September 15, 2000............................................. 934.58
March 15, 2001................................................. 1,000.00
</TABLE>
(ii) if the specified date occurs before the first Semiannual Accrual
Date, the Accreted Value will equal the sum of (a) US$524.26 and (b) an
amount equal to the product of (1) the Accreted Value for the first
Semiannual Accrual Date less US$524.26 multiplied by (2) a fraction, the
numerator of which is the number of days from the Issue Date to the
specified date, using a 360-day year of twelve 30-day months, and the
denominator of which is the number of days from the Issue Date to the first
Semiannual Accrual Date, using a 360-day year of twelve 30-day months;
(iii) if the specified date occurs between two Semiannual Accrual
Dates, the Accreted Value will equal the sum of (a) the Accreted Value for
the Semiannual Accrual Date immediately preceding such specified date and
(b) an amount equal to the product of (1) the Accreted Value for the
immediately following Semiannual Accrual Date less the Accreted Value for
the immediately preceding Semiannual
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<PAGE> 94
Accrual Date multiplied by (2) a fraction, the numerator of which is the
number of days from the immediately preceding Semiannual Accrual Date to
the specified date, using a 360-day year of twelve 30-day months, and the
denominator of which is 180; or
(iv) if the specified date occurs after the last Semiannual Accrual
Date, the Accreted Value will equal US$1,000.
"Acquired Indebtedness" means Indebtedness of a Person (a) existing at the
time such Person becomes a Restricted Subsidiary or (b) assumed in connection
with the acquisition of assets from such Person. Acquired Indebtedness shall be
deemed to be incurred on the date of the related acquisition of assets from any
Person or the date the acquired Person becomes a Restricted Subsidiary.
"Affiliate" means, with respect to any specified Person, (a) any other
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person or (b) any other Person that
owns, directly or indirectly, 10% or more of such specified Person's voting
Capital Stock or any executive officer or director of any such specified Person
or other Person. For the purposes of this definition, "control," when used with
respect to any specified Person, means the power to direct the management and
policies of such Person, directly or indirectly, whether through the ownership
of voting securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Annualized Pro Forma Consolidated Cash Flow" of the Company means the
Consolidated Cash Flow of the Company for the most recent full fiscal quarter
for which consolidated financial statements are available giving pro forma
effect to the acquisition (whether by purchase, merger or otherwise) or
disposition (whether by sale, merger or otherwise) of any company, entity or
business acquired or disposed of by the Company or its Restricted Subsidiaries,
as the case may be, since the first day of such fiscal quarter, as if such
acquisition or disposition occurred on the first day of such fiscal quarter,
multiplied by four.
"Asset Sale" means any sale, issuance, conveyance, transfer, lease or other
disposition (including, without limitation, by way of merger, consolidation or
sale and leaseback transaction) (collectively, a "transfer"), directly or
indirectly, in one or a series of related transactions, of (a) any shares of
Capital Stock of any Restricted Subsidiary (other than directors' qualifying
shares or shares required by applicable law to be held by a Person other than
the Company or a Restricted Subsidiary); (b) all or substantially all of the
properties and assets of any division or line of business of the Company or its
Restricted Subsidiaries; or (c) any other properties or assets of any division
or line of business of the Company or any Restricted Subsidiary, other than in
the ordinary course of business. For the purposes of this definition, the term
"Asset Sale" shall not include any transfer of properties or assets (i) that is
governed by the provisions of the Indenture described under "Consolidation,
Merger, Conveyance, Transfer or Lease," (ii) by a Restricted Subsidiary to the
Company or by the Company or a Restricted Subsidiary to a Wholly Owned
Restricted Subsidiary, or (iii) having a Fair Market Value per transaction or
series of related transactions of less than US$750,000.
"Attributable Value" means, with respect to any lease at the time of
determination, the present value (discounted at the interest rate implicit in
the lease or, if not known, at the Company's incremental borrowing rate) of the
obligations of the lessee of the property subject to such lease for rental
payments during the remaining term of the lease included in such transaction,
including any period for which such lease has been extended or may, at the
option of the lessor exercisable unilaterally, be extended, or until the
earliest date on which the lessee may terminate such lease without penalty or
upon payment of penalty (in which case the rental payments shall include such
penalty), after excluding from such rental payments all amounts required to be
paid on account of maintenance and repairs, insurance, taxes, assessments,
water, utilities and similar charges.
"Average Life" means, as of the date of determination with respect to any
Indebtedness, the quotient obtained by dividing (a) the sum of the products of
(i) the number of years from the date of determination to the date or dates of
each successive scheduled principal payment (including, without limitation, any
sinking fund requirements) of such Indebtedness multiplied by (ii) the amount of
each such principal payment by (b) the sum of all such principal payments.
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<PAGE> 95
"Bank Credit Agreement" means the credit agreement dated as of June 7, 1996
among the Company, the Banks and ING Baring (U.S.) Securities, Inc. and Merrill
Lynch & Co., as arrangers, and ING Bank N.V. and ING (U.S.) Capital Corporation,
as administrative and collateral agents, as such agreement may be amended,
renewed, extended, substituted, restated, refinanced, restructured, supplemented
or otherwise modified from time to time (including, without limitation, any
successive amendments, renewals, extensions, substitutions, restatements,
refinancings, restructurings, supplements or other modifications of the
foregoing, including by more than one agreement,); provided that with respect to
any agreement providing for the refinancing of Indebtedness under the Bank
Credit Agreement, such agreement shall be a Bank Credit Agreement under the
Indenture only if a notice to that effect is delivered by the Company to the
Trustee.
"Banks" means the banks and other financial institutions from time to time
that are lenders under the Bank Credit Agreement.
"Board Resolution" means, with respect to any Person, a copy of a
resolution certified by the Secretary or an Assistant Secretary of such Person
to have been duly adopted by the Board of Directors of such Person and to be in
full force and effect on the date of such certification.
"Business Day" means a day other than a Saturday, a Sunday or a day on
which banking institutions in New York City are not required to be open.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, partnership interests, participations, rights in or other equivalents
(however designated) of such Person's capital stock, and any rights (other than
debt securities convertible into capital stock), warrants or options
exchangeable for or convertible into such capital stock, whether now outstanding
or issued after the date of the Indenture.
"Capitalized Lease Obligation" means any obligation of the Company or a
Restricted Subsidiary under a lease of (or other agreement conveying the right
to use) any property (whether real, personal or mixed) that is required to be
classified and accounted for as a capital lease obligation under GAAP, and, for
the purpose of the Indenture, the amount of such obligation at any date shall be
the capitalized amount thereof at such date, determined in accordance with GAAP.
"Cash Equivalents" means (a) any evidence of Indebtedness with a maturity
of 365 days or less issued or directly and fully guaranteed or insured by the
United States of America or the Republic of Colombia or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States of America or the Republic of Colombia, as the case may be, is pledged in
support thereof); (b) certificates of deposit or acceptances with a maturity of
180 days or less of any financial institution that is a member of the Federal
Reserve System having combined capital and surplus and undivided profits of not
less than US$500 million; (c) commercial paper with a maturity of 180 days or
less issued by a corporation that is not an Affiliate of the Company and is
organized under the laws of any state of the United States or the District of
Columbia and rated at least A-1 by S&P or at least P-1 by Moody's; (d)
repurchase agreements and reverse repurchase agreements relating to marketable
direct obligations issued or unconditionally guaranteed by the United States
Government or issued by any agency thereof and backed by the full faith and
credit of the United States, as the case may be, in each case maturing within
one year from the date of acquisition; provided that the terms of such
agreements comply with the guidelines set forth in the United States Federal
Financial Agreements of Depository Institutions with Securities Dealers and
Others, as adopted by the United States Comptroller of the Currency; (e)
Colombian Peso deposits, with maturities of not more than 12 months from the
date of acquisition, in (i) Banco de Colombia, Banco Ganadero, Banco Industrial
Colombiano or Banco de Bogota or (ii) any other bank or financial institution
incorporated under the laws of the Republic of Colombia with total assets
exceeding the equivalent of US$350 million, provided that the aggregate
principal amount of any such deposits in banks described in this subclause (ii)
shall not exceed the equivalent of US$10 million at any time outstanding; (f)
repurchase agreements and reverse repurchase agreements relating to marketable
direct obligations issued or unconditionally guaranteed by the Republic of
Colombia and backed by the full faith and credit of the Republic of Colombia
maturing within one year from the date of acquisition, in each case entered into
with any of the Colombian banks specified in the preceding clause (e), provided
that such agreement with banks described in subclause (e)(ii) shall be deemed a
deposit for purposes of the US$10 million limit in such subclause; and (g)
investments in money market funds all of the assets of which consist of
securities of the types described in the foregoing clauses (a) through (f).
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For the purposes only of the covenant described under "-- Certain
Covenants -- Limitations on Sales of Assets" and the definition of Net Cash
Proceeds, the assumption of Indebtedness of the Company or any Restricted
Subsidiary and the release of the Company and all Restricted Subsidiaries from
all liability on such Indebtedness in connection with such Asset Sale shall be
deemed to be a Cash Equivalent.
"Change of Control" means the occurrence of any of the following events:
(a) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d)
of the Exchange Act), other than Permitted Holders, is or becomes the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act,
except that a Person shall be deemed to have "beneficial ownership" of all
securities that such Person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of more than 50% of the total outstanding Voting Stock of the
Company; (b) the Company consolidates with, or merges with or into, another
Person or conveys, transfers, leases or otherwise disposes of all or
substantially all of its assets to any Person, or any Person consolidates with,
or merges with or into, the Company, in any such event pursuant to a transaction
in which the outstanding Voting Stock of the Company is converted into or
exchanged for cash, securities or other property, other than any such
transaction (i) where the outstanding Voting Stock of the Company is not
converted or exchanged at all (except to the extent necessary to reflect a
change in the jurisdiction of incorporation of the Company) or is converted into
or exchanged for (A) Voting Stock (other than Redeemable Capital Stock) of the
surviving or transferee corporation or (B) cash, securities and other property
(other than Capital Stock of the Surviving Entity) in an amount that could be
paid by the Company as a Restricted Payment as described under the "Limitation
on Restricted Payments" covenant and (ii) where immediately thereafter no
"person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the
Exchange Act), other than Permitted Holders, is the "beneficial owner" (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a Person
shall be deemed to have "beneficial ownership" of all securities that such
Person has the right to acquire, whether such right is exercisable immediately
or only after the passage of time), directly or indirectly, of more than 50% of
the total outstanding Voting Stock of the surviving or transferee corporation;
(c) a majority of the Board of Directors of the Company has been nominated by
any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of
the Exchange Act), other than Permitted Holders or a depositary or custodian for
any depositary receipts in respect of shares of Voting Stock of the Company,
provided that such depositary or custodian is not acting at the direction of any
"person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the
Exchange Act) other than one or more Permitted Holders; (d) Colombia or any of
its instrumentalities (including, without limitation, departments, districts and
municipalities), including government-owned corporations or public entities,
owns more than 50% of the Voting Stock of the Company; or (e) the Company is
liquidated or dissolved or adopts a plan of liquidation or dissolution other
than in a transaction which complies with the provisions described under
" -- Consolidation, Merger, and Sale of Assets."
"Common Stock" means the Class A Common Stock, the Class B Common Stock and
the Class C Common Stock, in each case, par value 1,000 Pesos per share, of the
Company.
"Consolidated Adjusted Net Income" means, for any period, the consolidated
net income (or loss) of the Company and all Restricted Subsidiaries for such
period as determined in accordance with GAAP, adjusted by excluding, without
duplication, (a) any net after-tax extraordinary gains or losses (less all fees
and expenses relating thereto), (b) any net after-tax gains or losses (less all
fees and expenses relating thereto) attributable to asset dispositions other
than in the ordinary course of business, (c) the portion of net income (or loss)
of any Person (other than the Company or a Restricted Subsidiary), including
Unrestricted Subsidiaries, in which the Company or any Restricted Subsidiary has
an ownership interest, except to the extent of the amount of dividends or other
distributions actually paid to the Company or any Restricted Subsidiary in cash
dividends or distributions during such period, (d) the net income (or loss) of
any Person combined with the Company or any Restricted Subsidiary on a "pooling
of interests" basis attributable to any period prior to the date of such
combination, (e) the net income of any Restricted Subsidiary to the extent that
the declaration or payment of dividends or similar distributions by such
Restricted Subsidiary to another Restricted Subsidiary or to the Company is not
at the date of determination permitted, directly or indirectly, by operation of
the terms of its charter or any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to such Restricted
Subsidiary or its stockholders and (f) any non-cash
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items of the Company and any Restricted Subsidiary (including monetary
corrections) increasing Consolidated Adjusted Net Income for such period (other
than items that will result in the receipt of cash payments).
"Consolidated Cash Flow" of the Company means, for any period, the sum of
Consolidated Adjusted Net Income, Consolidated Interest Expense, Consolidated
Income Tax Expense and Consolidated Non-cash Charges deducted in computing
Consolidated Adjusted Net Income, in each case, for such period.
"Consolidated Income Tax Expense" means, for any period, the provision for
Colombian national, local and foreign income taxes of the Company and all
Restricted Subsidiaries for such period as determined on a consolidated basis in
accordance with GAAP.
"Consolidated Interest Expense" means, for any period, without duplication,
the sum of (a) the interest expense of the Company and its Restricted
Subsidiaries for such period, including, without limitation, (i) amortization of
debt discount, (ii) the net cost of interest rate contracts (including
amortization of discounts), (iii) the interest portion of any deferred payment
obligation and (iv) amortization of debt issuance costs, plus (b) the interest
component of Capitalized Lease Obligations of the Company and its Restricted
Subsidiaries during such period, plus (c) cash and non-cash dividends (other
than in the form of Qualified Capital Stock of the Company) paid on Redeemable
Capital Stock by the Company and any Restricted Subsidiary (to any Person other
than the Company and any Wholly Owned Restricted Subsidiary), in each case as
determined on a consolidated basis in accordance with GAAP; provided that (x)
the Consolidated Interest Expense attributable to interest on any Indebtedness
computed on a pro forma basis and (A) bearing a floating interest rate shall be
computed as if the rate in effect on the date of computation had been the
applicable rate for the entire period and (B) which was not outstanding during
the period for which the computation is being made but which bears, at the
option of the Company, a fixed or floating rate of interest, shall be computed
by applying at the option of the Company, either the fixed or floating rate, and
(y) in making such computation, the Consolidated Interest Expense attributable
to interest on any Indebtedness under a revolving credit facility computed on a
pro forma basis shall be computed based upon the average daily balance of such
Indebtedness during the applicable period; provided further that,
notwithstanding the foregoing, the interest rate with respect to any
Indebtedness covered by any Interest Rate Agreement shall be deemed to be the
effective interest rate with respect to such Indebtedness after taking into
account such Interest Rate Agreement.
"Consolidated Net Worth" means, at any date, the stockholders' equity of
the Company less the amount of such stockholders' equity attributable to
Redeemable Capital Stock or treasury stock of the Company and any Restricted
Subsidiary, as determined on a consolidated basis in accordance with GAAP.
"Consolidated Non-cash Charges" means, for any period, the aggregate
depreciation, amortization and other non-cash expenses of the Company and any
Restricted Subsidiary (including monetary corrections) reducing Consolidated
Adjusted Net Income for such period, determined on a consolidated basis in
accordance with GAAP (excluding any such non-cash charge that requires an
accrual of or reserve for cash charges for any future period).
"Currency Agreements" means any spot or forward foreign exchange agreements
and currency swap, currency option or other similar financial agreements or
arrangements entered into by the Company or any of its Restricted Subsidiaries
designed to protect against or manage exposure to fluctuations in currency
exchange rates.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Disinterested Director" means, with respect to any transaction or series
of transactions in respect of which the Board of Directors is required to
deliver a resolution of the Board of Directors under the Indenture, a member of
the Board of Directors who does not have any material direct or indirect
financial interest in or with respect to such transaction or series of
transactions.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
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"Fair Market Value" means, with respect to any asset or property, a price
which could be negotiated in an arm's length transaction, for cash, between a
willing seller and a willing buyer, neither of whom is under undue pressure to
complete the transaction. Fair Market Value shall be determined by the Board of
Directors of the Company acting in good faith and shall be evidenced by a Board
Resolution.
"Generally Accepted Accounting Principles" or "GAAP" means generally
accepted accounting principles in Colombia consistently applied, that are in
effect on the Issue Date.
"guarantee" means, as applied to any obligation, (a) a guarantee (other
than by endorsement of negotiable instruments for collection or deposit in the
ordinary course of business), direct or indirect, in any manner, of any part or
all of such obligation and (b) an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of non-performance) of all or
any part of such obligation, including, without limiting the foregoing, the
payment of amounts drawn down by letters of credit.
"Indebtedness" means, with respect to any Person on any date of
determination, without duplication, (a) all liabilities of such Person for
borrowed money (including overdrafts) or for the deferred purchase price of
property or services, excluding any trade payables and other accrued current
liabilities incurred in the ordinary course of business, but including, without
limitation, all obligations, contingent or otherwise, of such Person in
connection with any letters of credit and acceptances issued under letter of
credit facilities, acceptance facilities or other similar facilities (other than
obligations with respect to trade letters of credit securing obligations entered
into in the ordinary course of business of such Person for the import of
equipment used in the business of such Person or inventory for sale to customers
to the extent such letters of credit are not drawn upon or, if and to the extent
drawn upon, such drawing is reimbursed no later than the third Business Day
following receipt by such Person of a demand for reimbursement following payment
on the letter of credit), (b) all obligations of such Person evidenced by bonds,
notes, debentures or other similar instruments, (c) all indebtedness of such
Person created or arising under any conditional sale or other title retention
agreement with respect to property acquired by such Person (even if the rights
and remedies of the seller or lender under such agreement in the event of
default are limited to repossession or sale of such property), but excluding
trade payables arising in the ordinary course of business, (d) all Capitalized
Lease Obligations of such Person, (e) all obligations of such Person under or in
respect of Interest Rate Agreements or Currency Agreements, (f) all Indebtedness
referred to in (but not excluded from) the preceding clauses of other Persons
and all dividends of other Persons, the payment of which is secured by (or for
which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any Lien upon or with respect to property
(including, without limitation, accounts and contract rights) owned by such
Person, even though such Person has not assumed or become liable for the payment
of such Indebtedness (the amount of such obligation being deemed to be the
lesser of the value of such property or asset or the amount of the obligation so
secured), (g) all guarantees by such Person of Indebtedness referred to in this
definition of any other Person and (h) all Redeemable Capital Stock of such
Person valued at the greater of its voluntary or involuntary maximum fixed
repurchase price plus accrued and unpaid dividends. For purposes hereof, the
"maximum fixed repurchase price" of any Redeemable Capital Stock which does not
have a fixed repurchase price shall be calculated in accordance with the terms
of such Redeemable Capital Stock as if such Redeemable Capital Stock were
purchased on any date on which Indebtedness shall be required to be determined
pursuant to the Indenture, and if such price is based upon, or measured by, the
fair market value of such Redeemable Capital Stock, such fair market value shall
be determined in good faith by the board of directors of the issuer of such
Redeemable Capital Stock.
"Interest Rate Agreements" means any interest rate protection agreements
and other types of interest rate hedging agreements (including, without
limitation, interest rate swaps, caps, floors, collars and similar agreements).
"Investment" means, with respect to any Person, any direct or indirect
advance, loan or other extension of credit or capital contribution to (by means
of any transfer of cash or other property to others or any payment for property
or services for the account or use of others), or any purchase, acquisition or
ownership by such Person of any Capital Stock, bonds, notes, debentures or other
securities or evidences of Indebtedness issued
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or owned by, any other Person and all other items that would be classified as
investments on a balance sheet prepared in accordance with GAAP. In addition,
the fair market value of the net assets of any Restricted Subsidiary at the time
that such Restricted Subsidiary is designated an Unrestricted Subsidiary shall
be deemed to be an "Investment" made by the Company in such Unrestricted
Subsidiary at such time. Notwithstanding the foregoing, "Investments" shall
exclude extensions of trade credit on commercially reasonable terms in
accordance with normal trade practices.
"Issue Date" means June 7, 1996.
"Lien" means any mortgage, charge, pledge, lien (statutory or otherwise),
privilege, security interest, hypothecation, assignment for security, claim, or
preference or priority or other encumbrance upon or with respect to any property
of any kind, real or personal, movable or immovable, now owned or hereafter
acquired. A Person shall be deemed to own subject to a Lien any property which
such Person has acquired or holds subject to the interest of a vendor or lessor
under any conditional sale agreement, capital lease or other title retention
agreement.
"Maturity" means, with respect to any Note, the date on which any principal
of such Note becomes due and payable as therein or herein provided, whether at
the Stated Maturity with respect to such principal or by declaration of
acceleration, call for redemption or purchase or otherwise.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds
thereof in the form of cash or Cash Equivalents including payments in respect of
deferred payment obligations when received in the form of, or stock or other
assets when disposed for, cash or Cash Equivalents (except to the extent that
such obligations are financed or sold with recourse to the Company or any
Restricted Subsidiary), net of (i) brokerage commissions and other fees and
expenses (including fees and expenses of legal counsel, accountants and
investment banks) related to such Asset Sale, (ii) provisions for all taxes
payable as a result of such Asset Sale, (iii) payments made to retire
Indebtedness where payment of such Indebtedness is secured by the assets or
properties the subject of, or is otherwise required by the terms of, such Asset
Sale, (iv) amounts required to be paid to any Person (other than the Company or
any Restricted Subsidiary) owning a beneficial interest in the assets subject to
the Asset Sale and (v) appropriate amounts to be provided by the Company or any
Restricted Subsidiary, as the case may be, as a reserve required in accordance
with GAAP against any liabilities associated with such Asset Sale and retained
by the Company or any Restricted Subsidiary, as the case may be, after such
Asset Sale, including, without limitation, pension and other post-employment
benefit liabilities, liabilities related to environmental matters and
liabilities under any indemnification obligations associated with such Asset
Sale.
"Permitted Holders" means C&W, ERT Celular S.A., Caribe Celular S.A., Ancel
S.A. and Eccel S.A., and their respective successors.
"Permitted Indebtedness" means any of the following:
(a) Indebtedness of the Company under the Bank Credit Agreement in an
aggregate principal amount at any one time outstanding not to exceed US$80
million.
