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Filed Pursuant to Rule 424(b)(3)
Registration No. 333-59469
PROSPECTUS
OFFER TO EXCHANGE
ALL OUTSTANDING
12 3/8% SENIOR NOTES DUE 2008
FOR
12 3/8% SENIOR NOTES DUE 2008
OF
IMPSAT CORPORATION
---------------------
THE EXCHANGE OFFER
WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON OCTOBER 26, 1998 UNLESS EXTENDED
---------------------
IMPSAT Corporation, a Delaware corporation (the "Company"), hereby offers
(the "Exchange Offer"), upon the terms and subject to the conditions set forth
in this Prospectus and the accompanying Letter of Transmittal (the "Letter of
Transmittal"), to exchange its outstanding 12 3/8% Senior Notes due 2008 (the
"Old Notes"), of which an aggregate of $225,000,000 in principal amount is
outstanding as of the date hereof, for an equal principal amount of newly issued
12 3/8% Senior Notes due 2008 (the "New Notes"). The form and terms of the New
Notes will be the same as the form and terms of the Old Notes except that (i)
the New Notes will be registered under the Securities Act of 1933, as amended
(the "Securities Act"), and hence will not bear legends restricting the transfer
thereof and (ii) the holders of the New Notes will not be entitled to certain
rights of holders of the Old Notes under the Registration Rights Agreement (as
defined herein), which rights will terminate upon the consummation of the
Exchange Offer. The New Notes will evidence the same debt as the Old Notes and
will be entitled to the benefits of an indenture dated as of June 17, 1998,
governing the Old Notes and the New Notes (the "Indenture"). The Indenture
provides for the issuance of both the New Notes and the Old Notes. The New Notes
and the Old Notes are sometimes referred herein collectively as the "Notes" or
the "Senior Notes."
(Continued on next page)
---------------------
FOR A DISCUSSION OF CERTAIN RISKS THAT SHOULD BE CONSIDERED BY ELIGIBLE HOLDERS
IN EVALUATING THE EXCHANGE OFFER. SEE "RISK FACTORS" BEGINNING ON PAGE 16.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS SEPTEMBER 28, 1998
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The Notes will bear interest at the rate of 12 3/8% per annum and interest
will be payable semi-annually in cash on June 15 and December 15 of each year,
commencing December 15, 1998, to holders of record on the immediately preceding
June 1 and December 1. See "Description of the New Notes."
The Notes are unsecured, unsubordinated obligations of the Company, rank
pari passu in right of payment with all existing and future unsecured,
unsubordinated obligations and are senior in right of payment to all
subordinated indebtedness of the Company. The Company is a holding company and
the Notes will be effectively subordinated to all liabilities (including trade
payables) of the subsidiaries of the Company. The Indenture permits the Company
and its subsidiaries to incur substantial amounts of additional indebtedness.
The Notes would also be subordinated to certain statutorily created preferences
in the countries in which the Company's subsidiaries operate with respect to
certain liabilities of the Company's subsidiaries, such as accrued tax
liabilities and accrued salary, severance, social security and pension
liabilities.
The Notes are redeemable, at the option of the Company, in whole or in
part, at any time on or after June 15, 2003, at the redemption prices set forth
herein, plus accrued and unpaid interest, if any, to the date of redemption. In
addition, at any time on or prior to June 15, 2001, the Company may redeem up to
35% of the aggregate principal amount at maturity of the Notes from the net cash
proceeds of one or more public or private issuances of Capital Stock (other than
Disqualified Stock), at the redemption price set forth herein; provided that (i)
after any such redemption at least 65% of the aggregate principal amount of the
Notes initially issued remain outstanding and (ii) notice of such redemption is
mailed within 60 days of such issuance.
Prior to the Exchange Offer, there has been no public market for the Notes.
The Company does not intend to list the New Notes on any securities exchange or
to seek approval for quotation through any automated quotation system. There can
be no assurance that an active market for the New Notes will develop. To the
extent that a market for the New Notes does develop, the market value of the New
Notes will depend on market conditions (such as yields on alternative
investments), general economic conditions, the Company's financial condition and
other conditions. Such conditions might cause the New Notes, to the extent that
they are actively traded, to trade at a significant discount from face value.
See "Risk Factors -- Lack of Public Market."
The New Notes will be available initially only in book-entry form. The
Company expects that the New Notes issued pursuant to the Exchange Offer will be
issued in the form of one or more fully registered global notes that will be
deposited with, or on behalf of, the Depository Trust Company ("DTC") and
registered in its name or in the name of Cede & Co., as its nominee. Beneficial
interests in the global note representing the New Notes will be shown on, and
transfers thereof will be effected only through, records maintained by the DTC
and its participants. After the initial issuance of such global note, New Notes
in certificated form will be issued in exchange for the global note only in
accordance with the terms and conditions set forth in the Indenture. See
"Description of the Notes -- Book Entry; Delivery and Form."
The Company will accept for exchange any and all Old Notes which are
properly tendered in the Exchange Offer prior to 5:00 p.m., New York City time,
on October 26, 1998 (if and as extended, the "Expiration Date"). Tenders of Old
Notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on
the Expiration Date. The Exchange Offer is not conditioned upon any minimum
principal amount of Old Notes being tendered for exchange. Old Notes may be
tendered only in integral multiples of $1,000. In the event the Company
terminates the Exchange Offer and does not accept for exchange any Old Notes,
the Company will promptly return all previously tendered Old Notes to the
holders thereof.
Based on a previous interpretation by the staff of the Securities and
Exchange Commission (the "Commission") set forth in no-action letters to third
parties, the Company believes that the New Notes issued pursuant to the Exchange
Offer in exchange for Old Notes may be offered for resale, resold, and otherwise
transferred by a holder thereof (other than (i) a broker-dealer who purchases
such New Notes directly from the Company to resell pursuant to Rule 144A or any
other available exemption under the Securities Act or (ii) a person that is an
affiliate of the Company (within the meaning of Rule 405 under the Securities
Act)) without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that the holder is acquiring the New
Notes in its ordinary course of business and is not participating, and has
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no arrangement or understanding with any person to participate, in the
distribution of the New Notes. Holders of Old Notes wishing to accept the
Exchange Offer must represent to the Company that such conditions have been met.
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus meeting
the requirements of the Securities Act 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, in connection with
resale 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."
The Company believes that none of the registered holders of the Old Notes
is an affiliate (as such term is defined in Rule 405 under the Securities Act)
of the Company. The Company has not entered into any arrangement or
understanding with any person to distribute the New Notes to be received in the
Exchange Offer, and to the best of the Company's information and belief, each
person participating in the Exchange Offer is acquiring the New Notes in the
ordinary course of business and has no arrangement or understanding with any
person to participate in the distribution of the New Notes to be received in the
Exchange Offer.
The Company will not receive any proceeds from the Exchange Offer. The
Company has agreed to bear the expenses of the Exchange Offer. No underwriter is
being used in connection with the Exchange Offer.
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AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 under the Securities Act with respect to the New Notes offered hereby. As
permitted by the rules and regulations of the Commission, this Prospectus omits
certain information, exhibits and undertakings contained in the Registration
Statement. For further information with respect to the Company and the New Notes
offered hereby, reference is made to the Registration Statement, including the
exhibits thereto and the financial statements, notes and schedules filed as a
part thereof. The Company complies with the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and, in
accordance therewith, files reports and other information with the Commission.
The Registration Statement (and the exhibits and schedules thereto), as well as
the periodic reports and other information filed by the Company with the
Commission, may be inspected without charge at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth St., N.W., Washington, D.C.
20549, and at the Regional Offices of the Commission at Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade
Center, 13th Floor, New York, New York 10048. Copies of such material can also
be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. Such material may be
accessed electronically by means of the Commission's World Wide Web home page on
the Internet at http://www.sec.gov. Statements contained in this Prospectus as
to the contents of any contract or other document are not necessarily complete,
and in each instance reference is made to the copy of such contract or document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference.
The Company has agreed that, whether or not it is required to do so by the
rules and regulations of the Commission, for so long as the Notes remain
outstanding, it will furnish to the holders of the Notes and file with the
Commission (unless the Commission will not accept such a filing) (i) all
quarterly and annual financial information that would be required to be
contained in a filing with the Commission on Form 10-Q and 10-K (or any
successor forms) as if the Company were required to file such forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report thereon
by the Company's certified independent accountants, and (ii) all reports that
would be required to be filed with the Commission on Form 8-K (or any successor
form) if the Company were required to file such reports in each case within the
time periods set forth in the Commission's rules and regulations. In addition,
for so long as any of the Notes remain outstanding, the Company has agreed to
make available to any prospective purchaser of the Notes or beneficial owner of
the Notes in connection with any sale thereof the information required by Rule
144A(d)(4) under the Securities Act.
No person is authorized in connection with any offering made hereby to give
any information or to make any representation other than as contained in this
Prospectus or the accompanying Letter of Transmittal, and, if given or made,
such information or representation must not be relied upon as having been
authorized by the Company. Neither this Prospectus nor the accompanying Letter
of Transmittal or both together constitute an offer to sell or a solicitation of
an offer to buy any security other than the New Notes offered hereby, nor does
it constitute an offer to sell or a solicitation of an offer to buy any
securities offered hereby to any person in any jurisdiction in which it is
unlawful to make such offer or solicitation to such person. Neither the delivery
of this Prospectus or the accompanying Letter of Transmittal or both together,
nor any sale made hereunder shall under any circumstances imply that the
information contained herein is correct as of any date subsequent to the date
hereof.
------------------------
The terms VSAT(R), Dataplus(R), Teledatos(R), Regional Teleport(R),
Difusat(R), Interplus(R), Global Fax(R), Minidat(R), Conexia(R) and
Telecampus(R) are service marks or trademarks of the Company or its subsidiaries
that are registered or otherwise protected under the laws of various
jurisdictions.
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SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and consolidated financial
statements, including the notes thereto, and other financial data appearing
elsewhere in this Prospectus. All consolidated historical financial statements,
other than pro forma financial information, contained in this Prospectus are
presented in accordance with United States generally accepted accounting
principles ("U.S. GAAP") and are presented in U.S. dollars. Certain information
contained herein is derived from external research sources which the Company has
not independently verified. See "Glossary" for the definition of certain terms
used in this Prospectus.
THE COMPANY
The Company is a leading provider of private telecommunications network
services in Latin America. The Company offers tailor-made, integrated
telecommunications solutions, with an emphasis on data transmission, for
national and multinational companies, financial institutions, governmental
agencies and other business customers. The Company currently has operations in
Argentina, Colombia, Venezuela, Ecuador, Mexico, Brazil and the United States.
Services are provided through the Company's advanced telecommunications
networks, comprised of owned teleports, earth stations, fiber optic and
microwave links, and leased satellite capacity and fiber optic links. The
Company believes that it operates the largest shared hub VSAT network in Latin
America, with 3,527 VSAT microstations installed as of June 30, 1998. In
addition, the Company operates 16 teleports located in six countries and twelve
microwave and fiber optic metropolitan area networks ("MANs") in twelve cities.
The Company has grown rapidly since the commencement of its operations in
1990. Its business customer base has expanded from 125 customers in two
countries as of December 31, 1992 to 1,321 customers in seven countries as of
June 30, 1998. From 1992 to 1997, annual revenues on a consolidated basis have
grown from $20.5 million to $160.2 million, EBITDA (as defined) has grown from
$7.9 million to $51.8 million and net property, plant and equipment have grown
from $47.9 million to $255.4 million.
The Company has recently commenced operations in Brazil. The Company
believes that the breadth of opportunity for the expansion of the private
telecommunications network services market in Brazil is underscored by the
country's (i) growing economy (Brazil's gross domestic product grew from
approximately $387 billion in 1992 to approximately $803 billion in 1997); (ii)
strong, unsatisfied demand for reliable telecommunications solutions; (iii) low
teledensity; (iv) poor telephony infrastructure; and (v) recently commenced
liberalization and privatization of the telecommunications sector. The Company
plans to use its technological and commercial experience and knowledge of
providing private telecommunications network services in the region to expand
its market penetration in Brazil.
The Company expects continued growth in the demand for private
telecommunications network services in Latin America and anticipates that the
proportionate share of data transmission services will increase more rapidly
than the overall telecommunications sector, as has been the case in the United
States. Continued deregulation of the telecommunications markets in the region
should lead to substantial growth in the telecommunications sector, which
historically has grown slowly compared with that of more developed countries.
Continuing economic growth and integration in Latin America is expected to add
to the demand for telecommunications services in the region and support greater
opportunities for expansion of the Company's regional presence. The Company
believes that its pan-Latin American presence distinguishes it from its
competitors and is a key element in its ability to satisfy a need in Latin
America for "one-stop shopping" in private telecommunications network services.
In addition, upon further deregulation of the telecommunications markets in
Latin America, the Company may consider expansion into new services for its
business customers, including switched international, domestic long distance and
local services.
The Company provides a full range of private telecommunications network
services which are tailored to meet the specific system requirements of its
customers, including digital information (data, voice and video) transmission
via VSAT, SCPC, fiber optic and microwave technology and a wide range of
value-added
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services, including Internet access and electronic commerce; fax store and
forward; healthcare billing and insurance verification services; and
video-conferencing and long-distance learning. The Company utilizes its array of
service offerings combined in different ways to create customized packages that
best suit each customer's private telecommunications network system needs. The
Company distinguishes itself by providing telecommunications solutions which
permit its customers to enjoy the advantages of a private network while freeing
them from the burdens of purchasing, operating and maintaining the network. See
"Business -- Services and Related Infrastructure" for a further description of
the Company's private telecommunications network services.
The Company views its relationship with its customers as a long-term
partnership in which customer satisfaction is of paramount importance. For this
reason, the Company applies an integrated approach to its sales, marketing and
customer service functions. Each client service team is jointly responsible for
all aspects of a particular customer relationship. The Company provides customer
service 24 hours per day, 365 days per year. As a result of this consultative
approach, the Company achieves high levels of customer satisfaction while being
able to identify new revenue generating opportunities, customer
telecommunications possibilities and product or service improvements previously
overlooked or not adequately addressed by the client.
The Company intends to maintain and strengthen its position as a leading
provider of private telecommunications network services in Latin America. The
key elements of the Company's strategy include: (i) delivering premium,
tailor-made telecommunications solutions utilizing advanced technology; (ii)
focusing on business and governmental end users; (iii) establishing long-term
customer partnerships; and (iv) leveraging its established market presence to
expand operations.
The Company is a privately-held corporation. Nevasa Holdings Limited
("Nevasa"), which owns 100% of the common stock of the Company, is a holding
company controlled largely by the Pescarmona group (a prominent Argentine
industrial group); by Mr. Roberto Vivo, Deputy Chief Executive Officer of IMPSAT
Corporation; and by Mr. Ricardo Verdaguer, President and Chief Executive Officer
of IMPSAT Corporation. In addition, 100% of the issued and outstanding preferred
stock of the Company is owned by the Morgan Stanley Investors (as defined
below).
RECENT DEVELOPMENTS
On March 19, 1998, Princes Gate Investors II, L.P. ("Princes Gate") and
Morgan Stanley Global Emerging Markets Private Investment Fund, L.P. ("MSGEM"),
two private equity funds that are affiliates of Morgan Stanley Dean Witter &
Co., and certain other investors affiliated with Princes Gate and MSGEM (Princes
Gate, MSGEM and such other investors being hereinafter referred to as the
"Morgan Stanley Investors") purchased 25,000 shares of the Company's Series A
Preferred Stock. The Series A Preferred Stock was initially convertible into 25%
of the common stock of the Company. For a description of the Series A Preferred
Stock and the transaction, refer to "Certain Relationships and Related
Transactions -- STET Share Purchase and Series A Preferred Stock Issuance." The
holders of the Series A Preferred Stock have the right to vote as a separate
class to elect two of the Company's directors.
On April 20, 1998, the Company signed a definitive agreement to purchase a
majority interest in Mandic BBS Planejamento e Informatica S.A. ("Mandic S.A."),
a Brazilian Internet access provider, for approximately $9.8 million. Upon
consummation of the transaction, the Company will acquire 75.1% of the common
stock of Mandic S.A., and the remaining 24.9% will be owned by Mr. Aleksander
Mandic, the founder and current president of Mandic S.A. The initial stage of
the acquisition of Mandic S.A., pursuant to which the Company acquired a 58.5%
interest, was consummated on May 28, 1998, and the remaining 16.6% interest is
scheduled to be acquired by May 1, 1999.
On June 1, 1998, the Company acquired from Nevasa 99.93% of the outstanding
voting stock of IMPSAT Comunicacoes Ltda. ("IMPSAT Brazil"), a Brazilian
company, for approximately $5.1 million in cash. IMPSAT Brazil was established
by Nevasa and operates under a value added telecommunications license (the
"Brazil License") permitting IMPSAT Brazil to lease satellite capacity directly
from satellite
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carriers and sell corporate private telecommunications network services (data,
voice and video), using terrestrial and satellite links, to third parties.
The Company announced in September 1998 plans to construct a broadband
network throughout the principal countries in Latin America. The program, which
the Company has designated as "IMPSAT 2000" would be aimed at developing the
Latin American informational highway. Upon its full development and
implementation, IMPSAT 2000 would provide a fiber optic link among the major
urban and surrounding cities in the Latin American countries that the Company
currently serves. Upon completion, the IMPSAT 2000 network could comprise up to
one million kilometers of fiber optic cable for the operation of a broadband
network for voice and data transmission. By constructing Latin America's first
region-wide broadband network, the Company plans to be able to transmit
high-level interactive applications to optimize both project and company
management regardless of volume and with minimal delay. By integrating the
planned IMPSAT 2000 fiber optic network with its existing fiber optic networks
in Argentina and Colombia as well as its current and planned wireless MANs and
access to undersea cables, the Company seeks to connect all major Latin American
cities offering transmission services never before available in the region.
IMPSAT 2000 would enable the Company to provide a greater array of services for
its business customers, including switched international, domestic long distance
and local services, upon the deregulation of the telecommunications markets in
the countries in which it operates. At its full implementation in all possible
locations throughout Latin America, the IMPSAT 2000 network could require an
expenditure of up to $2.0 billion, subject to financing.
THE EXCHANGE
THE EXCHANGE OFFER............ The Company is offering to exchange $1,000
principal amount of New Notes for each $1,000
principal amount of Old Notes that are
properly tendered and accepted. The Company
will issue the New Notes on or promptly after
the Expiration Date. There are $225,000,000
aggregate principal amount of Old Notes
outstanding. See "The Exchange Offer."
Based on an interpretation of the staff of the
Commission set forth in no-action letters
issued to third parties, the Company believes
that New Notes issued pursuant to the Exchange
Offer in exchange for Old Notes may be offered
for resale, resold and otherwise transferred
by any holder thereof (other than (i) a
broker-dealer who purchases such New Notes
directly from the Company to resell pursuant
to Rule 144A or any other available exemption
under the Securities Act or (ii) any such
holder which is an "affiliate" of the Company
within the meaning of Rule 405 under the
Securities Act) 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 holder's business and
that such holder has no arrangement or
understanding with any person to participate
in the distribution of such New Notes. In the
event that the Company's belief is inaccurate,
holders of New Notes who transfer New Notes in
violation of the prospectus delivery
provisions of the Securities Act and without
an exemption from registration thereunder may
incur liability thereunder. The Company does
not assume or indemnify holders against such
liability. The Exchange Offer is not being
made to, nor will the Company accept
surrenders for exchange from, holders of Old
Notes (i) in any jurisdiction in which the
Exchange Offer or the acceptance thereof would
not be in compli-
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ance with the securities or blue sky laws of
such jurisdiction or (ii) if any holder is
engaged or intends to engage in a distribution
of 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 meeting the requirements
of the Securities Act in connection with any
resale of such New Notes. See "Plan of
Distribution."
EXPIRATION DATE............... The Exchange Offer will expire at 5:00 p.m.,
New York City time, on October 26, 1998,
unless extended, in which case the term
"Expiration Date" shall mean the latest date
and time to which the Exchange Offer is
extended. The Company will accept for exchange
any and all Old Notes which are properly
tendered in the Exchange Offer prior to 5:00
p.m., New York City time, on the Expiration
Date. The New Notes issued pursuant to the
Exchange Offer will be delivered on or
promptly after the Expiration Date.
CONDITIONS TO THE EXCHANGE
OFFER......................... The Company may terminate the Exchange Offer
if it determines that its ability to proceed
with the Exchange Offer could be materially
impaired due to any legal or governmental
action, any new law, statute, rule or
regulation, any interpretation by the staff of
the Commission of any existing law, statute,
rule or regulation or the failure to obtain
any necessary approvals of governmental
agencies or holders of the Old Notes. The
Company does not expect any of the foregoing
conditions to occur, although there can be no
assurances any such conditions will not occur.
PROCEDURES FOR TENDERING
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 instructions
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 Bank of New York, as Registrar, at the
address set forth herein. By executing the
Letter of Transmittal, each holder will
represent to the Company that, among other
things, the New Notes acquired pursuant to the
Exchange Offer are being obtained in the
ordinary course of business of the person
receiving such New Notes, whether or not such
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 in Rule 405
under the Securities Act, of the Company.
SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS............. Any beneficial owner whose Old Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other
nominee and who wishes to tender such Old
Notes in the Exchange Offer should contact
such registered holder promptly and instruct
such registered holder to tender on such
beneficial owner's behalf. If such beneficial
owner wishes to tender on such owner's own
behalf, such owner must, prior to completing
and executing
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the Letter of Transmittal and delivering his
Old Notes, either make appropriate
arrangements to register ownership of the Old
Notes in such owner's name or obtain a
properly completed bond power from the
registered holder. The transfer of registered
ownership may take considerable time and may
not be able to be completed prior to the
Expiration Date.
GUARANTEED DELIVERY
PROCEDURES.................... Holders of Old Notes who wish to tender their
Old Notes and whose Old Notes are not
immediately available or who cannot deliver
their Old Notes or the Letter of Transmittal
to The Bank of New York, as Exchange Agent,
prior to the Expiration Date, must tender
their Old Notes according to the guaranteed
delivery procedures set forth in "The Exchange
Offer -- Guaranteed Delivery Procedures."