(b) Indebtedness of the Company pursuant to the Notes;
(c) Indebtedness of the Company outstanding on the Issue Date and listed on
a schedule thereto;
(d) Indebtedness of the Company owing to any Wholly Owned Restricted
Subsidiary; provided that any Indebtedness of the Company owing to any such
Restricted Subsidiary is unsecured and is subordinated in right of payment from
and after such time as the Notes shall become due and payable (whether at Stated
Maturity, acceleration or otherwise) to the payment and performance of the
Company's obligations under the Notes; provided further that any (i)
disposition, pledge or transfer of any such Indebtedness to a Person (other than
a disposition, pledge or transfer to the Company or another Wholly Owned
Restricted Subsidiary) or (ii) event which causes such Restricted Subsidiary to
cease to be a Restricted Subsidiary shall be deemed to be an incurrence of such
Indebtedness by the Company not permitted by this clause (d);
(e) obligations of the Company entered into in the ordinary course of
business (i) pursuant to bona fide Interest Rate Agreements designed to protect
the Company or any Restricted Subsidiary against fluctuations in interest rates
in respect of Indebtedness of the Company or any Restricted Subsidiary, which
obligations do
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not exceed the aggregate principal amount of such Indebtedness, and (ii)
pursuant to bona fide Currency Agreements entered into by the Company or any of
its Restricted Subsidiaries and designed to protect such Person against
fluctuation in currency values in respect of its (x) assets or (y) obligations;
(f) any renewals, extensions, substitutions, refinancings or replacements
(each, for purposes of this clause, a "refinancing") of Indebtedness incurred
pursuant to clause (c) of this definition, including any successive
refinancings, so long as (i) any such new Indebtedness shall be in a principal
amount that does not exceed (1) the principal amount (or, if such Indebtedness
being refinanced was incurred with original issue discount, the aggregate
accreted value as of the date of determination) so refinanced, plus (2) the
lesser of the amount of any premium required to be paid in connection with such
refinancing pursuant to the terms of the Indebtedness refinanced or the amount
of any premium reasonably determined as necessary to accomplish such
refinancing, plus (3) the amount of any fees and expenses incurred to accomplish
such refinancing, (ii) in the case of any refinancing of Subordinated
Indebtedness, such new Indebtedness is made subordinate to the Notes at least to
the same extent as the Indebtedness being refinanced and (iii) such new
Indebtedness has an Average Life equal to or greater than the Average Life of
the Indebtedness being refinanced and a final Stated Maturity later than the
final Stated Maturity of the Indebtedness being refinanced; and
(g) Indebtedness of the Company in an aggregate principal amount not in
excess of US$35 million at any one time outstanding, of which an amount not in
excess of US$25 million at any one time outstanding may be Secured Indebtedness.
For the purposes of the foregoing definition, (i) in the event that an item
of Indebtedness meets the criteria of more than one of the types of Indebtedness
in the definition of Permitted Indebtedness, the Company, in its sole
discretion, will classify such item of Indebtedness and only be required to
include the amount and type of such Indebtedness in one of such categories and
(ii) an item of Indebtedness may be divided and classified in more than one of
the types of Indebtedness referred to above.
"Permitted Investments" means any of the following:
(a) Investments in Cash Equivalents;
(b) Investments in the Company or any Wholly Owned Restricted Subsidiary;
(c) intercompany Indebtedness to the extent permitted under clause (d) of
the definition of "Permitted Indebtedness" and clause (a) of the definition of
"Permitted Subsidiary Indebtedness";
(d) Investments by the Company or any Restricted Subsidiary in another
Person, if as a result of such Investment (i) such other Person becomes a Wholly
Owned Restricted Subsidiary or (ii) such other Person is merged or consolidated
with or into, or transfers or conveys all or substantially all of its assets to,
the Company or a Restricted Subsidiary;
(e) loans and advances to employees in the ordinary course of business in
an aggregate amount not to exceed US$1 million at any one time outstanding;
(f) Investments in Unrestricted Subsidiaries or any other Person that is
not a Restricted Subsidiary in an amount not to exceed $15 million in aggregate,
which Unrestricted Subsidiaries or Persons are in the business of the Company or
its Restricted Subsidiaries existing on the Issue Date or in any
Telecommunications Business;
(g) receivables owing to the Company or any Restricted Subsidiary,
including receivables arising from the sale of handsets to customers and
distributors, if created or acquired in the ordinary course of business and
payable or dischargeable in accordance with customary trade terms; or
(h) payroll, travel and similar advances to cover matters that are expected
at the time of such advances ultimately to be treated as expenses for accounting
purposes and that are made in the ordinary course of business.
"Permitted Liens" means the following types of Liens:
(a) Liens (other than Liens securing Indebtedness under the Bank Credit
Agreement) existing as of the Issue Date;
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(b) Liens on property or assets of the Company or any Restricted Subsidiary
securing Indebtedness under the Bank Credit Agreement in a principal amount not
to exceed the principal amount of the outstanding Indebtedness permitted by
clause (a) of the definition of "Permitted Indebtedness".
(c) Liens on property or assets of the Company or any Restricted Subsidiary
securing Secured Indebtedness in a principal amount not to exceed the principal
amount of Secured Indebtedness permitted by clause (g) of the definition of
"Permitted Indebtedness;"
(d) Liens on any property or assets of a Restricted Subsidiary granted in
favor of the Company or any Wholly Owned Restricted Subsidiary;
(e) Liens on any property or assets of the Company or any Restricted
Subsidiary securing the Notes;
(f) any interest or title of a lessor under any Capitalized Lease
Obligation or Sale and Leaseback Transaction so long as the Attributable Value
secured by such Lien does not exceed US$2 million;
(g) statutory Liens of landlords and carriers, warehousemen, mechanics,
suppliers, materialmen, repairmen or other like Liens arising in the ordinary
course of business of the Company or any Restricted Subsidiary and with respect
to amounts not yet delinquent or being contested in good faith by appropriate
proceeding;
(h) Liens for taxes, assessments, government charges or claims that are
being contested in good faith by appropriate proceedings promptly instituted and
diligently conducted;
(i) Liens incurred or deposits made to secure the performance of tenders,
bids, leases, statutory obligations, surety and appeal bonds, government
contracts, performance bonds and other obligations of a like nature incurred in
the ordinary course of business (other than contracts for the payment of money);
(j) survey exceptions, title defects, easements, rights-of-way,
restrictions and other similar charges or encumbrances not interfering in any
material respect with the business of the Company or any Restricted Subsidiary
incurred in the ordinary course of business;
(k) Liens arising by reason of any judgment, decree or order of any court
so long as such Lien is adequately bonded and any appropriate legal proceedings
that may have been duly initiated for the review of such judgment, decree or
order shall not have been finally terminated or the period within which such
proceedings may be initiated shall not have expired;
(l) Liens securing Acquired Indebtedness created prior to (and not in
connection with or in contemplation of) the incurrence of such Indebtedness by
the Company or any Restricted Subsidiary; provided that such Lien does not
extend to any property or assets of the Company or any Restricted Subsidiary
other than the assets acquired in connection with the incurrence of such
Acquired Indebtedness;
(m) Liens securing obligations of the Company under Interest Rate
Agreements or Currency Agreements or any collateral for the Indebtedness to
which such Interest Rate Agreements or Currency Agreements relate;
(n) Liens on property or shares of Capital Stock of another Person at the
time such other Person becomes a Subsidiary of such Person; provided, however,
that such Liens are not created, incurred or assumed in connection with, or in
contemplation of, such other Person becoming such a Subsidiary; provided
further, however, that such Lien may not extend to any other property owned by
such Person or any of its Subsidiaries or by the Person acquiring such assets;
(o) Liens incurred or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other types of
social security;
(p) Liens securing Indebtedness incurred to finance the construction,
purchase or lease of, or improvements or additions to, property of the Company
or any Restricted Subsidiary (other than Liens under any Capitalized Lease
Obligation or Sale and Leaseback Transaction described in clause (f) above);
provided, however, that (i) the Lien may not extend to any other property owned
by the Company or any Restricted Subsidiary at the time the Lien is incurred and
(ii) the Lien securing such Indebtedness shall be created within 120 days of
such construction, purchase, lease, improvement or addition; and
(q) any extension, renewal or replacement, in whole or in part, of any Lien
described in the foregoing clauses (a) through (p); provided that any such
extension, renewal or replacement shall be no more restrictive
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in any material respect than the Lien so extended, renewed or replaced and shall
not extend to any additional property or assets.
"Permitted Subsidiary Indebtedness" means any of the following:
(a) Indebtedness of a Restricted Subsidiary owing to the Company or to a
Wholly Owned Restricted Subsidiary; provided that any disposition, pledge or
transfer of any such Indebtedness to a Person (other than a disposition, pledge
or transfer to the Company or a Wholly Owned Restricted Subsidiary) shall be
deemed to be an incurrence of such Indebtedness by such Restricted Subsidiary
not permitted by this clause (a);
(b) Indebtedness incurred by a Person prior to the time (i) such Person
became a Restricted Subsidiary of the Company, (ii) such Person merges into or
consolidates with a Restricted Subsidiary of the Company or (iii) another
Restricted Subsidiary of the Company merges into or consolidates with such
Person (in a transaction in which such Person becomes a Restricted Subsidiary of
the Company), which Indebtedness was not incurred in anticipation of such
transaction and was outstanding prior to such transaction; and
(c) any renewals, extensions, substitutions, refinancings or replacements
(each, for purposes of this clause, a "refinancing") by a Restricted Subsidiary
of any Indebtedness of such Restricted Subsidiary incurred pursuant to clause
(b) of this definition, including any successive refinancings by such Restricted
Subsidiary, so long as any such new Indebtedness shall be in a principal amount
that does not exceed (1) the principal amount (or, if such Indebtedness being
refinanced provides for an amount less than the principal amount thereof to be
due and payable upon a declaration of acceleration thereof, such lesser amount
as of the date of determination) so refinanced, plus (2) the lesser of the
amount of any premium required to be paid in connection with such refinancing
pursuant to the terms of the Indebtedness refinanced or the amount of any
premium reasonably determined by such Restricted Subsidiary as necessary to
accomplish such refinancing plus (3) the amount of any fees and expenses
incurred to accomplish such refinancing.
For purposes of the foregoing definition, (i) in the event that an item of
Indebtedness meets the criteria of more than one of the types of Indebtedness in
the definition of Permitted Subsidiary Indebtedness, the Company, in its sole
discretion, will classify such item of Indebtedness and only be required to
include the amount and type of such Indebtedness in one of such categories and
(ii) an item of Indebtedness may be divided and classified in more than one of
the types of Indebtedness referred to above.
"Permitted Telecommunications Business" means any nonwireline
telecommunications business, including cellular, satellite, data transmission
and personal communications businesses.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Preferred Stock", as applied to the Capital Stock of any corporation,
means Capital Stock of any class or classes (however designated) which is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
"Public Equity Offering" means a bona fide offer and sale of Common Stock
of the Company or American Depositary Receipts representing such Common Stock
pursuant to a registration statement that has been declared effective by the
Commission pursuant to the Securities Act (other than a registration statement
on Form S-8 or otherwise relating to equity securities issuable under any
employee benefit plan of the Company); provided that at least 50% or, if less,
US$35 million, of the shares or American Depositary Receipts issued and sold in
such offering are listed or quoted on the Nasdaq Stock Market or a stock
exchange in the United States.
"Qualified Capital Stock" of any Person means any and all Capital Stock of
such Person other than Redeemable Capital Stock.
"Redeemable Capital Stock" means any class or series of Capital Stock that,
either by its terms, by the terms of any security into which it is convertible
or exchangeable or by contract or otherwise, is, or upon the happening of an
event or passage of time would be, required to be redeemed prior to the final
Stated Maturity of the Notes or is redeemable at the option of the holder
thereof at any time prior to such final Stated
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Maturity, or is convertible into or exchangeable for debt securities at any time
prior to such final Stated Maturity.
"Restricted Subsidiary" means any Subsidiary other than an Unrestricted
Subsidiary.
"Sale and Leaseback Transaction" means any transaction or series of related
transactions pursuant to which the Company or a Restricted Subsidiary sells or
transfers any property or asset in connection with the leasing, or the resale
against installment payments, of such property or asset to the seller or
transferor.
"S&P" means Standard and Poor's Ratings Group, a division of McGraw-Hill,
Inc., and its successors.
"Secured Indebtedness" means Indebtedness of the Company secured by
property or assets of the Company or any Restricted Subsidiary.
"Stated Maturity" means, when used with respect to any Note or any
installment of interest thereon, the date specified in such Note as the fixed
date on which the principal of such Note or such installment of interest is due
and payable, and, when used with respect to any other Indebtedness, means the
date specified in the instrument governing such Indebtedness as the fixed date
on which the principal of such Indebtedness, or any installment of interest
thereon, is due and payable.
"Subordinated Indebtedness" means Indebtedness of the Company that is
expressly subordinated in right of payment to the Notes.
"Subsidiary" means any Person a majority of the equity ownership or Voting
Stock of which is at the time owned, directly or indirectly, by the Company or
by one or more other Subsidiaries or by the Company and one or more other
Subsidiaries.
"Telecommunications Business" means any wireline or nonwireline
telecommunications business, including cellular, satellite, data transmission
and personal communications businesses.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended.
"Unrestricted Subsidiary" means (a) any Subsidiary that at the time of
determination shall be an Unrestricted Subsidiary (as designated by the Board of
Directors of the Company, as provided below) and (b) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors of the Company may designate any
Subsidiary (including any newly acquired or newly formed Subsidiary) to be an
Unrestricted Subsidiary so long as (i) neither the Company nor any Restricted
Subsidiary is directly or indirectly liable for any Indebtedness of such
Subsidiary, (ii) no default with respect to any Indebtedness of such Subsidiary
would permit (upon notice, lapse of time or otherwise) any holder of any other
Indebtedness of the Company or any Restricted Subsidiary to declare a default on
such other Indebtedness or cause the payment thereof to be accelerated or
payable prior to its stated maturity, (iii) neither the Company nor any
Restricted Subsidiary has a contract, agreement, arrangement, understanding or
obligation of any kind, whether written or oral, with such Subsidiary other than
those that might be obtained at the time from persons who are not Affiliates of
the Company, and (iv) neither the Company nor any Restricted Subsidiary has any
obligation (1) to subscribe for additional shares of Capital Stock or other
equity interest in such Subsidiary, or (2) to maintain or preserve such
Subsidiary's financial condition or to cause such Subsidiary to achieve certain
levels of operating results. Any such designation by the Board of Directors of
the Company shall be evidenced to the Trustee by filing a Board Resolution with
the Trustee giving effect to such designation. The Board of Directors of the
Company may designate any Unrestricted Subsidiary as a Restricted Subsidiary if,
immediately after giving effect to such designation, there would be no Default
or Event of Default under the Indenture and the Company could incur US$1.00 of
additional Indebtedness (other than Permitted Indebtedness) pursuant to the
"Limitation on Indebtedness" covenant.
"Voting Stock" means any class or classes of Capital Stock pursuant to
which the holders thereof have the general voting power under ordinary
circumstances to elect at least a majority of the board of directors, managers
or trustees of any Person (irrespective of whether or not, at the time, stock of
any other class or classes shall have, or might have, voting power by reason of
the happening of any contingency).
"Wholly Owned" means, with respect to any Subsidiary of any Person, such
Subsidiary if all of the outstanding Capital Stock of such Subsidiary (other
than a de minimis number of director's qualifying shares or de minimis
Investments by non-U.S. nationals mandated by applicable law) is owned by such
Person or one or more Wholly Owned Subsidiaries of such Person.
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BOOK-ENTRY, DELIVERY AND FORM PROCEDURES
GENERAL
The Old Notes offered and sold in reliance on Regulation S under the
Securities Act were initially represented by a single, permanent Global Note in
definitive, fully registered book-entry form (the "Regulation S Global Note")
which was registered in the name of a nominee of DTC and deposited on behalf of
the purchasers of the Notes represented thereby with the Trustee as custodian
for DTC for credit to the respective accounts of the purchasers (or to such
other accounts as they may direct) at the Euroclear System ("Euroclear") or
Cedel Bank S.A. ("CEDEL"). The Old Notes offered and sold to "qualified
institutional buyers" ("QIBs") in reliance on Rule 144A under the Securities Act
were initially represented by a single, permanent Global Note in definitive,
fully registered book-entry form (the "Rule 144A Global Note," and, together
with the Regulation S Global Note, the "Old Global Notes") which was registered
in the name of a nominee of DTC and deposited on behalf of purchasers of the
Notes represented thereby with the Trustee as custodian for DTC for credit to
the respective accounts of the purchasers (or to such other accounts as they may
direct) at DTC. The Old Notes offered and sold to institutional "accredited
investors" as defined in Rule 501(a)(1), (2), (3) and (7) under the Securities
Act were initially delivered in certificated fully registered form only (the
"Restricted Certificated Notes"). Except as set forth below, it is expected that
the New Notes Issued pursuant to the Exchange Offer will be issued in global
form (the "New Global Notes", and, with the Old Global Notes, the "Global
Notes").
GLOBAL NOTES
Upon the issuance of the New Global Notes, DTC or its custodian will
credit, on its internal system, the respective principal amount of the
individual beneficial interests represented by such New Global Note to the
accounts of persons who have accounts with such depositary. Such accounts
initially will be designated by the Exchange Agent. Ownership of beneficial
interests in a New Global Note will be limited to persons who are members of, or
participants in, DTC (the "Agent Members") or persons who hold interests through
Agent Members. Ownership of beneficial interests in the New Global Notes will be
shown on, and the transfer of that ownership will be effected only through,
records maintained by DTC or its nominee (with respect to interests of Agent
Members) and the records of Agent Members (with respect to interests of persons
other than Agent members).
So long as DTC, or its nominee, is a registered holder of a Global Note,
DTC or such nominee, as the case may be, will be considered the absolute owner
or holder of the Notes represented by such Global Note for all purposes under
the Indenture and the Notes, and Agent Members, as well as any other persons on
whose behalf Agent Members may act (including Euroclear and CEDEL and account
holders and participants therein), will have no rights under the Indenture or
under a Global Note. Owners of beneficial interests in a Global Note will not be
considered to be the owners or holders of any Notes under the Indenture or the
Notes. In addition, no beneficial owner of an interest in a Global Note will be
able to exchange or transfer that interest, except in accordance with the
applicable procedures of DTC (the "Applicable Procedures").
Payments in respect of each Global Note registered in the name of DTC's
nominee will be made to the order of DTC's nominee as the registered owner of
such Global Note. None of the Company, the Trustee or the Warrant Agent will
have any responsibility or liability for any aspect of the records relating to
or payments made on account of beneficial interests in the Global Notes or for
maintaining, supervising or reviewing any records relating to such beneficial
interests.
The Company expects that DTC or its nominee, upon receipt of any payment of
principal or interest in respect of a Global Note, will immediately credit the
accounts of Agent Members with payments in the amounts proportionate to their
respective beneficial interests in the principal amount of such Global Note as
shown on the records of DTC or its nominee. The Company also expects that
payments by Agent Members to owners of beneficial interests in such Global Note
held through such Agent Members be governed by standing instructions and
customary practices, as is now the case with securities held for the accounts of
customers registered in the names of nominees for such customers. Such payments
will be the responsibility of such Agent Members.
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Transfers between participants in DTC will be effected in the ordinary way
in accordance with the Applicable Procedures and will be settled in same-day
funds.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of Notes (including the presentation of Notes for exchange as
described below) only at the direction of one or more Agent Members to whose
account the DTC interests in the Global Notes is credited and only in respect of
such portion of the aggregate principal amount of Notes as to which such Agent
Member or Agent Members has or have given such direction.
The Company understands: DTC is a limited purpose trust company organized
under the laws of the State of New York, a "banking organization" within the
meaning of New York Banking Law, a member of the Federal Reserve System, a
"clearing corporation" within the meaning of the Uniform Commercial Code and a
"Clearing Agency" registered pursuant to the provisions of Section 17A of the
Exchange Act. DTC was created to hold securities for its participants and
facilitate the clearance and settlement of securities transactions between
participants through electronic book-entry changes in accounts of its
participants, thereby eliminating the need for physical movement of
certificates. Participants include securities brokers and dealers, banks, trust
companies and clearing corporations and certain other organizations. Indirect
access to the DTC system is available to others such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship with
a participant, either directly or indirectly ("indirect participants").
Although DTC is expected to follow the foregoing procedures in order to
facilitate transfers of interests in the Global Notes among participants of DTC,
it is under no obligation to perform or continue to perform such procedures, and
such procedures may be discontinued at any time. Neither the Company, the
Trustee nor the Warrant Agent will have any responsibility for the performance
by DTC, its participants or indirect participants of their respective
obligations under rules and procedures governing its operations.
CERTIFICATED NOTES
New Notes issued in exchange for Old Notes held by institutional
"accredited investors" which are not QIBs within the meaning of Rule 144A of the
Securities Act will be issued in the form of registered definitive certificates
("Certificated Notes"). Upon transfer of Certificated Notes to a QIB, such
Certificated Notes may be transferred to a Global Note upon delivery of
appropriate certifications to the Trustee.
In addition, interests in a Global Note will be exchangeable or
transferable, as the case may be, for Certificated Notes if (i) DTC notifies the
Company that it is unwilling or unable to continue as depositary for such Global
Notes, or DTC ceases to be a "Clearing Agency" registered under the Exchange
Act, and a successor depositary is not appointed by the Company within 90 days,
or (ii) an Event of Default has occurred and is continuing with respect to such
Notes and Noteholders who hold more than 25% in aggregate principal amount of
the Notes at the time outstanding represented by the Global Notes advise the
Trustee through DTC in writing that the continuation of a book-entry system
through DTC (or a successor thereto) with respect to the Global Notes is no
longer required. Upon the occurrence of any of the events described in the
preceding sentence, the Company will cause the appropriate Certificated Notes to
be delivered. Upon the transfer, exchange or replacement of Old Notes bearing
such legend, or upon specific request for removal of such legend, the Company
shall deliver only Notes that bear a legend as to restrictions on transfer of
such Note, or shall refuse to remove such legend, as the case may be, unless
there is delivered to the Company and the Trustee a certificate in the form
provided in the Indenture or such satisfactory evidence as may reasonably be
required by the Company, which may include an opinion of United States counsel,
that neither the legend nor the restrictions on transfer set forth therein are
required to ensure compliance with the provisions of the Securities Act.
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TAXATION
The following discussion summarizes certain Colombian and United States
federal income tax consequences of the acquisition, ownership and disposition of
Notes. Although the following discussion does not purport to describe all of the
tax considerations that may be relevant to holders of the Notes, it summarizes
the material Colombian tax consequences to Non-Colombian Holders (as defined
herein) of holding Notes and the material United States federal income tax
consequences to United States Holders (as defined herein) of holding Notes.
The statements regarding United States and Colombian tax laws and practices
set forth below are based on the laws in force and as applied in practice on the
date of this Prospectus and are subject to changes to those laws and practices,
and any relevant judicial decision, subsequent to the date of this Prospectus
which changes may be retroactive.
As used herein, a "Non-Colombian Holder" means a holder that is not a
citizen or a resident of Colombia or a company or other entity not organized
under the laws of Colombia and that has no connection to Colombia other than its
investment in the Notes.
As used herein, a "United States Holder" means a holder that is a citizen
or resident of the United States, a corporation created or organized in or under
the laws of the United States or any political subdivision thereof or a person
that otherwise is subject to United States federal income tax on a net income
basis in respect of the Notes.
HOLDERS OF THE OLD NOTES ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS AS
TO THE UNITED STATES, COLOMBIAN OR OTHER TAX CONSEQUENCES OF THE PURCHASE,
OWNERSHIP AND DISPOSITION OF THE NOTES, INCLUDING THE EFFECT OF ANY STATE OR
LOCAL TAX LAWS.
COLOMBIA
The following summary is a general description of certain Colombian tax
aspects of the Notes and does not purport to be a comprehensive description of
Colombian tax aspects of the Notes. No information is provided regarding the tax
aspects of owning, holding or disposing of the securities under applicable tax
laws of any jurisdiction other than Colombia.
Notes
Non-Colombian Resident Holders will not be required to file any tax returns
in Colombia solely by reason of their investments in the Notes, and will not be
subject to Colombian income and remittance withholding taxes to the extent
payments on the Notes do not constitute Colombian source income. Article 25 of
the Estatuto Tributario (the "Colombian Tax Code") provides that credits
obtained abroad (including bank loans and debt securities) by Colombian
companies carrying out activities deemed to be of interest to the social and
economic development of the country, as per policies adopted by the National
Council on Economic and Social Policies (CONPES), do not generate Colombian
source income and will not be considered to be possessed in Colombia. Resolution
54 of 1992 ("Resolution 54") from CONPES establishes that all activities
pertaining to the primary, manufacturing and service sector are deemed to be of
interest to the social and economic development of the country. Under Colombian
law, the Company's activities would be categorized as being part of the service
sector. As a result, no income or remittance tax will be withheld from interest
payments on the Notes by the Company to Non-Colombian Holders.
Resolution 54 may be rescinded or modified. In the event the Company's
activities were not deemed to be of interest for the social and economic
development of the country, interest payments on the Notes from the Company to
Non-Colombian Holders could be subject to withholding of income tax at the rate
of 35% and withholding of remittance tax at the rate of 7% on the net amount of
the payment after deducting the withholding of income tax. Due to the imposition
of such taxes on interest payments on the Notes, the Company generally would be
required to pay Additional Amounts to Non-Colombian Holders. See "Description of
the Notes -- Additional Amounts." Any gain realized on the sale, transfer,
exchange or other
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<PAGE> 107
disposition of a Note by a Non-Colombian Holder would not be subject to
Colombian capital gain taxes nor to Colombian income tax.
The exchange of the Old Notes for the New Notes in the Exchange Offer, see
"The Exchange Offer", will not constitute a taxable event to Non-Colombian
Holders for Colombian income tax purposes. There are no regulations in Colombia
with regard to inheritance, gift or wealth taxes applicable to the Notes.
UNITED STATES
The following deals only with Units and Notes that are held by United
States Holders, and does not deal with persons that are subject to special tax
rules, such as dealers in securities or currencies, financial institutions, life
insurance companies, tax-exempt entities, persons holding Units or Notes as a
part of a hedging or conversion transaction or a straddle, persons that own (or
are deemed for United States tax purposes to own) 10% or more of the total
combined voting power of all classes of voting stock of the Company, persons
that have a principal place of business or "tax home" outside the United States
or persons whose "functional currency" is not the U.S. dollar. The discussion
below is based upon the provisions of the United States Internal Revenue Code of
1986, as amended (the "Internal Revenue Code"), and regulations, rulings and
judicial decisions thereunder as of the date hereof; any such authority may be
repealed, revoked or modified, perhaps with retroactive effect, so as to result
in federal income tax consequences different from those discussed below.
Units
The issue price of the Units is equal to the first price at which a
substantial amount of Units is sold to persons other than bond houses, brokers
or similar persons or organizations acting in the capacity of underwriters,
placement agents or wholesalers. The Company has been informed by the Initial
Purchasers that the issue price of the Units as so determined, was US$524.26 per
Unit. The issue price of a Unit must then be allocated for United States tax
purposes between the Note and Warrants that comprise the Unit based on their
relative fair market values at the time of issuance. The Company has allocated
US$464.49 per Unit to the Note and US$59.77 per Unit to the Warrants. The
portion of the issue price of the Unit that is allocated to the Note is the
issue price of the Note. The Company's allocation of the issue price of the
Units between the Notes and the Warrants for United States tax purposes will be
binding on each holder of a Unit, unless the holder explicitly discloses its use
of a different allocation in a manner prescribed by applicable regulations. A
holder of Units or Notes may contact the Company's Vice President -- Finance at
(574) 510-9410, in order to obtain information as to the allocation of issue
price made by the Company, as well as any other relevant information.
Notes
Exchange of Notes
In the opinion of Cravath, Swaine & Moore U.S. tax counsel to the Company,
the exchange of Old Notes for New Notes pursuant to the Exchange Offer should
not be treated as a taxable exchange or other taxable event to United States
Holders. Consequently, no gain or loss should be realized by a United States
Holder upon receipt of a New Note; the holding period of the New Note should
include the holding period of the Old Note exchanged therefor and the adjusted
tax basis of the New Note should be the same as the adjusted tax basis of the
Old Note exchanged therefor.
Original Issue Discount
General. The Old Notes and New Notes will be treated as having been issued
with original issue discount ("OID"). The amount of OID on a Note will be equal
to the excess of (i) the aggregate amount payable on the Note (whether
denominated as principal or as interest) over (ii) the issue price of the Note
(determined in the manner described above).
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<PAGE> 108
The Code and the OID Regulations provide rules that require a United States
Holder of a Note to include OID in income, as ordinary interest income, before
the receipt of cash attributable to such income without regard to the holder's
method of accounting for tax purposes. The amount of OID includible in gross
income by a United States Holder of a Note is the sum of the "daily portions" of
OID with respect to the Note for each day during the taxable year or portion of
the taxable year in which the United States Holder holds such Note ("accrued
OID"). The daily portion is determined by allocating to each day in any "accrual
period" a pro rata portion of the OID allocable to that accrual period. Under
the OID Regulations, accrual periods with respect to a Note may be any set of
periods (which may be of varying lengths) selected by the United States Holder
as long as (i) no accrual period is longer than one year and (ii) each scheduled
payment of interest or principal on the Security occurs on the first day or
final day of an accrual period.
The amount of OID allocable to an accrual period equals the product of the
Note's adjusted issue price at the beginning of the accrual period and the
Note's yield to maturity (determined on the basis of compounding at the close of
each accrual period and properly adjusted for the length of the accrual period).
The "adjusted issue price" of a Note at the beginning of the first accrual
period is the issue price and at the beginning of any accrual period thereafter
is (x) the sum of the issue price of such Note and the accrued OID for each
prior accrual period (determined without regard to the amortization of any
acquisition premium or bond premium), less (y) any prior payments on the Notes.
If a payment is made on the first day of an accrual period, then the adjusted
issue price at the beginning of such accrual period is reduced by the amount of
the payment.
The OID Regulations contain certain special rules that generally allow any
reasonable method to be used in determining the amount of OID allocable to a
short initial accrual period (if all other accrual periods are of equal length),
and require that the amount of OID allocable to the final accrual period equal
the excess of the amount payable at the maturity of the Note over the Note's
adjusted issue price as of the beginning of such final accrual period.
U.S. Holders of Notes generally will have to include in income increasingly
greater amounts of OID over the life of the Notes.
Acquisition Premium
A United States Holder that purchases a Note at its original issuance for
an amount in excess of its issue price but less than its stated redemption price
at maturity (any such excess being "acquisition premium") is permitted to reduce
the daily portions of OID by a fraction, the numerator of which is the excess of
the sum of all amounts payable on the Note after the purchase date, other than
payments of qualified stated interest, over the Note's issue price.
Alternatively, a United States Holder may elect to compute OID accruals as
described under "Original Issue Discount -- General" above, treating the United
States Holder's purchase price as the issue price.
Election to Treat all Interest as Original Issue Discount
Any United States Holder may elect to include in gross income all interest
that accrues on a Note using the constant yield method described above under the
heading "Original Issue Discount -- General", with the modifications described
below. For purposes of this election, interest includes stated interest, OID, de
minimis OID, market discount, de minimis market discount and unstated interest,
as adjusted by any acquisition premium.
In applying the constant yield method to a Note with respect to which this
election has been made, the issue price of the Note will equal the electing
United States Holder's adjusted basis in the Note immediately after its
acquisition, and the issue date of the Note will be the date of its acquisition
by the electing United States Holder. This election is generally applicable only
to the Note with respect to which it is made and may not be revoked without the
consent of the IRS.
If the election described above to apply the constant yield method to all
interest on a Note is made with respect to a Market Discount Note, as defined
below, then the electing United States Holder will be treated as having made the
election discussed below under "Notes Purchased at a Market Discount" to include
market
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<PAGE> 109
discount in income currently over the life of all debt instruments held or
thereafter acquired by such United States Holder.
Notes Purchased at a Market Discount
A Note will be treated as issued at a market discount (a "Market Discount
Note") if the amount for which a United States Holder purchased a Note is less
than the Note's issue price by more than a de minimis amount.
In general, any partial payment of principal on, or gain recognized on the
maturity or disposition of, a Market Discount Note will be treated as ordinary
income to the extent that such gain does not exceed the accrued market discount
on such Note. Alternatively, a United States Holder of a Market Discount Note
may elect to include market discount in income currently over the life of the
Market Discount Note. Such an election applies to all debt instruments with
market discount acquired by electing United States Holder on or after the first
day of the first taxable year to which the election applies and may not be
revoked without the consent of the IRS.
Market discount accrues on a straight-line basis, unless the United States
Holder elects to accrue such discount on a constant yield to maturity basis.
Such an election is applicable only to the Note with respect to which it is made
and is irrevocable. A U.S. Holder of a Market Discount Note that does not elect
to include market discount in income currently generally will be required to
defer deductions for interest on borrowings allocable to such Note in an amount
not exceeding the accrued market discount on such Note, until the maturity or
disposition of such Note.
Purchase, Sale and Retirement of the Notes
A United States Holder's tax basis in a Note will generally be its U.S.
dollar cost increased by the amount of any OID or market discount included in
the United States Holder's income with respect to the Note and the amount, if
any, of income attributable to de minimis OID included in the United States
Holder's income with respect to the Note, and reduced by the sum of (i) the
amount of any payments on the Note and (ii) the amount of any amortizable bond
premium applied to reduce interest on the Note. A United States Holder generally
will recognize gain or loss on the sale or retirement of a Note equal to the
difference between the amount realized on the sale or retirement and the tax
basis of the Note. The amount realized on a sale or retirement for an amount in
foreign currency will be the U.S. dollar value of such amount on the date of
sale or retirement. Except to the extent described above under "Market Discount"
and except to the extent attributable to accrued but unpaid interest, gain or
loss recognized on the sale or retirement of a Note will be capital gain or loss
and will be long-term capital gain or loss if the Note was held for more than
one year.
Foreign Tax Credit
For United States foreign tax credit purposes, OID on a Note generally will
be treated as foreign-source income and as passive income, subject to the
separate foreign tax credit limitation (basket) for passive income. However, if
such OID becomes subject to Colombian withholding tax at a rate of five percent
or more, then such OID instead will be segregated in the separate foreign tax
credit basket for high withholding tax interest.
Gain realized on the sale, exchange or retirement of a Note by the United
States Holder generally will be treated as United States-source income. The IRS
is authorized to issue regulations to govern the source of losses recognized on
the sale of personal property (such as the Notes); however, to date, no such
regulations have been issued. While there can be no assurance in the matter,
relevant legislative history suggests that the regulations, when and if issued,
generally should treat loss recognized by a United States Holder on the sale,
exchange or retirement of a Note as United States-source loss.
105
<PAGE> 110
FOREIGN INVESTMENT AND EXCHANGE CONTROLS IN COLOMBIA
The current legal framework for foreign investment in Colombia was
established by Law 9 of 1991, Resolution 51 of October 1991 (the Foreign
Investment Statute) of the CONPES, and Resolution 21 of 1993 as amended by
several resolutions issued by Banco de la Republica (Central Bank). The main
guiding principles of the current regulatory framework are: (i) Equality of
Treatment: foreign and domestic investment in Colombia must receive equal
treatment and discrimination is illegal; (ii) Freedom of Access: foreign
investment is permitted in any sector of the economy except defense, national
security, the processing, disposal, and discharge of toxic, hazardous, or
radioactive waste not produced in Colombia, and real estate; (iii) Automatic
procedures: foreign investors need not follow any special authorization
procedure to invest in Colombia. However, investors should register their
investments with the Central Bank to preserve certain foreign-exchange-related
rights.
Under Colombian law there are three types of foreign capital investment:
First, direct investment, which is defined as any contribution (i.e., cash and
debt capitalization) by a foreigner into the capital of an existing or newly
formed company in Colombia. Second, indirect investment, which involves any acts
or contracts by which a foreign investor makes a contribution to a company
without taking an equity position, but the income derived by the foreign
investor nevertheless depends on the profits generated by the Company. Finally,
portfolio investment which is made through a foreign capital investment fund for
the acquisition of shares and other securities traded on Colombian stock
exchanges. Foreign investment can be made in different ways, including the
transfer of foreign currency for conversion into Colombian currency as a direct
contribution to the equity of an existing or newly formed company, the
acquisition of rights, shares, or other securities, the capitalization of funds
with remittance rights, the importation of capital goods; and contributions in
kind such as technologies, trademarks, and patents.
Registration of foreign capital investment (registration must be made
within the following three months, but could be extended to six months, to avoid
fines), entitles the holder to repatriate all net profits in freely convertible
currency based on the financial statements of the company, reinvest profits or
retain undistributed surpluses, capitalize the remittable amounts produced by
the investment, and remit, in freely convertible currency, the capital
reductions, portfolio liquidation, or the proceeds of the sale of investments
within Colombia. Repatriation and remittance rights can be temporarily modified
if foreign currency reserve levels fall below the equivalent of three months'
imports.
Resolution 21 establishes two distinct foreign exchange markets: (i) the
formal foreign exchange market, which is conducted through authorized financial
intermediaries (each an "Authorized Intermediary") and subject to the procedures
established by Resolution 21, as amended, which requires certain specified
transactions to be carried out through such market and (ii) the free market,
which is available for all transactions not required to be conducted on the
foreign exchange market, including the exchange of foreign currency relating to
professional services, donations and sales of goods and services to tourists.
Transactions conducted through the foreign exchange market are conducted at
market rates freely negotiated with authorized intermediaries (banks, financial
corporations and others). The payment of the Exercise Price of the Warrants, the
distribution by the Company of dividends of the Warrant Shares and the
remittance abroad of the proceeds of the sale in Colombia of any Warrant Shares
must be conducted through the foreign exchange market. To carry out an exchange
transaction, an exchange declaration (declaracion de cambio) must be prepared
and filed with an authorized intermediary. Conversion from Pesos to Dollars for
payments of principal and interest of the Notes will be required to be made on
the foreign exchange market through an Authorized Intermediary.
Resolution 21, as amended, allows Colombian residents to incur indebtedness
in foreign currency but requires that borrowers incurring indebtedness in a
foreign currency with a term of 36 months or less, in addition to registration,
make deposits in Pesos at the Central Bank in order to be able to remit payments
in such foreign currency. Such deposits must be maintained for a term of 18
months and the deposit amount equals 50% of the total amount borrowed,
liquidated at the market representative exchange rate of the day of
constitution.
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<PAGE> 111
There are some exceptions to the deposit requirement, including: (i)
borrowings with a final maturity of more than 36 months, but with repayments not
exceeding 40% of principal within the initial 36-month period. (If repayments
exceed 40% of principal within the initial 36-month period, a 50% deposit must
be made with respect to the portion of principal repaid during such initial
period); and (ii) borrowings obtained by Colombian residents to finance payments
to public entities (a) to buy shares or shares' preference subscription rights
in privatization processes and (b) to pay concession or license fees.
In addition, any partial or total prepayment or redemption of indebtedness
in foreign currency can be done without the making of a previous deposit in
Pesos at the Central Bank after the initial 36-month period, or before that
term, without the making of a deposit, in the following cases:
(i) if an authorization is obtained from the Central Bank on the basis of
an existing "justified cause" which allows the prepayment;
(ii) if the substitution of foreign currency indebtedness agreements with
other foreign currency indebtedness agreements or through the issuance and
placement of securities in international capital markets, provided such other
foreign currency indebtedness agreements or securities have a term greater than
36 months;
(iii) if the mandatory prepayment arises pursuant to a foreign indebtedness
agreement incurred to finance a private project through a BOT (build, operate
and transfer), BOM (build, operate and manage), BOMT (build, operate, manage and
transfer), BOOM (build, own, operate and manage) or any similar agreement in the
event of (a) the early termination of such agreement, (b) the total or partial
loss of the assets of the project such that its continuation is no longer
economical or (c) the expropriation of assets or goods of the project;
(iv) if prepayment is made after half of the agreed term for payment has
elapsed with the proceeds of a foreign investment obtained through (a) placement
of ADRs or BOCEAS of Colombian companies or (b) capitalization of external debt
through acquisition of shares of the debtor company; or
(v) if the prepayment relates to indebtedness that was recorded without
having made a previous deposit or if the terms of the indebtedness has a term of
36 months or less.
There can be no assurance that the deposit requirements of Resolution 21,
as amended by Resolution 005, 1996, will not be amended or that additional
foreign exchange controls which are applicable to the Notes will not be enacted.
107
<PAGE> 112
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver this Prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer who
holds Old Notes acquired for its own account as a result of market-making
activities or other trading activities (a "Participating Broker-Dealer") in
connection with resales of New Notes received in exchange for Old Notes. For a
period of 180 days after the Expiration Date, the Company will make this
Prospectus, amended or supplemented, available to any Participating
Broker-Dealer for use in connection with any such resale, provided that such
Participating Broker-Dealer indicates in the Letter of Transmittal that it is a
broker-dealer. In addition, until , 1996, (90 days after the date of
this Prospectus), all dealers affecting transactions in the New Notes may be
required to deliver a prospectus.
The Company will not receive any proceeds from the exchange of Old Notes
for New Notes by broker-dealers. New Notes received by broker-dealers for their
own account pursuant to the Exchange Offer may be sold from time to time in one
or more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the New Notes or a combination of such methods
of resale, at market prices prevailing at the time of resale, or at prices
related to such prevailing market prices or at negotiated prices. Any such
resale may be made directly to purchasers or to or through broker-dealers who
may receive compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any New Notes. Any broker-dealer that
resells New Notes that were received by it for its own account pursuant to the
Exchange Offer and any person that participates in the distribution of such New
Notes may be deemed an "underwriter" within the meaning of the Securities Act
and any profit on any such resale of New Notes and any commissions or
concessions received by any such broker-dealers may be deemed to be underwriting
compensation under the Securities Act. The Letter of Transmittal states that by
acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
For a period of 180 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any Participating Broker-Dealer that requests
such documents in the Letter of Transmittal. The Company has agreed to pay all
expenses incident to the Exchange Offer other than commissions or concessions of
any broker-dealers and will indemnify the holders of the Old Notes (including
Participating Broker-Dealers) participating in the Exchange Offer against
certain liabilities, including liabilities under the Securities Act.
By acceptance of this Exchange Offer, each broker-dealer that receives New
Notes pursuant to the Exchange Offer agrees that, upon receipt of notice from
the Company of the happening of any event which makes any statement in this
Prospectus untrue in any material respect or which requires the making of any
changes in this Prospectus in order to make the statements therein not
misleading (which notice the Company agrees to deliver promptly to such
broker-dealer), such broker-dealer will suspend use of this Prospectus until the
Company has amended or supplemented this Prospectus to correct such misstatement
or omission and has furnished copies of the amended or supplemented Prospectus
to such broker-dealer. If the Company gives any such notice to suspend the use
of the Prospectus, it will extend the 180-day period referred to above by the
number of days during the period from and including the date of the giving of
such notice up to and including when broker-dealers shall have received copies
of the supplemented or amended Prospectus necessary to permit resales of New
Notes.
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ENFORCEMENT OF FOREIGN JUDGMENTS IN COLOMBIA
The courts of Colombia give effect to and enforce judgments obtained in
non-Colombian courts through a process provided for under Colombian law known as
exequatur, subject to the provisions of Articles 693 through 695 of the
Colombian Code of Civil Procedure (Codigo de Procedimiento Civil). Such articles
provide for enforcement by Colombian courts of foreign judgments which are
obtained without fraud and rendered after due notice, provided that either (a)
Colombia and the country where the foreign judgment has been issued are parties
to a treaty which recognized the enforceability of foreign judgments or (b) a
judgment rendered by a court of Colombia would be enforceable on a reciprocal
basis in the country where such foreign judgment is obtained, and that the
foreign judgment (i) does not relate to "in rem" rights vested in assets that
were located in Colombia at the time the suit was filed, (ii) does not
contravene any public policy laws or regulations of Colombia, other than those
governing judicial procedures, (iii) is a final judgment not subject to appeal
in accordance with the applicable foreign laws and an original certified copy of
such judgment is filed with the court, (iv) does not refer to any matter upon
which Colombian courts have exclusive jurisdiction, (v) does not refer to any
matter subject to a lawsuit presently ongoing in Colombia or already decided by
any court of Colombia, (vi) was obtained upon complying with the applicable
foreign laws relating to service of process to the defendant, which compliance
is presumed if the judgment is final, and (vii) be submitted to the exequatur
procedure before the Supreme Court of Colombia, which requires that the party
proposing to enforce the foreign judgment give prior judicial notice to any
person or entity that may be affected by the judgment.