WITHDRAWAL RIGHTS............. Tenders of Old Notes may be withdrawn at any
time prior to 5:00 p.m., New York City time,
on the Expiration Date.
CERTAIN FEDERAL INCOME TAX
CONSIDERATIONS................ For a discussion of certain federal income tax
considerations relating to the exchange of the
New Notes for the Old Notes, see "Certain
United States Federal Income Tax
Considerations."
EXCHANGE AGENT................ The Bank of New York is the Exchange Agent.
Its telephone number is (212) 815-6333. The
address of the Exchange Agent is set forth in
"The Exchange Offer -- Exchange Agent." The
Bank of New York also serves as trustee under
the Indenture.
SHELF REGISTRATION
STATEMENT..................... Under certain circumstances described in the
Registration Rights Agreement, certain holders
of Notes (including holders who are not
permitted to participate in the Exchange Offer
or who may not freely resell New Notes
received in the Exchange Offer) may require
the Company to file, and use best efforts to
cause to become effective, a shelf
registration statement under the Securities
Act, which would cover resales of Notes by
such holders. See "Description of
Notes -- Registration Rights."
CONDITIONS TO THE EXCHANGE
OFFER......................... The Exchange Offer is not conditioned on any
minimum principal amount of Old Notes being
tendered for exchange. The Exchange Offer is
subject to certain other customary conditions,
each of which may be waived by the Company.
See "The Exchange Offer -- Certain
Conditions."
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SUMMARY DESCRIPTION OF THE NEW NOTES
The terms of the New Notes and the Old Notes are identical in all material
respects, except for certain transfer restrictions relating to the Old Notes.
Whenever defined terms of the Indenture not otherwise defined herein are
referred to, such defined terms are incorporated herein by reference. In the
event that the Exchange Offer is not consummated and a Shelf Registration
Statement is not declared effective on or prior to December 17, 1998, the annual
interest rate borne by the Notes will be increased by 0.5%. Upon consummation of
the Exchange Offer or the effectiveness of the Shelf Registration Statement, the
interest rate on the Notes will revert to the rate set forth on the cover page
of this Prospectus. The New Notes will bear interest from the most recent date
to which interest has been paid on the Old Notes or, if no interest has been
paid on the Old Notes, from June 17, 1998. Accordingly, registered holders of
New Notes on the relevant record date for the first interest payment date
following the consummation of the Exchange Offer will receive interest accruing
from the most recent date to which interest has been paid on the Old Notes or,
if no interest has been paid, from June 17, 1998. Old Notes accepted for
exchange will cease to accrue interest from and after the date of consummation
of the Exchange Offer. Holders whose Old Notes are accepted for exchange will
not receive any payment in respect of interest on such Old Notes otherwise
payable on any interest payment date the record date for which occurs on or
after consummation of the Exchange Offer.
THE NEW NOTES
SECURITIES OFFERED............ $225,000,000 Senior Notes due 2008. See
"Description of the Notes."
MATURITY...................... June 15, 2008.
INTEREST...................... 12 3/8% per annum payable semi-annually. For a
description of the circumstances under which
the interest rate may be increased, see
"Registration Rights" below.
RANKING....................... The Notes will be unsecured, unsubordinated
indebtedness of the Company, will rank pari
passu in right of payment with all existing
and future unsecured, unsubordinated
indebtedness and will be senior in right of
payment to all subordinated indebtedness of
the Company. At June 30, 1998, on an pro forma
basis after giving effect to the application
of proceeds of the Offering (as defined
herein), the Company (on an unconsolidated
basis) would have had approximately $132.0
million of indebtedness other than the Notes,
all of which would have been senior
indebtedness. The Company is a holding company
and the Notes will be effectively subordinated
to all liabilities, including trade payables,
of the Company's subsidiaries. On June 30,
1998, on the same pro forma basis and
excluding intercompany payables and the
guarantee of the Company's $125 million
12 1/8% Senior Guaranteed Notes due 2003 (the
"Existing Senior Notes"), the Company's
subsidiaries would have had approximately
$150.8 million of liabilities, including
approximately $79.5 million of indebtedness.
The Company and its subsidiaries are expected
to incur substantial amounts of additional
indebtedness in the future, subject to
compliance with the limitations contained in
the Indenture (as defined) and the Indenture
(the "1996 Indenture") relating to the
Existing Senior Notes. See "Risk
Factors -- Substantial Indebtedness," "Risk
Factors -- Significant Capital Requirements,"
and "Risk Factors -- Holding Company
Structure: Effective Subordination of Notes to
Obligations of Subsidiaries."
10
<PAGE> 11
CERTAIN COVENANTS............. The Indenture contains certain covenants
which, among other things, restrict the
ability of the Company and its restricted
subsidiaries to: incur additional
indebtedness; create liens; engage in
sale-leaseback transactions; make restricted
payments; sell assets; create restrictions on
the ability of restricted subsidiaries to make
certain payments; issue or sell stock of
certain subsidiaries; enter into transactions
with stockholders or affiliates; and, with
respect to the Company, consolidate, merge or
sell all or substantially all of its assets.
These restrictions are subject to certain
exceptions. See "Description of the
Notes -- Covenants."
OPTIONAL REDEMPTION........... The Notes will be redeemable, at the option of
the Company, in whole or in part, at any time
on or after June 15, 2003, at the redemption
prices set forth under "Description of the
Notes -- Optional Redemption," plus accrued
and unpaid interest, if any, to the date of
redemption. In addition, at any time on or
prior to June 15, 2001, the Company may redeem
up to 35% of the aggregate principal amount of
the Notes originally issued from the net cash
proceeds of one or more public or private
issuances of Capital Stock (other than
Disqualified Stock) at a redemption price of
112.375% of the principal amount thereof on
the redemption date, together with accrued and
unpaid interest, if any, provided that (i)
after any such redemption at least 65% of the
aggregate principal amount of the Notes
initially issued remain outstanding and (ii)
notice of such redemption is mailed within 60
days of such issuance. See "Description of the
Notes -- Optional Redemption."
CHANGE OF CONTROL............. Upon a Change of Control (as defined herein),
the Company is required to make an offer to
purchase the Notes at a purchase price equal
to 101% of their principal amount, plus
accrued interest. See "Description of the
Notes -- Repurchase of Notes upon a Change of
Control."
RISK FACTORS.................. See "Risk Factors," immediately following this
Summary, for a discussion of certain risks
that should be considered when evaluating an
investment in the Notes.
11
<PAGE> 12
USE OF PROCEEDS
On June 17, 1998 the Company issued $225 million principal amount of Old
Notes (the "Offering"). The Old Notes were sold by the Company to a limited
number of institutional investors pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities Act
and applicable state securities laws. The Company has distributed and/or will
distribute the net proceeds of the Offering, which totaled approximately $217.7
million, to its operating subsidiaries through inter-company loans. The net
proceeds of the Offering will be used for capital expenditures, including up to
approximately $41.0 million for planned expenditures through 1999 related to the
Company's expansion into Brazil, and to repay approximately $35.2 million of
indebtedness of its operating subsidiaries. The Company expects to reborrow such
short-term indebtedness in the future to fund capital expenditures and for
general corporate purposes, although the lenders have not committed to make
additional loans. In addition, a portion of the net proceeds may also be used
for strategic acquisitions of businesses, products, or technologies
complementary to the Company's business. The Company does not currently have any
signed contracts, letters of intent or agreements in principle to make any such
material acquisitions. Pending such uses, the net proceeds of the Offering have
been invested in short-term debt instruments
12
<PAGE> 13
SUMMARY FINANCIAL DATA
The following summary financial and operating data are for the Company on a
consolidated basis in accordance with U.S. GAAP. The Company and its
subsidiaries use the U.S. dollar as their functional currency. The Company owns
a 95.2% equity interest in IMPSAT S.A. ("IMPSAT Argentina"), a 74.2% equity
interest in IMPSAT S.A. ("IMPSAT Colombia"), a 75.0% equity interest in
Telecomunicaciones IMPSAT S.A. ("IMPSAT Venezuela"), a 99.9% equity interest in
IMPSAT, S.A. de C.V. ("IMPSAT Mexico") and a 100% equity interest in each of
IMPSATEL del Ecuador S.A. ("IMPSAT Ecuador") and IMPSAT USA, Inc. ("IMPSAT
USA").
The summary statement of operations, other financial and balance sheet data
for the Company as of December 31, 1996 and 1997 and for each of the three years
in the period ended December 31, 1997 have been derived from the Company's
consolidated financial statements audited by Deloitte & Touche LLP, independent
auditors, whose reports thereon are included elsewhere in this Prospectus. The
summary financial data for the Company for the six months ended June 30, 1997
and 1998 have been derived from the unaudited financial statements of the
Company included elsewhere in this Prospectus and, in the opinion of management,
include all adjustments (consisting only of normal recurring adjustments)
necessary to present fairly the information set forth therein. For an
explanation of the fiscal year reporting periods of the Company and its
subsidiaries, see Note 3 to the Company's consolidated financial statements.
The information set forth below should be read in conjunction with, and is
qualified in its entirety by reference to, the consolidated financial statements
of the Company and the notes thereto included elsewhere in this Prospectus and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------- --------------------
1995 1996 1997 1997 1998
-------- --------- --------- -------- ---------
(IN THOUSANDS, EXCEPT FOR RATIOS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues from services........................... $105,641 $ 128,393 $ 160,236 $ 75,721 $ 93,651
Operating expenses(1)................................ (98,758) (110,328) (136,997) (62,536) (82,518)
Operating income..................................... 6,883 18,065 23,239 13,185 11,133
Interest expense, net................................ (15,677) (23,185) (24,743) (12,271) (17,191)
Income attributable to minority interest............. (1,712) (1,766) (981) (581) (596)
Net loss............................................. $ (7,417) $ (8,483) $ (7,966) $ (2,852) $ (8,565)
Dividends on redeemable preferred stock.............. -- -- -- -- (3,507)
Net loss attributable to common shareholders......... $ (7,417) $ (8,483) $ (7,966) $ (2,852) $ (12,072)
OTHER FINANCIAL DATA:
EBITDA(2)............................................ $ 27,536 $ 44,383 $ 51,753 $ 26,961 $ 27,762
Cash flow from (used by):
Operating activities............................. 18,894 10,969 17,139 4,452 18,338
Investing activities............................. (66,910) (54,807) (58,080) (22,903) (64,634)
Financing activities............................. 22,097 66,517 22,485 19,071 236,495
Ratio of earnings to fixed charges(3)................ -- -- -- 1.04x --
Pro forma ratio of earnings to fixed charges(4)...... -- --
Ratio of EBITDA to gross interest expense............ 1.67x 1.76x 1.99x 2.13x 1.29x
Pro forma ratio of EBITDA to gross interest
expense(4)......................................... 1.04x 1.04x
Ratio of total debt to EBITDA(5)..................... 4.64x 4.49x 4.25x 4.05x 8.37x
Pro forma ratio of total debt to EBITDA(4)(5)........ 7.91x 7.73x
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30, 1998
------------------------------ --------------------
1995 1996 1997 ACTUAL PRO FORMA
-------- -------- -------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.............................. $ 6,216 $ 28,895 $ 10,439 $200,638 $165,408
Net property, plant and equipment...................... 199,701 227,086 255,422 290,822 290,822
Total assets........................................... 249,095 315,230 339,916 593,231 558,001
Total long-term debt, net.............................. 30,200 156,230 159,677 384,567 384,567
Minority interest...................................... 28,476 30,242 10,398 11,563 11,563
Redeemable preferred stock............................. -- -- -- 128,507 128,507
Stockholders' equity (deficit)......................... 55,363 46,881 63,389 (79,362) (79,362)
</TABLE>
(footnotes appear on page 15)
13
<PAGE> 14
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30,
--------------------- ---------------
1995 1996 1997 1997 1998
----- ----- ----- ------ ------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
VSAT microstations installed................................ 2,841 3,476 3,585 3,534 3,527
Dataplus earth stations installed........................... 443 704 908 790 1,075
Satellites linked........................................... 4 6 6 6 6
Leased satellite capacity (MHz)............................. 198.3 253.0 412.6 368.0 516.7
Teleports................................................... 4 5 5 5 5
Regional Teleports.......................................... 10 10 11 11 11
Teledatos networks (fiber optic/microwave).................. 12 12 12 12 12
Customers................................................... 656 907 1,189 1,094 1,321
</TABLE>
The following supplemental summary financial data are for (i) IMPSAT
Argentina for the fiscal years ended November 30, 1995, 1996 and 1997; and (ii)
each of IMPSAT Colombia, IMPSAT Venezuela and IMPSAT Ecuador for the years ended
December 31, 1995, 1996 and 1997. The category "Other", as it relates to
revenues, operating expenses, total assets and EBITDA, consists of (i) amounts
relating to IMPSAT Mexico; IMPSAT USA; IMPSAT Brazil; Mandic S.A.; International
Satellite Capacity Holding, NG ("ISCH"), a wholly-owned subsidiary that leases
satellite capacity on behalf of the Company's operating subsidiaries; and Resis
Ingenieria, S.A. ("Resis"), a wholly-owned subsidiary that provides management
services for the Company; (ii) unallocated parent company amounts, including
overhead expenses; and (iii) the elimination of intercompany balances and
transactions. As it relates to net income (loss) and stockholders' equity, the
category "Other" also includes the allocation to minority interest. Such
financial data have been derived from the consolidating schedules prepared by
the Company for its consolidated financial statements for the years ended
December 31, 1995, 1996 and 1997. The following supplemental financial data for
the first six months of 1997 and 1998 have been derived from the Company's
unaudited consolidated financial statements for the six months ended June 30,
1997 and 1998, respectively. Selected financial data for IMPSAT Argentina and
IMPSAT Colombia are set forth in "Business -- Description of Country
Operations."
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------- -------------------
1995 1996 1997 1997 1998
-------- --------- --------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues from services:
Argentina........................ $ 80,346 $ 85,145 $ 90,011 $ 43,953 $ 48,070
Colombia(7)...................... 22,417 35,116 49,514 23,791 28,094
Venezuela(8)..................... 2,204 4,496 8,625 3,894 6,387
Ecuador(9)....................... 588 2,802 5,513 2,364 4,140
Other............................ 86 834 6,573 1,719 6,960
-------- --------- --------- -------- --------
TOTAL....................... $105,641 $ 128,393 $ 160,236 $ 75,721 $ 93,651
======== ========= ========= ======== ========
Operating expenses(1):
Argentina........................ $(66,019) $ (66,275) $ (71,299) $ 34,188 $ 39,164
Colombia......................... (17,627) (24,140) (32,791) 15,157 18,108
Venezuela........................ (4,257) (6,752) (10,767) 4,573 6,193
Ecuador.......................... (1,765) (3,474) (5,354) 2,177 3,660
Other............................ (9,090) (9,687) (16,786) 6,441 15,393
-------- --------- --------- -------- --------
TOTAL....................... $(98,758) $(110,328) $(136,997) $ 62,536 $ 82,518
======== ========= ========= ======== ========
Net income (loss):
Argentina........................ $ 4,472 $ 3,021 $ 2,879 $ 963 $ 899
Colombia......................... (135) 2,239 8,392 3,954 3,549
Venezuela........................ (1,723) (1,167) (5,438) (1,966) (1,677)
Ecuador.......................... (1,290) (1,099) (961) (559) (189)
Other............................ (8,741) (11,477) (12,838) (5,244) (11,147)
-------- --------- --------- -------- --------
TOTAL....................... $ (7,417) $ (8,483) $ (7,966) $ (2,852) $ (8,565)
======== ========= ========= ======== ========
</TABLE>
(footnotes appear on page 15)
14
<PAGE> 15
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------- -------------------
1995 1996 1997 1997 1998
-------- --------- --------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
EBITDA(2):
Argentina........................ $ 30,394 $ 37,656 $ 36,504 $ 18,481 $ 18,514
Colombia......................... 8,748 16,660 23,965 11,862 13,856
Venezuela........................ (1,675) (1,106) (132) 82 1,190
Ecuador.......................... (1,037) (321) 812 280 981
Other............................ (8,894) (8,506) (9,396) (3,744) (6,779)
-------- --------- --------- -------- --------
TOTAL....................... $ 27,536 $ 44,383 $ 51,753 $ 26,961 $ 27,762
======== ========= ========= ======== ========
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30, 1998
------------------------------ -----------------------
1995 1996 1997 ACTUAL PRO FORMA(6)
-------- -------- -------- -------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets:
Argentina......................... $165,945 $174,239 $191,029 $239,109 $239,109
Colombia.......................... 59,929 70,501 106,919 101,165 101,165
Venezuela......................... 11,192 23,718 28,596 31,127 31,127
Ecuador........................... 4,383 9,795 13,262 17,298 17,298
Other............................. 7,646 36,977 110 204,532 169,302
-------- -------- -------- -------- --------
TOTAL........................ $249,095 $315,230 $339,916 $593,231 $558,001
======== ======== ======== ======== ========
</TABLE>
- ---------------
(1) Operating expenses consist of variable cost of services; satellite capacity;
salaries, wages and benefits; selling, general and administrative expenses;
and depreciation and amortization.
(2) EBITDA consists of operating income (loss) plus depreciation and
amortization. EBITDA is presented because it is a measure commonly used in
the industry and to enhance an understanding of the Company's operating
results and is not intended to represent or be a substitute for cash flow
under U.S. GAAP. Because EBITDA is not calculated under U.S. GAAP
principles, it is not necessarily comparable to similarly titled measures of
other companies.
(3) The ratio of earnings to fixed charges is computed by dividing operating
income before fixed charges (other than capitalized interest), by fixed
charges. Fixed charges consist of interest charges and amortization of
deferred finance costs. Earnings of the Company were insufficient to cover
fixed charges by approximately $9.6 million, $7.1 million, $2.7 million and
$10.4 million for 1995, 1996 and 1997 and the six months ended June 30,
1998, respectively. On a pro forma basis as contemplated by footnote 4
below, earnings of the Company would have been insufficient to cover fixed
charges by approximately $26.6 million and $15.5 million for 1997 and the
six months ended June 30, 1998, respectively.
(4) Pro forma ratios are presented for the year ended December 31, 1997 and for
the six-month period ended June 30, 1998 as if the Offering and the
application of the proceeds thereof had occurred at the beginning of the
relevant period.
(5) Represents the ratio of debt at the end of the period to EBITDA over the
preceding four quarters.
(6) Pro forma balance sheet data is presented as if the Offering and the
application of the proceeds thereof to repay $35.2 million of indebtedness
had occurred on the balance sheet date.
(7) IMPSAT Colombia commenced operations in December 1992.
(8) IMPSAT Venezuela commenced operations in January 1993.
(9) IMPSAT Ecuador commenced operations in January 1995.
15
<PAGE> 16
RISK FACTORS
SUBSTANTIAL INDEBTEDNESS
As of June 30, 1998, on a pro forma basis after giving effect to the
application of the proceeds of the Offering, IMPSAT Corporation on an
unconsolidated basis would have had approximately $132.0 million of indebtedness
other than the Notes, and the Company's subsidiaries would have had
approximately $79.5 million of indebtedness (excluding intercompany payables and
the guarantee of the Existing Senior Notes). Total stockholders' deficit of the
Company on a consolidated basis as of June 30, 1998 was approximately $79.4
million.
After giving effect to the application of the proceeds of the Offering as
if they had occurred at the beginning of the period, the Company would have had
pro forma interest expense of approximately $49.9 million for 1997. As of June
30, 1998 on a pro forma basis, the Company's total debt was $429.4 million and
its stockholders' deficit was $79.4 million. In addition, at June 30, 1998, on a
pro forma basis, the Company's ratio of debt to EBITDA for the prior four
quarters would have been 8.2 times. Earnings of the Company were insufficient to
cover fixed charges by approximately $9.6 million, $7.1 million and $2.7
million, for 1995, 1996 and 1997, respectively, and by $10.4 million for the
first six months of 1998. In addition, on a pro forma basis earnings of the
Company were insufficient to cover fixed charges by approximately $26.6 million
and $15.5 million for 1997 and for the first six months of 1998, respectively.
The Indenture permits the Company and its subsidiaries to incur substantial
amounts of indebtedness in the future.
The levels of the Company's indebtedness could have important consequences
to holders of the Notes, including the following: (i) the debt service
requirements of any additional indebtedness could make it more difficult for the
Company to make payments on the Notes; (ii) the ability of the Company to obtain
any necessary financing in the future for working capital, capital expenditures,
debt service requirements or other purposes may be limited; (iii) all or a
substantial portion of the Company's cash flow from operations must be dedicated
to the payment of principal of and interest on its indebtedness and other
obligations and will not be available for other purposes; (iv) the Company's
level of indebtedness could limit its flexibility in planning for, or reacting
to changes in, its business; (v) the Company will be more highly leveraged than
some of its competitors, which may place it at a competitive disadvantage; and
(vi) the Company's high degrees of indebtedness will make it more vulnerable in
the event of a downturn in its business and make it less likely to be able to
make payments on the Notes.
SIGNIFICANT CAPITAL REQUIREMENTS
In the future, the Company will require significant amounts of additional
capital to fund (i) the expansion of its private telecommunications networks
(including the development of its operations in Brazil) and (ii) the acquisition
of businesses and investments in joint ventures and strategic alliances and
(iii) working capital. In addition, any implementation of IMPSAT 2000 would
require significant amounts of additional capital not currently contemplated
within the Company's capital expenditures budgets. IMPSAT 2000, which would
enable the Company to provide a greater array of services for its business
customers, including switched international, domestic long distance and local
services upon the deregulation of the Latin American telecommunications markets,
could require an expenditure of up to $2.0 billion at its full implementation,
subject to financing. There can be no assurance that the Company will be able to
obtain sufficient capital on acceptable terms to fund any expansion plans. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" for an estimate of the Company's
capital expenditure requirements through the year 1999. The exact amount of the
Company's future capital requirements will depend upon many factors, including
the cost, timing and extent of upgrading or expanding its networks and services,
the development of new services, the Company's ability to penetrate new markets,
regulatory changes, the status of competing services, the magnitude of potential
acquisitions, investments and strategic alliances, and the Company's results of
operations. Individually or collectively, variances in these and other factors
could cause the amount and timing of the Company's actual capital requirements
to differ from its expectations. During 1997, the Company's cash flow from
operations totaled $14.1 million and capital expenditures totaled $55.0 million.