Of those requirements imposed by the Colombian Code of Civil Procedure, the
two issues which are most likely to generate controversy in exequatur
proceedings are (i) whether there exists an applicable treaty or reciprocity
between the two countries, as described in the previous paragraph and (ii)
whether the foreign judgment contravenes Colombia's public policy laws and
regulations. Occel has been advised by its Corporate Secretary General and
Administrative Vice President that the United States and Colombia do not have a
treaty providing for reciprocal recognition and enforcement of judgments in
civil and commercial matters; however, there is a precedent (a ruling issued on
July 19, 1994) in which the Supreme Court of Colombia recognized the existence
of such reciprocity based upon (i) evidence that a court in the State of Florida
had accepted the validity of a Colombian judgment in a certain case and (ii)
declarations by the United States lawyers acting as expert witnesses to the
effect that courts in the State of Florida had enforced judgments issued in
Latin American countries other than Colombia and that judgments issued by
Colombian courts would be enforced under the same principles. The Company can
provide no assurance, however, that this interpretation will prevail in future
exequatur proceedings. The Company does not believe, in the case of the Notes,
that a foreign judgment ordering the payment of money would conflict with any of
Colombia's current public policy laws or regulations.
The Company has been advised by its Corporate Secretary General and
Administrative Vice President that there can be no assurance as to the
enforceability, in original actions in Colombian courts, of liabilities
predicated solely on the United States federal or other non-Colombian securities
laws.
LEGAL MATTERS
Certain legal matters with respect to the Notes offered hereby will be
passed upon for the Company by Cravath, Swaine & Moore, New York, New York, with
respect to matters of United States law, and by Holguin, Neira y Pombo, Santafe
de Bogota, Colombia, and Mauricio Campillo-Orozco, Medellin, Colombia, with
respect to matters of Colombian law. A member of Holguin, Neira y Pombo is an
alternate director of the Company.
EXPERTS
The financial statements of the Company as of December 31, 1994 and 1995
and for the years ended December 31, 1993, 1994 and 1995 have been included
herein and in the Registration Statement in reliance upon the report of KPMG
Peat Marwick, independent public accountants, appearing elsewhere herein, and
upon the authority of said firm as experts in accounting and auditing.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.......................................................... F-2
Balance Sheets at December 31, 1994 and 1995 and unaudited as of June 30, 1995 and
1996................................................................................ F-3
Statements of Income (Loss) for the years ended December 31, 1993, 1994 and 1995 and
unaudited for the six months ended June 30, 1995 and 1996........................... F-4
Statements of Shareholders' Equity for the years ended December 31, 1993, 1994 and
1995 and unaudited for the six months ended June 30, 1996........................... F-5
Statements of Cash Flows for the years ended December 31, 1993, 1994 and 1995 and
unaudited for the six months ended June 30, 1995 and 1996........................... F-6
Statements of Changes in Financial Position for the years ended December 31, 1993,
1994 and 1995 and unaudited for the six months ended June 30, 1995 and 1996......... F-7
Notes to Financial Statements......................................................... F-8
</TABLE>
F-1
<PAGE> 115
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Occidente y Caribe Celular S.A.:
We have audited the accompanying balance sheets of Occidente y Caribe
Celular S.A. as of December 31, 1995 and 1994, and the related statements of
income (loss), shareholders' equity, cash flows and changes in financial
position for each of the years in the three-year period ended December 31, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in Colombia, which do not differ in any material respects from
generally accepted auditing standards in the United States. Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Occidente y Caribe Celular
S.A. as of December 31, 1995 and 1994, and the results of its operations, cash
flows and changes in its financial position for each of the years in the
three-year period ended December 31, 1995, in conformity with generally accepted
accounting principles in Colombia.
Generally accepted accounting principles in Colombia vary in certain
significant respects from generally accepted accounting principles in the United
States. Application of generally accepted accounting principles in the United
States would have affected results of operations for each of the years in the
three-year period ended December 31, 1995 and shareholders' equity as of
December 31, 1995 and 1994, to the extent summarized in note 17 to the financial
statements.
(signed) KPMG PEAT MARWICK
Luis Eduardo Nino Cortes
T.P. 3164-T
Medellin, Colombia
February 20, 1996, except for the fourth
paragraph of note 14 which is as of
March 14, 1996 and note 1(a) which
is as of September 16, 1996
F-2
<PAGE> 116
OCCIDENTE Y CARIBE CELULAR S.A.
BALANCE SHEETS
AS OF DECEMBER 31, 1994 AND 1995, AND
JUNE 30, 1995 AND 1996
<TABLE>
<CAPTION>
AS OF JUNE 30,
AS OF DECEMBER 31, (UNAUDITED)
--------------------------------------- ---------------------------------------
1994 1995 1995 1995 1996 1996
--------- ------- --------------- --------- ------- ---------------
MILLIONS OF CONSTANT THOUSANDS MILLIONS OF CONSTANT THOUSANDS
COLOMBIAN PESOS OF U.S. DOLLARS COLOMBIAN PESOS OF U.S. DOLLARS
(CONVENIENCE (CONVENIENCE
TRANSLATION) TRANSLATION)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (note
2)............................. Ps 7,636 7,085 US$ 6,623 Ps 1,861 19,991 US$ 18,688
Accounts receivable, net (note
3)............................. 12,431 10,178 9,515 12,325 20,024 18,719
Inventories...................... 855 2,383 2,228 4,569 2,234 2,088
Prepaid expenses................. 320 1,897 1,773 1,123 555 519
---------- -------- ---------- --------- ------- ----------
Total current assets...... 21,242 21,543 20,139 19,878 42,804 40,014
---------- -------- ---------- --------- ------- ----------
Property, plant and equipment
(note 4)......................... 43,138 72,012 67,318 59,792 75,585 70,658
Less accumulated depreciation.... 415 5,163 4,826 2,440 8,393 7,846
---------- -------- ---------- --------- ------- ----------
Property, plant and
equipment, net.......... 42,723 66,849 62,492 57,352 67,192 62,812
---------- -------- ---------- --------- ------- ----------
Intangible assets, net (note 5).... 185,592 182,664 170,757 184,411 179,165 167,486
Deferred charges, net (note 6)..... 25,539 21,361 19,969 22,525 26,708 24,967
---------- -------- ---------- --------- ------- ----------
Total assets.............. Ps275,096 292,417 US$273,357 Ps284,166 315,869 295,279
========== ======== ========== ========= ======= ==========
Memorandum accounts (note 7)....... Ps 8,484 68,911 US$ 64,419 Ps 6,370... 78,673 US$ 73,545
========== ======== ========== ========= ======= ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable to banks (note
8)............................. 18,129 1,964 1,836 10,662 5,106 4,773
Current installments of long-term
debt (note 9).................. 34,132 85,862 80,265 31,821 -- --
Accounts payable (notes 10
and 13)........................ 16,026 20,156 18,842 12,180 16,073 15,025
Accrued expenses (note 11)....... 2,769 2,959 2,766 2,057 4,379 4,094
---------- -------- ---------- --------- ------- ----------
Total current
liabilities............. 71,056 110,941 103,709 56,720 25,558 23,892
Long-term debt, excluding current
installments (note 9)............ 64,975 87,836 82,109 98,464 193,080 180,494
Deferred monetary correction....... 11,146 10,935 10,222 10,947 8,980 8,395
---------- -------- ---------- --------- ------- ----------
Total liabilities......... 147,177 209,712 196,040 166,131 227,618 212,781
---------- -------- ---------- --------- ------- ----------
Shareholders' equity (notes 1 and
12):
Common stock one thousand pesos
par value.
Authorized 77,520,000 in 1994
and 91,964,254 shares in
1995; issued and paid
69,767,829 in 1994 and 1995.. 95,453 79,863 74,657 83,910 82,768 77,373
Additional paid-in capital....... 18,924 15,833 14,802 16,636 13,832 12,930
Reserves......................... 326 272 254 286 238 222
Equity revaluation............... 16,453 35,393 33,086 30,278 42,680 39,898
Accumulated deficit.............. (3,237) (48,656) (45,482) (13,075) (51,267) (47,925)
---------- -------- ---------- --------- ------- ----------
Shareholders' equity,
net..................... 127,919 82,705 77,317 118,035 88,251 82,498
---------- -------- ---------- --------- ------- ----------
Commitments and
contingencies (note 14)
Total liabilities and
shareholders' equity.... Ps275,096 292,417 US$273,357 Ps284,166 315,869 US$295,279
========== ======== ========== ========= ======= ==========
Memorandum accounts (note 7)....... Ps 8,484 68,911 US$ 64,419 Ps 6,370 78,673 US$ 73,545
========== ======== ========== ========= ======= ==========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 117
OCCIDENTE Y CARIBE CELULAR S.A.
STATEMENTS OF INCOME (LOSS)
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995, AND
SIX MONTHS ENDED JUNE 30, 1995 AND 1996
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
YEARS ENDED DECEMBER 31, (UNAUDITED)
--------------------------------------------------------- -------------------------------------------
1993 1994 1995 1995 1995 1996 1996
--------- --------- ---------- ------------- --------- --------- -------------
MILLIONS OF CONSTANT COLOMBIAN PESOS THOUSANDS OF MILLIONS OF CONSTANT THOUSANDS OF
U.S. DOLLARS COLOMBIAN PESOS U.S. DOLLARS
(CONVENIENCE (CONVENIENCE
TRANSLATION) TRANSLATION)
(EXCEPT PER SHARE DATA) (EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues (note 13)
Cellular service... Ps -- Ps 6,694 Ps 34,857 US$ 32,585 Ps 10,958 Ps 29,484 US$ 27,562
Equipment sales.... -- 3,817 10,302 9,630 6,681 4,039 3,776
--------- --------- --------- ---------- --------- --------- ----------
Total
revenues... Ps -- 10,511 45,159 US$ 42,215 17,639 33,523 US$ 31,338
Costs and expenses
(note 13):
Costs of cellular
service.......... -- 814 12,066 11,278 1,640 11,514 10,763
Costs of equipment
sales............ -- 3,279 9,834 9,192 6,489 4,694 4,388
Marketing and
selling
expenses......... -- 4,760 12,443 11,632 6,830 5,885 5,502
General and
administrative... -- 4,160 19,903 18,606 7,059 8,654 8,090
Depreciation and
amortization..... -- 1,670 12,606 11,784 5,648 8,204 7,669
--------- --------- --------- ---------- --------- --------- ----------
Total costs
and
expenses... -- 14,683 66,852 62,492 27,666 38,951 36,412
--------- --------- --------- ---------- --------- --------- ----------
Operating
loss....... -- (4,172) (21,693) (20,277) (10,027) (5,428) (5,074)
--------- --------- --------- ---------- --------- --------- ----------
Other income
(expense) (note
13):
Interest expense... -- (5,213) (27,919) (26,099) (7,313) (15,641) (14,621)
Foreign exchange... -- (2,939) (21,223) (19,839) (7,256) (10,219) (9,553)
Interest income.... 239 6,246 2,353 2,200 320 1,521 1,422
Net monetary
correction (note
15).............. (17) 3,026 22,864 21,373 15,212 22,461 20,997
Other.............. -- (185) (330) (311) (1,165) (784) (734)
--------- --------- --------- ---------- --------- --------- ----------
Other income
(expense),
net........ 222 935 (24,255) (22,676) (202) (2,662) (2,489)
Provision for income
taxes.............. -- -- -- -- -- (671) (627)
--------- --------- --------- ---------- --------- --------- ----------
Net income
(loss)..... Ps 222 (3,237) (45,948) US$(42,953) Ps(10,229) (8,761) US$ (8,190)
========= ========= ========= ========== ========= ========= ==========
Net income
(loss) per
share...... Ps 117.12 (58) (658) US$ (0.62) Ps(146.54) (108.70) US$ (0.10)
========= ========= ========= ========== ========= ========= ==========
Weighted average
number of shares
in millions...... 1.9 55.9 69.8 69.8 69.8 80.6 80.6
========= ========= ========= ========== ========= ========= ==========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 118
OCCIDENTE Y CARIBE CELULAR S.A.
STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995, AND
SIX MONTHS ENDED JUNE 30, 1996
(IN MILLIONS OF CONSTANT COLOMBIAN PESOS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
RETAINED
ADDITIONAL RESERVE FOR EARNINGS
COMMON PAID-IN LEGAL ACQUISITION EQUITY (ACCUMULATED SHAREHOLDERS'
STOCK CAPITAL RESERVE OF ASSETS REVALUATION DEFICIT) EQUITY, NET
--------- ---------- ------- ----------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992........ Ps 3,290 -- -- -- 183 216 3,689
Distribution of net income,
1992............................ -- -- 17 158 -- (175) --
Issuance of 1,000,000 shares
Ps1,000 par value............... 1,890 -- -- -- -- -- 1,890
Equity inflation adjustment....... (837) -- -- -- 736 (41) (142)
Net income, 1993.................. -- -- -- -- -- 222 222
--
--------- ------ ------ --- ------- ------- -------
Balance at December 31, 1993........ 4,343 -- 17 158 919 222 5,659
Distribution of net income,
1993............................ -- -- 19 163 -- (182) --
Issuance of 35,000,000 shares,
Ps1,000 par value............... 55,594 -- -- -- -- -- 55,594
Issuance of 32,167,826 shares,
Ps1,000 par value and additional
paid-in capital Ps430........... 49,098 21,112 -- -- -- -- 70,210
Equity inflation adjustment....... (13,582) (2,188) (3) (28) 15,534 (40) (307)
Net loss, 1994.................... -- -- -- -- -- (3,237) (3,237)
--
--------- ------ ------ --- ------- ------- -------
Balance at December 31, 1994........ 95,453 18,924 33 293 16,453 (3,237) 127,919
Equity inflation adjustment....... (15,590) (3,091) (6) (48) 18,940 529 734
Net loss, 1995.................... -- -- -- -- -- (45,948) (45,948)
-- --
--------- ------ ------ --- ------- ------- -------
Balance at December 31, 1995........ Ps 79,863 15,833 27 245 35,393 (48,656) 82,705
Issuance of 13,000,000 shares
Ps1,000 par value (Unaudited)... 14,537 -- -- -- -- -- 14,537
Equity inflation adjustment
(Unaudited)..................... (11,632) (2,001) (3) (31) 7,287 6,150 (230)
Net loss, six months ended June
30, 1996 (Unaudited)............ -- -- -- -- -- (8,761) (8,761)
--
--------- ------ ------ --- ------- ------- -------
Balance at June 30, 1996
(Unaudited)....................... Ps 82,768 13,832 24 214 42,680 (51,267) 88,251
========= ====== == === ======= ======= =======
Thousands of U.S. dollars
(convenience translation):
Balance at December 31, 1995...... US$74,657 14,801 25 229 33,086 (45,484) 77,314
========= ====== == === ======= ======= =======
Balance at June 30, 1996
(Unaudited)..................... US$77,373 12,930 22 200 39,898 (47,925) 82,498
========= ====== == === ======= ======= =======
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 119
OCCIDENTE Y CARIBE CELULAR S.A.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995, AND
SIX MONTHS ENDED JUNE 30, 1995 AND 1996
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1995 AND 1996
YEARS ENDED DECEMBER 31, (UNAUDITED)
----------------------------------------------- --------------------------------------
1993 1994 1995 1995 1995 1996 1996
-------- -------- ------- --------------- --------- -------- ---------------
MILLIONS OF CONSTANT THOUSANDS MILLIONS OF CONSTANT THOUSANDS
COLOMBIAN PESOS OF U.S. DOLLARS COLOMBIAN PESOS OF U.S. DOLLARS
(CONVENIENCE (CONVENIENCE
TRANSLATION) TRANSLATION)
<S> <C> <C> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).................... Ps 222 (3,237) (45,948) US$(42,953) Ps(10,229) (8,761) US$ (8,190)
Adjustments to reconcile net loss
to net cash provided (used) by
operating activities:
Inflation adjustments............ -- (2,990) (19,412) (18,147) (13,949) (20,867) (19,507)
Depreciation and amortization.... -- 1,670 12,606 11,784 5,360 7,762 7,256
Allowance for doubtful
accounts....................... -- -- 5,363 5,013 462 1,301 1,216
Decrease (increase) in operating
assets:
Accounts receivable............ (3) (7,651) (4,820) (4,506) (1,858) (12,434) (11,623)
Inventories.................... -- (856) (1,149) (1,074) (3,444) 30 28
Prepaid expenses............... -- (317) (1,629) (1,523) (841) 1,102 1,030
Increase (decrease) in operating
liabilities:
Accounts payable............... -- 8,064 6,373 5,957 (1,908) (1,535) (1,435)
Accrued expenses............... (5) 1,417 295 276 659 1,143 1,068
--------- --------- ------- ---------- --------- --------- ----------
Net cash provided (used) by
operating activities......... 214 (3,900) (48,322) (45,173) (25,748) (32,099) (30,007)
--------- --------- ------- ---------- --------- --------- ----------
Cash flows from investing activities:
Purchases of property, plant and
equipment.......................... (61) (39,738) (26,029) (24,333) (16,965) (3,514) (3,285)
Purchase of concession............... -- (168,450) -- -- -- -- --
Deferred charges..................... (3,157) (9,271) (2,527) (2,362) (10) (8,314) (7,772)
--------- --------- ------- ---------- --------- --------- ----------
Net cash used in investing
activities................... (3,218) (217,459) (28,556) (26,695) (16,975) (11,828) (11,057)
--------- --------- ------- ---------- --------- --------- ----------
Cash flows from financing activities:
Proceeds from notes payable and
long-term debt..................... -- 117,469 123,547 115,494 43,141 196,470 183,663
Repayments of notes payable and
long-term debt..................... -- (233) (45,518) (42,551) (5,271) (151,741) (141,850)
Issuance of common stock............. 1,670 110,822 -- -- -- 13,000 12,153
--------- --------- ------- ---------- --------- --------- ----------
Net cash provided by financing
activities................... 1,670 228,058 78,029 72,943 37,870 57,729 53,966
--------- --------- ------- ---------- --------- --------- ----------
Net increase (decrease) in cash
and cash equivalents......... (1,334) 6,699 1,152 1,075 (4,853) 13,802 12,902
Cash and cash equivalents at beginning
of period............................ 3,048 1,141 7,636 7,138 7,636 7,085 6,623
Constant peso adjustment............... (573) (204) (1,703) (1,590) (922) (896) (838)
--------- --------- ------- ---------- --------- --------- ----------
Cash and cash equivalents at
end of period................ Ps 1,141 7,636 7,085 US$ 6,623 Ps 1,861 19,991 US$ 18,688
========= ========= ======= ========== ========= ========= ==========
Supplemental disclosure of cash flow
information -- cash paid:
Interest and exchange loss........... Ps -- 4,850 43,584 US$ 40,743 Ps 13,673 25,234 US$ 23,589
========= ========= ======= ========== ========= ========= ==========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 120
OCCIDENTE Y CARIBE CELULAR S.A.
STATEMENTS OF CHANGES IN FINANCIAL POSITION
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995, AND
SIX MONTHS ENDED JUNE 30, 1995 AND 1996
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1995 AND 1996
YEARS ENDED DECEMBER 31, (UNAUDITED)
----------------------------------------------- ------------------------------------
1993 1994 1995 1995 1995 1996 1996
-------- -------- ------- --------------- -------- ------- ---------------
MILLIONS OF CONSTANT THOUSANDS MILLIONS OF THOUSANDS
COLOMBIAN PESOS OF U.S. DOLLARS CONSTANT OF U.S. DOLLARS
(CONVENIENCE COLOMBIAN PESOS (CONVENIENCE
TRANSLATION) TRANSLATION)
<S> <C> <C> <C> <C> <C> <C> <C>
Sources of working capital:
Net income (loss)...................... Ps 222 -- -- US$ -- Ps -- -- US$ --
Items that do not use working
capital:
Depreciation and amortization...... -- -- -- -- -- -- --
Inflation adjustments, net......... -- -- -- -- -- -- --
-------- ------- ------- --------- ------- ------- ----------
Working capital provided by
operations..................... 222 -- -- -- -- -- --
Issuance of common stock............... 1,670 110,823 -- -- 13,000 12,153
Increase in notes payable to banks..... -- 64,976 33,473 31,291 41,346 116,347 108,763
Decrease in deferred charges........... -- -- 182 170 -- -- --
Decrease in working capital............ 1,595 50,519 47,719 44,608 -- -- --
-------- ------- ------- --------- ------- ------- ----------
Ps 3,487 226,318 81,374 US$ 76,069 Ps 41,346 129,347 US$120,916
======== ======= ======= ========= ======= ======= ==========
Uses of working capital:
Net loss............................... -- 3,237 45,948 42,954 10,229 8,761 8,190
Items that do not (use) provide
working capital:
Depreciation and amortization...... -- (1,670) (12,606) (11,784) (5,364) (7,762) (7,256)
Inflation adjustments, net......... -- 2,990 19,412 18,147 13,949 20,867 19,507
-------- ------- ------- --------- ------- ------- ----------
Working capital used by
operations..................... -- 4,557 52,754 49,317 18,814 21,866 20,441
Purchase of property, plant and
equipment............................ -- 42,383 28,619 26,752 16,974 3,514 3,285
Purchase of concession................. 61 168,449 -- -- -- -- --
Deferred charges....................... 3,426 10,931 -- -- 10 8,314 7,772
Increase in working capital............ -- -- -- -- 5,548 95,813 89,568
-------- ------- ------- --------- ------- ------- ----------
Ps 3,487 226,318 81,373 US$ 76,069 Ps 41,346 129,347 US$120,916
======== ======= ======= ========= ======= ======= ==========
Changes in components of working capital:
Increase (decrease) in current assets:
Cash and cash equivalents............ (1,334) 6,699 1,152 1,075 (4,853) 13,802 12,902
Accounts receivable.................. (3) 12,404 (224) (209) 1,399 11,133 10,407
Inventories.......................... -- 856 1,668 1,559 3,446 (30) (28)
Prepaid expenses..................... -- 317 1,629 1,524 842 (1,102) (1,030)
-------- ------- ------- --------- ------- ------- ----------
(1,337) 20,276 4,225 3,949 834 23,803 22,251
-------- ------- ------- --------- ------- ------- ----------
Increase (decrease) in current
liabilities:
Notes payable to banks................. -- 18,128 (13,203) (12,342) (5,274) 3,390 3,169
Current installments of long-term
debt................................. -- 34,133 57,304 53,569 1,816 (75,008) (70,119)
Accounts payable....................... 232 15,786 6,746 6,308 (1,909) (1,535) (1,435)
Accrued expenses....................... 26 2,747 1,097 1,026 653 1,143 1,068
-------- ------- ------- --------- ------- ------- ----------
258 70,795 51,944 48,561 (4,714) (72,010) (67,317)
-------- ------- ------- --------- ------- ------- ----------
Increase (Decrease) in working capital... Ps(1,595) (50,519) (47,719) US$(44,608) Ps 5,548 95,813 US$ 89,568
======== ======= ======= ========= ======= ======= ==========
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE> 121
OCCIDENTE Y CARIBE CELULAR S.A.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994 AND 1995, AND
SIX MONTHS ENDED JUNE 30, 1995 AND 1996
(EXPRESSED IN MILLIONS OF CONSTANT COLOMBIAN PESOS,
EXCEPT FOR SHARE AMOUNTS OR WHERE OTHERWISE INDICATED)
(1) OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
Operations
Occidente y Caribe Celular S.A. (the Company or Occel) is a mixed economy
company (owned by public and private sector shareholders) established under
public deed No. 378 dated February 14, 1992 of the only Notary in Soledad
(Atlantic Department). The Company was incorporated for a period ending on
December 31, 2092.