In addition, as of June 30, 1998, on a
16
<PAGE> 17
pro forma basis after giving effect to the application of the proceeds of the
Offering, $45.0 million of the Company's debt is scheduled to mature in 1998,
approximately $16.3 million in 1999 and approximately $368.1 million in the year
2000 and thereafter. The Company has historically incurred substantial amounts
of short-term debt. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
Although the Company does not have material commitments from any lenders, it may
borrow substantial amounts of short-term debt in the future.
New sources of capital may include subsequent public and private equity and
debt financings by the Company or its subsidiaries. The incurrence of additional
indebtedness could subject the Company to more restrictive financial covenants.
There can be no assurance that additional financing will be available on
acceptable terms or at all. To the extent unplanned expenditures arise or the
Company's estimates of its capital requirements prove to be inaccurate, the
Company may require such additional financing sooner than anticipated and in
amounts greater than currently expected. Failure to obtain such financing could
result in the delay or abandonment of some or all of the Company's development
and expansion plans, which could have a material adverse effect on the business,
results of operations and financial condition of the Company and its ability to
make payments on the Notes. See "Management's Discussion and Analysis of
Financial Condition and Results of Operation -- Liquidity and Capital
Resources."
The terms of the Company's Series A Preferred Stock contain provisions
which under certain circumstances could require the Company to redeem that
Series, subject to the provisions of the Indenture and the 1996 Indenture. In
addition, because of the potentially dilutive effect of the conversion of the
Series A Preferred Stock into common stock, it may be desirable for the Company
to redeem the Series A Preferred Stock. The Company does not presently have the
funds with which to redeem the Series A Preferred Stock. If it is required to
redeem the Series A Preferred Stock, there can be no assurance that any such
redemption would not have a material adverse effect on the Company's ability to
make payments on the Notes.
HOLDING COMPANY STRUCTURE: EFFECTIVE SUBORDINATION OF NOTES TO OBLIGATIONS OF
SUBSIDIARIES
IMPSAT Corporation, the issuer of the Notes, is a holding company with no
business operations of its own. IMPSAT Corporation's assets consist solely of
its ownership interests in its subsidiaries and other related investments.
IMPSAT Corporation will use substantially all of the net proceeds from the
Offering to make loans to certain of its subsidiaries, for use by the
subsidiaries to repay debt and to finance the expansion and development of their
telecommunications infrastructure. See "Use of Proceeds." IMPSAT Corporation
must rely upon debt service payments, dividends and other payments from its
subsidiaries to generate the funds necessary to meet its obligations, including
the payment of principal of and interest on the Notes. The subsidiaries,
however, are legally distinct from IMPSAT Corporation and have no obligation,
contingent or otherwise, to pay amounts due pursuant to the Notes. IMPSAT
Corporation's subsidiaries will not guarantee the Notes, and some of such
subsidiaries have minority investors. The ability of IMPSAT Corporation's
subsidiaries to make such payments to IMPSAT Corporation will be subject to,
among other things, availability of funds, the terms of such subsidiaries'
indebtedness and applicable local laws, including withholding taxes and foreign
exchange controls. The maximum withholding tax on interest payments abroad from
Argentina, Colombia, Venezuela, Ecuador, Mexico and Brazil is currently 13.2%,
39.6%, 32.3%, 0%, 35.0% and 15.0%, respectively. The Company has been, and
expects to be, able to reduce the applicable withholding tax rates by taking
advantage of certain exemptions and financing structures available to it. The
maximum withholding tax on dividends remitted abroad is currently 0% in
Argentina, Venezuela, Ecuador, Mexico and Brazil and 39.6% in Colombia. Such
withholding tax rates could change at any time. The laws governing all of the
Company's subsidiaries, except IMPSAT USA, permit companies to pay dividends
only out of positive retained earnings determined in accordance with local
generally accepted accounting principles and also require companies to allocate
a minimum percentage of each year's net income to a legal reserve until the
total amount of such reserve equals a certain percentage of their authorized and
outstanding capital stock, and to pay dividends only out of excess income after
allocation of such percentages to legal reserves. As a result of such
requirements and in light of the accumulated net losses incurred to date by
IMPSAT Venezuela, IMPSAT Ecuador and IMPSAT Mexico and expected to be incurred
by IMPSAT Brazil, the
17
<PAGE> 18
Company does not believe that any of its subsidiaries other than IMPSAT
Argentina and IMPSAT Colombia would be able to pay dividends to the Company in
the foreseeable future.
Claims of creditors of the subsidiaries, including trade creditors, will
generally have priority as to the assets of such subsidiaries over the claims of
IMPSAT Corporation and the holders of IMPSAT Corporation's indebtedness,
including the Notes. Accordingly, the Notes will be effectively subordinated to
the liabilities including trade payables, of the subsidiaries of IMPSAT
Corporation. At June 30, 1998, on a pro forma basis after giving effect to the
application of the proceeds of the Offering, the subsidiaries of IMPSAT
Corporation would have had approximately $275.8 million of liabilities
(excluding intercompany payables), including $204.5 million of indebtedness
(including guarantees of the Existing Senior Notes).
SHORT OPERATING HISTORY; HISTORY OF LOSSES; RISKS OF EXPANSION STRATEGY
The Company commenced commercial operations in 1990 and has experienced
rapid growth, increasing annual revenues from $8.2 million in 1991 to
approximately $160.2 million in 1997. The Company has, however, incurred net
losses in every year except 1994. The Company currently conducts significant
operations in Argentina and Colombia, is an established provider of private
telecommunications network services in Venezuela and Ecuador and has limited
operations in Mexico and the United States. The Company recently commenced
operations in Brazil with the acquisition of a 99.9% ownership interest in
IMPSAT Brazil on June 1, 1998. In addition, on May 28, 1998, the Company
acquired a majority interest in Mandic S.A. There can be no assurance that
IMPSAT Brazil, which is still primarily in the developmental stage, and Mandic
S.A. will be successfully integrated. Moreover, there can be no assurance that
the Company's historic rate of growth or expansion will continue. In particular,
the Company's rate of growth in Argentina, the market in which it first
commenced operations in 1990, has slowed considerably in recent periods. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business -- Description of Country Operations -- IMPSAT
Argentina."
The Company recorded net losses of $2.8 million, $7.4 million, $8.5 million
and $8.0 million in 1993, 1995, 1996 and 1997, respectively and net income of
$3.0 million in 1994. Achieving and sustaining profitable operations will depend
upon many circumstances, including market demand, pricing and competition in the
telecommunications industry in the countries where the Company operates. The
failure of the Company to achieve and sustain profitability could hinder its
ability to respond effectively to market conditions, to make capital
expenditures and to take advantage of business opportunities, the failure to
perform any of which could have a material adverse effect on the business,
results of operations and financial condition of the Company and its ability to
make payments on the Notes.
The Company's ability to manage its expansion effectively will require it
to continue to implement and improve its operating, financial and accounting
systems and to hire, train and manage employees. The continued expansion and
development of the Company's business will also depend upon, among other things,
the Company's ability to design and develop integrated private
telecommunications networks, secure financing, install telecommunications
infrastructure, obtain any required government authorizations and assess
potential markets, all in a timely manner, at reasonable costs and on
satisfactory terms and conditions. In addition, such expansion may involve
acquisitions, including acquisitions in Brazil, that could divert the Company's
resources and management and require integration with the Company's existing
operations. The failure to manage its planned expansion effectively could have a
material adverse effect on the Company's business, growth, financial condition
and results of operations and its ability to make payments on the Notes. There
can be no assurance that the Company will be successful in developing and
marketing, on a timely basis or at all, service enhancements or new services
that respond to technological change, changes in customer requirements and
emerging industry standards. If the Company successfully identifies any such
opportunities, there can be no assurance that the Company's lack of significant
experience with respect to a new service or market will not hinder the Company's
ability to successfully capitalize on such opportunity. The development and
implementation of IMPSAT 2000, including the expansion into new services for its
business customers, including switched international, and domestic long distance
and local services upon the deregulation of the telecommunications markets would
involve regulatory risks, interconnection difficulties, large amounts of capital
expenditures, accounts receivable risks, competition from large, well-financed
international telecom-
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munications carriers (such as AT&T Corporation ("AT&T"), MCI Communications
Corporation ("MCI"), WorldCom, Inc. ("Worldcom"), Sprint Corporation ("Sprint"),
STET SpA ("STET"), Spain's Telefonica S.A. and others) and substantial start-up
and marketing costs. The development and implementation of IMPSAT 2000,
including the provision of switched telephony services, may have a negative
impact on the Company's results of operations, at least over the short term, and
could have a material adverse effect on its ability to make payments on the
Notes.
COMPETITION
The private telecommunications network industry in Latin America is highly
competitive and is generally characterized by low barriers to entry. The Company
expects that competition in the industry is likely to increase substantially in
the future. The Company competes on the basis of its experience, quality,
customer service, range of services offered and price.
Although the Company to date has not suffered substantial price erosion,
the Company has faced and expects to continue to face declining prices and may
experience declining margins in the future as the monopoly public telephony
operators (the "PTOs") in the countries in which the Company has operations
adapt to a competitive marketplace and place greater emphasis on data
communications and as new competitors enter its markets. The Company believes
that as the Latin American telecommunications markets become less regulated
there will be increasing demand for private telecommunications network services
and that such increased demand should help to mitigate any decline in prices,
but there can be no assurance in this regard.
In most of its markets, the Company's principal current competitor is the
local PTO or an affiliate of the local PTO. The PTOs generally have significant
competitive advantages (which may decrease as deregulation progresses),
including their close ties with national regulatory authorities, their control
over connections to local telephone lines, their ability to subsidize
competitive services with revenues generated from services they provide on a
monopoly basis and the reluctance of some regulators to adopt policies and grant
regulatory approvals that will result in increased competition for the local
PTO. For example, the Company's principal competitor in Argentina is Startel
S.A. ("Startel"), which is the joint venture company for data transmission
services owned 50% each by Telecom Argentina STET-France Telecom S.A. ("Telecom
Argentina") and Telefonica de Argentina S.A. ("Telefonica"), the PTOs in
northern and southern Argentina, respectively. Startel uses the infrastructure
of its PTO owners to deliver its services to its customers. Startel's total
revenues from all services, including data transmission, have increased to
approximately $114 million in 1997. In addition, Telecom Argentina and
Telefonica each recently obtained regulatory approval to establish their own
data transmission units. In the future, the PTOs may devote substantially more
resources to the sale, marketing and provision of services that compete with the
Company's services, which could have a material adverse effect on the Company's
business, results of operations and financial condition and its ability to make
payments on the Notes. The Company also competes with private operators of VSAT
networks, other satellite data transmission networks and terrestrial
telecommunications links, as well as with companies that sell the equipment for
data transmission networks that are privately owned and maintained by the user.
The Company could face new competition in the future from large
international telecommunications carriers, such as AT&T, MCI, Worldcom and
Sprint, or from other industry participants. While international
telecommunications carriers have in the past focused on long distance telephony
services, they may focus on the private telecommunications network systems
segment of the telecommunications market as deregulation continues. For example,
if, as expected, Argentina authorizes competition in long distance telephony,
these large telecommunications carriers may decide to enter the Argentine
telephony market and to provide data transmission services as well. These
potential competitors have financial and other resources substantially greater
than those of the Company. In addition, consolidation of telecommunications
companies and the formation of strategic alliances within the telecommunications
industry could give rise to significant new competitors to the Company. For
example, Spain's Telefonica S.A., Worldcom and MCI recently announced the
formation of an alliance to cooperate in Latin America and elsewhere. The three
companies reportedly announced an initial expectation to invest up to $200
million in Latin America. If any of such competitors or potential competitors
were to devote significant additional resources to the provision of private
telecommuni-
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cations network services to the Company's core customer base, there could be a
material adverse effect on the business, financial condition and results of
operations of the Company and its ability to make payments on the Notes.
In addition, there can be no assurance that competing technologies will not
become available that will adversely affect the Company's business, although the
Company believes that it has the flexibility to act quickly to take advantage of
any significant technological development. For example, new technologies such as
asynchronous digital subscriber line (ADSL) can significantly enhance the speed
of traditional copper lines. This or other technologies could enable the
Company's PTO competitors to offer customers new high-speed services without
undergoing the expense of replacing their existing twisted-pair copper networks,
thereby negating the Company's "last mile" advantage. The Company's private
telecommunications services also could face future competition from entities
using or proposing to use new or emerging voice and data transmission services
or technologies which currently are not widely available in Latin America, such
as space based systems dedicated to data distribution services, generally known
as "Little-LEOs" (low earth orbit satellites) and "Broadband" (Ka-band) systems.
While the Company does not foresee significant near-term competition in its
existing markets from such new technologies, there can be no assurance that such
competing technologies will not be successful and, as a result, provide
significant competition over the longer term that could have a material adverse
effect on the business results of operations and financial condition of the
Company and its ability to make payments on the Notes. See "-- Technological
Considerations" and "Business -- Competition."
The Company has recently established operations in Brazil and expects to
face significant competition in that market. Brazil is by far the largest
telecommunications market in Latin America and is expected to attract numerous
providers, many of whom may be larger and better financed than the Company. At
the end of July 1998, Telecomunicacoes Brasileras S.A. ("Telebras"), the
Brazilian national telecommunications company, was split into twelve companies
by region and type of provider, and the twelve companies were privatized.
Winning bidders for the twelve operating companies included STET, MCI and
Telefonica S.A. In addition, numerous additional concessions to provide
telephony and data transmissions services are expected to be granted. The
winning bidders and concessionaires are likely also to focus on parts of the
Brazilian market beyond those in which they initially obtain a concession. The
presence of large carriers in Brazil may negatively affect the Company's
prospects in Brazil. As the Brazilian telecommunications sector is liberalized
and deregulated, competition is likely to initially come from current
telecommunications service providers in that country, including Empresa
Brasileira de Telecomunicacoes S.A. ("Embratel"), Brazil's monopoly
long-distance carrier, which was acquired by MCI; Promon Eletronica Ltda., one
of the largest Brazilian private telecommunications companies and the local
partner of Hughes Network Systems ("Hughes") for the provision of satellite
telecommunications networks; COMSAT do Brazil Ltda.; and GSI Servicos de
Informatica Ltda. ("GSI"), a wholly-owned data transmission services subsidiary
of IBM, as well as from other domestic and international entrants. Global One,
the joint venture of Deutsche Telekom AG, France Telecom S.A. and Sprint,
recently received a license to offer international and domestic
telecommunications services to corporations in Brazil. Moreover, large, well
financed international telecommunications carriers, such as AT&T, Worldcom and
Sprint, may be expected to enter the Brazilian telecommunications market.
Competition in Brazil could have a material adverse effect on the Company's
business, results of operations and financial condition and its ability to make
payments on the Notes.
RISKS ASSOCIATED WITH PROVIDING INTERNET SERVICES
One of the Company's newer services is Internet access, which has primarily
been provided to residential customers. For the first six months of 1998, the
Company had $7.4 million in revenues from Internet services (as compared to $7.6
million for the full 1997 year), and at June 30, 1998 had in excess of 77,200
dial-up Internet access retail customers and 142 dedicated Internet access
business customers. As is typical for a new and rapidly evolving industry
characterized by rapidly changing technology, evolving industry standards and
frequent new product and service introductions, demand and market acceptance are
subject to a high level of uncertainty. In addition, critical issues concerning
the commercial use of the Internet remain unresolved and may impact the growth
of Internet use. Despite growing interest in the many commercial uses of the
Internet,
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many businesses have been deterred from purchasing Internet access services for
a number of reasons, including, among others, inconsistent quality of service,
lack of availability of cost-effective, high-speed options, a limited number of
access points, inability to integrate business applications on the Internet, the
need to deal with multiple and frequently incompatible vendors, inadequate
protection of the confidentiality of stored data and information moving across
the Internet, and a lack of tools to simplify Internet access and use. In
particular, numerous published reports have indicated that a perceived lack of
security of commercial data, such as credit card numbers, has significantly
impeded commercial exploitation of the Internet to date, and there can be no
assurance that encryption or other technologies will be developed that
satisfactorily address these security concerns. Published reports have also
indicated that capacity constraints caused by growth in the use of the Internet
may, unless resolved, impede further development of the Internet to the extent
that users experience delays, transmission errors and other difficulties. For
example, inadequate transmission infrastructure in Latin America (such as an
insufficiency of telephone lines for Internet access) could forestall the growth
of Internet service in that region. Further, the adoption of the Internet for
commerce and communications, particularly by those individuals and enterprises
which have historically relied upon alternative means of commerce and
communication, generally requires the understanding and acceptance of a new way
of conducting business and exchanging information.
The Company could be exposed to liability with respect to the material that
may be accessible through the Company's Internet services. The nature and scope
of existing or future laws in various jurisdictions governing issues such as
property ownership, libel and personal privacy or other theories based on the
nature and content of material transmitted via Internet is uncertain, may take
years to resolve and could expose the Company to substantial liability for which
the Company might not be indemnified by the content providers or other third
parties. Any such new legislation or regulation or the application of such
existing laws and regulations to the Internet could have a material adverse
effect on the business, results of operations and financial condition of the
Company and its ability to make payments on the Notes.
The Company's customer base for Internet services currently consists
primarily of individuals. The Company can expect to encounter customer
"churn" -- the term used to denote customer turnover through
cancellations -- and difficulty collecting receivables from such a large base of
small customers as its Internet service grows. The Company's churn rate and
inability to collect receivables for Internet services could have a material
adverse effect on the Company's business, results of operations and financial
condition and its ability to make payments on the Notes.
RECEIVABLES RISKS
The Company's subsidiaries provide trade credit to their customers in the
normal course of business. Prior to extending credit, the customer's financial
history is analyzed. As of June 30, 1998, excluding two customers discussed
below, approximately 11% of the Company's gross current trade accounts
receivable were past due more than six months but less than one year and
approximately 13% of gross accounts receivable were past due more than one year.
Excluding those two customers, the Company's allowance for doubtful accounts was
approximately $8.2 million (or 16.3% of gross accounts receivable) at June 30,
1998. See Note 4 to the Company's consolidated financial statements. Prior to
June 30, 1998, the Company's general policy had been to reserve an amount equal
to 30% of accounts receivable in excess of 180 days but less than one year, and
100% of accounts receivable in excess of 360 days. These guidelines were not,
however, applied in cases where the Company determined that applying the
guidelines would not be appropriate. At the end of the second quarter of 1998,
the Company decided to change its policy of reserving for doubtful accounts and
increased its reserve to cover 100% of accounts receivable in excess of 180
days. The new policy will not be applied to a receivable if the president of the
operating subsidiary that generated such receivable determines that it will be
collected within a further 60 days. The Company believes that the change in
policy will provide a more appropriately comprehensive reserve against
uncollectible customer accounts.
A significant part of the Company's past due trade receivables relates to
Banco de la Nacion Argentina ("BNA"), a state-owned bank and the largest bank in
Argentina. The receivable was recorded for services provided under a subcontract
between IMPSAT Argentina and IBM de Argentina, S.A. In 1997, the Company began
reserving for receivables generated under the contract during 1996 and 1997. The
contract
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<PAGE> 22
was terminated by BNA in the second quarter of 1997. The Company's allowance for
the BNA receivable was approximately $1.2 million (or 52.0% of the total amount
due to IMPSAT Argentina under such contract) at June 30, 1998. The payment of
the receivable by BNA is subject to the approval of the General Auditor of
Argentina, which office is conducting an audit of the procedures used by BNA in
awarding the contract. BNA is generally current on its payments under BNA's
existing contract with IMPSAT Argentina.
In November 1996, IMPSAT Argentina filed suit against Empresa Nacional de
Correos y Telegrafos S.A. ("ENCOTESA"), the former Argentine national postal
service, for amounts due under IMPSAT Argentina's contracts with ENCOTESA, which
totaled $5.6 million, plus interest on such amounts. At the end of 1996, IMPSAT
Argentina began to reserve 100% of all subsequent invoices submitted to ENCOTESA
and to charge such amounts directly to selling, general and administrative
expenses. Subsequently, the Company reclassified all trade account receivables
due from ENCOTESA to noncurrent assets. Such noncurrent assets were recorded at
their estimated net realizable value of $5.1 million (as determined by the
Company's management based on the advice of the Company's Argentine counsel).
There can be no assurance that difficulties in collecting amounts due from
customers will not have a material adverse effect on the business, results of
operations and financial condition of the Company and its ability to make
payments on the Notes.
RISKS RELATING TO OPERATIONS IN LATIN AMERICA
Substantially all of the Company's consolidated net revenues from services
are derived from operations in Latin America. During 1997, approximately 56.1%
and 30.9% of the Company's consolidated net revenues from services were derived
from IMPSAT Argentina and IMPSAT Colombia, respectively. The Company also has
established operations in Venezuela, Mexico and Ecuador, and has recently
commenced operations in Brazil. While the Company believes that such geographic
diversification provides the benefit of ameliorating potential economic and
political risks associated with operating in any single Latin American country,
an investment in the Company is subject to certain risks common in the conduct
of business in Latin America. Other than the United States, each country where
the Company operates has experienced political and economic instability in
recent years. Moreover, as events in the Latin American region have
demonstrated, negative economic or political developments in one country in the
region can lead to or exacerbate economic or political crises elsewhere in the
region. Furthermore, recent events in Asia and Russia have placed pressures on
the stability of the currencies of a number of countries in Latin America,
including Argentina, Brazil, Mexico and Venezuela. The economies of Latin
America have been characterized by extensive government intervention in the
economy; inflation and hyperinflation; currency devaluations, fluctuations,
exchange controls and shortages; troubled and insolvent financial institutions;
capital flight; political instability, turmoil and violence; and economic
contraction and unemployment. It is impossible to predict whether such events,
circumstances or conditions will occur, recur or worsen, or what effect any such
events, circumstances or conditions, which are entirely outside the control of
the Company, will have on the countries in which the Company operates or upon
the Company. Prospective purchasers should recognize that these conditions and
events may have adverse effects on the business, results of operations and
financial condition of the Company and its ability to make payments on the
Notes.