The Company provides mobile cellular telephone and other related
telecommunication services in the western region of Colombia (the "Western
Region") pursuant to a ten-year concession, subject to renewal for an additional
10 years (the "Concession"), awarded under contract No. 000005 dated March 28,
1994 by the Ministry of Communications.
Cellular operators typically experience losses and negative cash flow in
their initial years of operation due to the large capital investments required
for construction of their networks and the significant advertising and other
expenses needed to start the business. Consistent with this pattern, the Company
has incurred cumulative losses and negative cash flows from operations since
September 1, 1994. In addition, the Company has accumulated a significant
working capital deficiency due to these factors as well as the scheduled
maturities of its notes payable and long-term debt. The Company is currently
pursuing a debt offering and new banking facility which will enable the Company
to repay substantially all its existing indebtedness and fund its working
capital and capital expenditure needs. Should this plan not succeed, the Company
would be dependent upon capital contributions from its shareholders or other
financing in order to fund any working capital deficiencies and capital
expenditures. (See note 18 -- Subsequent event -- unaudited.)
Financial statements
During 1992, 1993 and through August 31, 1994, the Company was a
development stage enterprise. The financial statements for 1994 and 1993,
provided herein, reflect the results for such pre-operating period. Results for
the year ended December 31, 1994 may not be comparable as the Company commenced
commercial operations in September 1994. The financial statements as of June 30,
1995 and 1996 and for the six months ended June 30, 1995 and 1996 are unaudited.
In the opinion of management the interim financial statements include all
material adjustments (consisting only of adjustments of a normal and recurring
nature) necessary for a fair presentation of the results for such periods. The
results of operations for any interim period are not necessarily indicative of
the results of operations for a full year.
Convenience translation (unaudited)
For the convenience of the reader, the financial statements of the Company
contain translations of certain Colombian peso amounts into US dollars at the
June 30, 1996 exchange rate of 1,069.73 pesos per US dollar, the rate reported
by the Superintendency of Banking. No representation is made that the Colombian
peso amounts have been, could have been, or could be converted into US dollars
at such a rate or any other rates.
Significant accounting principles
(a) INFLATION ACCOUNTING
Financial statements are adjusted for the effects of inflation on the basis
of changes in the official Colombian middle-income Consumer Price Index ("CPI")
established by the National Administrative Statistics Department. This index is
applied, on a one-month lagging basis, to non-monetary assets and liabilities,
shareholders' equity and revenue and expense accounts. Monetary balances are not
adjusted because they reflect purchasing power of the currency as of the balance
sheet date. Foreign currency balances
F-8
<PAGE> 122
OCCIDENTE Y CARIBE CELULAR S.A.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
are not adjusted since they are translated into Colombian pesos as of the date
of the balance sheet and, consequently, reflect the purchasing power of the
currency on that date.
The resulting net gain or loss from exposure to inflation is reflected as
"Net Monetary Correction" in the statements of operations. Accordingly, the "Net
Monetary Correction" reflected in the statements of operations of the Company is
the result of netting or offsetting the following items:
- a credit for inflation affecting non-monetary assets;
- a charge for inflation affecting non-monetary liabilities and
shareholders' equity; and
- charges and credits representing inflation adjustments made to revenue
and expense items, respectively. Such adjustments are included within the
individual expense and income captions in the statements of operations.
Since monetary inflation adjustments contained within the individual
expense and income captions are offset in the Net Monetary Correction account in
the statements of operations, the net effect on net income or loss from the
expense and income inflation adjustments is zero. Therefore, the only impact on
the statements of operations of the effects of inflation is attributable to the
restatement of non-monetary assets, liabilities and shareholders' equity
accounts.
Unless expressly stated otherwise, the financial information included in
the accompanying financial statements and notes thereto for all periods
presented has been restated into constant Colombian pesos as of June 30, 1996 in
order to express all financial information in purchasing power as of that date.
The rate of inflation and the CPI factor applied to the Company's historical
financial statements data for each period is as follows:
<TABLE>
<CAPTION>
RATE OF INFLATION CPI CONSTANT
FOR THE FISCAL YEAR PESO FACTOR
------------------- ------------
<S> <C> <C>
Year ended December 31, 1992................ 24.49% 2.0566
Year ended December 31, 1993................ 23.13% 1.6702
Year ended December 31, 1994................ 22.08% 1.3681
Year ended December 31, 1995................ 19.52% 1.1447
Six months ended June 30, 1995.............. 13.76% 1.2027
Six months ended June 30, 1996.............. 14.47% 1.0000
</TABLE>
The monetary correction for the revaluation of shareholders' equity is
accumulated in a separate component of shareholders' equity entitled equity
revaluation. The June 30, 1996 balance for each component of shareholders'
equity represents the historical peso balance for that account. The components
of shareholders' equity for all previous periods have been restated into
constant Colombian pesos as of June 30, 1996.
(b) CASH AND CASH EQUIVALENTS
Short-term investments with original maturities of three months or less are
considered cash equivalents for the purposes of the cash flow statements due to
their high liquidity.
(c) INVENTORIES
Inventories primarily consist of telephones and accessories and are
recorded at the lower of average cost or market, adjusted for inflation.
F-9
<PAGE> 123
OCCIDENTE Y CARIBE CELULAR S.A.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(d) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost, adjusted for inflation.
Depreciation is calculated on the straight-line method over the estimated useful
lives of the assets, as follows:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Buildings............................................ 20
Machinery and equipment.............................. 10
Office equipment..................................... 10
Computers and communication equipment................ 5
Vehicles............................................. 5
</TABLE>
(e) INTANGIBLE ASSET
Intangible asset corresponds to the acquisition cost of the Concession to
provide cellular mobile telephone service in the Western region of Colombia and
is recorded at inflation-adjusted cost less accumulated amortization. The
Concession cost is amortized over nine years and seven months from September
1994, the start date of the Company's commercial operations, based on the units
of activation method. To calculate the monthly amortization charge, this method
utilizes the sum of the projected subscribers per month for each month during
the term of the Concession as the denominator and the sum of the subscribers per
month for each month in the reporting period as the numerator. The Company will
revise the underlying projections of subscribers on a periodic basis, and any
resulting impact on amortization expense will be accounted for in subsequent
periods.
(f) DEFERRED CHARGES
Deferred charges consist of organization and preoperating expense, deferred
monetary correction, software and leasehold improvements.
Costs and expenses incurred during the preoperating period are amortized by
the straight-line method over five years starting September 1, 1994, the start
date of the Company's commercial operations.
Deferred monetary correction represents the inflation adjustments on the
Company's non-monetary assets and equity during the preoperating phase, i.e.,
through August 31, 1994. The amounts are amortized over the life of the
Concession using the same method for amortization as that used for intangible
assets.
Purchased software is amortized over three years. Leasehold improvements
are amortized over the life of the rental agreement.
(g) ASSET REVALUATIONS
In addition to inflation adjustments, changes in the market value of
property, plant and equipment, for reasons other than inflation, are recorded
periodically. Positive revaluations related to inflation-adjusted net book value
are recorded in compensating balance sheet accounts which are shown in the asset
caption and the shareholders' equity caption "Revaluations". Should a
devaluation result, a provision is made in the statement of income (loss) and
the value of the asset is reduced.
Revaluations of assets must be made and recorded whenever management
becomes aware of a material difference between the market value and the
inflation-adjusted net book value of the assets. The revaluations are based on
the difference between technical appraisals of the replacement costs of such
assets and the respective inflation-adjusted net book values. Such appraisals
should be made every three years. As the Company commenced operations in 1994,
no appraisal has yet been made.
F-10
<PAGE> 124
OCCIDENTE Y CARIBE CELULAR S.A.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(h) FOREIGN CURRENCY TRANSACTIONS
Foreign currency transactions and balances denominated in a currency other
than Colombian pesos are translated monthly into Colombian pesos at market rates
certified by the Banking Superintendency. The exchange rate used to adjust the
resulting balance in US dollars at December 31, 1993, 1994 and 1995 was
Ps804.33, Ps831.60 and Ps987.65 per US$1.00, respectively. The resulting
difference is charged or credited to the statement of income (loss).
(i) RELATED PARTIES
The Company classifies any balances and transactions with its affiliates
and principal owners as related party transactions.
(j) REVENUE RECOGNITION
Cellular service revenues based upon subscriber usage and access and
special feature cellular service revenues are recognized at the time the service
is provided. Equipment sales are recognized at the time equipment is delivered
to the subscriber or to an agent.
(k) LEASE PAYMENTS
Lease payments are recorded as an expense. The total liability under lease
contracts is recorded in the memorandum accounts. The leased asset is only
booked when the purchase option is exercised.
(l) INCOME TAX
Effective from 1996, according to Law 223 of December 20, 1995, the Company
is liable for income tax at a statutory tax rate of 35%. Before this change in
the law, the Company was not liable for income tax and, therefore, no provision
has been recorded for income taxes. In 1996 and future years, the Company's tax
liability will be calculated on the greater of (i) net taxable income and (ii)
presumed income, which is the greater of 5% of shareholders' fiscal equity or
1.5% of total assets, in each case at the beginning of the taxable year. Net
taxable losses and the excess presumed income over net taxable income may be
carried forward for tax purposes for five years. However, net taxable losses
cannot be used to offset the tax liability on presumed income.
(m) NET INCOME (LOSS) PER SHARE
Net income (loss) per share is computed by dividing net income (loss) by
the weighted average number of common shares outstanding during each year
presented.
(n) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-11
<PAGE> 125
OCCIDENTE Y CARIBE CELULAR S.A.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(2) CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with original maturity
of three months or less to be cash equivalents. Substantially all of the
Company's cash and cash equivalents are denominated in Colombian Pesos. A
summary follows:
<TABLE>
<CAPTION>
1994 1995
-------- -----
<S> <C> <C>
Cash...................................................... Ps 318 58
Bank accounts............................................. 800 1,186
Repurchase agreements..................................... 4,162 5,538
Certificates of deposit................................... -- 288
Bonds..................................................... 2,356 15
-------- -----
Ps 7,636 7,085
======== =====
</TABLE>
Short-term investments earned interest at an average effective rate from
25.14% to 36.78% and 26.68% to 40.77% during the years ended December 31, 1994
and 1995, respectively.
(3) ACCOUNTS RECEIVABLE
The following is a summary of accounts receivable as of December 31:
<TABLE>
<CAPTION>
1994 1995
--------- -------
<S> <C> <C>
Customers............................................. Ps 5,779 12,117
Telephone company interconnection charges............. -- 1,653
Roaming............................................... -- 1,112
Equipment and construction advances................... 6,561 481
Other................................................. 91 178
--------- ------
12,431 15,541
Allowance for doubtful accounts....................... -- 5,363
--------- ------
Ps 12,431 10,178
========= ======
</TABLE>
(4) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
1994 1995
--------- -------
<S> <C> <C>
Land.................................................. Ps -- 70
Construction in progress.............................. 11,405 6,949
Buildings............................................. -- 5,526
Equipment............................................. 31,265 58,644
Furniture and fixtures................................ 468 823
------- -------
Ps 43,138 72,012
======= =======
</TABLE>
F-12
<PAGE> 126
OCCIDENTE Y CARIBE CELULAR S.A.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(5) INTANGIBLE ASSET
Intangible asset consists of the following:
<TABLE>
<CAPTION>
1994 1995
---------- -------
<S> <C> <C>
Cellular concession.................................. Ps 185,816 186,884
Less accumulated amortization........................ 224 4,220
------- -------
Ps 185,592 182,664
======= =======
</TABLE>
The Concession consists of the right to establish and develop a cellular
telephone communications business in the western region over a 10-year period in
exchange for a one-time concession fee, combined with quarterly royalty payments
in the amount of 5% of adjusted gross revenues to the Ministry of Communications
for the use of the cellular frequencies. The Company was awarded the Concession
in a competitive bidding process, based upon not only the price offered by the
Company, but also the technical capabilities and operational capacity, the
mobile cellular experience of its affiliates, and its financial and planning
capability. The Concession commenced March 28, 1994 and may be renewed for an
additional 10-year term. The purchase price for the Concession was Ps 123.1
billion (actual pesos). The Concession may not be assigned during the first
three years from the date of signing. However, once this period has elapsed, it
may be assigned subject to authorization by the Ministry of Communications. At
the end of the Concession's term, the Company's assets directly related to the
Concession are to revert to the Ministry of Communications without compensation.
During the concession bidding process, most bidders expressed their concern
regarding the extent of any such reversion. The bidders, including the Company,
argued that the interpretation of this clause should be limited to the cellular
frequencies assigned to each concessionaire which are the basis for the
concessions and for which each concessionaire pays a quarterly fee. There can be
no assurance that the concessionaires will be successful in persuading the
Ministry of Communications to limit this interpretation to cellular frequencies.
However, as a support to the Company's interpretation, under recently issued
regulations enacted in relation to the long distance bidding process that will
take place in 1996, reversion of assets will not apply to such concessions.
Although these rules apply only to long distance service concessions, the
Company believes they may establish the government's policy on the
interpretation of the reversion of assets issue.
(6) DEFERRED CHARGES
Deferred charges consist of:
<TABLE>
<CAPTION>
1994 1995
--------- ------
<S> <C> <C>
Organization and preoperating.......................... Ps 15,569 15,406
Deferred monetary correction........................... 10,959 9,169
Software............................................... 164 1,425
Leasehold improvements................................. 51 482
------- -------
26,743 26,482
Less accumulated amortization.......................... 1,204 5,121
------- -------
Ps 25,539 21,361
======= =======
</TABLE>
Deferred monetary correction represents the inflation adjustment on the
portion of the Company's shareholders' equity used to finance the Concession,
deferred charges and construction in progress. Since debt is a monetary
liability, no inflation adjustment is required, however, since shareholders'
equity is non-monetary, inflation adjustments are applied. Such resulting
charges were capitalized during the preoperating period and are amortized using
the same method for amortization or depreciation as that used for the respective
asset.
F-13
<PAGE> 127
OCCIDENTE Y CARIBE CELULAR S.A.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(7) MEMORANDUM ACCOUNTS
Memorandum accounts represent additional disclosures mandated by Colombian
generally accepted accounting principles. Such items include guarantees and
commitments.
A summary of memorandum accounts as of December 31, follows:
<TABLE>
<CAPTION>
1994 1995
--------- -------
<S> <C> <C>
Debtor:
Goods and securities used as collateral............. Ps 4,652 --
Unused lines of credit.............................. -- 1,416
Purchase and sale agreements........................ 2,531 --
Leased assets(1).................................... 295 44,039
Inflation adjustments on assets..................... 19,833 58,849
------- -------
27,311 104,304
Creditor:
Inflation adjustment on shareholders' equity........ 35,795 35,393
------- -------
Ps 8,484 68,911
======= =======
</TABLE>
- ---------------
(1) This represents the aggregate amount (without discount to present value) of
minimum payments under the lease agreements.
(8) NOTES PAYABLE TO BANKS
Notes payable to banks as of December 31, consist of the following:
<TABLE>
<CAPTION>
1994 1995
--------- -----
<S> <C> <C>
Bank overdrafts........................................ Ps 542 274
Letters of credit, in U.S. dollars, interest rate
between 7.60% and 14.75%............................. 17,528 1,690
Bank acceptances....................................... 59 --
-------- -----
Ps 18,129 1,964
======== =====
</TABLE>
(9) LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1994 1995
--------- -------
<S> <C> <C>
Loans payable to banks and corporations in Colombian
pesos, interest rate between 33.48% and 40.24%,
maturing
in 2001............................................ Ps 4,447 55,809
Loans payable to banks and corporation in US dollars
with interest between 8.06% and 14.06%, maturing in
2000............................................... 94,660 117,889
-------- -------
99,107 173,698
Less current installments............................ 34,132 85,862
-------- -------
Long-term debt, excluding current installments....... Ps 64,975 87,836
======== =======
</TABLE>
Maturities of long-term debt follow:
<TABLE>
<S> <C>
1997.............................................. Ps 29,425
1998.............................................. 28,225
1999.............................................. 24,493
2000.............................................. 5,321
Thereafter........................................ 372
--------
Ps 87,836
========
</TABLE>
A guaranty trust was set up to serve as the main guaranty for the Company's
financing obligations. The trust was set up by eleven trust companies, all of
them subsidiaries of Occel's lender banks. To facilitate the
F-14
<PAGE> 128
OCCIDENTE Y CARIBE CELULAR S.A.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
operation of the trust, one of the trust companies was appointed by the others
to serve as a leader and administrator of the trust.
The value of the trust is 70% of the net present value of the revenues of
the Company for the first 10 years of operations. The value of the trust is
revised every six months. The value of the trust is divided proportionally among
all the participating trust companies; each company issues certificates of
guarantee as requested. When Occel arranges a loan, both Occel and the creditor
bank, request the leader of the trust for the issuance of a certificate of
guaranty in the name of the creditor bank. The leader selects in turn, one trust
company to issue such certificate. The certificate is issued in the same amount
of the loan. The difference between the value of the trust and the total of the
certificates issued is available for the issuance of more certificates if
needed.
Additionally, US$50,000,000 are guaranteed by certain Colombian banks
including certain indirect shareholders of the Company and are backed by assets
of the trust.
(10) ACCOUNTS PAYABLE
Accounts payable consist of the following:
<TABLE>
<CAPTION>
1994 1995
--------- ------
<S> <C> <C>
Trade................................................. Ps 15,343 17,548
Advance received from shareholders.................... -- 2,357
Other................................................. 683 251
-------- ------
Ps 16,026 20,156
======== ======
</TABLE>
The advance received from shareholders was converted into additional common
stock subsequent to December 31, 1995 (see note 16).
(11) ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
1994 1995
-------- -----
<S> <C> <C>
Value added tax......................................... Ps 254 1,928
Due to Municipality of Medellin (see note 14)........... -- 345
Labor liabilities....................................... 140 230
Deferred income......................................... 77 226
Technical services...................................... 1,330 69
Other................................................... 968 161
------- -----
Ps 2,769 2,959
======= =====
</TABLE>
(12) SHAREHOLDERS' EQUITY
On September 5, 1995 the Shareholders increased the authorized capital to
Ps 91,964, representing 91,964,254 shares, with a nominal value of one thousand
pesos each.
In accordance with current regulations, the Company is required to maintain
a legal reserve, setting aside a minimum of 10% of net income each year until
the reserve reaches 50% of the subscribed capital. Amounts appropriated to legal
reserve cannot be reduced below 50% of the subscribed capital unless they are
applied to losses in excess of retained earnings.
In accordance with exchange control provisions in effect, there is no limit
on dividend remittances abroad. Article 133 of the law 6 of 1992 established a
rate of 10% withholding at source on remittance of dividends or equity earned by
companies or other foreign entities without a domicile in the country. This rate
was effective through 1994, decreased to 8% for 1995 and will be reduced to 7%
for 1996 and thereafter.
F-15
<PAGE> 129
OCCIDENTE Y CARIBE CELULAR S.A.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(13) OPERATIONS WITH RELATED PARTIES
The following is a summary of the balances with related parties (direct
shareholders) as of December 31, 1994 and 1995 and June 30, 1996:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- JUNE 30,
1994 1995 1996
----- ----- --------
<S> <C> <C> <C>
Accounts receivable
Cable & Wireless PLC.................................. 4 4 3
Antioquia Celular S.A. ............................... -- 1 1
Empresas Municipales de Cali.......................... -- 7 5
Empresas Publicas de Medellin......................... -- 4 --
Deferred charges
Antioquia Celular S.A. ............................... 186 -- --
Empresa Regional de Telecomunicaciones Celular
S.A. ............................................... 176 -- --
Empresa Cafetera Celular S.A. ........................ 73 -- --
Caribe Celular S.A. .................................. 89 -- --
Cable & Wireless PLC.................................. 2,534 -- --
Empresas Publicas de Medellin......................... 60 -- --
Other Liabilities
Deposit for future issuance
Antioquia Celular S.A. ............................. -- 484 --
Empresa Cafetera Celular S.A. ...................... -- 1,703 --
Caribe Celular S.A. ................................ -- 511 0
Accounts Payable
Cable & Wireless PLC................................ 200 1,185 0
Antioquia Celular S.A. ............................. -- -- 47
Empresas Publicas de Medellin....................... -- -- 14
Provisions and other liabilities
Cable & Wireless PLC................................ 1,331 -- --
Administrative expenses
Empresas Municipales de Cali........................ -- -- 91
Empresas Publicas de Medellin....................... -- -- 236
Empresa Regional de Telecomunicaciones Celular S.A. ... -- -- 72
Empresa Antioquena de Energia....................... -- -- 2
Other expenses
Antioquia Celular S.A. ............................. -- -- 12
Caribe Celular S.A. ................................ -- -- 38
Cost of sales
Empresas Publicas de Medellin....................... 1 264 66
Empresas Antioquena de Energia...................... -- -- 26
Empresas Municipales de Cali........................ -- -- 78
</TABLE>
The Company has entered into interconnection agreements with wireline
operators. All of these wireline operators beneficially own capital stock of the
Company. The terms of the interconnection agreements include provisions for,
among other things, the number of connection points, the method by which signals
must be received and transmitted, and the assumption of responsibility for the
cost of interconnection. The Company believes that these interconnection
agreements contain terms substantially similar to the terms of the
interconnection agreements between Cocelco and such wireline operators. In
addition, the Company is currently negotiating lease agreements with ECCEL S.A.,
which owns 9.75% of the capital stock of the Company, and ERT (a
F-16
<PAGE> 130
OCCIDENTE Y CARIBE CELULAR S.A.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
shareholder of Empress Regional de Telecomunicaciones Celularos S.A.), which
beneficially owns approximately 3.84% of the capital stock of the Company, for
the leasing of transmission capacity.
The Company has had in the past several consulting arrangements with Cable
and Wireless plc (C&W) for the provision of technical, commercial, financial,
marketing and billing support. Although currently the Company does not have any
consulting arrangement with C&W, the latter continues to provide advice with
respect to technical, financial and equipment purchasing matters. The Company
has paid C&W approximately Ps1,331 for services rendered during the year ended
December 31, 1994.
A director of the Company is also president of Gilseguros Ltda., an
insurance company which has issued insurance policies for the Company. The
Company has paid approximately Ps 622,539 (US$582,000) for the six months ended
June 30, 1996, approximately Ps 329,781 (US$308,000) for the year ended December
31, 1995 and approximately Ps 54,839 (US$51,000) for the year ended December 31,
1994, for such insurance policies.
(14) COMMITMENTS AND CONTINGENCIES
The Company has agreements with telephone companies in the Western Region
of the Country which establish the technical, operative, administrative,
economic, financial and judicial rights and obligations that regulate the access
and use of the public switched telephone and the cellular mobile telephone
networks, as well as the billing and collection conditions.
The Company signed a letter of intent to enter into an interconnection
agreement in 1995 with the "Empresa Nacional de Telecomunicaciones-Telecom".
Such letter of intent includes provisions for the number of connection points,
the method by which signals must be received and transmitted, fraud control,
billing, damage liability and the assumption of responsibility for the costs of
interconnection.
The Company has signed financial leasing agreements with purchase options
for the acquisition of base stations, microwave links and vehicles, with
maturities up to the year 2000. The minimum leasing payments as of December 31,
1995 are as follows:
<TABLE>
<S> <C>
1996.............................................. Ps 9,617
1997.............................................. 9,563
1998.............................................. 8,724
1999.............................................. 7,559
2000.............................................. 8,576
---------
Ps 44,039
=========
</TABLE>
On August 17, 1994, the municipality of Medellin through Resolution No. 019
imposed a monthly tax on cellular subscribers (the "Cellular Services Tax")
whose calls use base stations located in Medellin. Subsequently, the mayor of
Medellin, on January 23, 1995, regulated the billing and collection of this tax
through Municipal Decree 1244 (the "Decree"), which imposed upon the two
cellular operators of the Western Region the obligation to, in each of their
billing systems, determine, bill, collect and transfer this tax. Both
regulations have been challenged in court by the Company on the grounds of not
being consistent and in conformity with current higher ranking law. Medellin's
tax authorities through Resolution No. 005, issued on March 6, 1996, determined
that Occel's transfer obligation under the Decree, together with interest, for
the period through October 31, 1995 was Ps 317 million (US$303,000). The Company
appealed this determination on March 14, 1996, and a decision is still pending.
Occel has not collected the Cellular Services Tax from its customers because it
believes that the tax is illegal and that the challenges against Resolution No.
019 and the Decree will be successful and, consequently, Resolution No. 005 will
not be upheld. In the event of an unfavorable decision, the Company believes
that it would be able to collect from its registered customers a portion of the
Cellular Services Taxes. At December 31, 1995 the Company recorded Ps 329
million
F-17
<PAGE> 131
OCCIDENTE Y CARIBE CELULAR S.A.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(US$315,000), excluding interest, as accounts receivable and accrued expenses.
No provision has been made for any amounts that may not be recoverable from
customers.
When the proposal for the Concession was presented to the Ministry of
Communications, "A" Band cellular operators, including Occel, were not subject
to income taxes. However, as mentioned in note 1(1), "A" Band cellular operators
are now subject to income taxes. As this affects the economic return on the
Concession, the Company has filed a claim against the Ministry of
Communications. Should this claim not be accepted by the Ministry, or should the
Ministry not recognize an adequate compensation, the Company will go to an
arbitration tribunal as established under the Concession. There is no income tax
liability for 1995 or earlier years. The Company's net losses may be carried
forward for five years.
(15) MONETARY CORRECTION
The principal effects of inflation on the affected accounts in the
financial statements follow:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-----------------
JUNE JUNE
30, 30,
1993 1994 1995 1995 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Balance sheets:
Inventories............................ Ps -- -- 540 372 182
Property, plant and equipment, net..... 31 566 9,200 4,659 8,183
Intangible asset, net.................. -- 17,365 31,174 23,005 23,030
Deferred charges....................... 1,279 1,452 2,314 1,674 846
Deferred monetary correction........... (540) (693) (2,189) 55 387
Revaluation of shareholders' equity.... (770) (15,700) (21,627) (15,816) (11,761)
-------- -------- -------- -------- --------
-- 2,990 19,412 13,949 20,867
-------- -------- -------- -------- --------
Operations:
Revenues............................... -- (120) (2,223) (843) (1,938)
Cost and expenses...................... -- 351 3,199 1,155 2,191
Other (income) expense, net............ (17) (195) 2,476 951 1,341
-------- -------- -------- -------- --------
(17) 36 3,452 1,263 1,594
-------- -------- -------- -------- --------
Net monetary correction income
(expense)........................... Ps (17) 3,026 22,864 15,212 22,461
======== ======== ======== ======== ========
</TABLE>
During the preoperating period, the inflationary effect calculated on
intangible assets and deferred charges was recorded as a deferred credit for
monetary correction, and the inflationary effect arising from the adjustment to
shareholders' equity that financed such assets was recorded as a deferred charge
for monetary correction. Deferred balances are amortized using the same method
as for the Concession. Starting in September, 1994, when the Company commenced
operations, all inflationary effects are recognized as monetary correction in
the statements of income (loss).
(16) SUBSEQUENT EVENT
In January and February 1996, the shareholders subscribed and paid for Ps
13,000 (12,999,999 shares) of additional common stock.
(17) SUMMARY OF THE SIGNIFICANT DIFFERENCES BETWEEN COLOMBIAN AND UNITED STATES
ACCOUNTING PRINCIPLES
The Company's financial statements are prepared in accordance with
Colombian generally accepted accounting principles (Colombian GAAP), which
differ in certain significant respects from accounting principles generally
accepted in the United States (U.S. GAAP) as described below. The effects of
inflation
F-18
<PAGE> 132
OCCIDENTE Y CARIBE CELULAR S.A.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
adjustments have not been eliminated in the reconciliation to U.S. GAAP nor has
the Company reflected monetary gains or losses associated with the various U.S.
GAAP adjustments.
All material differences between Colombian GAAP and U.S. GAAP and the
effect on net income/loss and total shareholders' equity are presented below.
The explanation of the adjustments follows.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
YEAR ENDED DECEMBER 31, (UNAUDITED)
------------------------------- ------------------
1993 1994 1995 1995 1996
--------- ------- ------- ------- -------
(EXPRESSED IN MILLIONS OF CONSTANT
COLOMBIAN PESOS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
RECONCILIATION OF NET INCOME (LOSS)
Net income/(loss) reported under Colombian
GAAP....................................... Ps 222 (3,237) (45,948) (10,229) (8,761)
U.S. GAAP adjustments for:
(a) Capitalized interest................ -- 7 457 459 271
(b) Capitalization of leased assets..... -- 182 630 149 3,295
(c) Amortization of intangible asset.... -- (4,624) (16,288) (8,610) (9,298)
(d) Preoperating expenses............... (3,958) (11,013) 1,139 (38) 179
(e) Deferred charges and credits for
monetary correction................. (231) 595 2,012 1,269 (388)
(f) Warrants............................ -- -- -- -- (109)
(g) Effect of revaluation of
shareholders' equity................ 96 850 3,207 2,427 3,987
------ ------- ------- ------- -------
Net loss under U.S. GAAP..................... Ps (3,871) (17,240) (54,791) (14,573) (10,824)
====== ======= ======= ======= =======
RECONCILIATION OF SHAREHOLDERS' EQUITY
Shareholders' equity reported under Colombian
GAAP....................................... 5,659 127,915 82,706 118,035 88,251
U.S. GAAP adjustments for:
(a) Capitalized interest................ -- 7 463 465 457
(b) Capitalization of leased assets..... -- 182 782 309 3,978
(c) Amortization of intangible asset.... -- (4,624) (20,157) (12,675) (26,907)
(d) Preoperating expenses............... (4,234) (14,481) (10,978) (12,769) (9,411)
(e) Deferred charges and credits for
monetary correction................. (371) 291 2,256 1,525 1,583
(f) Warrants............................ -- -- -- -- 12,196
(g) Effect of revaluation of
shareholders' equity:
From net loss...................... 96 850 3,207 2,427 3,987
From effects of inflation
accounting.......................... (96) (850) (3,207) (2,427) (3,987)
------ ------- ------- ------- -------
Shareholders' equity under U.S. GAAP......... Ps 1,054 109,290 55,072 94,890 70,147
====== ======= ======= ======= =======
ANALYSIS OF CHANGES IN SHAREHOLDERS' EQUITY
Balance at beginning of period............... 3,178 1,054 109,290 109,290 55,072
Issuance of common stock and warrants...... 1,890 125,806 -- -- 26,624
Equity inflation adjustment................ (143) (328) 573 173 (725)
Net income (loss).......................... (3,871) (17,240) (54,791) (14,573) (10,824)
------ ------- ------- ------- -------
Balance at end of period..................... Ps 1,054 109,290 55,072 94,890 70,147
====== ======= ======= ======= =======
</TABLE>
(a) CAPITALIZED INTEREST
Under Colombian GAAP, interest was not capitalized relating to the
construction of buildings as there were no loans specifically related to the
buildings.
Under U.S. GAAP, in accordance with the provisions of SFAS 34, interest
incurred on borrowings is capitalized to extent that borrowings do not exceed
construction in progress. Such treatment increases the amount capitalized and
reduces interest expense. Additionally, the U.S. GAAP interest expense
adjustment excludes foreign exchange gains and losses on foreign currency
borrowings.
F-19
<PAGE> 133
OCCIDENTE Y CARIBE CELULAR S.A.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(b) CAPITAL LEASES
Under Colombian GAAP, lease payments are recorded as an expense. The total
liability under lease contracts is recorded in memorandum accounts. The leased
asset is only booked when the purchase option is exercised.
Under U.S. GAAP, equipment under capital leases is recorded as an asset and
a liability is recorded for the present value of minimum lease payments at the
inception of the lease. This equipment is depreciated over the estimated useful
life of the asset.
(c) INTANGIBLE ASSETS
Under Colombian GAAP, the intangible asset, consisting of the Concession,
is amortized over the life of the Concession using the units of activation
method. Under U.S. GAAP, amortization is calculated over the life of the
Concession using the straight-line method.
(d) PREOPERATING EXPENSES
Under Colombian GAAP, preoperating expenses are capitalized during the
preoperating period and amortized when commercial operations begin. Under U.S.
GAAP such costs would be expensed as incurred.
(e) DEFERRED CHARGES AND CREDITS FOR MONETARY CORRECTION
In accordance with Colombian GAAP for inflation accounting, the effects of
inflation on preoperating activities, construction in process and the respective
portion of shareholders' equity used to finance such charges are deferred and
amortized over the life of the related assets when the Company becomes
operational.
Under U.S. GAAP, such amounts may not be deferred. Accordingly, they are
expensed when incurred and the related amortization is reversed and financial
statements are prepared in accordance with the historical cost convention.
(f) WARRANTS
In accordance with Colombian GAAP, no value has been ascribed to the
warrants issued in connection with the 14% Senior Discount Notes, whereas under
U.S. GAAP, the Company has ascribed a fair value of Ps 12,196 (US$11.4 million)
to the warrants. As a result, the original issue discount related to the 14%
Senior Discount Notes is higher under U.S. GAAP and accordingly interest expense
is higher under U.S. GAAP.
(g) EFFECT IN REVALUATION OF SHAREHOLDERS' EQUITY
This adjustment gives effect to the revaluation of shareholders' equity
arising from the above reconciling items.
ADDITIONAL DISCLOSURES REQUIRED BY U.S. GAAP
PRO-FORMA INCOME TAX EXPENSES
Under U.S. GAAP, had the current tax law been in effect as of January 1,
1994, pro forma income tax expense and pro forma net loss would have been the
following:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------
1994 1995
------ ------
<S> <C> <C>
Income tax expense....................................... 81 1,872
Net loss................................................. 17,321 56,663
====== ======
</TABLE>
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentration of credit risk consist principally of accounts receivable
resulting from customer financing plans and other receivables from customers and
distributors. Concentration of credit risk with respect to such receivables is
limited to a large number of customers comprising the Company's customer base.
However, the Company's customers are concentrated in Colombia and the ability of
the customers to pay amounts due depends, in part, upon the
F-20
<PAGE> 134
OCCIDENTE Y CARIBE CELULAR S.A.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
general condition of the Colombian economy. Generally, the Company does not
require collateral or other security to support receivables.
ACCOUNTING FOR IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE
DISPOSED OF
Effective for fiscal years beginning after December 15, 1995 SFAS No. 121
requires that long-lived assets and certain identifiable intangibles held by an
entity be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. The
Company has determined that adoption of SFAS 121 will not have any material
impact on Occel's financial position or results of operations.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash and cash equivalents, trade and other receivables and accounts
payables: the carrying amount approximates fair value because of the short
maturity of these instruments.
Long and short-term debt: the carrying amounts of the Company's variable
rate borrowings under its credit agreements approximate their fair value. The
fair value of the Company's fixed rate debt is estimated using discounted cash
flow analyses, based on the Company's current incremental borrowing rates.
The carrying amounts and fair values of the Company's financial instruments
at December 31, 1995 are as follows:
<TABLE>
<CAPTION>
CARRYING AMOUNT FAIR VALUE
--------------- ----------
<S> <C> <C>
Variable rate loans..................................... Ps 168,384 168,384
Fixed rate loans........................................ 5,314 5,337
--------- -------
Ps 173,698 173,721
========= =======
</TABLE>
(18) SUBSEQUENT EVENT (UNAUDITED)
On June 7, 1996, pursuant to an offering of 190,745 units each of which
consisted of US$1,000 principal amount at maturity of 14% Senior Discount Notes
due 2004 and four warrants to purchase 5.709 shares of Class B common stock, the
Company raised US$100.0 million (gross proceeds). Concurrently with the issuance
of the units, the Company borrowed US$80.0 million under a bank facility, which
loans are secured by security interests in, among other things, (i) all
receivables originated from the provision of cellular communications and roaming
and interconnection services, (ii) the pledge of 99.99% of the Company's
outstanding stock and (iii) the Concession. This loan bears interest at the rate
of LIBOR plus 3.75% and has a final maturity date of June 8, 2001. The aggregate
net proceeds of the Offering and the borrowings under the Bank Facility were
US$171.5 million. Such net proceeds were used to repay substantially all
existing indebtedness of the Company and for working capital.
F-21
<PAGE> 135
ANNEX A
GLOSSARY OF CERTAIN TELECOMMUNICATIONS TERMS
<TABLE>
<S> <C>
active subscribers: Reported subscribers currently generating
revenue, which consist of reported subscribers
minus disconnected subscribers.
Analog: A transmission method employing a continuous
electrical signal that varies in amplitude or
frequency in response to changes in sound, light,
position, etc., impressed on transducer in the
sending device.
Band: A range of frequencies between two defined
limits.
Bandwidth: The relative range of frequencies that can be
passed through a transmission medium without
distortion. The greater the bandwidth, the
greater the information carrying capacity.
Bandwidth is measured in hertz.
Base Station: In mobile telecommunications, the central radio
transmitter/receiver that maintains
communications with the cellular telephone sets
within a given cell. Each cell or microcell has
its own base station; each base station in turn
is interconnected with other cells' base stations
and with the public switched telephone network.
CDMA: Code Division Multiple Access, a standard of
digital cellular technology which allows for
multiple conversations to be transported on a
single radio carrier using digital "tags".
Systems using this standard have not been placed
into widespread commercial use.
Cell Site: The location of a transmitting/receiving station
serving a given geographic area in a cellular
communications system.
Channel: A pathway for the transmission of information
between a sending point and a receiving point.
Churn: Monthly disconnections expressed as a percentage
of active subscribers at the beginning of the
month.
Covered pops: The number of pops in a defined area for whom a
cellular signal is accessible.
CPE: Customer Premises Equipment.
deactivated subscribers Subscribers who have been permanently
(deactivations): deactivated, excluded from the billing system and
referred to the legal area for account
settlement. These subscribers are no longer
included in the total of reported subscribers.
Digital: A method of storing, processing and transmitting
information through the use of distinct
electronic or optical pulses that represent the
binary digits 0 and 1. Digital transmission and
switching technologies employ a sequence of
discrete, distinct pulses to represent
information, as opposed to the continuous analog
signal.
disconnected subscribers Subscribers whose access to the network has been
(disconnections): temporarily disconnected and are under evaluation
by the Company for reconnection or permanent
deactivation, but who nevertheless remain
included in the total of reported subscribers.
</TABLE>
A-1
<PAGE> 136
<TABLE>
<S> <C>
Hand-off: The act of switching a call in progress from one
weak- signal site to a strong-signal site without
disrupting the call. In current cellular systems,
this function is performed by the MTSO, which
monitors the signal strength of ongoing calls
continuously. In cellular networks, both the MTSO
and the user's equipment participate in the
hand-off process.
Hertz: The unit measuring the frequency with which an
alternating electromagnetic signal cycles between
its lowest and highest states. One hertz
(abbreviated Hz) equals one cycle per second. kHz
(kilohertz) stands for thousands of hertz; MHz
(megahertz) stands for millions of hertz and hz
(gigahertz) stands for billions of hertz.
Microwave: The radio band transmission between 300 MHz -- 32
hz.
Microwave Hop: The basic microwave transmission path (link),
constituted by a couple of
transmitters/receivers. The microwave frequency
band requires "line of sight" between the two
sides of the hop. Depending on the distance and
topographical conditions, more than one "hop"
could be necessary to establish a complete
microwave transmission link.
MTSO: Mobile Telephone Switching Office; the computer-
controlled MTSO selects the appropriate path for
the transmission of a cellular call and monitors
the hand-off process. The MTSO allows cellular
telephone users to move freely from one cell to
another across the service area while continuing
their calls.
Penetration: A cellular operator's subscribers within a
defined area divided by total pops within that
area. Colombian figures are based on reported,
not active, subscribers. Penetration rates for
countries other than Colombia are based on
publicly available figures, which may calculate
subscribers differently than in Colombia.
pops: pops is the established population of the market
and it is currently the most common technique for
the measuring the relative size of a cellular
telecommunications business.
PSTN: Public Switched Telephone Network.
REDCEL: A national cellular association composed of the A
Band operators in the Western, Eastern and
Atlantic Regions to enable their respective
subscribers to make calls throughout the country
and to enhance their competitive position.
</TABLE>
A-2
<PAGE> 137
<TABLE>
<S> <C>
reported subscribers: The subscribers as reported by the Company to the
Colombian Ministry of Communications. Prior to
September 1995, in accordance with the reporting
guidelines of the Ministry of Communications, the
Company filed quarterly reports which did not
cover calendar quarters, but lagged by
approximately one month. For purposes of
consistency, reported subscribers set forth
herein for periods prior to September 1995 have
been calculated to conform to calendar quarters.
Consistent with the Company's interpretation of
the Ministry's reporting guidelines and with what
the Company believes to be the common
interpretation of cellular operators in Colombia,
the Company currently includes in such term
subscribers who have been temporarily
disconnected and are under evaluation by the
Company for reconnection or permanent
deactivation. Prior to September 1995, reported
subscribers also included permanently deactivated
subscribers.
Repeater: A device which automatically retransmits received
signals on an outbound circuit, generally in an
amplified form.
Roaming: A service offered by mobile communications
providers which allows a subscriber to use his or
her cellular telephone while in the service area
of another carrier.
Site or Cell Splitting The process of dividing sites or cells into
or Sectorization: smaller coverage areas by reducing their power
output and the antenna height of the station
transmitter. Site or cell splitting (or
sectoring) allows for the further reuse of
frequencies by a mobile communications system.
Switch: A device that opens or closes circuits or selects
the paths or circuits to be used for transmission
of information. Switching is the process of
interconnecting circuits to form a transmission
path between users.
TDMA: Time Division Multiple Access, like AMPS, divides
the radio spectrum into 30 kHz channels. The
distinguishing feature of TDMA is it employs
digital techniques at the base station and in the
cellular radio to subdivide each channel into
time slots which can be assigned to different
users. Voice, data and access information are
converted to digital information that is sent and
received in bursts over the time slots. These
bursts can be encoded, transmitted and decoded in
a fraction of the time required to produce sound.
The result is that only a fraction of the air
time is used, and other subscribers can use the
remaining time on a radio channel. Current IS-54
TDMA technology allows three subscribers to share
one channel without interference. With improved
compression techniques, six subscribers could
share a channel.
TRC: Colombian Telecommunications Regulatory
Commission.
VOZAVOZ: The Company's primary cellular service.
Wireline Telephone: Conventional landline telephone.
</TABLE>
A-3
<PAGE> 138
ANNEX B
The following information has been made public by the Republic of Colombia
and has not been prepared or independently verified by the Company or the
Initial Purchasers or any of their respective affiliates or advisers.
The Company is including such information solely because it is readily
available and may be useful to a reader. Such information is not, nor is its
inclusion herein meant to suggest that it is, all the information concerning
Colombia that is or may be material to an investor. Moreover, such information
pertains to Colombia as a whole and is not specific to the Western Region, the
location of the Company's business, and should not be viewed as reflective of
the Western Region. The following information should be read in conjunction with
the information set forth under "Risk Factors -- Risks Related to Colombian
Political, Economic and Social Factors". Investors who wish to know more about
Colombia are urged to consult the wide variety of information available from
public sources.