Argentina. While the Company anticipates that the concentration of its
business outside Argentina will increase in the coming years, Argentina is
expected to remain the Company's most significant market for the foreseeable
future, and developments in Argentina are accordingly of particular importance
to the Company.
For several decades prior to the 1990s, the Argentine economy was plagued
by erratic, interventionist and generally unsuccessful economic policies. The
Argentine government had nationalized substantially all public utilities as well
as the country's leading producers of steel, oil, gas and petrochemicals. These
businesses were operated in a highly inefficient manner, contributing to
increased fiscal deficits that were financed through uncontrolled expansions of
the money supply as well as national and international financing arrangements
that were ultimately rescheduled, resulting in substantial losses to Argentina's
creditors. In addition, the Argentine government imposed capital and exchange
controls and levied heavy tariffs that distorted the country's production costs
and impaired its export competitiveness.
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These difficulties culminated in a period of severe hyperinflation and
currency devaluation. In 1988, 1989 and 1990 the Argentine consumer price index
increased by approximately 388%, 4,924% and 1,344%, respectively. For many years
before December 1989, the Argentine foreign exchange market was subject to
exchange controls. Under current law, Argentine currency is convertible into
U.S. dollars without restrictions and Argentina has a free exchange market for
all foreign currency transactions. However, there can be no assurance that this
will continue.
Although Argentina has, since 1991, enjoyed a period of relative economic
stability and prosperity, Mexico's 1994 devaluation heightened investor concerns
that Argentina would be forced to devalue its currency which could have provoked
a renewed bout of inflation. These concerns promoted capital flight in early
1995 which resulted in a decline in Argentina's international currency reserves,
a significant tightening of bank liquidity and a surge in interest rates and
imperiled both the Argentine banking sector and the Convertibility Plan that
underlies the Argentine peso's parity with the U.S. dollar. According to the
Central Bank of Argentina, gross international reserves fell to $12.5 billion as
of March 31, 1995 from $17.9 billion as of December 31, 1994. Consequently,
banks and other financial intermediaries contracted credit, Argentina's real
gross domestic product ("GDP") experienced a 4.4% decline in 1995 and
unemployment reached a peak of 18.4%.
The Argentine economy recovered in 1996, with GDP growing 4.4%, and
economic growth continued into 1997. During the first six months of 1997, GDP
rose 8.0% versus the same period in 1996. During the first six months of 1997,
industrial production grew 6.2% and investment increased by 28% over the
comparable 1996 period. The inflation rate during the first nine months of 1997
was approximately 0.1%, as measured by the wholesale price index, compared to
2.6% in the comparable 1996 period.
In the mid-term Congressional elections held on October 26, 1997, the
Justicialista Party, which had previously controlled both houses of the
Argentine Congress, lost by a narrow margin to a coalition (the "Alianza")
formed by its two main adversaries, the Union Civica Radical ("UCR") and the
Frente Pais Solidario ("Frepaso"). As a result, as of December 31, 1997, none of
these parties individually controlled a majority in the Chamber of Deputies.
Instead, of the total of 257 seats, the Justicialista Party held 118 seats, the
parties of the Alianza held an aggregate of 110 seats and other minority parties
held a total of 29 seats. No assurance can be given that a potential deadlock of
votes in the Chamber of Deputies will not delay the passing of certain laws,
which delay might negatively affect the economic situation of Argentina, nor
that the recent and future changes in the political composition of the Argentine
Government will not result in legislative or policy shifts adverse to the
Argentine economy or the telecommunications sector in Argentina and the business
of the Company.
The recent instability and volatility in the world financial markets, which
began with the crisis in the markets of Southeast Asia and has spread to Russia
and Venezuela, has also negatively affected the Argentine financial market, as
well as the market of Argentina's largest trading partner, Brazil, and could
have a negative effect on the Argentine economy. As of the date of this
Prospectus, the Argentine economy has not been severely affected by such events.
However, the Company is unable to predict the effect of such crisis on the
Argentine economy or the business, financial condition or results of operations
of the Company or its ability to make payments on the Notes.
In addition, there can be no assurance that the Convertibility Plan or the
recent government measures described above will be successful in improving the
performance of the Argentine economy or that future economic developments in
Argentina, over which the Company has no control, will not impair the Company's
business, financial condition or results of operations and adversely affect the
Company's ability to pay interest or repay the principal of the Notes. Nor can
there be any assurance that future uncertainties preceding and resulting from
the Presidential elections in October 1999 will not negatively impact the
Argentine economy or that the Convertibility Law will not be amended or repealed
or that the Argentine monetary authorities will not change their policy of
supporting the existing peso/dollar exchange rate.
Colombia. While Colombia is the Company's second largest market, the
percentage of the Company's revenues derived from its business in Colombia is
currently less than in Argentina. This disparity, however, is expected to
decrease over time.
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<PAGE> 24
The Colombian government exercises significant control over the Colombian
economy. Accordingly, Colombian governmental actions concerning the economy
could significantly affect private sector entities in general, and the Company
in particular. Colombian law permits the Colombian government to impose foreign
exchange controls in the event that foreign currency reserves fall below a
specified level. Since 1990 the Colombian government has embarked on a series of
economic reforms, known as Apertura or "opening." The Apertura reforms included
deregulation of commercial activity, relaxation of foreign investment and
foreign exchange controls, greater independence for the Colombian Central Bank,
liberalization of labor laws, privatization of certain state-owned companies,
reduction of trade barriers and changes in the tax system. Although Apertura has
had a generally positive effect on the economy to date, there can be no
assurance that Apertura will remain in effect or that its positive effects will
continue.
In December 1996, strong foreign investment inflows and increased external
borrowing by the public and private sector led to a $1.5 billion increase in
Colombia's net international reserves, 18.1% higher than their level on November
30, 1996, exerting upward pressure on the value of the Colombian peso and
complicating the achievement of macroeconomic and fiscal policy objectives for
1997. The combination of these two events led the Colombian government to
conclude in January 1997 that extraordinary economic measures would be required
in order to forestall a further appreciation of the peso and an increase in the
Colombian government deficit over that projected for 1997. Accordingly, in
January 1997, the Colombian government issued a series of decrees including (i)
a tax on the incurrence of external indebtedness (with certain exceptions, such
as export-related financings), (ii) an increase in the stamp tax rate, (iii) the
extension of the value added tax ("VAT") to certain previously exempt goods and
services and the elimination or limitation of certain income tax deductions and
exemptions, and (iv) an enhancement of the powers of tax and customs authorities
to investigate and sanction tax evaders. The Colombian government recently
allowed the Colombian peso to devalue against the U.S. dollar.
Colombia has experienced political turmoil stemming in part from
allegations that former President Samper's 1994 election campaign fund received
contributions from the Cali drug cartel. The ongoing political turmoil caused by
such allegations has had and may continue to have a material adverse effect on
Colombia's economy. Real growth in gross domestic product during the first three
quarters of 1997 was negative 0.4%, positive 3.1% and positive 4.7%,
respectively, in contrast to real gross domestic product growth during the first
three quarters of 1996 of 4.4%, 2.3% and 2.0%, respectively, and for the years
1994, 1995 and 1996 of 5.8%, 5.4% and 2.1%, respectively. A slowdown in the
Colombian economy could have a material adverse effect on the Company's results
of operations and financial condition. This political crisis has been aggravated
by the United States "decertifying" Colombia for failing to take sufficient
action to stem the production and export of narcotics. The United States
decertified Colombia for a third year in a row on February 27, 1998. Under
United States law, the President is required to certify to the U.S. Congress
annually which nations that are major producers or major transit points for
drugs cooperate with efforts to stem the flow of narcotics into the United
States. The refusal to certify Colombia has had the following consequences: (i)
the U.S. representatives on the boards of certain multilateral development
banks, such as the World Bank and the Inter-American Development Bank, are
instructed to vote against loans granted by such institutions to Colombia, and
(ii) U.S. government 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. Although its
antidrug performance was still found wanting, the United States ameliorated its
approach this year by granting Colombia a waiver, on national security grounds,
of the resultant financial-aid sanctions. Although the United States has not
imposed further sanctions at this time, it could also impose, for example, trade
sanctions on Colombian exports to the United States and may suspend or end
implementation of certain agreements providing preferential treatment to
Colombian exports to the United States primarily in connection with products
that benefit from low or no import duties. There can be no assurance that
sanctions of the nature described above or other sanctions will not be imposed
in the future. It is also uncertain what economic or political actions the U.S.
government may take in connection with the certification process and the effect
of such actions on the Colombian economy.
The foregoing political crisis has occurred against a backdrop of periodic
violence related to both drug activities and guerrilla movements in Colombia.
Colombia has experienced periods of criminal violence over
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<PAGE> 25
the past four decades, primarily from leftist guerrilla groups and drug-related
activities. Historically, guerrilla violence has increased in anticipation of
and during elections. Guerrilla and para-military attacks increased
significantly in September and October of 1997 in an effort to undermine the
municipal elections held on October 26, 1997. As part of this process of
intimidation, more than 40 candidates were reported killed and 200 kidnapped and
over 1,600 were threatened into withdrawing as candidates from such elections.
The Colombian government has implemented various measures to address the
violence associated with the remaining active guerrilla groups and with
narcotics trafficking and strengthened its military and police forces by
creating specialized units. Nevertheless, drug-related crime and guerrilla
activities are still present in the country, and guerrilla groups exercise
considerable influence in various parts of the country. stability. On June 21,
1998, the conservative party candidate Mr. Andres Pastrana was elected president
of Colombia. The future impact, if any, of the recent election of a new
government in Colombia cannot be ascertained. There can be no assurance that
these matters, individually or cumulatively (including by affecting Colombian
governmental policy), will not materially adversely affect the business, results
of operations and financial condition of the Company and its ability to make
payments on the Notes.
Venezuela. The Company's operations in Venezuela, which is currently the
Company's third largest market in terms of revenues generated, are expected to
grow in the future. The Venezuelan government exercises significant control over
the Venezuelan economy. Such control has included extensive regulation,
including price controls. In addition, the Venezuelan government experienced two
attempted coups d'etat in 1992. In the last 15 years, Venezuela has experienced
periods of slow or negative growth, high inflation, currency devaluations and
limited availability of foreign exchange.
The Venezuelan economy has experienced difficulties in recent years,
especially since 1994 in part due to a widespread crisis among financial
institutions that began in that year when banking institutions holding
approximately 70% of total deposits in Venezuela were acquired by the government
or were closed. The cost to the Venezuelan government of the acquisition of or
assistance to financial institutions has been estimated at 13% of the country's
1994 GDP. The Venezuelan GDP contracted by 2.9% in 1994, increased in 1995 by
3.4% and contracted by 0.4% in 1996. Venezuela's GDP grew by approximately 5.1%
in 1997 (3.3% without regard to the oil sector).
The Venezuelan bolivar has, in the past, been subject to foreign exchange
controls. On June 27, 1994 in connection with the financial sector crisis
described above, the Venezuelan government established foreign currency exchange
controls and soon thereafter fixed the official bolivar/U.S. dollar exchange
rate. These controls were removed in April 1996. At that time, the Central Bank
of Venezuela announced a policy of maintaining the exchange rate within certain
limits, currently between 7.5% above and 7.5% below a reference rate set by the
Central Bank of Venezuela. Such reference rate was originally set at Bs. 470 per
U.S. dollar and is intended to be adjusted from time to time to account for
projected inflation. However, since April 1996 inflation in Venezuela has
exceeded the rate of devaluation of the bolivar against the U.S. dollar and, as
a result, in U.S. dollar terms goods and services priced in bolivars have
generally become increasingly expensive. Venezuelan's continuing budget deficits
as a result of the continued decline in international oil prices, the economic
troubles affecting Russia and the upcoming presidential elections scheduled for
December 1998 have put pressure on the stability of the bolivar/U.S. dollar
exchange rate and heightened concerns over a significant devaluation of the
bolivar. On August 31, 1998, the exchange rate equaled Bs. 581.51 = $1.00.
Venezuela has experienced high levels of inflation during the past decade.
The general rate of inflation, as measured by the consumer price index, was
45.9%, 70.8%, 56.6%, 103.2% and 37.6% for the years 1993, 1994, 1995, 1996 and
1997, respectively.
The Venezuelan government recorded a fiscal surplus of 7.4% of GDP in 1996
due to extraordinary petroleum revenues resulting from increased production and
higher international petroleum prices. With lower average oil prices in 1997
($16.32 pb compared with $18.39 pb in 1996 for Venezuela's petroleum products
mix), the Venezuelan government posted a fiscal surplus equal to 2.3% of GDP in
1997. Prior to 1996, the Venezuelan government had recorded fiscal deficits of
13.9% and 5.9% of GDP during the years 1994 and 1995, respectively, and
concurrent reductions in international revenues. The Venezuelan government and
economy are highly dependent on petroleum extraction, with the petroleum
industry accounting in 1996 for
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27% of Venezuela's GDP, 43% of central government revenues and 80% of the total
value of exports. During 1998, international oil prices have continued to
decline, largely due to excess global supply and reduced demand from Asia. In
connection with this decline, the Venezuelan government has stated that it
anticipates a possible contraction in GDP for 1998 and a fiscal deficit in
excess of 4.0% of GDP and announced plans to decrease government spending.
Mexico. The Company's operations in Mexico are currently limited but are
expected to grow in the future. At the end of 1994, Mexico experienced an
economic crisis characterized by exchange rate volatility and devaluation of the
Mexican peso against foreign currencies, increased inflation, high domestic
interest rates, negative economic growth, reduced consumer purchasing power and
high unemployment. The economic crisis resulted in part from a series of
internal disruptions and political and economic events that adversely affected
the Mexican economy, combined with a large current account deficit (7.8% of
gross domestic product in 1994), reduction of international investments and an
increase in U.S. interest rates. Mexico experienced rates of inflation of 27.7%
in 1996 and 15.7% in 1997 (as compared to 8.0% in 1993, 7.1% in 1994 and 52.0%
in 1995), and a liquidity crisis which, among other things, affected the ability
of the Mexican government and the banking system and other borrowers to
refinance or refund maturing debt and also adversely affected consumer spending.
Mexico's GDP for 1997 grew at a rate of 7.0%. Mexico's international reserves as
of April 3, 1998 equaled $29.9 billion.
Mexico experienced sharply higher interest rates in 1995, both domestically
and internationally, on Mexican public and private sector debt and sharply
reduced opportunities for refinancing or refunding maturing debt issues. The
value of the Mexican peso sharply declined since December 1994 as compared to
the U.S. dollar and may be subject to further significant fluctuations in the
future. The value of the Mexican peso declined by 60.8% against the U.S. dollar
during the period from December 31, 1993 to December 31, 1994, with a decline of
42.9% from December 19, 1994 to December 31, 1994. In 1995 the Mexican peso
depreciated an additional 53.6% and equaled Ps. 7.69 = $1.00 at December 31,
1995, fluctuating between Ps. 5.27 and Ps. 8.05 = $1.00. Between January 1, 1996
and December 31, 1996, the peso strengthened slightly, fluctuating between Ps.
7.33 and Ps. 8.05 = $1.00. In late October 1997, the peso declined by
approximately 8% over seven days, depreciating from Ps. 7.71 = $1.00 at October
21, 1997 to Ps. 8.20 = $1.00 at October 28, 1997, precipitated by a sharp
decline in the value of certain Asian currencies. As of August 31, 1998, the
value of the Mexican peso against the U.S. dollar equaled Ps. 9.96 = $1.00.
Brazil. Although its business in Brazil is currently limited, the Company
expects Brazil to constitute a larger share of its business in the future. The
Company plans to significantly expand its operations into Brazil which plans, if
implemented, could subject the Company and its financial condition and results
of operations to various additional economic and political risks. Throughout the
1980s and into the 1990s, the Brazilian economy has suffered from periods of
extremely high rates of inflation and recession. In December 1993, the Brazilian
government announced the Plano Real ("Real Plan"), an economic stabilization
plan designed to reduce inflation by, among other things, reducing certain
public expenditures, collecting debts owed to the Brazilian government,
increasing tax revenues and continuing the national program of privatizing
certain state-owned enterprises.
The Brazilian government's actions to implement macroeconomic policies have
often involved wage and price controls as well as certain measures that directly
impact the banking industry, such as freezing bank accounts and imposing
currency controls. Mr. Fernando Henrique Cardoso, the Finance Minister at the
time of the implementation of the Real Plan was elected President in October
1994. The Real Plan, which has succeeded in lowering inflation, has continued to
support the free market and privatization measures of recent years, Mr. Cardoso
has proposed measures for the liberalization of the state telecommunications and
petroleum monopolies and the privatization of a number of state-owned
enterprises. Some important political factions remain opposed to significant
elements of the reform program.
Brazil's trade deficit in 1997 totaled $8.5 billion, up from $5.6 billion
in 1996. As of December 31, 1997, Brazil's reserves were $52.2 billion. A
continuing increase in the trade deficit could substantially reduce reserves.
Furthermore, the Brazilian government's desire to control inflation and to
reduce budget deficits could cause it to take actions that could slow or halt
Brazil's economic growth.
26
<PAGE> 27
The rapid changes in Brazilian political and economic conditions that have
occurred recently and that are expected to continue will require continued
emphasis on assessing the risks associated with the Company's operations in
Brazil and adjusting the Company's business and operating strategy.
Historically, Brazil's currency has frequently depreciated in relation to
the U.S. dollar. Although the real appreciated against the dollar for a period
of time after its introduction on July 1, 1994, since March 1995 the real has
depreciated against the dollar. Pursuant to an exchange rate band system
established by the Brazilian government in March 1995, the real is permitted to
float against the U.S. dollar within bands established by the Central Bank of
Brazil. The Central Bank of Brazil has periodically adjusted the exchange rate
band to permit the gradual devaluation of the real against the U.S. dollar.
There can be no assurance that the real will not again be devalued relative to
the U.S. dollar, or that the real will not fluctuate significantly relative to
the U.S. dollar. Recently, the Brazilian economy has shown improvement in a
number of other areas. Inflation, as measured by the general price index
domestic supply, was approximately 2,709% in 1993, 909.6% in 1994, 14.8% in
1995, 9.3% in 1996 and 4.8% for 1997. GDP grew in constant real terms by 2.9% in
1996, 4.1% in 1995, 5.8% in 1994 and 4.2% in 1993, compared with a decrease of
0.8% in 1992. Brazil's GDP rose 3% in 1997, reaching approximately $803 billion
U.S. dollars. The average unemployment rate in Brazil increased to 7.25% in
January 1998 from an average of 4.8% in 1997.
While the Real Plan has been successful in controlling the level of
inflation, stabilizing the real and maintaining economic growth in Brazil, there
can be no assurance that the Real Plan will continue to be successful or that it
will not be repealed or discontinued.
CURRENCY FLUCTUATIONS, DEVALUATIONS AND RESTRICTIONS
A substantial portion of the Company's costs, including lease payments for
satellite transponder capacity, purchases of capital equipment, and payments of
interest and principal on the Company's indebtedness, is payable in U.S.
dollars. To date, the Company has not entered into hedging or swap contracts to
address its currency risks because the Company's contracts with its customers
generally provide for payment in U.S. dollars or for payment in local currency
linked to the exchange rate between the local currency and the U.S. dollar at
the time of invoicing. Such contractual provisions are structured to reduce the
Company's risk in the event of fluctuations in currency exchange rates. However,
given that the exchange rate is generally set at the date of invoicing and that
the Company in some cases experiences substantial delays in collecting
receivables, it is exposed to exchange rate risk. Pursuant to Brazilian law, the
Company's contracts with customers in Brazil may not be linked to the exchange
rate between the Brazilian real and the U.S. dollar. The Company's expansion in
Brazil therefore will likely increase the Company's exposure to exchange rate
risks.
Nonetheless, the revenues of the Company's customers are generally
denominated in local currencies, and although the Company's customers include
governmental agencies and some of the largest and most financially sound
companies and financial institutions in their markets, substantial or continued
devaluations in such currencies relative to the U.S. dollar could have a
negative effect on the ability of customers of the Company to absorb the costs
of a devaluation. This could result in the Company's customers seeking to
renegotiate their contracts with the Company or, failing satisfactory
renegotiation, defaulting on such contracts. The Company may therefore be
affected by currency fluctuations. The Company's competitors and potential
future competitors, including the PTOs and large, multinational
telecommunications companies, may be less exposed to currency risk or may be
better able to hedge their currency risk and could thereby gain a relative
competitive advantage in the event of a currency devaluation. In addition, from
time to time, Latin American economies have experienced shortages in foreign
currency reserves and restrictions on the ability to expatriate local earnings
and convert local currencies into U.S. dollars. Currency devaluations in one
country may have adverse effects in another country, as in late 1994 and 1995,
when several Latin American countries were adversely impacted by the devaluation
of the Mexican peso. The continued Asian and Russian economic crises have had an
adverse effect on the financial and foreign exchange markets of emerging markets
countries, leading to increased pressures on local interest rates and
currencies. Such pressures, in turn, have inhibited the ability of companies
operating in emerging markets to obtaining necessary financing and increased
prices. Any devaluation of local currencies in the countries where the Company
operates, or restrictions on the expatriation of earnings or capital from such
countries, could have a material adverse effect
27
<PAGE> 28
on the business, results of operations and financial condition of the Company
and its ability to make payments on the Notes.
GOVERNMENT REGULATION; REGULATORY UNCERTAINTY
Local laws and regulations differ significantly among the jurisdictions in
which the Company currently operates and in which the Company may operate in the
future, and the interpretation and enforcement of such laws and regulations vary
and are often based on the informal views of the local ministries which, in some
cases, are subject to influence by the PTOs. The current conditions governing
the Company's service offerings may be altered by future legislation or
regulation. The Company is prohibited by law from providing Interplus services
to or from Argentina during the term of the monopoly granted to
Telecomunicaciones Internacionales de Argentina S.A. ("Telintar"), which is
jointly owned by Telecom Argentina and Telefonica, with respect to international
telecommunications services to or from Argentina, unless the Company obtains
Telintar's consent. Telintar's monopoly is due to expire in November 2000. In
certain of the Company's principal existing and target markets, there are laws
and regulations that prohibit or limit the provision of certain
telecommunications services. For example, IMPSAT Argentina's license for the
provision of data transmission services permits IMPSAT Argentina to offer
ancillary voice channels but does not specify what is meant by "ancillary" voice
channels. While the Company believes that IMPSAT Argentina's services are in
accordance with the terms of the license, a significant minority of IMPSAT
Argentina's revenues are derived from voice transmission, and an adverse
interpretation of what constitutes "ancillary" voice channels could have a
material adverse effect on the business, results of operations and financial
condition of the Company and its ability to make payments on the Notes.
The Company's business is dependent upon the procurement and maintenance of
licenses to provide private telecommunications network services in the various
countries in which it operates. The Company believes that it currently has all
licenses required for the conduct of its current operations in its existing
markets and expects that those of its licenses that are subject to expiration
will be renewed in due course upon application by the Company. Due to the
political and economic risks associated with the countries in which the Company
operates, there can be no assurance that the Company will be able to maintain
its licenses in force or that they will be renewed upon their expiration. The
loss, or substantial limitation upon the terms, of the Company's licenses could
have a material adverse effect on the results of operations of the Company and
its ability to make payments on the Notes. For specific details of the Company's
licenses in the various countries in which it operates, including the expiration
date of such licenses, see "Business -- Description of Country Operations."
There can also be no assurance that the Company will succeed in obtaining all
requisite regulatory approvals to operate in those countries which the Company
may desire to enter.
TECHNOLOGICAL CONSIDERATIONS
The telecommunications industry is subject to rapid and significant
technological advancements and the related introduction of new products and
services. The Company does not possess significant intellectual property rights
with respect to the technologies it uses and depends on third parties for the
development of and access to new technology. While the Company believes that it
will be able to acquire and commercialize necessary technologies, the effect of
technological changes on the business of the Company cannot be predicted, and
there can be no assurance that the Company will be able to obtain access to
appropriate technologies on a timely basis or on acceptable terms or that new
technologies will not render the Company's services out of date. For example,
new technologies such as asynchronous digital subscriber line ("ADSL") can
significantly enhance the speed of traditional copper lines. Such technologies
could enable the Company's PTO competitors to offer customers new high-speed
services without undergoing the expense of replacing their existing twisted-pair
copper networks, thereby negating the Company's "last mile" advantage. In
addition, the Company generally owns the equipment, such as VSAT microstations
and Dataplus earth stations, used by the Company in providing its services.
Therefore, technological changes that render the Company's equipment out of date
could require substantial increases in capital expenditures to upgrade or
replace such equipment.
28
<PAGE> 29
DEPENDENCE ON KEY PERSONNEL
The Company's success depends to a significant degree on members of the
Company's senior management and certain key employees, who generally are not
bound by employment contracts with the Company, although Mr. Ricardo Verdaguer
(President and Chief Executive Officer) and Mr. Roberto Vivo (Deputy Chief
Executive Officer) are indirect shareholders of the Company. The success of the
Company also depends in part upon its ability to hire and retain highly skilled
and qualified operating, marketing, financial and technical personnel.
Competition for qualified employees in the telecommunications industry is
intense, and accordingly, there can be no assurance that the Company will be
able to hire or retain necessary personnel. See "Management."
CONTROL BY EXISTING SHAREHOLDERS
The Company is a privately held corporation. All of the issued and
outstanding common stock of the Company is held by Nevasa, and all of the Series
A Preferred Stock is held by the Morgan Stanley Investors. Nevasa is a holding
company controlled by the Pescarmona family interests; Mr. Vivo, Deputy Chief
Executive Officer of IMPSAT Corporation; and Mr. Verdaguer, President and Chief
Executive Officer of IMPSAT Corporation. See "Principal Stockholders." As a
result of such stock ownership, these shareholders can effectively control the
affairs and business policies of the Company, including the election of
directors. The Company's stockholders may have different interests from holders
of the Notes; in particular, the Company's stockholders may be less risk averse
with respect to the Company's business operations and financial planning.
LACK OF PUBLIC MARKET
The New Notes are being offered to the Holders of the Old Notes. The Old
Notes were sold by the Company on June 17, 1998 to a limited number of
institutional investors and are eligible for trading in the Private Offerings,
Resale and Trading through Automated Linkages (PORTAL) Market. To the extent
that Old Notes are tendered and accepted in the Exchange Offer, the trading
market for the remaining untendered Old Notes could be adversely affected. There
is no existing trading market for the New Notes, and there can be no assurance
regarding the future development of a market for the New Notes, the ability of
Holders of the New Notes to sell their New Notes or the price at which such
Holders may be able to sell their New Notes. If such a market were to develop,
the New Notes could trade at prices that may be higher or lower than their
principal amount or purchase price, depending on many factors, including
prevailing interest rates, the Company's operating results and the market for
similar securities. Therefore, there can be no assurance as to the liquidity of
any trading market for the New Notes or that an active public market for the New
Notes will develop. The Company does not intend to apply for listing or
quotation of the New Notes on any securities exchange or stock market.
Historically, the market for noninvestment grade debt has been subject to
disruptions that have caused substantial volatility in the prices of such
securities. There can be no assurance that the market for the New Notes will not
be subject to similar disruptions. Any such disruptions may have an adverse
effect on Holders of the New Notes.
29
<PAGE> 30
CAPITALIZATION
The following table sets forth as of June 30, 1998: cash and cash
equivalents, short-term debt and capitalization of the Company (i) on an
historical basis, and (ii) pro forma to give effect to the Offering and the
application of the proceeds thereof. This table should be read in conjunction
with the financial statements of the Company and the notes related thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF
JUNE 30, 1998
----------------------
ACTUAL PRO FORMA
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
CASH AND CASH EQUIVALENTS................................... $ 200,638 $ 165,408
========= =========
SHORT-TERM DEBT AND CURRENT PORTION OF LONG-TERM DEBT:
Short-term debt........................................ $ 65,656 $ 44,867
Current portion of long-term debt...................... 14,441 --
--------- ---------
Total short-term debt and current portion of
long-term debt.................................. 80,097 44,867
--------- ---------
LONG-TERM DEBT:
12 1/8% Senior Guaranteed Notes due 2003............... 125,000 125,000
12 3/8% Senior Notes due 2008.......................... 225,000 225,000
Other long-term debt, net of current portion........... 34,567 34,567
--------- ---------
Total long-term debt, net......................... 384,567 384,567
--------- ---------
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES.............. 11,563 11,563
--------- ---------
REDEEMABLE, CONVERTIBLE PREFERRED STOCK, SERIES A 25,000
SHARES AUTHORIZED, ISSUED AND OUTSTANDING................. 128,507 128,507
--------- ---------
STOCKHOLDERS' EQUITY:
Common stock, $1.00 par value
75,594,480 shares issued and outstanding............. 100,793 100,793
Treasury stock, 25,198,160 shares, at cost............. (125,000) (125,000)
Amount paid in excess of carrying value of assets
acquired from related party........................... (5,679) (5,679)
Accumulated deficit.................................... (49,476) (49,476)
--------- ---------
Total stockholders' deficit....................... (79,362) (79,362)
--------- ---------
Total capitalization, including short-term debt... $ 525,372 $ 490,142
========= =========
</TABLE>
30
<PAGE> 31
SELECTED FINANCIAL AND OTHER DATA
The following selected financial and other data are for the Company on a
consolidated basis in accordance with U.S. GAAP. The Company's subsidiaries use
the U.S. dollar as their functional currency. The Company owns less than a 100%
equity interest in certain of its subsidiaries, including a 95.2% equity
interest in IMPSAT Argentina, a 74.2% equity interest in IMPSAT Colombia and a
75.0% equity interest in IMPSAT Venezuela. For an explanation of the fiscal year
reporting periods of the Company and its subsidiaries, see Note 3 to the
Company's consolidated financial statements.
The selected statement of operations, other financial and balance sheet
data for the Company as of December 31, 1996 and 1997 and for each of the three
years in the period ended December 31, 1997 have been derived from the Company's
consolidated financial statements audited by Deloitte & Touche LLP, independent
auditors, whose reports thereon are included elsewhere in this Prospectus. The
balance sheet data as of December 31, 1993, 1994 and 1995 and the statement of
operations and other financial data for the years ended December 31, 1993 and
1994, have been derived from audited financial statements. The selected
financial data for the Company for the six month periods ended June 30, 1997 and
1998 have been derived from the unaudited financial statements of the Company
included elsewhere in this Prospectus and, in the opinion of management, include
all adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the information set forth therein.
31
<PAGE> 32
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------------- -------------------
1993 1994 1995 1996 1997 1997 1998
-------- -------- --------- --------- --------- -------- --------
(IN THOUSANDS, EXCEPT FOR RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues from services.................... $ 37,695 $ 77,679 $ 105,641 $ 128,393 $ 160,236 $ 75,721 $ 93,651
Operating expenses:
Variable cost of services................. (8,905) (12,770) (18,818) (21,494) (27,629) (12,226) (14,980)
Satellite capacity........................ (3,126) (7,734) (10,973) (13,925) (18,906) (8,841) (12,841)
Salaries, wages and benefits.............. (7,756) (13,528) (22,220) (25,561) (29,209) (13,662) (16,962)
Selling, general and administrative....... (9,244) (19,148) (26,094) (23,030) (32,739) (14,031) (21,106)
Depreciation and amortization............. (6,324) (12,874) (20,653) (26,318) (28,514) (13,776) (16,629)
-------- -------- --------- --------- --------- -------- --------
Total operating expenses...................... (35,355) (66,054) (98,758) (110,328) (136,997) (62,536) (82,518)
-------- -------- --------- --------- --------- -------- --------
Operating income.............................. 2,340 11,625 6,883 18,065 23,239 13,185 11,133
Other income (expenses):
Interest expense, net......................... (6,220) (8,231) (15,677) (23,185) (24,743) (12,271) (17,191)
Net gain (loss) on foreign exchange........... 1,518 1,352 1,838 910 (279) (196) (158)
Other income (expenses), net.................. (684) 599 511 1,035 (155) (260) 498
-------- -------- --------- --------- --------- -------- --------
(Loss) income before income taxes and minority
interest.................................... (3,046) 5,345 (6,445) (3,175) (1,938) 458 (5,718)
Benefit from (provision for) income taxes..... 1,428 3,155 740 (3,542) (5,047) (2,729) (2,251)
-------- -------- --------- --------- --------- -------- --------
(Loss) income before minority interest........ (1,618) 8,500 (5,705) (6,717) (6,985) (2,271) (7,969)
Income attributable to minority interest...... (1,218) (5,464) (1,712) (1,766) (981) (581) (596)
-------- -------- --------- --------- --------- -------- --------
Net (loss) income............................. $ (2,836) $ 3,036 $ (7,417) $ (8,483) $ (7,966) $ (2,852) $ (8,565)
======== ======== ========= ========= ========= ======== ========
Dividends on redeemable preferred stock....... -- -- -- -- -- -- (3,507)
-------- -------- --------- --------- --------- -------- --------
Net (loss) income attributable to common
shareholders................................ $ (2,836) $ 3,036 $ (7,417) $ (8,493) $ (7,966) $ (2,852) $(12,072)
======== ======== ========= ========= ========= ======== ========
OTHER FINANCIAL DATA:
EBITDA(1)..................................... $ 8,664 $ 24,499 $ 27,536 $ 44,383 $ 51,753 $ 26,961 $ 27,762
Cash flow from (used by):
Operating activities...................... 4,821 17,257 18,894 10,969 17,139 4,452 18,338
Investing activities...................... (35,261) (87,603) (66,910) (54,807) (58,080) (22,903) (64,634)
Financing activities...................... 33,394 93,351 22,097 66,517 22,485 19,071 236,495
Capital expenditures.......................... 36,172 87,541 67,060 53,998 56,440
Ratio of earnings to fixed charges(2)......... -- 1.38x -- -- -- 1.04x --
Pro forma ratio of earnings to fixed
charges(2)(3)............................... -- --
Ratio of EBITDA to gross interest expense..... 1.30x 2.90x 1.67x 1.76x 1.99x 2.13x 1.29x
Pro forma ratio of EBITDA to gross interest
expense(3).................................. 1.04x 1.04x
Ratio of total debt to EBITDA(4).............. 5.36x 4.39x 4.64x 4.49x 4.25x 4.05x 8.37x
Pro forma ratio of total debt to
EBITDA(3)(4)................................ 7.91x -- 7.73x
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
AS OF DECEMBER 31, -------------------
---------------------------------------------------- PRO
1993 1994 1995 1996 1997 ACTUAL FORMA(5)
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................ $ 7,130 $ 32,135 $ 6,216 $ 28,895 $ 10,439 $200,638 $165,408
Total current assets............................. 26,344 57,948 36,906 68,304 65,015 267,282 232,052
Net property, plant and equipment................ 77,970 152,909 199,701 227,086 255,422 290,822 290,822
Total assets..................................... 111,283 222,684 249,095 315,230 339,916 593,231 558,001
Total current liabilities........................ 24,796 68,984 128,813 78,125 103,438 147,753 112,523
Total short-term debt and current portion
of long-term debt.............................. 11,246 48,047 97,510 42,874 60,375 80,097 44,867
Total long-term debt, net........................ 35,152 59,437 30,200 156,230 159,677 384,567 384,567
Minority interest................................ 19,614 24,893 28,476 30,242 10,398 11,563 11,563
Redeemable preferred stock....................... -- -- -- -- -- 128,507 128,507
Stockholders' equity (deficit)................... 26,794 62,780 55,363 46,881 63,389 (79,362) (79,362)
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30,
----------------------------------------- ---------------
1993 1994 1995 1996 1997 1997 1998
----- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
VSAT microstations installed.............................. 931 1,925 2,841 3,476 3,585 3,534 3,527
Dataplus earth stations installed......................... 129 271 443 704 908 790 1,075
Satellites linked......................................... 3 4 4 6 6 6 6
Leased satellite capacity (MHz)........................... 51.5 128.4 198.3 253.0 412.6 368.0 516.7
Teleports................................................. 2 3 4 5 5 5 5
Regional Teleports........................................ 6 9 10 10 11 11 11
Teledatos networks (fiber optic/microwave)................ 6 12 12 12 12 12 12
Customers................................................. 262 445 656 907 1,189 1,094 1,321
</TABLE>
(footnotes appear on page 34)
32
<PAGE> 33
The following supplemental summary financial data are for (i) IMPSAT
Argentina for the fiscal years ended November 30, 1995, 1996 and 1997; and (ii)
each of IMPSAT Colombia, IMPSAT Venezuela and IMPSAT Ecuador for the years ended
December 31, 1995, 1996 and 1997. The category "Other", as it relates to
revenues, operating expenses, total assets, and EBITDA, consists of (i) amounts
relating to IMPSAT Mexico; IMPSAT USA; IMPSAT Brazil; Mandic S.A.; ISCH; and
Resis; (ii) unallocated parent company amounts, including overhead expenses; and
(iii) the elimination of intercompany balances and transactions. As it relates
to net income (loss) and stockholders' equity, the category "Other" also
includes the allocation to minority interest. Such financial data have been
derived from the consolidating schedules prepared by the Company for the
consolidated financial statements for the years ended December 31, 1995, 1996
and 1997. The following supplemental financial data for the six months of 1997
and 1998 have been derived from the Company's unaudited consolidated financial
statements for the six months ended June 30, 1997 and 1998, respectively.
Unaudited selected financial data for IMPSAT Argentina and IMPSAT Colombia and
are set forth in "Business -- Description of Country Operations."
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------- -------------------
1995 1996 1997 1997 1998
-------- --------- --------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues from services:
Argentina................................... $ 80,346 $ 85,145 $ 90,011 $ 43,953 $ 48,070
Colombia(6)................................. 22,417 35,116 49,514 23,791 28,094
Venezuela(7)................................ 2,204 4,496 8,625 3,894 6,387
Ecuador(8).................................. 588 2,802 5,513 2,364 4,140
Other....................................... 86 834 6,573 1,719 6,960
-------- --------- --------- -------- --------
TOTAL.................................. $105,641 $ 128,393 $ 160,236 $ 75,721 $ 93,651
======== ========= ========= ======== ========
Operating expenses(9):
Argentina................................... $(66,019) $ (66,275) $ (71,299) $ 34,188 $ 39,164
Colombia.................................... (17,627) (24,140) (32,791) 15,157 18,108
Venezuela................................... (4,257) (6,752) (10,767) 4,573 6,193
Ecuador..................................... (1,765) (3,474) (5,354) 2,177 3,660
Other....................................... (9,090) (9,687) (16,786) 6,441 15,393
-------- --------- --------- -------- --------
TOTAL.................................. $(98,758) $(110,328) $(136,997) $ 62,536 $ 82,518
======== ========= ========= ======== ========
Net income (loss):
Argentina................................... $ 4,472 $ 3,021 $ 2,879 $ 963 $ 899
Colombia.................................... (135) 2,239 8,392 3,954 3,549
Venezuela................................... (1,723) (1,167) (5,438) (1,966) (1,677)
Ecuador..................................... (1,290) (1,099) (961) (559) (189)
Other....................................... (8,741) (11,477) (12,838) (5,244) (11,147)
-------- --------- --------- -------- --------
TOTAL.................................. $ (7,417) $ (8,483) $ (7,966) $ (2,852) $ (8,565)
======== ========= ========= ======== ========
OTHER FINANCIAL DATA:
EBITDA(1):
Argentina................................... $ 30,394 $ 37,656 $ 36,504 $ 18,481 $ 18,514
Colombia.................................... 8,748 16,660 23,965 11,862 13,856
Venezuela................................... (1,675) (1,106) (132) 82 1,190
Ecuador..................................... (1,037) (321) 812 280 981
Other....................................... (8,894) (8,506) (9,396) (3,744) (6,779)
-------- --------- --------- -------- --------
TOTAL.................................. $ 27,536 $ 44,383 $ 51,753 $ 26,961 $ 27,762
======== ========= ========= ======== ========
</TABLE>
(footnotes appear on page 34)
33
<PAGE> 34
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
AS OF DECEMBER 31, -------------------
------------------------------ PRO
1995 1996 1997 ACTUAL FORMA(5)
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets:
Argentina....................................... $165,945 $174,239 $191,029 $239,109 $239,109
Colombia........................................ 59,929 70,501 106,919 101,165 101,165
Venezuela....................................... 11,192 23,718 28,596 31,127 31,127
Ecuador......................................... 4,383 9,795 13,262 17,298 17,298
Other........................................... 7,646 36,977 110 204,532 169,302
-------- -------- -------- -------- --------
TOTAL.................................... $249,095 $315,230 $339,916 $593,231 $558,001
======== ======== ======== ======== ========
</TABLE>
- ---------------
(1) EBITDA consists of operating income (loss) plus depreciation and
amortization. EBITDA is presented because it is a measure commonly used in
the industry and to enhance an understanding of the Company's operating
results and is not intended to represent or be a substitute for cash flow
under U.S. GAAP. Because EBITDA is not calculated under U.S. GAAP
principles, it is not necessarily comparable to similarly titled measures of
other companies.
(2) The ratio of earnings to fixed charges is computed by dividing operating
income before fixed charges (other than capitalized interest), by fixed
charges. Fixed charges consist of interest charges and amortization of
deferred finance costs. Earnings of the Company were insufficient to cover
fixed charges by approximately $9.6 million, $7.1 million, $2.7 million and
$10.4 million for 1995, 1996 and 1997 and the six months ended June 30,
1998, respectively. On a pro forma basis as contemplated by footnote 3
below, earnings of the Company would have been insufficient to cover fixed
charges by approximately $26.6 million and $15.5 million for 1997 and the
six months ended June 30, 1998, respectively.
(3) Pro forma ratios are presented for the year ended December 31, 1997 and for
the six-month period ended June 30, 1998 as if the Offering and the
application of the proceeds thereof had occurred at the beginning of the
relevant period.
(4) This figure represents the ratio of debt at the end of the period to EBITDA
over the preceding four quarters.
(5) Pro forma balance sheet data is presented as if the Offering and the
application of the proceeds thereof to repay $35.2 million of indebtedness
had occurred on the balance sheet date.
(6) IMPSAT Colombia commenced operations in December 1992.
(7) IMPSAT Venezuela commenced operations in January 1993.
(8) IMPSAT Ecuador commenced operations in January 1995.
(9) Operating expenses consist of variable cost of services; satellite capacity;
salaries, wages and benefits; selling, general and administrative expenses;
and depreciation and amortization.
34
<PAGE> 35
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Forward Looking Statements. This Management's Discussion and Analysis of
Financial Condition and Results of Operations contains forward-looking
statements that involve significant risks and uncertainties. Such forward
looking statements are based upon current expectations, and actual results may
differ significantly from the results discussed in the forward-looking
statements. Factors that might cause such a difference include, but are not
limited to, the effect of changing economic conditions in the countries in which
the Company operates, business conditions and growth in the telecommunications
industry in Latin America, the Company's ability to maintain its lending
arrangements, or if necessary, access additional sources of capital and
accurately forecast capital requirements, new technological developments,
changes in tax and other governmental rules and regulations applicable to the
Company, changes in the competitive environment in which the Company operates,
and dependence on key management. Assumptions relating to budgeting, marketing,
product development and other management decisions are subjective in many
respects and thus susceptible to interpretations and periodic revisions based on
actual experience and business developments, the impact of which may cause the
Company to alter its marketing, capital expenditure or other budgets, which may
in turn affect the Company's financial position and results of operations. The
Company does not undertake to publicly update or revise its forward looking
statements even if experience or changes make it clear that any projected
results (expressed or implied) will not be realized. See "Risk Factors" for a
description of important factors that could cause actual results to differ from
those referred to in the forward-looking statements.