REPUBLIC OF COLOMBIA
A. OVERVIEW
Since 1950, Colombia has enjoyed positive real economic growth in every
year (ranging from a low of 0.95% in 1982 to a high of 8.47% in 1978) and
relatively stable rates of inflation (with a low of 2.2% in 1955 and a high of
32.6% in 1963). Inflation (as measured by the Colombian consumer price index
("CPI")) averaged 25.9% between 1990 and 1994. Unlike other major Latin American
countries, Colombia was not forced to restructure its debt with foreign
creditors during the 1980s, and instead entered into voluntarily syndicated loan
agreements to refinance certain maturities of its commercial bank debt. During
the same period, Colombia maintained access to new borrowings through
multilateral and bilateral credits. Colombia has regularly paid all principal
and interest payments on its external debt for over 60 years.
Former President Cesar Gaviria, upon taking office in August 1990,
introduced a program called Apertura (opening), designed to transform the
economy from a relatively protected one to a modern, open economy, and to
redefine the government's role in the economy. Under Apertura, the government,
among other measures:
- Removed restrictions on foreign investment generally, and eliminated
restrictions on remittances of capital and dividends;
- Eliminated import quotas and, during the 1989-1994 period, reduced
tariffs from an average effective rate of 43.7% to 11.6% and entered into
free trade agreements with Venezuela and some of its other regional
trading partners;
- Granted greater independence to Banco de la Republica, the country's
central bank;
- Reduced foreign exchange controls;
- Began to liberalize labor laws, permitting greater flexibility in labor
contracts and eliminating restrictions on severance and furloughs of
workers, and partially privatized the pension system; and
- Undertook a program of privatizing certain state-owned companies and
financial institutions.
Under the Samper administration, the Apertura has been modified, and
investors should consult other sources for an evaluation of the success of the
program to date.
GEOGRAPHY
Colombia is the fourth largest country in South America, with a territory
of 441,020 square miles (1,141,748 square kilometers). Located on the
northwestern corner of the South American continent, Colombia borders Panama and
the Caribbean Sea on the north, Peru and Ecuador on the south, Venezuela and
Brazil on the east and the Pacific Ocean on the west.
B-1
<PAGE> 139
GOVERNMENT AND POLITICAL PARTIES
The Republic of Colombia is one of the oldest democracies in the Americas,
with regular transitions of power between successive administrations since 1957.
The main political parties are the Liberal Party (to which President Samper
belongs) and the Partido Social Conservador. There are other minority parties,
including the Alianza Democratica M-19, a former guerrilla organization that
recently became a recognized political party.
In 1991, a popularly elected Constitutional Assembly approved a new
Constitution, replacing the Constitution of 1886. The main features of the new
Constitution include further governmental decentralization, increased
Congressional powers and the creation of several new public agencies. A number
of judicial reforms were also introduced to improve the government's ability to
combat the guerrilla and narcotic-related violence, and to enhance control and
supervision over public officials.
B. ECONOMY
GROSS DOMESTIC PRODUCT
Traditionally, agriculture has played a large role in the Colombian
economy, accounting for an estimated 19.7% of GDP in 1994, compared to 20.0% of
GDP for industry. In 1994, agricultural activity increased by 2.0% in real terms
(despite a decrease in coffee production of 11.8%), industrial activity
increased by 2.8% (due to a 4.7% increase in manufacturing partly offset by an
11.7% decrease in coffee processing), construction increased by 11.8%, and
services increased by 8.3%. Between 1990 and 1994, GDP grew at an average annual
rate of 4.2%. Real GDP growth for 1994 was 5.7%, which was achieved despite
lower prices for commodities, especially oil.
The following table sets forth the annual change in Colombia's real GDP by
sector for the periods indicated.
REAL GDP GROWTH BY SECTOR
<TABLE>
<CAPTION>
1990 1991 1992 1993(1) 1994(1)
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Agriculture, Livestock, Fishing,
Forestry and Hunting
Coffee............................................................ 28.4% 15.3% (0.5)% (15.6)% (11.8)%
Other Agriculture and Livestock................................... 3.2 2.5 (2.2) 5.3 3.7
Fishing, Forestry and Hunting..................................... 3.9 5.5 1.3 (2.5) 7.6
------- ------- ------- ------- -------
Total Agriculture........................................... 5.8 4.2 (1.8) 2.1 2.0
Industry
Coffee Processing................................................. 21.9 (7.2) 22.9 (17.0) (11.7)
Manufacturing..................................................... 2.0 2.1 1.9 5.0 4.7
------- ------- ------- ------- -------
Total Industry.............................................. 4.2 0.8 4.5 1.8 2.8
Mining(2)........................................................... 5.9 (0.6) (3.9) (4.0) 0.6
Construction........................................................ (13.1) 0.2 7.3 6.0 11.8
Services
Transportation and Storage........................................ 1.7 2.6 5.9 3.1 5.8
Communications.................................................... 12.0 6.4 3.1 5.0 11.6
Retail, Restaurants and Hotels.................................... 2.8 0.4 2.6 7.4 5.0
Financial Services................................................ 9.3 6.2 4.1 11.0 15.0
Housing........................................................... 2.9 3.5 2.9 5.0 5.0
Personal Services................................................. 2.6 3.7 1.0 3.1 5.5
Government........................................................ 2.9 (0.3) 12.5 5.0 11.7
Domestic Services................................................. 2.0 3.7 1.0 3.1 3.0
Utilities......................................................... 3.8 3.1 (5.8) 11.0 6.6
------- ------- ------- ------- -------
Total Services...................................................... 4.0 2.5 4.7 6.2 8.3
------- ------- ------- ------- -------
Subtotal............................................................ 3.9 2.3 2.9 4.0 5.7
Minus: Imputed Banking Services..................................... (3.4) 9.3 (3.6) 15.7 20.8
</TABLE>
B-2
<PAGE> 140
<TABLE>
<CAPTION>
1990 1991 1992 1993(1) 1994(1)
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Plus: Duties and Tariffs on Imports................................. 9.8 (1.4) 36.7 46.0 16.0
------- ------- ------- ------- -------
Real GDP............................................................ 4.3 2.0 4.0 5.2 5.7
======= ======= ======= ======= =======
</TABLE>
- ---------------
(1) Estimated
(2) Includes petroleum.
Source: DANE
FOREIGN TRADE
Colombia's trade has historically been, and continues to be, dominated by
the export of raw materials and the import of intermediate and capital goods.
The following table shows the composition of Colombia's exports for the
periods indicated.
EXPORTS (FOB) BY GROUPS OF PRODUCTS
<TABLE>
<CAPTION>
JAN.-
AUGUST % OF
1990 1991 1992 1993 1994 1995(1) TOTAL
---------- ---------- ---------- ---------- ---------- ---------- -----
(MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C> <C>
Mining
Oil and its Derivatives............ US$1,951.0 US$1,460.5 US$1,395.6 US$1,323.0 US$1,318.2 US$1,296.6 19.4 %
Coal............................... 544.8 630.2 555.4 567.0 552.9 349.5 5.2
Emeralds........................... 112.4 142.9 179.7 399.6 422.3 387.7 5.8
Nickel............................. 146.3 143.5 125.1 101.8 118.8 122.8 1.8
Gold(2)............................ 374.4 408.5 363.5 312.5 304.7 182.4 2.7
Platinum........................... 1.0 2.3 0.1 15.4 37.2 12.1 0.2
Others(3).......................... 14.0 25.7 17.4 14.4 21.1 15.6 0.2
-------- -------- -------- -------- -------- -------- -----
3,143.9 2,813.6 2,636.8 2,733.9 2,775.2 2,366.7 35.5
Agriculture, Livestock, Forestry and
Fishing, except Coffee............. 812.3 1,103.0 1,095.6 1,062.7 1,239.0 827.1 12.4
Coffee............................... 1,399.2 1,323.6 1,258.9 1,139.7 1,990.1 1,212.8 18.2
Industry
Foods, Beverages and Tobacco....... 274.6 254.3 345.1 334.1 425.3 380.0 5.7
Textiles and Apparel(4)............ 817.3 1,013.7 905.8 1,042.8 1,033.9 772.3 11.6
Wood and its Derivatives........... 9.9 17.0 18.7 18.9 13.8 10.1 0.2
Paper and its Byproducts........... 122.9 175.6 184.0 198.5 214.1 163.2 2.4
Chemicals.......................... 233.2 345.1 389.8 441.0 544.8 543.9 8.2
Nonmetallic Minerals............... 79.4 120.7 105.0 109.5 119.5 84.5 1.3
Iron and Steel Industries.......... 69.6 109.0 101.7 90.8 126.1 108.8 1.6
Machinery and Equipment............ 74.5 144.4 152.5 155.9 164.0 113.0 1.7
Other Industries(5)................ 43.2 87.4 69.8 101.3 110.4 86.5 1.3
-------- -------- -------- -------- -------- -------- -----
1,724.6 2,267.2 2,272.4 2,492.8 2,751.9 2,262.3 33.9
-------- -------- -------- -------- -------- -------- -----
Total Exports........................ US$7,080.0 US$7,507.4 US$7,263.7 US$7,429.1 US$8,756.2 US$6,668.9 100.0%
======== ======== ======== ======== ======== ======== =====
</TABLE>
- ---------------
(1) Estimated.
(2) Includes domestic purchases of gold by Banco de la Republica.
(3) Includes salt, clay and sand mining and manufacture of fertilizers,
chemicals and other products.
(4) Includes leather, leather products and plastic.
(5) Includes jewelry, musical instruments, sporting goods and other products.
Source: Banco de la Republica, based on information provided by DANE.
B-3
<PAGE> 141
The following table shows the composition of Colombia's major imports for
the periods indicated.
IMPORTS (CIF)
<TABLE>
<CAPTION>
JAN.-
JUNE % OF
1990 1991 1992 1993 1994(1) 1995(1) TOTAL
---------- ---------- ---------- ---------- ----------- ---------- -----
(MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C> <C>
Consumer Goods
Non-Durable....................... US$ 243.0 US$ 280.4 US$ 445.2 US$ 676.5 US$ 1,010.1 US$ 564.0 8.4 %
Durable
Autos........................... 103.8 164.2 276.1 787.1 989.1 490.0 7.3
Arms and Military
Equipment(2).................. 132.3 104.6 40.0 125.5 30.8 16.0 0.2
Others(3)....................... 72.1 73.6 167.0 226.1 305.1 174.0 2.6
-------- -------- -------- -------- --------- -------- -----
308.2 342.4 483.1 1,138.7 1,325.0 680.0 10.2
-------- -------- -------- -------- --------- -------- -----
551.1 622.8 928.3 1,815.2 2,335.1 1,244.0 18.6
Raw Materials and Intermediate Goods
Fuels(4).......................... 327.6 283.7 344.3 361.5 322.2 213.1 3.2
Agricultural...................... 251.1 197.6 251.2 228.4 296.1 167.8 2.5
Industrial
Chemical and Pharmaceutical
Products...................... 1,135.7 1,101.5 1,241.5 1,529.6 1,788.5 1,140.0 17.0
Mineral Products................ 704.4 693.4 817.2 1,066.1 1,264.0 749.2 11.2
Non-food Agricultural
Products...................... 334.2 351.1 514.2 676.6 759.3 463.0 6.9
Food Products................... 213.9 147.0 225.5 317.2 368.2 257.0 3.8
-------- -------- -------- -------- --------- -------- -----
2,388.2 2,293.0 2,798.4 3,589.5 4,180.0 2,609.2 39.0
-------- -------- -------- -------- --------- -------- -----
2,966.9 2,774.3 3,393.9 4,179.4 4,798.3 2,990.1 44.7
Capital Goods
Construction Materials............ 161.0 55.3 61.4 119.4 194.0 118.9 1.8
Agricultural...................... 40.0 27.7 26.7 51.4 73.2 34.1 0.5
Industrial
Industrial Machinery............ 680.8 514.4 824.2 1,112.8 1,197.8 681.0 10.2
Office and Technical
Machinery..................... 215.8 234.0 308.0 523.2 598.0 314.6 4.7
Others(5)....................... 398.0 383.8 443.8 601.5 927.4 603.2 9.0
-------- -------- -------- -------- --------- -------- -----
1,294.6 1,132.2 1,576.0 2,237.5 2,723.2 1,598.8 23.9
Transportation.................... 518.5 354.5 590.4 1,426.4 1,751.1 701.0 10.5
-------- -------- -------- -------- --------- -------- -----
2,014.1 1,569.7 2,254.5 3.834.7 4,741.5 2,452.8 36.7
Unclassified........................ 56.5 0.3 2.3 2.2 8.4 2.0 0.0
-------- -------- -------- -------- --------- -------- -----
Total............................... US$5,588.7 US$4,967.1 US$6,579.0 US$9,831.4 US$11,883.3 US$6,688.9 100.0%
======== ======== ======== ======== ========= ======== =====
</TABLE>
- ---------------
(1) Estimated.
(2) Beginning in 1992, certain goods formerly classified as Arms and Military
Equipment were reclassified.
(3) Includes furniture, household goods, home appliances, domestic utensils and
ornamental objects.
(4) Includes oil derivatives and coal.
(5) Includes parts and accessories for industrial machinery and other equipment.
Source: Direccion de Impuestos y Aduanas Nacionales (National Directorate of
Customs and Taxes).
B-4
<PAGE> 142
DIRECT FOREIGN INVESTMENT
The following table sets forth information on net foreign investment by
sector (excluding petroleum) for the periods indicated below.
<TABLE>
<CAPTION>
NET DIRECT FOREIGN INVESTMENT BY SECTOR(1)
-----------------------------------------------------------------------------
JAN.-JUNE
1990 1991 1992 1993 1994 1995
-------- -------- -------- -------- ---------- ----------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Agriculture and
Fishing........ US$5.3 US$1.5 US$5.4 US$12.9 US$ 12.4 US$ 23.5
Mining........... 48.3 (42.8) 75.5 6.0 25.8 74.3
Manufacturing.... 118.0 132.0 69.8 197.9 364.9 228.5
Public
Services....... 0.0 0.0 0.1 0.0 6.3 3.1
Construction..... 41.7 (1.0) 19.3 18.9 33.0 18.5
Commerce......... 12.1 7.4 19.4 31.3 81.2 59.4
Transportation
and
Communications.. 0.0 (0.3) 6.6 5.8 157.2 102.1
Finance(2)....... 4.8 4.2 153.6 159.3 701.1 229.4
Social
Services....... 0.1 0.5 0.4 1.4 1.8 16.7
Others........... 0.0 0.4 0.4 3.0 5.8 0.8
-------- -------- -------- -------- -------- --------
Total (excluding
petroleum)..... US$230.3 US$101.9 US$350.4 US$436.5 US$1,389.6 US$ 756.3
======== ======== ======== ======== ======== ========
</TABLE>
- ---------------
(1) Net foreign investment registered with Banco de la Republica, less
remittances of capital. The figures provided in this table represent the
amount officially registered for foreign investment with Banco de la
Republica. They may differ from the amounts actually invested in Colombia.
(2) Includes portfolio investment of $61.1 million in 1992, $43.7 million in
1993, $587.7 million in 1994 and $128.5 million in the first six months of
1995.
Source: Banco de la Republica.
C. MONETARY SYSTEM AND MONETARY AGGREGATES
Banco de la Republica, Colombia's central bank, was chartered in 1923.
Following ratification of the new Constitution in 1991, Banco de la Republica
was granted greater independence from the government in the formulation of
monetary policy.
Monetary and exchange rate policy is set by Banco de la Republica's Board
of Directors. The Board of Directors is composed of seven members, five of whom
are permanent members appointed by the President for four-year terms, although
at the expiration of their terms, the President may not replace more than two
such members. The Minister of Finance, the sixth member of the Board of
Directors, is the sole representative of the government on the Board of
Directors. The seventh member, who is the Governor of Banco de la Republica, is
elected by the other six members. Unless all seven members of the Board of
Directors vote to do so, Banco de la Republica may not finance the government's
budget deficits, and Banco de la Republica is prohibited from making loans to
the private sector (except to provide liquidity to the financial system or for
the intermediation of foreign indebtedness).
B-5
<PAGE> 143
INFLATION AND INTEREST RATES
The following table shows changes in the CPI and the producer price index
("PPI") and average deposit rates for the periods indicated.
INFLATION AND INTEREST RATES
<TABLE>
<CAPTION>
SHORT-TERM
REFERENCE RATE
PERIOD CPI (1) PPI (1) (DTF) (2)
---------------------------------------------------- ------- ------- --------------
<S> <C> <C> <C>
1990................................................ 32.4% 29.9% 36.4%
1991................................................ 26.8 23.1 37.2
1992................................................ 25.1 17.9 26.7
1993................................................ 22.6 13.2 25.8
1994................................................ 22.6 20.7 29.4
1995
January............................................. 21.0 18.7 32.3
February............................................ 20.9 18.4 34.3
March............................................... 21.3 18.7 35.2
April............................................... 21.2 19.7 35.7
May................................................. 21.3 20.0 34.8
June................................................ 21.7 21.5 34.0
July................................................ 21.5 19.4 30.2
August.............................................. 21.1 17.8 29.1
September........................................... 20.8 17.2 30.1
October............................................. 20.5 15.6 29.4
November............................................ 20.1 15.8 29.4
</TABLE>
- ---------------
(1) For annual periods from 1990-1994, percentage change over the twelve months
ending December 31 of each year; for monthly periods in 1995, percentage
change over the previous twelve months at end of each month indicated. The
Wholesale Price Index was changed to the PPI in January 1991.
(2) Average for each of the years 1990-1994, and for each month in 1995, of the
short-term composite reference rate (Depositos a termino fijo ("DTF")), as
calculated by the Superintendency of Banks.
Sources: DANE; Banco de la Republica.
FOREIGN EXCHANGE RATES AND INTERNATIONAL RESERVES
Colombia's official monetary unit is the peso, the value of which was
established against foreign currencies under a crawling peg system between 1967
and 1991. Under this system, the nominal exchange rate was determined by Banco
de la Republica.
In February 1994, Banco de la Republica instituted a mechanism, which
consists of a 15% band within which the exchange rate is allowed to fluctuate.
Banco de la Republica intervenes by selling or purchasing its debt securities in
order to maintain the exchange rate within the 15% band. Such band is allowed to
depreciate by small amounts to meet an annual target devaluation rate.
Foreign exchange transactions today occur at free, or market, exchange
rates. During 1994, the nominal exchange rate devalued by 3.6%, while
appreciating 8.9% in real terms.
B-6
<PAGE> 144
International Reserves
As of December 31, 1994, net international reserves were US$8,002 million,
representing coverage of approximately nine months of imports of goods and
approximately six months of imports of goods and services.
The following table shows the composition of international reserves of
Banco de la Republica at each of the dates indicated.
INTERNATIONAL RESERVES
<TABLE>
<CAPTION>
SEPTEMBER 30,
1990 1991 1992 1993(1) 1994(2) 1995(2)
-------- -------- -------- -------- -------- -------------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Gross International Reserves
Monetary Gold.................. US $248 US $324 US $172 US $119 US $112 US $99
Special Drawing Rights......... 129 129 48 158 170 172
Andean Pesos................... 20 20 20 20 20 20
Foreign Exchange............... 4,049 5,866 7,231 7,299 7,439 7,749
Others(3)...................... 149 161 257 337 361 413
-------- -------- -------- -------- -------- --------
4,595 6,500 7,728 7,932 8,102 8,453
Less: Short and Medium-Term
Liabilities of Banco de la
Republica...................... 94 80 15 63 100 128
-------- -------- -------- -------- -------- --------
Net International Reserves... US$4,501 US$6,420 US$7,713 US$7,869 US$8,002 US $8,325
======== ======== ======== ======== ======== ========
Reserves (Months of Imports (FOB))
Goods........................ 11 17 15 10 9 8
Goods and Services........... 6 9 9 7 6 5
</TABLE>
- ---------------
(1) Preliminary. Beginning in 1993, Colombia's method of valuing gold and
foreign currencies was changed from historical cost to market value at end
of period. In addition, the methodology for valuing international monetary
assets and liabilities was changed from a cash to an accrual basis. The
combined effect of these two changes was an increase in international
reserves of US$254 million at December 31, 1993.
(2) Estimated.
(3) Includes deposits in Latin American Reserve Fund and Andean Reserve Fund and
compensation agreements.
Source: Banco de la Republica.
SECURITIES MARKETS
Colombia has three stock exchanges, one located in each of the cities of
Bogota, Medellin and Cali. The stock exchanges are owned by member firms that
are responsible for developing and implementing regulations governing trade on
their exchanges. Although self-regulating, they remain subject to the approval
and supervision of the Superintendency of Securities, the principal securities
market regulatory agency. According to the Superintendency of Securities, the
market capitalization of the three exchanges as of December 31, 1994 was US$18.5
billion, with an average daily value of shares traded during 1994 of US$11.6
million.
The total value of securities traded on the three Colombian stock exchanges
during 1994 was Ps18,652 billion (approximately US$22.6 billion), representing
nominal growth of 75.4% over the value of securities traded in 1993. Both debt
and equity securities are traded on the three stock exchanges, including stocks
and bonds of private-sector corporations, although the vast majority of
securities traded are fixed income debt securities.
At the end of 1994, over 216 stocks were listed on the three exchanges. In
October 1995, the five companies with most actively traded shares on the three
exchanges represented 29.9% of the total value of stocks traded on the three
exchanges.
B-7
<PAGE> 145
- ------------------------------------------------------
- ------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THE EXCHANGE OFFER OTHER THAN THOSE CONTAINED
IN THIS PROSPECTUS. IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OTHER
PERSON. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR AN OFFER TO
BUY, ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, ANY SECURITIES IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT
IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS NOT BEEN A CHANGE IN THE FACTS SET FORTH IN THIS
PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information...................... 2
Exchange Rates............................. 4
Prospectus Summary......................... 5
Risk Factors............................... 16
Use of Proceeds............................ 24
The Refinancing............................ 24
Capitalization............................. 25
The Exchange Offer......................... 26
Selected Financial and Operating Data...... 33
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 36
Business................................... 46
Regulation................................. 64
Management................................. 68
Principal Shareholders..................... 71
Certain Transactions with Related
Parties.................................. 72
Description of Company Indebtedness........ 72
Description of the Notes................... 73
Book-Entry, Delivery and Form Procedures... 100
Taxation................................... 102
Foreign Investment and Exchange Controls in
Colombia................................. 106
Plan of Distribution....................... 108
Enforcement of Foreign Judgments in
Colombia................................. 109
Legal Matters.............................. 109
Experts.................................... 109
Index to Financial Statements.............. F-1
Annex A -- Glossary of Certain
Telecommunications Terms................. A-1
Annex B -- Republic of Colombia............ B-1
</TABLE>
UNTIL , 1996 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THE ORIGINAL DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
[LOGO]
OCCIDENTE Y CARIBE
CELULAR S.A.