Revenues. The Company provides services to its customers pursuant to
contracts which typically range from six months to five years but generally are
for three years. The customer generally pays an installation charge at the
beginning of the contract and a monthly fee based on the quantity and type of
equipment installed. The fees stipulated in the contracts are generally
denominated in U.S. dollar equivalents. See "Risk Factors -- Currency
Fluctuations, Devaluations and Restrictions." Services (other than installation
fees) are billed on a monthly, predetermined basis, which coincide with the
rendering of the services. The Company reports net revenues which are after
deductions for sales taxes.
As discussed in "Risk Factors -- Competition" and
"Business -- Competition," the Company recently has experienced, and anticipates
that it will continue to experience, downward pressure on its prices as it
continues to expand its customer base and as competition for private
telecommunications network services grows. In addition, as the Company's
business in a particular country matures, its rate of growth in that country
tends to slow. In particular, this has occurred in Argentina. To compensate for
slower growth in maturing markets, the Company seeks to expand into new
countries and to provide new services.
No single customer accounted for greater than 10% of revenue from services
for 1995, 1996 or 1997. The Company anticipates that its geographic
diversification provides some protection against economic downturns in any
particular country, although there can be no assurance in this regard. However,
a substantial majority of the Company's revenues are derived from Argentina and
Colombia. Many of the countries in which the Company operates have experienced
political and economic volatility in recent years. For example, the Colombian
economy performed poorly in 1997 relative to most expectations. Similarly,
presidential elections, which were recently held in Colombia and Ecuador and are
scheduled to be held later in 1998 for Venezuela and Brazil, and post-election
changes in economic or telecommunications policies could adversely affect the
Company's operations in such countries. It is impossible to predict whether such
events, circumstances or conditions will occur, recur or worsen, or what effect
any such events, circumstances or conditions, which are entirely outside the
control of the Company, will have on the countries in which the Company operates
or upon the Company. Such conditions and events may have adverse effects on the
business, results of operations and financial condition of the Company and its
ability to make payments on the Notes. See "Risk Factors -- Risks Relating to
Operations in Latin America."
35
<PAGE> 36
Costs and Expenses. The Company's costs and expenses include principally
(i) variable costs of services, (ii) lease payments for satellite transponder
capacity, (iii) salaries, wages and benefits, (iv) selling, general and
administrative expenses and (v) depreciation and amortization. The principal
items comprising variable cost of services are installation (and
de-installation) costs, sales commissions paid to third-party sales
representatives and maintenance costs. Selling, general and administrative
("SG&A") expenses for the Company consist principally of publicity and promotion
costs; provisions for doubtful accounts; fees and other remunerations; travel
and entertainment; rent; and plant services and telephone and energy expenses.
Currency Risks. The Company's contracts with its customers generally
provide for payment in U.S. dollars or for payment in local currency linked to
the exchange rate at the time of invoicing between the local currency and the
U.S. dollar. Accordingly, inflationary pressures experienced in the Company's
countries of operations did not have a direct effect on the Company's revenues
during 1997. Inflation has in the past, and could in the future, adversely
affect the economies of the Company's countries of operations by, among other
things, increasing the cost of local capital and capital inflows from the United
States and elsewhere. Moreover, given that the exchange rate is generally set at
the date of invoicing and that the Company in some cases experiences substantial
delays in collecting receivables, it is exposed to exchange rate risk.
Furthermore, pursuant to Brazilian law, the Company's contracts with customers
in Brazil may not be linked to the exchange rate between the Brazilian real and
the U.S. dollar. The Company's expansion in Brazil therefore will likely
increase the Company's exposure to exchange rate risks.
The continued Asian and Russian economic crises have had an adverse effect
on the foreign exchange markets of a number of Latin American countries,
including Brazil, Colombia, Mexico and Venezuela. Such effects in turn have led
to pressures on local interest rates as the countries have adopted monetary
policies to attempt to bolster their currencies. Continued pressures on the
local currencies in the countries in which the Company operates are likely to
have an adverse effect on many of the Company's customers, which could adversely
affect the Company.
Recent Acquisitions. On April 20, 1998, the Company signed a definitive
agreement to purchase a majority interest in Mandic S.A., a Brazilian Internet
access provider, for approximately $9.8 million. Upon consummation of the
transaction, the Company will acquire 75.1% of the common stock of Mandic S.A.,
and the remaining 24.9% will be owned by Mr. Aleksander Mandic, the founder and
current president of Mandic S.A. The initial stage of the acquisition of Mandic
S.A., pursuant to which the Company acquired a 58.5% interest, was consummated
on May 28, 1998, and the remaining 16.6% interest is scheduled to be acquired by
May 1, 1999.
In addition to the Company's acquisition of a majority interest in Mandic
S.A., on June 1, 1998, the Company acquired from Nevasa, 99.9% of the capital
stock of IMPSAT Brazil, a Brazilian company engaged in the provision of private
network telecommunications services, for approximately $5.1 million. The
purchase price for IMPSAT Brazil represented the total amount of pre-operating
and development costs and expenses incurred for IMPSAT Brazil by Nevasa. IMPSAT
Brazil was established by Nevasa and operates under a value added
telecommunications license permitting IMPSAT Brazil to lease satellite capacity
directly from satellite carriers and sell corporate private telecommunications
network services (data, voice and video), using terrestrial and satellite links,
to third parties.
The Company's acquisition of IMPSAT Brazil, as is generally the case for
transactions among companies under common control, has been accounted for in a
manner similar to a "pooling of interests" method of accounting, whereby all
assets and liabilities have been recorded as if the transaction occurred on
January 1, 1998. IMPSAT Brazil did not have material operations in 1997 as it
was in the pre-operating phase. Amounts paid in excess of carrying value of the
underlying assets acquired are recorded as a reduction of stockholders' equity
(deficit) and will be amortized on a straight-line basis over a period of 10
years. The Company's interest in Mandic S.A. was purchased from an unaffiliated
third party, and accordingly the Company's consolidated results for the second
quarter of 1998 only include net revenues and operating expenses of Mandic S.A.
that were recorded after the date of its acquisition by the Company.
36
<PAGE> 37
RESULTS OF OPERATIONS
The following table presents the Company's results of operations as a
percentage of revenues:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------------------------------------ ---------------------------------
1995 1996 1997 1997 1998
---------------- ---------------- ---------------- --------------- ---------------
(IN THOUSANDS AND AS A PERCENTAGE OF CONSOLIDATED REVENUES)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues from
services........... $105,641 100.0% $128,393 100.0% $160,236 100.0% $75,721 100.0% $93,651 100.0%
Variable costs of
services........... 18,818 17.8 21,494 16.7 27,629 17.2 12,226 16.2 14,980 16.0
Salaries, wages and
benefits........... 22,220 21.0 25,561 19.9 29,209 18.2 13,662 18.0 16,962 18.1
Satellite capacity
cost............... 10,973 10.4 13,925 10.8 18,906 11.8 8,841 11.7 12,841 13.7
Selling, general and
administrative
expenses........... 26,094 24.7 23,030 17.9 32,739 20.4 14,031 18.5 21,106 22.5
Depreciation and
amortization....... 20,653 19.6 26,318 20.5 28,514 17.8 13,776 18.2 16,629 17.8
Interest expense,
net................ 15,677 14.8 23,185 18.1 24,743 15.4 12,271 16.2 17,191 18.4
Net gain (loss) on
foreign exchange... 1,838 1.7 910 0.7 (279) (0.2) 196 0.3 158 0.2
Benefit from
(provision for)
foreign income
taxes.............. 740 0.7 (3,542) (2.8) (5,047) (3.2) 2,729 3.6 2,251 2.4
Net loss............. (7,417) (7.0) (8,483) (6.6) (7,966) (5.0) (2,852) (3.8) (8,565) (9.1)
</TABLE>
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
Revenues. Revenues for the six months ended June 30, 1998 totaled $93.7
million. This represents an increase of $17.9 million (or 23.6%) from revenues
for the six months ended June 30, 1997. Revenues at IMPSAT Argentina for the six
months ended June 30, 1998 totaled $48.1 million. This represents an increase of
$4.1 million from IMPSAT Argentina's revenues for the six months ended June 30,
1997. IMPSAT Colombia's revenues for the six months ended June 30, 1998 totaled
$28.1 million. This represents an increase of $4.3 million from IMPSAT
Colombia's revenues for the six months ended June 30, 1997. Revenues at IMPSAT
Venezuela totaled $6.4 million for the six months ended June 30, 1998 (an
increase of $2.5 million (or 64.1%) over the corresponding period in 1997).
Revenues at IMPSAT Ecuador totaled $4.1 million for the six months ended June
30, 1998 (an increase of $1.7 million (or 75.2%), respectively, over the
corresponding period in 1997). Excluding Internet and Global Fax customers, the
Company had a total of 1,321 customers at June 30, 1998, compared to 1,094
customers at June 30, 1997.
Revenues for the six months ended June 30, 1998 also increased as a result
of the two acquisitions undertaken by the Company in Brazil. The Company's net
revenues for the six months ended June 30, 1998 include revenues of $1.0 million
recorded by Mandic S.A. from May 28, 1998 through June 30, 1998, and $0.5
million recorded by IMPSAT Brazil during the first six months of 1998.
The increase in the Company's net revenues for the first half of 1998 is
derived principally from growth in the Company's services other than its VSAT
based service offerings. The Company anticipates that the percentage, and
absolute amount, of total revenues represented by non-VSAT based service
offerings (i.e., SCPC, value-added and terrestrial services) will continue to
grow at a faster rate than its VSAT based service offerings. Revenues from VSAT
services during the first six months of 1998 totaled $27.8 million, a decrease
of $1.8 million (or 6.1%) from revenues from VSAT services for the corresponding
period in 1997. As a percentage of the Company's net revenues, revenues from
VSAT services declined to 30.0% for the first six months of 1998 from 39.1% for
the corresponding period in 1997. Revenues from Dataplus services for the six
months ended June 30,1998 totaled $21.1 million, an increase of $3.0 million (or
16.5%), compared to
37
<PAGE> 38
Dataplus revenues for the corresponding period in 1997. Many of the Company's
customers have supplemented or replaced their VSAT services with Dataplus
services over time as they have increased the amount of private
telecommunications network capacity contracted with the Company, and the Company
expects this trend to continue.
In addition, the Company's revenues from newer service offerings, such as
Internet, recorded significant increases in the first half of 1998, totaling
$7.4 million, as compared to $2.7 million for the first half of 1997. At June
30, 1998, the Company (including Mandic S.A.) had in excess of 77,200 retail
dial-up access Internet customers and 142 corporate dedicated access Internet
customers, compared to 14,665 retail Internet customers and 25 corporate
Internet customers at June 30, 1997. IMPSAT Argentina's net revenues from
Internet services for the first six months of 1998 totaled $3.5 million, an
increase of $1.8 million (or 105%) compared to the corresponding period in 1997.
The acquisition Mandic S.A. is expected by the Company to generate approximately
$8.7 million for 1998 from Internet services, although there can be no assurance
in this regard. On July 2, 1998, IMPSAT Argentina's agreement with VideoCable
Comunicaciones S.A. ("VCC"), pursuant to which VCC agreed to market IMPSAT
Argentina's Internet access service under the IMPSAT brand name to VCC's
customers in Argentina, was terminated. During the six months ended June 30,
1997 and 1998, IMPSAT Argentina recorded $0.9 million and $1.3 million,
respectively, in revenues relating to the VCC agreement. The termination of
IMPSAT Argentina's agreement with VCC is expected to have an adverse effect in
the short term in the growth of the Company's Internet access related business.
However, the Company has commenced contracts directly with certain of the
subscribers that were previously contracted through VCC.
Competitive pressures, including lower pricing, have resulted in IMPSAT
Argentina recording flat growth in revenues from its VSAT-related service
offerings during the first half of 1998. IMPSAT Argentina's revenues from VSAT
and Dataplus services for the six months ended June 30,1998 totaled $17.9
million and $11.5 million, respectively, a decrease of $1.0 million (or 5.2%)
and $0.1 million (or 0.9%) compared to the corresponding period in 1997.
As part of net revenues, the Company recorded revenues of $1.3 million from
certain equipment sales during the six months ended June 30, 1998, as compared
to revenues from such sales of $1.2 million during the corresponding period in
1997.
Variable Cost of Services. The Company's variable cost of services for the
six months ended June 30, 1998 totaled $15.0 million, an increase of $2.8
million (or 22.5%) from the Company's variable cost of services for the six
months ended June 30, 1997. Of total variable cost of services for the six
months ending June 30, 1998, $8.5 million related to the operations of IMPSAT
Argentina, and $3.2 million related to the operations of IMPSAT Colombia
(compared to variable cost of services of $7.0 million at IMPSAT Argentina and
$3.2 million at IMPSAT Colombia for the six months ended June 30, 1997).
The principal items comprising total variable cost of services are
maintenance and installation (including de-installation) costs, and sales
commissions paid to third-party sales representatives.
Maintenance costs for the Company totaled $6.9 million during the six
months ended June 30, 1998. This represents an increase of $1.1 million over
maintenance costs incurred by the Company for the six months ended June 30,
1997. Maintenance costs include maintenance services contracted by the Company
from outside providers and interconnection and access charges incurred by the
Company in completing telecommunications through the networks of other
telecommunications carriers.
Installation costs totaled $3.2 million for the six months ended June 30,
1998. In comparison, installation costs totaled $2.2 million for the six months
ended June 30, 1997. The Company contracts equipment installation services from
outside providers.
Sales commissions paid to third party sales representatives totaled $3.2
million for the six months ended June 30, 1998. In comparison, sales commissions
paid to third party sales representatives totaled $2.5 million for the six
months ended June 30, 1997. Sales commissions paid to third-party sales
representatives in Argentina totaled $2.6 million for the six months ended June
30, 1998, compared to $2.2 million for the six months ended June 30, 1997. Sales
commissions increased during the first six months of 1998 compared to the
38
<PAGE> 39
corresponding period in 1997 as a result of certain new private
telecommunications network services contracts that were obtained by the Company
during the first half of 1998 through the use of third-party sales
representatives. These new agreements include a five-year contract to provide
private telecommunications network services to Instituto Nacional de Hipodromos
("INH"), a Venezuelan horse racing track, and a new 18-month contract to provide
private network telecommunications services to Gobierno de la Provincia de
Buenos Aires ("GBPA"), an Argentine provincial government. The contract with INH
contemplates monthly revenues to IMPSAT Venezuela of $240,000 per month. The
GBPA contract is expected to generate revenues of $320,000 per month for IMPSAT
Argentina.
In addition, the Company incurred costs of equipment sold during the six
months ended June 30 1998 of $1.1 million as compared with costs of equipment
sold during the corresponding period in 1997 of $0.7 million.
Salaries, Wages and Benefits. Salaries, wages and benefits paid by the
Company for the six months ended June 30, 1998 totaled $17.0 million, an
increase of $3.3 million (or 24.1%) over the Company's expenses for salaries,
wages and benefits during the corresponding period in 1997. The Company
increased salaries, wages and benefits of its personnel to match market rates
and increases in cost of living. The increase in salaries, wages and benefits
also reflects the acquisitions of IMPSAT Brazil, which had 65 employees at June
30, 1998, and Mandic S.A., which has 47 employees at June 30, 1998. Salaries,
wages and benefits paid by the Company with respect to IMPSAT Brazil and Mandic
S.A. for the six months ended June 30, 1998 totaled $1.1 million and $0.2
million, respectively. In percentage terms, the number of employees remained
relatively stable in Argentina, Colombia and Ecuador during the first half of
1998, and increased during the period in Venezuela, Mexico and the United
States. The Company maintained a total of 874 employees at June 30, 1998,
compared to 665 employees at June 30, 1997.
Satellite Capacity Cost. The Company's satellite lease payments for the
six months ended June 30, 1998 totaled $12.8 million, an increase of $4.0
million (or 45.2%) over satellite lease payments for the corresponding period in
1997. IMPSAT Argentina's satellite lease payments for the six months ended June
30, 1998 totaled $5.9 million, an increase of $1.4 million (or 31.1%) over
satellite lease payments for the corresponding period in 1997. The Company had
approximately 516.7 MHz and 368.0 MHz of leased satellite capacity at June 30,
1998 and 1997, respectively. The expansion of the Company's satellite capacity
during the first half of 1998 compared to the first half of 1997 is attributable
primarily to contractually scheduled increases in satellite capacity to match
anticipated growth in the total number of Dataplus earth stations to be
installed by the Company over time which, because of their greater transmission
capacity and bandwidth requirements compared to VSAT, utilize larger amounts of
satellite capacity. Increases in the Company's utilization of satellite capacity
have not been matched by proportionate increases in revenues from its services.
Selling, General and Administrative Expenses. SG&A expenses for the
Company consist principally of publicity and promotion costs; provisions for
doubtful accounts; fees and other remuneration; travel and entertainment; rent;
and plant services, telephone and energy expenses.
The Company incurred SG&A expenses of $21.1 million for the six months
ended June 30, 1998, an increase of $6.9 million (or 48.6%) from SG&A expenses
incurred by the Company during the six months ended June 30, 1997. The increase
in SG&A expenses for the six months ended June 30, 1998 relates principally to:
(i) an increase in the Company's provision for doubtful accounts as discussed
below; (ii) SG&A expenses incurred by the two new subsidiaries of the Company,
IMPSAT Brazil and Mandic S.A.; and (iii) expenses related to legal, tax and
consultancy advice with respect to the Company's consideration of potential
opportunities for expansion into new telecommunications services upon further
deregulation of the telecommunications industry in Latin America.
On a Company-wide basis, the Company recorded a provision for doubtful
accounts in the first half of 1998 of $4.2 million (compared to a provision of
$0.8 million in the first half of 1997) as a result of certain payment arrears
experienced by certain customers in Argentina and Ecuador. Of this amount,
IMPSAT Argentina recorded a provision for doubtful accounts during the first
half of 1998 of $2.7 million, in comparison to a provision for the first half of
1997 of $0.8 million.
39
<PAGE> 40
Prior to June 30, 1998, the Company's general policy had been to reserve
30% for accounts receivable in excess of 180 days but less than one year, and
100% for all accounts receivable in excess of 360 days. These guidelines were
not, however, applied in cases where the Company determined that applying the
guidelines would not be appropriate. For example, the Company had only reserved
54.5% of the total amount due to IMPSAT Argentina under with respect to a
receivable totaling $2.2 million from Banco de la Nacion Argentina ("BNA") that
was generated during 1996 and 1997 under a subcontract between IMPSAT Argentina
and IBM de Argentina, S.A. that was terminated by BNA in the second quarter of
1997, based on the Company's assessment of the likely recoverability of such
amounts. At the end of the first quarter of 1998 (excluding (i) the BNA contract
discussed above, and (ii) amounts totaling $8.4 million owed to the Company by
ENCOTESA, the former Argentine national postal service, under IMPSAT Argentina's
contracts with ENCOTESA (see Note 11 to the Company's consolidated financial
statements)) approximately 10% of the Company's gross current trade accounts
receivable were past due more than six months but less than one year and
approximately 10% of gross accounts receivable were past due more than one year.
On the same basis, as of June 30, 1998 approximately 11% of the Company's gross
current trade accounts receivable were past due more than six months but less
than one year and approximately 13% of gross accounts receivable were past due
more than one year.
At the end of the second quarter of 1998, the Company decided to change its
policy of reserving for doubtful accounts and has reserved 100% for all accounts
receivable in excess of 180 days. This new policy will not be applied to a
receivable if the president of an operating subsidiary determines that such
receivable will be collected within a further 60 days. Management believes that
the change in the Company's receivables policy will provide a more appropriately
comprehensive reserve against uncollectible customer accounts. The Company
reviews the status of accounts receivable from its customers and makes
adjustments to its reserve for uncollectible receivables as it deems
appropriate.
The increase in the Company's SG&A expenses for the six months ended June
30, 1998 also reflects increased entertainment, advertising and promotion costs
during the period ($3.2 million, representing an increase of $1.9 million, or
146%, compared to the six months ended June 30, 1997) relating to: (i) the
Company's expansion of its operations into Brazil; (ii) promotion campaigns for
the Company's newer services (Internet, Conexia and Telecampus); (iii)
consultant fees relating to the exploration of a new public image for the
Company; and (iv) related travel and entertainment expenses.
Depreciation and Amortization. The Company's depreciation and amortization
for the six months ended June 30, 1998 totaled $16.6 million, representing an
increase of $2.9 million (or 20.7%) compared to depreciation and amortization
for the six months ended June 30, 1997.
Interest Expense, Net. The Company's net interest expense for six months
ended June 30, 1998 totaled $17.2 million, consisting of interest expense of
$18.1 million and interest income of $0.9 million. Net interest expense
increased $4.9 million (or 40.1%) from net interest expense for the six months
ended June 30, 1997. IMPSAT Argentina's net interest expense for the six months
ended June 30, 1998 totaled $6.6 million ($3.7 million after eliminating
intercompany items). In comparison, IMPSAT Argentina's net interest expense for
the six months ended June 30, 1997 totaled $6.8 million ($1.4 million after
eliminating intercompany items). Net interest expense at IMPSAT Colombia for the
six months ended June 30, 1998 totaled $4.2 million ($3.4 million after
eliminating intercompany items). In comparison, IMPSAT Colombia's net interest
expense for the six months ended June 30, 1997 totaled $2.9 million ($2.0
million after eliminating intercompany items). Interest expense with respect to
intercompany loans are eliminated in the Company's consolidated statement of
operations.
The increase in net interest expense is primarily attributable to the
increased indebtedness of the Company, which grew from $218.2 million as of June
30, 1997 to $464.7 million as of June 30 1998. Such increased indebtedness of
the Company relates primarily to the issuance by the Company on June 17, 1998 of
the Notes.
As of June 30, 1998, total outstanding indebtedness at IMPSAT Argentina
equaled $150.7 million ($59.7 million after eliminating intercompany items),
compared to $107.6 million as of June 30, 1997. Total outstanding indebtedness
at IMPSAT Colombia as of June 30, 1998 equaled $57.2 million ($44.2 million
40
<PAGE> 41
after eliminating intercompany items), compared to $50.0 million as of June 30,
1997. The average interest rate on the Company's indebtedness for the first half
of 1998 was 12.7%, compared to an average interest rate of 11.2% for the first
half of 1997.
Interest expense is expected to increase in future periods as a result of
the issuance of the Notes. Such increased interest expense is likely to produce
a corresponding reduction in the Company's operating results during the
application of the proceeds of the Notes over the next 18 months. See
"-- Liquidity and Capital Resources" for a description of the Company's planned
uses of such proceeds.
Provision for Income Taxes. The Company recorded a provision for income
taxes for the six months ended June 30, 1998 of $2.3 million, compared to $2.7
million for the corresponding period in 1997. IMPSAT Argentina recorded a
provision for income taxes for the six months ended June 30, 1998 of $1.4
million, compared to $1.9 million for the corresponding period in 1997. IMPSAT
Colombia recorded a provision for income taxes for the six months ended June 30,
1998 of $1.5 million, compared to $0.8 million for the corresponding period in
1997.
Net Loss. For the six months ended June 30, 1998, the Company incurred a
net loss of $8.6 million, an increase of $5.7 million, compared to the Company's
net loss for the six months ended June 30, 1997. The principal reasons for the
increase in the Company's net loss as compared to prior periods related to the
following items, as discussed above: (i) the increase in the Company's provision
for doubtful accounts; and (ii) the incurrence of a net loss of $1.5 million by
IMPSAT Brazil during its development stage. For the six month period ended June
30, 1998, IMPSAT Argentina recorded net income of $0.9 million, compared to a
net income $1.0 million for the corresponding period in 1997. IMPSAT Colombia
recorded net income for the six months ended June 30, 1998 of $3.5 million
compared to a net income of $3.9 million for the corresponding period in 1997.
1997 COMPARED TO 1996
Revenues. Revenues for 1997 totaled $160.2 million, an increase of $31.8
million, or 24.8%, from 1996. Revenues at IMPSAT Argentina for 1997 totaled
$90.0 million, an increase of $4.9 million, or 5.4%, from 1996. IMPSAT
Argentina's revenues for 1997 included approximately $4.2 million generated from
Internet access services (approximately 55.0% of the Company's total revenues
from Internet access services). Although IMPSAT Argentina experienced a decrease
in the average price of its services in 1997 as a result of increased
competition, IMPSAT Argentina has been able to maintain revenues by increasing
its customer base and by selling a greater volume of services at such lower
prices. IMPSAT Colombia's revenues for 1997 totaled $49.5 million, an increase
of $14.4 million, or 41.0%, from 1996. IMPSAT Venezuela's revenues for 1997
totaled $8.6 million, representing an increase of $4.1 million, or 91.1%, from
1996. In addition, the revenues at IMPSAT Ecuador ($5.5 million and $2.8 million
for 1997 and 1996, respectively) and IMPSAT USA ($5.0 million and $0.5 million
for 1997 and 1996, respectively) increased as the Company's operations in those
countries continued to grow. The significant growth in IMPSAT USA's revenues
during 1997 was principally generated by certain short-term, non-recurring
contracts. Approximately 41% of IMPSAT USA's revenues for 1997 were derived from
such short-term contracts. As part of their revenues, IMPSAT Argentina and
IMPSAT USA recorded revenues of $2.2 million and $0.9 million, respectively,
during 1997 from certain nonrecurring equipment sales. The Company is unable to
predict whether IMPSAT USA will obtain any such contracts, maintain its revenues
at 1997 levels or achieve similar revenue growth in the future.
As of December 31, 1997 the Company had 1,189 customers (excluding
Internet, Global Fax and Conexia customers), compared to 907 at December 31,
1996.
Variable Cost of Services. The Company's variable cost of services for
1997 totaled $27.6 million, an increase of $6.1 million, or 28.5%, compared to
1996. Of the Company's total variable cost of services for 1997, $14.6 million
related to the operations of IMPSAT Argentina and $7.3 million related to the
operations of IMPSAT Colombia. This compares to variable cost of services of
$14.7 million at IMPSAT Argentina and $5.6 million at IMPSAT Colombia for 1996.
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Maintenance costs for the Company totaled $12.5 million during 1997, an
increase of $4.0 million, or 47.1%, compared to 1996. Maintenance costs for
IMPSAT Argentina for 1997 amounted to $5.8 million. This represents an increase
of $1.3 million over IMPSAT Argentina's maintenance costs during 1996. In
Colombia, maintenance costs totaled $4.5 million during 1997, an increase of
$1.2 million compared to 1996. The increase in maintenance costs of the Company
during 1997 compared to 1996 is primarily attributable to (i) the increased
level and amount of the Company's telecommunications infrastructure in service
as the Company's operations have grown and expanded; and (ii) de-installation
costs incurred by the Company in connection with replacing VSAT microstations
with higher capacity Dataplus earth stations at customer locations. In addition,
maintenance costs for IMPSAT USA totaled $1.4 million in 1997 compared to
maintenance costs of $0.5 million in 1996. IMPSAT USA's maintenance costs for
1997 included fees of $0.2 million paid to third-party carriers to terminate the
"last mile" of certain private telecommunications network links provided by
IMPSAT USA to some of its customers.
Installation costs for the Company totaled $4.7 million during 1997 in
comparison to installation costs of $2.2 million during 1996. The Company
installed a net total of 109 VSAT microstations and 204 Dataplus earth stations
during 1997. In comparison, the Company installed a net total of 635 VSAT
microstations and 261 Dataplus earth stations during 1996. The Company contracts
equipment installation services from outside providers.
Sales commissions paid to third-party sales representatives totaled $5.9
million for 1997, compared to $8.9 million during 1996. The overwhelming amount
of such sales commissions were paid to third-party sales representatives with
respect to customers of IMPSAT Argentina. Sales commissions paid to third-party
sales representatives in Argentina totaled $5.2 million for 1997, compared to
$8.3 million for 1996. The Company incurred lower sales commissions during 1997
primarily because of the renegotiation of certain of the agreements with
third-party sales representatives for lower commissions. In addition,
commissions were also reduced as a result of the renegotiation of underlying
contracts with customers, which resulted in reduced sales bases underlying
contractually due commissions. For example, the renegotiation and reduction of
services provided by IMPSAT Argentina under its agreements to provide private
telecommunications network services to BNA in the second quarter of 1997
resulted in a reduction in the revenues from such services and a corresponding
reduction in related sales commissions.
In addition, the Company incurred costs of equipment sold of $2.8 million
1997. The Company did not incur any costs of equipment sold during 1996.
Satellite Capacity Costs. The Company's satellite capacity costs for 1997
totaled $18.9 million, an increase of $5.0 million, or 36.0%, from 1996. The
Company had approximately 253.0 MHz and 412.6 MHz of leased satellite capacity
as of December 31, 1996 and 1997, respectively. The Company's satellite capacity
costs are primarily related to the increase in the Company's customer and
revenue bases. The increase in satellite capacity during 1997 is attributable
primarily to contractually scheduled increases in satellite capacity to match
anticipated growth in the total number of Dataplus earth stations. Dataplus
earth stations have greater transmission capacity and bandwidth requirements
than VSATs and therefore utilize larger amounts of satellite capacity.
Salaries, Wages and Benefits. Salaries, wages and benefits for 1997
totaled $29.2 million, an increase of $3.7 million, or 14.5%, compared to 1996.
The Company increased salaries, wages and benefits of its personnel to match
market rates and increases in cost of living. IMPSAT Argentina incurred $12.5
million in salaries, wages and benefits costs during 1997, a decrease of $0.1
million over IMPSAT Argentina's salaries, wages and benefits costs during 1996.
IMPSAT Colombia's salaries, wages and benefits costs totaled $6.3 million during
1997, an increase of $1.3 million compared to IMPSAT Colombia's salaries, wages
and benefits costs during 1996. The appreciation of the Colombian peso against
the U.S. dollar since the beginning of 1997 resulted in an increase in U.S.
dollar terms in salaries, wages and benefits paid to employees of IMPSAT
Colombia during 1997. Salaries, wages and benefits for 1997 for the Company's
other subsidiaries increased by varying amounts totaling $2.4 million, compared
to 1996. The Company maintained a total of 683 employees as of December 31,
1997, compared to 650 employees as of December 31, 1996.
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Selling, General and Administrative Expenses. The Company incurred SG&A
expenses of $32.7 million for 1997, an increase of $9.7 million, or 42.2%, from
SG&A expenses incurred by the Company during 1996. The increase in SG&A expenses
is primarily attributable to an increase in SG&A expenses incurred by IMPSAT
Argentina and IMPSAT Colombia.
SG&A expenses at IMPSAT Argentina for 1997 totaled $16.8 million, an
increase of $6.1 million from SG&A expenses incurred by IMPSAT Argentina for
1996. The increase in SG&A expenses at IMPSAT Argentina in 1997 compared to 1996
includes the creation of a specific provision of $2.5 million relating to
services invoiced to ENCOTESA. At the end of 1996 IMPSAT Argentina began to
reserve 100% for all subsequent invoices submitted to ENCOTESA and to charge
such amounts directly to SG&A expenses. Subsequently the Company reclassified
its trade account receivables due from ENCOTESA as noncurrent assets. Such
receivables were recorded at their estimated net realizable value of $5.1
million. In addition to the specific provision relating to ENCOTESA, the Company
increased its provision for doubtful accounts from $2.5 million for 1996 to $5.8
million for 1997. See "Risk Factors -- Receivables Risks" and "Business -- Legal
Matters." The Company has increased its allowance for doubtful accounts as a
result of certain payment arrears experienced by a number of customers in
Argentina. Such adjustments in 1997 included a provision of $1.2 million with
respect to a receivable totaling $2.2 million from BNA that was generated during
1996 and 1997 under a subcontract between IMPSAT Argentina and IBM de Argentina,
S.A. that was terminated by BNA in the second quarter of 1997. The payment of
the receivable by BNA is subject to the approval of the General Auditor of
Argentina, which office is conducting an audit of the procedures used by BNA in
awarding contracts to its service providers. BNA is generally current on its
payments under BNA's existing contract with IMPSAT Argentina.
As a percentage of revenues, the Company's provision for doubtful accounts
increased from 1.9% of revenues for 1996 to 3.5% of revenues for 1997. The
Company believes that its reserve for doubtful accounts is adequate.
SG&A expenses at IMPSAT Colombia for 1997 totaled $6.5 million, an increase
of $1.9 million from SG&A expenses incurred by IMPSAT Colombia for 1996. The
increase in SG&A expenses at IMPSAT Colombia for 1997 is primarily attributable
to the cost of additional telephone lines for Internet access and expenses
associated with the promotion of IMPSAT Colombia's services at commercial
expositions and trade shows.
SG&A expenses at IMPSAT Venezuela for 1997 totaled $2.3 million, an
increase of $0.8 million from SG&A expenses incurred by IMPSAT Venezuela for
1996. The increase in SG&A expenses at IMPSAT Venezuela for 1997 is attributable
to approximately $0.3 million of severance payments incurred due to termination
of certain of IMPSAT Venezuela's management personnel and $0.5 million in
increased office rental and operational facilities expenses. Consequently,
IMPSAT Venezuela took steps in 1997 to reduce and rationalize its SG&A expenses,
including the termination of leases covering excess office and operational
facilities. In April 1997, certain changes were made in the senior management
levels at IMPSAT Venezuela, including the designation of Mr. Mariano Torre
Gomez, previously President at IMPSAT Ecuador, as President of IMPSAT Venezuela.
Finally, the increase in SG&A expenses incurred by the Company during 1997
compared to 1996 is also attributable to legal and tax advice and other fees and
expenses of $4.7 million incurred by the Company during 1997. This represents an
increase of $1.1 million over such expenses incurred during 1996. Such expenses
were incurred during 1997 primarily in connection with legal fees incurred with
respect to its legal proceeding commenced against ENCOTESA, described in
"Business -- Legal Matters" and Note 11 to the Company's financial statements,
the Company's ongoing financing activities and the conduct of preliminary
feasibility assessments of the expansion of the Company's operations into
Brazil.
Depreciation and Amortization. The Company's depreciation and amortization
for 1997 totaled $28.5 million, representing an increase of $2.2 million, or
8.3%, compared to depreciation and amortization for 1996. Depreciation and
amortization for IMPSAT Argentina for 1997 totaled $17.8 million. In 1997, the
Company adopted an improved inventory control system, which has enhanced the
Company's ability to more accurately track and depreciate its equipment in
service.
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Interest Expense, Net. The Company's net interest expense for 1997 totaled
$24.7 million, comprising interest expense of $25.9 million and interest income
of $1.2 million for 1997. Net interest expense increased $1.5 million, or 6.7%,
from net interest expense for 1996. IMPSAT Argentina's net interest expense for
1997 totaled $12.6 million ($3.0 million after eliminating intercompany items).
Net interest expense at IMPSAT Colombia for totaled $6.2 million ($4.5 million
after eliminating intercompany items). Interest expense with respect to
intercompany loans are eliminated in the Company's consolidated statement of
operations.
The increase in net interest expense for 1997 reflects primarily increased
indebtedness of the Company, which increased from $199.1 million as of December
31, 1996 to $220.1 million as of December 31, 1997. As of November 30, 1997,
total outstanding indebtedness at IMPSAT Argentina equaled $108.4 million,
compared to $101.6 million as of November 30, 1996. Total outstanding
indebtedness at IMPSAT Colombia as of December 31, 1997 equaled $38.9 million,
compared to $35.9 million as of December 31, 1996. The weighted average interest
rate on the Company's indebtedness for 1997 was 12.3%, compared to a weighted
average interest rate of 14.5% for 1996.
Provision for Income Taxes. The Company recorded a provision for income
taxes for 1997 of $5.0 million, compared to $3.5 million for 1996. The Company
has paid income tax, although it has recorded net losses on a consolidated
basis, because its operations in certain countries have generated taxable net
income. IMPSAT Argentina recorded a provision for income taxes for 1997 of $3.2
million, compared to $4.0 million in 1996. IMPSAT Colombia paid income taxes of
$1.8 million for 1997, compared to $1.5 million for 1996. IMPSAT Venezuela
recorded a provision for income taxes of $0.8 million, compared to a credit of
$1.7 million in 1996.
Net Loss. The Company incurred a net loss of $8.0 million for 1997, a
decrease of $0.5 million, or 6.1%, compared to the Company's net loss of $8.5
million for 1996. The Company's net loss for 1997 is primarily related to losses
incurred by the Company's operations in Venezuela (a net loss of $5.4 million)
and Mexico (a net loss of $1.4 million), as well as $2.2 million in management
services provided and overhead expenses incurred by IMPSAT Corporation for 1997.
IMPSAT Argentina recorded net income of $2.9 million for 1997, a decrease of
$0.1 million compared to 1996. IMPSAT Colombia recorded net income of $8.4
million for 1997, an increase of $6.2 million compared to 1996.
1996 COMPARED TO 1995
Revenues. Revenues for 1996 totaled $128.4 million, an increase of $22.8
million, or 21.6%, from 1995. The increase in revenues reflected principally a
growth in revenues of IMPSAT Colombia, which totaled $35.1 million, representing
an increase of $12.7 million, or 56.7%, from 1995. Revenues at IMPSAT Argentina
for 1996 totaled $85.1 million (an increase of $4.7 million, or 5.9%, from
1995), revenues at IMPSAT Venezuela totaled $4.5 million for 1996 (an increase
of $2.3 million from 1995), and revenues at IMPSAT Ecuador totaled $2.8 million
for 1996 (an increase of $2.2 million from 1995).
IMPSAT Colombia's customer base increased from 271 at December 31, 1995 to
410 at December 31, 1996. During 1996 IMPSAT Colombia installed a net total of
287 VSAT microstations and 148 Dataplus earth stations for new and existing
customers. IMPSAT Venezuela also experienced growth in the number of customers
and services provided. In Venezuela, the number of customers increased from 39
at December 31, 1995 to 76 at December 31, 1996, and IMPSAT Venezuela installed
a net total of 96 VSAT microstations and 48 Dataplus earth stations for new and
existing customers during 1996. In Ecuador, the number of customers increased
from 26 as of December 31, 1995 to 44 as of December 31, 1996, and IMPSAT
Ecuador installed a net total of 55 VSAT microstations and 5 Dataplus earth
stations during 1996.
The operations at IMPSAT Argentina experienced slower growth than that
registered in the other principal countries in which the Company operates. The
number of customers at IMPSAT Argentina as of November 30, 1996 totaled 358,
compared with 319 customers as of November 30, 1995. During 1996, IMPSAT
Argentina installed a net total of 160 VSAT microstations and 43 Dataplus earth
stations for new and existing customers, as compared to a net total of 489 VSAT
microstations and 119 Dataplus earth stations installed during 1995. The
significant diminution in the level of growth of IMPSAT Argentina's revenues and
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customer base was related to the recession experienced in Argentina that
commenced in 1995 and continued through the first six months of 1996.
Variable Cost of Services. The Company's variable cost of services for
1996 totaled $21.5 million, an increase of $2.7 million, or 14.4%, from the
Company's variable cost of services for 1995. Of total variable cost of
services, $14.3 million related to the operations of IMPSAT Argentina and $5.6
million related to the operations of IMPSAT Colombia, compared to variable cost
of services of $14.7 million at IMPSAT Argentina for 1995 and variable cost of
services of $3.7 million at IMPSAT Colombia for 1995.
Installation costs totaled $2.2 million for 1996, or 10.2% of total
variable cost of services, compared to installation costs of $1.8 million, or
9.5% of total variable cost of services for 1995. Variable costs of services
declined at IMPSAT Argentina, primarily as a result of fewer installations in
1996 due to a lower growth rate for new services and customers, and increased at
IMPSAT Colombia, primarily due to the rapid growth in new installations and
customers.
Maintenance costs for the Company totaled $8.5 million during 1996, or
39.5% of total variable cost of services. In comparison, maintenance costs for
the Company totaled $4.4 million in 1995, or 23.4% of total variable cost of
services. The increase in maintenance costs of the Company during 1996 compared
to 1995 was primarily attributable to the increased level and amount of the
Company's telecommunications infrastructure in service as the Company's
operations grew and expanded over time.
Sales commissions paid to third-party sales representatives totaled $8.9
million for 1996, or 41.4% of the Company's total variable cost of services
during such period. The overwhelming amount of such sales commissions ($8.3
million, or 93.4% of such total sales commissions) were paid to third-party
sales representatives with respect to customers of IMPSAT Argentina.
Satellite Capacity Cost. The Company's satellite lease payments for 1996
totaled $13.9 million, an increase of $2.9 million, or 26.4%, over satellite
lease payments for 1995. The Company's satellite capacity costs are related to
the increase in the Company's customer and revenue bases, and the Company has
acquired additional leased satellite capacity as needed to meet current and
projected levels of business. Total leased satellite capacity has increased from
198.3 MHz as of December 31, 1995 to 253.0 MHz as of December 31, 1996.
Salaries, Wages and Benefits. Salaries, wages and benefits paid by the
Company for 1996 totaled $25.6 million, an increase of $3.3 million, or 15.0%
over the Company's expenses for salaries, wages and benefits during 1995. The
Company increased personnel headcount during 1996 in Colombia, Mexico,
Venezuela, Ecuador and the United States and decreased personnel in Argentina.
In the second quarter of 1996, IMPSAT Argentina reduced its technical support
staff by 17 persons, its sales workforce by 16 persons and its personnel
workforce by 11 persons, resulting in the payment of legally required severance
payments for such personnel of $713,000 in the second quarter of 1996. This
reduction in workforce was made possible by increases in productivity realized
as a result of IMPSAT Argentina's organizational restructuring in 1995. The
Company also effectuated a small decrease in the number of employees at Resis, a
wholly-owned subsidiary that provides management services for the Company.
Selling, General and Administrative Expenses. The Company incurred SG&A
expenses of $23.0 million for 1996, a decrease of $3.1 million, or 11.8%, from
1995. SG&A expenses at IMPSAT Argentina for 1996 totaled $10.7 million, a
decrease of $3.5 million, or 24.6%, from 1995. SG&A expenses at IMPSAT Colombia
for 1996 totaled $4.6 million, an increase of $0.6 million, or 16.2%, from 1995.
Principal items of note with respect to SG&A expenses incurred by the
Company in 1996 included the following matters:
The Company's provisions for doubtful accounts, principally relating to
IMPSAT Argentina, increased from $0.4 million for 1995, or 487.3%, to $2.5
million for 1996. The Company increased its allowance for doubtful accounts as a
result of certain payment arrears experienced by a number of customers in
Argentina. As a percentage of revenues, the Company's allowance for doubtful
accounts increased from 1.1% of revenues for 1995 to 1.9% of revenues for 1996.
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In 1996, the Company commenced efforts to decrease and rationalize its SG&A
expenses. Those steps included a decrease in expenses such as corporate travel
expenses and a more efficient use of space requirements. IMPSAT Corporation
moved its executive offices from leased office space in downtown Buenos Aires
and centralized its personnel at IMPSAT Argentina's new facility at its Buenos
Aires Teleport. The move of IMPSAT Corporation's headquarters and personnel to
the Buenos Aires Teleport resulted in a savings of $300,000 annually in reduced
rental expense in 1996 as compared to 1995.
Depreciation and Amortization. The Company's depreciation and amortization
for 1996 totaled $26.3 million, an increase of $5.7 million, or 27.5%, compared
to 1995. Depreciation and amortization for IMPSAT Argentina totaled $18.8
million for 1996, an increase of $2.7 million, or 16.8%, compared to 1995. The
increase in depreciation and amortization was related principally to the growth
in the Company's private telecommunications network systems and the expansion of
its facilities.
Interest Expense, Net. The Company's net interest expense for 1996 totaled
$23.2 million, comprising interest expense of $25.2 million and interest income
of $2.0 million. Net interest expense increased $7.5 million, or 47.8%, from net
interest expense for 1995. IMPSAT Argentina's net interest expense for 1996
totaled $13.4 million ($9.6 million after eliminating intercompany items). Net
interest expense at IMPSAT Colombia for 1996 totaled $7.3 million ($7.0 million
after eliminating intercompany items). Interest expense with respect to
intercompany loans are eliminated in the Company's consolidated statement of
operations.