EXCHANGE OFFER
14% SERIES B SENIOR DISCOUNT NOTES
DUE 2004
-----------------
PROSPECTUS
-----------------
, 1996
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 146
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Directors who vote in favor of a resolution and officers who perform any
act, or omit to do so, in connection with their responsibilities are jointly and
severally liable to the Company, the shareholders and third parties for any
direct damages resulting from their fault, willful misconduct or gross
negligence. There is a presumption of fault in cases where directors or officers
breach their duties or violate the law or by-laws of the Company. Directors and
officers also have criminal liability where they provide false information to
government authorities or officers or to any other person through written
statements or certifications (including by a prospectus) or permit, tolerate,
order or cover up fraudulent information (deceit) in the financial statements of
the Company.
Under Colombian law, the Company can indemnify its directors and officers
and purchase director and officer insurance. However, the Company's by-laws
currently do not provide for indemnification of directors or officers, and the
Company presently does not have any director and officer insurance in effect.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
-------- ------------------------------------------------------------------------------
<C> <C> <S>
*3.01 -- By-laws of Occidente y Caribe Celular S.A., as amended.
*4.01 -- Indenture dated as of June 1, 1996, between Occidente y Caribe Celular S.A.
and The Bank of New York, as Trustee.
*4.02 -- Form of Old Note.
*4.03 -- Form of New Note (contained in Exhibit 4.02).
*4.04 -- Registration Rights Agreement dated as of June 7, 1996, among Occidente y
Caribe Celular S.A., and Merrill Lynch & Co. and ING Baring (U.S.) Securities,
Inc.
*4.05 -- Letter of Transmittal to The Bank of New York as Exchange Agent for the
exchange of 14% Series B Senior Discount Notes due 2004 which have been
registered under the United States Securities Act of 1933 for 14% Senior
Discount Notes due 2004.
*4.06 -- Form of Notice of Guaranteed Delivery.
5.01 -- Opinion and Consent of Cravath, Swaine & Moore as to the legality of
securities being registered.
5.02 -- Opinion of Holguin, Neira y Pombo Abogados as to the legality of securities
being registered.
8.01 -- Opinion and consent of Cravath, Swaine & Moore as to certain tax matters.
*10.01 -- Purchase Agreement dated May 31, 1996, among Occidente y Caribe Celular S.A.,
and Merrill Lynch & Co. and ING Baring (U.S.) Securities, Inc.
*10.02 -- Credit Agreement dated as of June 6, 1996, among Occidente y Caribe Celular
S.A., the lenders named therein, ING Bearing (U.S.) Securities, Inc. and
Merrill Lynch & Co., as Arrangers, and ING Bank, N.V. and ING (U.S.) Capital
Corporation, as Administrative and Collateral Agents.
*10.03 -- Concession Agreement dated March 28, 1994, between Occidente y Caribe Celular
S.A. and the Colombian Ministry of Communications.
</TABLE>
II-1
<PAGE> 147
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
-------- ------------------------------------------------------------------------------
<C> <C> <S>
*10.04 -- Interconnection Agreement dated August 8, 1994, between Occidente y Caribe
Celular S.A. and Empresas Publicas de Medellin.
*10.05 -- Interconnection Agreement dated April 17, 1995, between Occidente y Caribe
Celular S.A. and Empresas Municipales de Cali.
*10.06 -- Interconnection Agreement dated December 26, 1994, between Occidente y Caribe
Celular S.A. and Empresas Publicas de Manizales.
*10.07 -- Interconnection Agreement dated November 3, 1995, between Occidente y Caribe
Celular S.A. and Empresas Publicas de Pereira.
*10.08 -- Interconnection Agreement dated November 9, 1995, between Occidente y Caribe
Celular S.A. and Empresa de Telecomunicaciones de Armenia.
*10.09 -- Interconnection Letter of Intent dated January 25, 1995, between Occidente y
Caribe Celular S.A. and Empresas Departamentales de Antioquia.
*10.10 -- Interconnection Letter of Intent dated April 10, 1995, between Occidente y
Caribe Celular S.A. and Telecom.
*10.11 -- Warrant Agreement dated as of June 7, 1996, between Occidente y Caribe Celular
S.A. and The Bank of New York, as Warrant Agent.
*12.01 -- Statement re Computation of Fixed Charge Coverage Deficiency
23.01 -- Consent of Cravath, Swaine & Moore (contained in Exhibit 5.01).
23.02 -- Consent of Holguin, Neira y Pombo Abogados (contained in Exhibit 5.02).
23.03 -- Consent of Doctor Lucy Cruz de Quinones
23.04 -- Consent of KPMG Peat Marwick.
*25.01 -- Statement of Eligibility of Trustee on Form T-1.
</TABLE>
- ---------------
* Previously filed.
(B) FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
SCHEDULE
NUMBER DESCRIPTION OF SCHEDULE
-------- ------------------------------------------------------------------------------
<S> <C>
II Valuation and Qualifying Accounts
</TABLE>
All other schedules are omitted because they are not applicable or not
required.
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes that:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1993;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) of this Securities Act) if, in the aggregate, the
changes in
II-2
<PAGE> 148
volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement:
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) To file a post-effective amendment to the registration statement to
include any financial statements required by Rule 3-19 of Regulation S-X at the
start of any delayed offering or throughout a continuous offering. Financial
statements and information otherwise required by Section 10(a)(3) of the
Securities Act need not be furnished.
(5) Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant, will unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
(6) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed to be underwriters, in addition to the information
called for by the other Items of the applicable form.
(7) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (6) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-3
<PAGE> 149
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Amendment to the Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in Medellin, Colombia on November
13, 1996.
OCCIDENTE Y CARIBE CELULAR S.A.
By: /s/ GILBERTO ECHEVERRI-MEJiA
----------------------------------
Gilberto Echeverri-Mejia
President
Pursuant to the requirements of the Securities Act, this Amendment to the
Registration Statement has been signed below by the following persons in the
capacities indicated on November 13, 1996.
<TABLE>
<CAPTION>
SIGNATURES TITLE
- --------------------------------------------- ------------------------------------------
<C> <S>
/s/ GILBERTO ECHEVERRI-MEJiA President (principal executive officer)
- ---------------------------------------------
Gilberto Echeverri-Mejia
/s/ ALVARO H. MUNOZ R. Vice President-Finance (principal
- --------------------------------------------- financial officer)
Alvaro H. Munoz R.
/s/ CARLOS H. RAMIREZ Director of Accounting (principal
- --------------------------------------------- accounting officer)
Carlos H. Ramirez
/s/ JULIO M. AYERBE-MUNOZ Director
- ---------------------------------------------
Julio M. Ayerbe-Munoz
/s/ RAUL CANAL-CARDENAS Director
- ---------------------------------------------
Raul Canal-Cardenas
/s/ ANA I. JARAMILLO-MEJiA Director
- ---------------------------------------------
Ana I. Jaramillo-Mejia
/s/ LUIS F. DANGOND-LACOUTOURE Director
- ---------------------------------------------
Luis F. Dangond-Lacoutoure
/s/ JABIB CHAR ABDALA Director
- ---------------------------------------------
Jabib Char Abdala
/s/ MAURICIO RESTREPO-GUTIERREZ Director
- ---------------------------------------------
Mauricio Restrepo-Gutierrez
/s/ LUIS ESTEBAN ECHAVARRiA Director
- ---------------------------------------------
Luis Esteban Echavarria
/s/ JON R. HILL Director
- ---------------------------------------------
Jon R. Hill
/s/ DOMINIC CROLLA Director
- ---------------------------------------------
Dominic Crolla
/s/ DONALD J. PUGLISI Authorized Representative in the United
- --------------------------------------------- States
Donald J. Puglisi
</TABLE>
II-4
<PAGE> 150
SCHEDULE II
OCCIDENTE Y CARIBE CELULAR S.A.
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1995, 1994, 1993
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COST AND CLOSE OF
OF YEAR EXPENSE DEDUCTIONS YEAR
---------- ---------- ------------- ----------
<S> <C> <C> <C> <C>
(000'S OMITTED)
Year Ended December 31, 1995:
Allowance for Doubtful Accounts.......... -- 5,363 -- 5,363
========= ========= ========= =========
Year Ended December 31, 1994:
Allowance for Doubtful Accounts.......... -- -- -- --
========= ========= ========= =========
Year Ended December 31, 1993:
Allowance for Doubtful Accounts.......... -- -- -- --
========= ========= ========= =========
</TABLE>
S-1
<PAGE> 151
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
-------- ------------------------------------------------------------------ ------------
<C> <C> <S> <C>
*3.01 -- By-laws of Occidente y Caribe Celular S.A., as amended............
*4.01 -- Indenture dated as of June 1, 1996, between Occidente y Caribe
Celular S.A. and The Bank of New York, as Trustee.................
*4.02 -- Form of Old Note..................................................
*4.03 -- Form of New Note (contained in Exhibit 4.02)......................
*4.04 -- Registration Rights Agreement dated as of June 7, 1996, among
Occidente y Caribe Celular S.A., and Merrill Lynch & Co. and ING
Baring (U.S.) Securities, Inc.....................................
*4.05 -- Letter of Transmittal to The Bank of New York as Exchange Agent
for the exchange of 14% Series B Senior Discount Notes due 2004
which have been registered under the United States Securities Act
of 1933 for 14% Senior Discount Notes due 2004....................
*4.06 -- Form of Notice of Guaranteed Delivery.............................
5.01 -- Opinion and Consent of Cravath, Swaine & Moore as to the legality
of securities being registered....................................
5.02 -- Opinion of Holguin, Neira y Pombo Abogados as to the legality of
securities being registered.......................................
8.01 -- Opinion and consent of Cravath, Swaine & Moore as to certain tax
matters...........................................................
*10.01 -- Purchase Agreement dated May 31, 1996, among Occidente y Caribe
Celular S.A., and Merrill Lynch & Co. and ING Baring (U.S.)
Securities, Inc...................................................
*10.02 -- Credit Agreement dated as of June 6, 1996, among Occidente y
Caribe Celular S.A., the lenders named therein, ING Bearing (U.S.)
Securities, Inc. and Merrill Lynch & Co., as Arrangers, and ING
Bank, N.V. and ING (U.S.) Capital Corporation, as Administrative
and Collateral Agents.............................................
*10.03 -- Concession Agreement dated March 28, 1994, between Occidente y
Caribe Celular S.A. and the Colombian Ministry of
Communications....................................................
*10.04 -- Interconnection Agreement dated August 8, 1994, between Occidente
y Caribe Celular S.A. and Empresas Publicas de Medellin...........
*10.05 -- Interconnection Agreement dated April 17, 1995, between Occidente
y Caribe Celular S.A. and Empresas Municipales de Cali............
*10.06 -- Interconnection Agreement dated December 26, 1994, between
Occidente y Caribe Celular S.A. and Empresas Publicas de
Manizales.........................................................
*10.07 -- Interconnection Agreement dated November 3, 1995, between
Occidente y Caribe Celular S.A. and Empresas Publicas de
Pereira...........................................................
*10.08 -- Interconnection Agreement dated November 9, 1995, between
Occidente y Caribe Celular S.A. and Empresa de Telecomunicaciones
de Armenia........................................................
*10.09 -- Interconnection Letter of Intent dated January 25, 1995, between
Occidente y Caribe Celular S.A. and Empresas Departamentales de
Antioquia.........................................................
*10.10 -- Interconnection Letter of Intent dated April 10, 1995, between
Occidente y Caribe Celular S.A. and Telecom.......................
*10.11 -- Warrant Agreement dated as of June 7, 1996, between Occidente y
Caribe Celular S.A. and The Bank of New York, as Warrant Agent....
*12.01 -- Statement re Computation of Fixed Charge Coverage Deficiency
23.01 -- Consent of Cravath, Swaine & Moore (contained in Exhibit 5.01)....
</TABLE>
<PAGE> 152
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
-------- ------------------------------------------------------------------ ------------
<C> <C> <S> <C>
23.02 -- Consent of Holguin, Neira y Pombo Abogados (contained in Exhibit
5.02).............................................................
23.03 -- Consent of Doctor Lucy Cruz de Quinones...........................
23.04 -- Consent of KPMG Peat Marwick......................................
*25.01 -- Statement of Eligibility of Trustee on Form T-1...................
</TABLE>
- ---------------
* Previously filed.
<PAGE> 1
November 13, 1996
OCCIDENTE Y CARIBE CELULAR S.A.
REGISTRATION STATEMENT ON FORM F-4
Dear Sirs:
We have acted as United States counsel to Occidente y Caribe Celular S.A.
(the "Company"), a corporation organized under the laws of Colombia, in
connection with the registration under the Securities Act of 1933, as amended
(the "Securities Act"), of US$190,745,000 aggregate principal amount at maturity
of 14% Series B Senior Discount Notes due 2004 (the "New Notes"), to be issued
in exchange for up to US$190,745,000 aggregate principal amount at maturity of
14% Senior Discount Notes due 2004 (the "Old Notes") pursuant to an exchange
offer registered under the Securities Act. The Old Notes were issued, and the
New Notes are to be issued, pursuant to an Indenture dated as of June 1, 1996,
between the Company and the Bank of New York, as Trustee (the "Indenture").
In that connection, we have examined originals, or copies certified or
otherwise identified to our satisfaction, of such documents, corporate records
and other instruments as we have deemed necessary for the purposes of this
opinion, including: (a) the Indenture, (b) the Registration Statement on Form
F-4 (Registration No. 333-9609, the "Registration Statement") filed with the
Securities and Exchange Commission (the "SEC") on August 6, 1996, (c) Amendment
No. 1 to the Registration Statement filed with the SEC on November 4, 1996 and
(d) the form of New Note filed as an exhibit to the Registration Statement.
Assuming (i) the Indenture has been duly authorized, executed and delivered
by the Company and the Trustee and that the Trustee has been duly qualified
under the Trust Indenture Act of 1939, (ii) the New Notes are in the form filed
as an exhibit to the Registration Statement, (iii) the New Notes are duly
authorized, executed and delivered by the Company in accordance with the
provisions of the Indenture, (iv) the New Notes are duly authenticated by the
Trustee in accordance with the Indenture, and (v) the New Notes are duly issued
and delivered against delivery of the Old Notes, the New Notes will constitute
the legal, valid and binding obligations of the Company (subject to applicable
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws affecting creditors' rights generally from time to time in effect
and to general principles of equity, including, without limitation, concepts of
materiality, reasonableness, good faith and fair dealing, regardless of whether
considered in a proceeding at law or in equity).
We are admitted to practice in the State of New York, and we express no
opinion as to matters governed by any laws other than the laws of the State of
New York and the federal laws of the United States of America. In particular, we
do not purport to pass on any matter governed by the laws of Colombia.
We are aware that we are referred to under the heading "Legal Matters" in
the Registration Statement, and we hereby consent (i) to the use of our name in
the Registration Statement and (ii) to the filing of this opinion as an exhibit
to Amendment No. 2 to the Registration Statement.
Very truly yours,
Occidente y Caribe Celular S.A.
Carrera 55 No. 49-101
Medellin, Colombia
<PAGE> 1
[LETTERHEAD OF]
HOLCUIN, NEIRA Y POMBO ABOGADOS
Occidente Y Caribe Celular S.A.
Carrera 55 No. 49-101
Medellin, Colombia
November 13, 1996
OCCIDENTE Y CARIBE CELULAR S.A.
Dear Sirs:
We have acted as Colombian counsel to Occidente y Caribe Celular S.A. (the
"Company"), a corporation organized under the laws of Colombia, in connection
with the registration under the Securities Act of 1933, as amended (the
"Securities Act"), of US$190,745,000 aggregate principal amount at maturity of
14% Series B Senior Discount Notes due 2004 (the "New Notes"), to be issued in
exchange for up to US$190,745,000 aggregate principal amount at maturity of 14%
Senior Discount Notes due 2004 (the "Old Notes") pursuant to an exchange offer
registered under the Securities Act. The Old Notes were issued, and the New
Notes are to be issued, pursuant to an Indenture dated as of June 1, 1996,
between the Company and the Bank of New York, as Trustee (the "Indenture").
We are familiar with the corporate proceedings of the Company with respect
to the proposed issuance and sale of the New Notes. We have examined originals,
or copies certified or otherwise identified to our satisfaction, of such other
documents, corporate records and other instruments as we have deemed necessary
for the purposes of this opinion.
Based on the foregoing, we are of the opinion that:
(i) the Indenture has been duly authorized, executed, and delivered by
the Company; and
(ii) all necessary corporate action has been taken by the Company to
authorize the issuance, execution, and delivery of the New Notes.
We are admitted to practice in Colombia, and we express no opinion as to
matters governed by any laws other than the laws of Colombia. In particular, we
do not purport to pass on any matter governed by the laws of the State of New
York or any other State of the United States of America nor by the Federal laws
of the United States of America.
We hereby consent to the use of this opinion as an exhibit to Amendment No.
2 to the Registration Statement on Form F-4 (Registration No. 333-9609) filed
with the Securities and Exchange Commission on November 13, 1996 (the
"Registration Statement") and the use of our name in the Registration Statement
under the headings "Enforceability of Civil Liabilities" and "Legal Matters".
Yours very truly,
Holguin, Neira y Pombo Abogados
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[LETTERHEAD OF]
CRAVATH, SWAINE & MOORE
November 13, 1996
OFFER TO EXCHANGE 14% SERIES B
SENIOR DISCOUNT NOTES DUE 2004,
WHICH HAVE BEEN REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933,
AS AMENDED, FOR OUTSTANDING 14% SENIOR
DISCOUNT NOTES DUE 2004
Dear Sirs:
We have acted as United States tax counsel to Occidente y Caribe Celular
S.A. (the "Company") in connection with the proposed offer (the "Exchange
Offer") by the Company to exchange 14% Series B Senior Discount Notes due 2004
(the "Exchange Notes"), which have been registered with the United States
Securities and Exchange Commission under the United States Securities Act of
1933, as amended, for its 14% Senior Discount Notes due 2004 (the "Outstanding
Notes," and collectively with the Exchange Notes, the "Notes"). Unless otherwise
defined herein, capitalized terms used herein have the respective meanings
ascribed to those terms in the Registration Statement on Form F-4 filed with the
SEC on August 6, 1996 (the "Registration Statement").
In arriving at the opinion expressed below, we have examined and relied
upon the following documents:
(a) the Registration Statement;
(b) the form of Indenture between the Company and The Bank of New York, as
Trustee; and
(c) the form of Registration Rights Agreement.
We have also read and relied upon originals or copies, certified or
otherwise identified to our satisfaction, of such corporate records of the
Company and such certificates and representations of officers and
representatives of the Company, and we have made such investigations of law as
we have deemed appropriate as a basis for the opinion expressed below. In our
examination, we have assumed the authenticity of original documents, the
accuracy of copies and the genuineness of signatures. We understand and assume
that (i) each agreement referred to in clauses (a) through (c) above represents
the valid and binding obligation of the respective parties thereto, enforceable
in accordance with its respective terms, and represents the entire agreement
between the parties with respect to the subject matter thereof, (ii) the parties
to each agreement have complied, and will comply, with all of their respective
covenants, agreements and undertakings contained therein, and (iii) the
transactions provided for by each agreement were and will be carried out in
accordance with their terms.
Our opinion is based upon existing United States federal income tax laws,
regulations, administrative pronouncements and judicial decisions. All such
authorities are subject to change, either prospectively or retroactively. No
assurance can be provided as to the effect of any such change upon our opinion.
The opinion set forth herein has no binding effect on the United States
Internal Revenue Service or the courts of the United States. No assurance can be
given that, if the matter were contested, a court would agree with the opinion
set forth herein.
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Based upon the foregoing, we advise you that in our opinion, except as to
the factual matters and subject to the qualifications and limitations set out in
the Registration Statement under the caption "Taxation," the statements of legal
conclusions contained in the Registration Statement under the caption "Taxation
- -- United States" are correct in all material respects.
In giving the foregoing opinion, we express no opinion other than as to the
federal income tax law of the United States of America.
We are furnishing this letter in our capacity as United States tax counsel
to the Company, and this letter is solely for the Company's benefit. This letter
is not to be used, circulated, quoted or otherwise referred to for any other
purpose, except as set forth below.
We consent to the reference to our firm under the caption "Taxation" in the
Registration Statement.
Very truly yours,
Occidente y Caribe Celular S.A.
Carrera 55 No. 49-101
Medellin, Colombia
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Santafe de Bogota, D.C., November 12, 1996
Seflores
OCCIDENTE Y CARIBE CELULAR S.A.-OCCEL S.A.
Medellin
Subject: Registration Statement on Form S-4
Registration No. 333-9609
Dear Sirs:
I have acted as the initiating lawyer in a proceeding filed in the
Administrative Tribunal of Antioquia against resolution 019 of July 21 of 1994
of the municipality of Medellin; in that regard I have issued an opinion to
Occel S.A. (QC-182/96) dated April 19, 1996 in which I analyze the
probabilities of success of such proceeding explaining the reasons for which
such resolution is considered illegal.
I am aware that my opinion as well as my name are mentioned in the
section "Business-Legal Proceedings" in the above mentioned Registration
Statement and by signing this letter I consent to: I) the mentioning of my name
in the Registration Statement, II) the inclusion of this consent as an exhibit
in amendment 2 to Registration Statement.
Sincerely,
LUCY CRUZ DE QUINONES
C.C. No. 41.581.364 de Bogota
T.P. No. 15.452 de Minjusticia.
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EXHIBIT 23.04
INDEPENDENT AUDITORS' REPORT ON SCHEDULE AND CONSENT
THE BOARD OF DIRECTORS
OCCIDENTE Y CARIBE CELLULAR S.A.:
The audits referred to in our report dated February 20, 1996, included the
related financial statement schedule for each of the years in the three-year
period ended December 31, 1995, included in the registration statement. The
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on the financial statement schedule
based on our audits. In our opinion, such financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
We consent to the use of our reports included herein and to the reference
to our firm under the heading "Experts" in the prospectus.
KPMG Peat Marwick
Medellin, Colombia
November 13, 1996