The increase in net interest expense reflected increased indebtedness of
the Company, which grew from $127.7 million as of December 31, 1995 to $199.1
million as of December 31, 1996. In addition, during the period between the
consummation of the offering of the Existing Senior Notes and the maturity dates
for the indebtedness refinanced with the proceeds of the Existing Senior Notes,
the Company was required to incur the interest expense on the existing
indebtedness as well as on the Existing Senior Notes, which additional interest
expense was offset only partially by the receipt of interest income on the
Company's cash balances being held pending repayment. As of November 30, 1996,
total outstanding indebtedness at IMPSAT Argentina equaled $101.6 million
(including parent company advances of $71.5 million from the proceeds of the
Existing Senior Notes), compared to $79.7 million as of November 30, 1995. Total
outstanding indebtedness at IMPSAT Colombia as of December 31, 1996 equaled
$35.9 million (including parent company advances of $13.0 million from the
proceeds of the Existing Senior Notes), compared to $43.6 million as of December
31, 1995. The weighted average interest rate on the Company's indebtedness for
1996 was 15.4%, compared to a weighted average interest rate of 14.1% for 1995.
Net Gain (Loss) on Foreign Exchange. The Company recorded a net gain on
foreign exchange for 1996 of $0.9 million due to a decrease in the Company's
indebtedness denominated in Venezuelan bolivars as a result of the devaluation
of the Venezuelan bolivar against the U.S. dollar.
Benefit From (Provision for) Foreign Income Taxes. The Company recorded a
provision for foreign income taxes for 1996 of $3.5 million, a decrease of $4.3
million from the benefit for foreign income taxes recorded for 1995. The
provision for foreign income taxes reflects the income taxes owed by the
Company's operating subsidiaries in their countries of operation. For 1996,
IMPSAT Argentina recorded a provision of $4.0 million, and IMPSAT Colombia
recorded a provision of $1.5 million. During 1996, IMPSAT Argentina had
available net operating loss carryforwards of $3.2 million which were applied
towards its income tax liability for 1996.
Net Loss. For 1996, the Company incurred a net loss of $8.5 million, an
increase of $1.1 million, or 14.9%, compared to the Company's net loss of $7.4
million for 1995. The Company's net loss as a percentage of revenues for 1996
declined to 6.6% of revenues from a loss of 7.0% of revenues for 1995. The
Company's net loss for 1996 was primarily related to the costs of the Company's
operations in Venezuela (a net loss of $1.2 million after deduction for minority
interests), Ecuador (a net loss of $1.1 million), Mexico (a net loss of $2.0
million), as well as management services provided, and overhead expenses
incurred by IMPSAT Corporation of $5.4 million. Such losses were offset by
IMPSAT Argentina's net income for 1996 of $3.0 million, of which the Company's
interest after deduction for minority interests totaled $1.5 million and IMPSAT
Colombia's net income of $2.2 million for 1996, of which the Company's interest
after deduction for minority interests totaled $1.8 million. The increase in the
Company's net loss for 1996 was primarily
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attributable to increased interest expense associated with the Company's higher
levels of indebtedness and the use of IMPSAT Argentina's net operating loss
carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
The Company anticipates that it will continue to incur significant capital
expenditures in the next several years in connection with the expected growth of
its existing commercial operations (Argentina, Colombia, Venezuela, Ecuador and
Mexico), and the development of its operations in Brazil. The Company's budget
contemplates that the Company will need up to $41.0 million through 1999 for the
adequate development of a private telecommunications network system in Brazil.
The ability of the Company to continue the expansion of its private
telecommunications network systems at their current rates of expansion and to
meet its debt service obligations will be dependent upon the future performance
of the Company, including the ability of the Company to obtain additional debt
financing and potential equity financing. The Company's ability to maintain its
planned program of capital expenditures will be dependent on its ability to
obtain additional sources of financing. If the Company is unable to obtain such
additional sources of financing, it will not be able to maintain its levels of
growth and market position in any of the countries in which it operates, which
could have an adverse effect on the business and prospects of the Company and
its ability to make payments on the Notes.
As set forth in its consolidated statements of cash flow, the Company
generated $14.1 million in net cash flow from operating activities for 1997,
compared to $9.8 million for 1996. The increase in net cash flow for 1997 from
operating activities was primarily attributable to the increase in trade
payables ($4.6 million in 1997, versus a decrease in trade payables of $0.1
million in 1996) and an increase in other long-term liabilities ($0.1 million
compared to a decrease of $2.5 million in 1996). Financing activities provided
$22.5 million in cash flow in 1997, representing a decrease of $44.0 million
from 1996. The difference in cash provided from financing activities in 1997
compared to 1996 reflects cash received generated in 1996 from the issuance of
the Existing Senior Notes. During 1997, the Company used $55.0 million in net
cash flow in investing activities, compared to $53.7 million for 1996.
At June 30, 1998, the Company had a cash balance of $200.6 million. At that
date, the Company's consolidated total debt was $464.7 million, approximately
$65.7 million of which was short-term debt. Such short-term debt included $25
million of IMPSAT Argentina's short-term indebtedness which was refinanced in
August 1998 with an advance from the proceeds of the Notes. As of June 30, 1998,
approximately $45.0 million of the Company's debt was scheduled to mature in
1998, approximately $16.3 million in 1999, and approximately $368.2 million in
the year 2000 and thereafter.
After giving effect to the application of the proceeds of the Offering, on
a pro forma basis as of June 30, 1998, the Company had $44.9 million of
short-term debt outstanding.
In the six months ended June 30, 1998, the Company generated $18.3 million
in net cash flow from operating activities, compared with $4.5 million generated
for the six months ended June 30, 1997. The increase in cash flow from operating
activities in the first six months of 1998 was primarily attributable to (i)
increases in accrued and other liabilities of $10.7 million (compared to an
increase of $5.2 million in the first half of 1997), (ii) increases in trade
accounts payable of $7.5 million (compared to a decrease of $2.9 million in the
first half of 1997), and (iii) decreases in other receivables and other
non-current assets of $0.4 million (compared to a decrease of $4.1 million in
the first quarter of 1997). Financing activities provided $236.5 million in net
cash flow for the six months ended June 30, 1998, compared with $19.1 million
from cash flow generated by financing activities for the six months ended June
30, 1997. Such increase is primarily attributable to the issuance of the Notes.
The Company's net outstanding indebtedness increased by $246.5 million during
the six months ended June 30, 1998. During the six months ended June 30, 1998,
the Company used $64.6 million in net cash flow for investing activities,
compared to $23.0 million for the six months ended June 30, 1997.
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LIQUIDITY AND CAPITAL RESOURCES
The Company anticipates that it will continue to incur significant capital
expenditures in the next several years in connection with the expected growth of
its existing commercial operations (Argentina, Colombia, Venezuela, Ecuador,
Mexico and the United States) and the development of its operations in Brazil.
The Company intends to meet its capital requirements during the remainder of
1998 and for 1999 from the proceeds of the Notes. Of total net proceeds of the
Notes of $217.7 million, the Company anticipates that $35.2 million will be used
to refinance existing short-term indebtedness and the remainder used for capital
expenditures. The Company currently anticipates that it will require
approximately $360 million during the period 1998 to 2000 for capital
expenditures (including amounts already expended in 1998 to date). The Company's
projected capital expenditure requirements include the establishment of
operations and development of private telecommunications network systems in
Brazil and continued additions to its private telecommunications network
infrastructure in order to maintain the Company's ability to provide high
quality, competitive services. The Company's budget contemplates that the
Company will need approximately $90 million for the period from 1998 to 2000
(including amounts already expended in 1998 to date) for capital expenditures
related to the adequate build-out of its private telecommunications network
system in Brazil.
The Company's currently planned capital expenditures described above are
exclusive of expenditures that would be required for the implementation of the
IMPSAT 2000 project. Although the timing and development of the IMPSAT 2000
project has not been finalized and will be dependent on the availability of
adequate financing, continued deregulation of the Latin American
telecommunications market, and receipt of required licenses and governmental
approvals, among other factors, the Company currently estimates that the initial
implementation of the IMPSAT 2000 project through the end of 1999 could require
up to $200 million in additional financing. The Company does not currently have
any commitments regarding such financing and the development of the IMPSAT 2000
project will be dependent upon the Company's ability to obtain such financing.
Accordingly, the ability of the Company to continue the expansion of its
private telecommunications network systems as is necessary to provide
high-quality, competitive private network services to its customers and to meet
its debt service obligations will be dependent upon the future performance of
the Company, including the ability of the Company to obtain additional debt
financing and potential equity financing. The Company's ability to maintain its
planned program of capital expenditures will be dependent on its ability to
obtain additional sources of financing. If the Company is unable to obtain such
additional sources of financing, it will not be able to maintain its levels of
growth and market position in any of the countries in which it operates, which
could have an adverse effect on the business and prospects of the Company.
As of August 15, 1998, IMPSAT Argentina had outstanding $25 million of
commercial paper (which is scheduled to mature on December 17, 1998) issued
under its $50 million Euro-Commercial Paper Program (the "ECP Program"). IMPSAT
Argentina repaid $25 million of short-term promissory notes issued under the ECP
Program upon maturity on August 10, 1998 using parent company advances from the
proceeds of the Notes.
The Company leases satellite capacity with annual rental commitments of
approximately $26.0 million through the year 2001. In addition, the Company has
commitments to purchase communications equipment amounting to approximately
$11.6 million at June 30, 1998.
YEAR 2000
The Company's equipment and operational systems are being reviewed and,
where required, detailed plans have been, or are being, developed and
implemented on a schedule intended to permit the Company's computer systems and
services to continue to function properly in the year 2000. Such plans are
likely to involve a combination of software modification, upgrades and
replacement. The Company's plan for Year 2000 compliance includes the following
phases, which sometimes overlap: (a) compilation of an inventory of equipment
currently involved or anticipated to be involved in operations; (b) circulation
of questionnaires to suppliers of the Company about equipment readiness; (c)
gathering of information from customers;
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<PAGE> 49
(d) implementation of required upgrades or replacements; and (e) testing of
equipment in-house or at supplier sites.
The Company has reviewed almost all the equipment involved in its services.
Questionnaires are being sent to suppliers, and the Company has started to
gather information from its customers about the issue with the objective of
analyzing client networks in detail, and coordinating customer Year 2000
compliance initiatives with the Company's plans.
Ensuring that the Company's equipment and operational systems are year 2000
compliant is expected to increase costs in 1998 and 1999. While final cost
estimates are not complete, Management does not expect these costs to have a
material adverse impact on the Company's financial position, results of
operations or cash flows. Costs incurred by the Company to date have been
immaterial. In addition, the Company faces risks to the extent that suppliers,
customers and others with whom the Company transacts business do not have
business systems or products that comply with the year 2000 requirements. In
providing its services, the Company's systems may sometimes be required to
communicate electronically with customer-owned systems with respect to a variety
of functions. Failure of the systems of the Company's customers to address the
year 2000 issue could impair the Company's ability to perform such functions.
Furthermore, in the event any of the Company's suppliers cannot timely provide
the Company with products, services or systems that meet the year 2000
requirements, the Company's operating results could be materially adversely
affected. The Company is not yet able to estimate the cost for year 2000
compliance with respect to customers and suppliers; however, based on a
preliminary review, Management does not expect that such costs will have a
material adverse effect on the future consolidated results of operations of the
Company. However, the Company could be adversely impacted by the year 2000 date
issue if suppliers, customers and other businesses do not address this issue
successfully.
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BUSINESS
OVERVIEW
The Company is a leading provider of private telecommunications network
services in Latin America. The Company offers tailor-made, integrated
telecommunications solutions, with an emphasis on data transmission, for
national and multinational companies, financial institutions, governmental
agencies and other business customers. The Company currently has operations in
Argentina, Colombia, Venezuela, Ecuador, Mexico, Brazil and the United States.
Services are provided through the Company's advanced telecommunications
networks, comprised of owned teleports, earth stations, fiber optic and
microwave links, and leased satellite capacity and fiber optic links. The
Company believes that it operates the largest shared hub VSAT network in Latin
America, with 3,527 VSAT microstations installed as of June 30, 1998. In
addition, the Company operates 16 teleports located in six countries and twelve
microwave and fiber optic metropolitan area networks in twelve cities.
The Company has grown rapidly since the commencement of its operations in
Argentina in 1990. Its business customer base has expanded from 125 customers in
two countries as of December 31, 1992 to 1,321 customers in seven countries as
of June 30, 1998. From 1992 to 1997, annual revenues on a consolidated basis
have grown from $20.5 million to $160.2 million, EBITDA (as defined) has grown
from $7.9 million to $51.8 million and net property, plant and equipment have
grown from $47.9 million to $255.4 million.
The Company has recently commenced operations in Brazil. The Company
believes that the breadth of opportunity for the expansion of the private
telecommunications network services market in Brazil is underscored by the
country's (i) growing economy (Brazil's gross domestic product grew from
approximately $387 billion in 1992 to approximately $803 billion in 1997); (ii)
strong, unsatisfied demand for reliable telecommunications solutions; (iii) low
teledensity; (iv) poor telephony infrastructure; and (v) recently commenced
liberalization and privatization of the telecommunications sector. The Company
plans to use its technological and commercial experience and knowledge of
providing private telecommunications network services in the region to expand
its market penetration in Brazil.
The Company expects continued growth in the demand for private
telecommunications network services in Latin America and anticipates that the
proportionate share of data transmission services will increase more rapidly
than the overall telecommunications sector as has been the case in the United
States. Continued deregulation of the telecommunications markets in the region
should lead to substantial growth in the telecommunications sector, which
historically has grown slowly compared with that of more developed countries.
Continuing economic growth and integration in Latin America is expected to add
to the demand for telecommunications services in the region and support greater
opportunities for expansion of the Company's regional presence. The Company
believes that its pan-Latin American presence distinguishes it from its
competitors and is a key element in its ability to satisfy a need in Latin
America for "one-stop shopping" in private telecommunications network services.
In addition, upon further deregulation of the telecommunications markets in
Latin America, the Company may consider expansion into new services for its
business customers, including switched international, domestic long distance and
local services.
The Company provides a full range of private telecommunications network
services which are tailored to meet the specific system requirements of its
customers, including digital information (data, voice and video) transmission
via VSAT, SCPC, fiber optic and microwave technology and a wide range of value
added services, including Internet access and electronic commerce; fax store and
forward; healthcare billing and insurance verification services; and
video-conferencing and long-distance learning. The Company utilizes its array of
service offerings in different ways to create customized packages that best suit
each customer's private telecommunications network system needs. The Company
distinguishes itself by providing telecommunications solutions which permit its
customers to enjoy the advantages of a private network while freeing them from
the burdens of purchasing, operating and maintaining the network. See
"Business -- Services and Related Infrastructure" for a further description of
the Company's private telecommunications network services.
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The Company views its relationship with its customers as a long-term
partnership in which customer satisfaction is of paramount importance. For this
reason, the Company applies an integrated approach to its sales, marketing and
customer service functions. Each client service team is jointly responsible for
all aspects of a particular customer relationship. The Company provides customer
service on a 24 hour per day, 365-day per year basis. As a result of this
consultative approach, the Company achieves high levels of customer satisfaction
while being able to identify new revenue generating opportunities, customer
telecommunications possibilities and product or service improvements previously
overlooked or not adequately addressed by the client.
The Company believes its key competitive advantages over its competitors
include: (i) early market entry and operating experience in providing private
telecommunications network services in Latin America; (ii) the ability to
provide diverse, cost-efficient networking solutions; (iii) superior marketing
skill and knowledge of the customer's needs and responsiveness; and (iv)
position as a market leader and its significant existing network infrastructure
in numerous Latin American markets.
RECENT DEVELOPMENTS
On March 19, 1998, IMPSAT Corporation redeemed 25% of its outstanding
common stock (the "STET Shares") previously held by STET International
Netherlands NV ("STET International") with the proceeds of a substantially
concurrent issuance and sale of the Series A Preferred Stock. The Series A
Preferred Stock were offered and sold to the Morgan Stanley Investors pursuant
to an exemption from the registration requirements of the Securities Act. See
"Principal Stockholders." The Series A Preferred Stock was convertible on the
date of issuance into 25% of the common stock of the Company. For a description
of the sale of the Series A Preferred Stock by the Company to the Morgan Stanley
Investors (the "Series A Preferred Stock Issuance"), refer to "Certain
Relationships and Related Transactions -- STET Share Purchase and Series A
Preferred Stock Issuance." The holders of the Series A Preferred Stock have,
pursuant to a right to vote thereon as a separate class, elected two of the
Company's directors.
On April 20, 1998, the Company signed a definitive agreement to purchase a
majority interest in Mandic S.A., a Brazilian Internet access provider, for
approximately $9.8 million. Upon consummation of the transaction, the Company
will acquire 75.1% of the common stock of Mandic S.A., and the remaining 24.9%
will be owned by Mr. Aleksander Mandic, the founder and current president of
Mandic, S.A. The initial stage of the acquisition of Mandic S.A., pursuant to
which the Company acquired a 58.5% interest, was consummated on May 28, 1998,
and the remaining 16.6% interest is scheduled to be acquired by May 1, 1999.
On June 1, 1998, the Company acquired from Nevasa 99.9% of the capital
stock of IMPSAT Brazil for approximately $5.1 million in cash. The purchase
price for IMPSAT Brazil represented the total amount of pre-operating and
development costs and expenses incurred for IMPSAT Brazil by Nevasa. IMPSAT
Brazil was established by Nevasa and operates under a value added
telecommunications license (the "Brazil License") permitting IMPSAT Brazil to
lease satellite capacity directly from satellite carriers and sell corporate
private telecommunications network services (data, voice and video), using
terrestrial and satellite links, to third parties.
As of June 30, 1998, IMPSAT Brazil was providing private network
telecommunications services in Brazil to a total of 21 business customers,
including Shell do Brasil S.A., Fundacao Cultural e Educacional, Ultrafertil,
Sony Music Entertainment, and HSBC Bamerindus, through a total of 20 Dataplus
and two Interplus earth stations and the outsourcing of a 200 VSAT microstation
network for HSBC Bamerindus.
The Company announced in September 1998 plans to construct a broadband
network throughout the principal countries in Latin America. The program, which
the Company has designated as "IMPSAT 2000" would be aimed at developing the
Latin American informational highway. Upon its full development and
implementation, IMPSAT 2000 would provide a fiber optic link among the major
urban and surrounding cities in the Latin American countries that the Company
currently serves. Upon completion, the IMPSAT 2000 network could comprise up to
one million kilometers of fiber optic cable for the operation of a broadband
network for voice and data transmission. By constructing Latin America's first
region-wide broadband network, the Company plans to be able to transmit
high-level interactive applications to optimize both project
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and company management regardless of volume and with minimal delay. By
integrating the planned IMPSAT 2000 fiber optic network with its existing fiber
optic networks in Argentina and Colombia as well as its current and planned
wireless MANs and access to undersea cables, the Company seeks to connect all
major Latin American cities offering transmission services never before
available in the region. IMPSAT 2000 would enable the Company to provide a
greater array of services for its business customers, including switched
international, domestic long distance and local services, upon the deregulation
of the telecommunications markets in the countries in which it operates. At its
full implementation in all possible locations throughout Latin America, the
IMPSAT 2000 network could require an expenditure of up to $2.0 billion, subject
to financing.
STRATEGY
The Company intends to maintain and strengthen its position as a leading
provider of private telecommunications network services in Latin America. The
key elements of the Company's strategy include the following:
Deliver Premium Tailor-Made Telecommunications Solutions Utilizing Advanced
Technology. The Company distinguishes itself by providing tailor-made,
integrated data, voice and video solutions using the various components of its
terrestrial and satellite networks to achieve a technologically advanced,
efficient and cost-effective solution for each customer. The Company does not
simply provide its customers with the equipment and infrastructure for a private
telecommunications network system, but draws on a diverse range of technologies
to provide customized telecommunications solutions to each customer. In
addition, the Company strives to differentiate itself from its competitors by
designing value added features and integrating these features into the
customized private telecommunications services it provides to its customers. The
Company's mix of technologies, transmission media and equipment suppliers
provides it with the flexibility to react quickly and take full advantage of
technological developments and advancements. The Company believes that the
technical sophistication of its equipment and the reliability and efficiency of
its services are critical to maintaining customer satisfaction.
Focus on Business and Governmental End Users. The Company focuses on large
financial, national and multinational corporate and government end users, for
whom reliable data transmission is particularly important. The Company's
experience indicates that these customers generally tend to outsource their
private telecommunications requirements and prefer a single private network
service provider that offers high quality, innovative telecommunications
solutions. The Company believes that its services are of a higher quality and
greater reliability than those of many of its competitors, including the PTOs.
The Company is able to offer its target customer base a "one-stop" source in
Latin America for integrated private telecommunications network solutions,
matched with advanced technology and premium customer service. The Company
believes that these service features, which are often unavailable from the PTOs
and other competitors of the Company, are especially attractive to large Latin
American business and governmental customers.
Establish Long-Term Customer Partnerships. The Company views its
relationships with its customers as long-term partnerships in which customer
satisfaction is of paramount importance. The Company seeks to maintain its
position as a strategic partner with its clients and to foster long-term
customer relationships. To implement this strategy, the Company applies an
integrated approach to sales, marketing and customer services. Each client
service team is jointly responsible for all aspects of a particular customer's
or a group of customers' relationship with the Company, and each customer is
able to call upon any of its service team representatives to respond to the
customer's service requirements. As a result of this consultative approach, the
Company believes that it has high levels of customer satisfaction while being
able to identify new revenue generating opportunities, customer
telecommunications possibilities and product or service improvements previously
overlooked or not adequately addressed by the customer. The Company's
combination of pan-Latin American scale with superior customer service provides
distinct and significant value to its customers, which the Company expects will
result in long-term customer loyalty and an expanding customer base.
Leverage Established Market Presence to Expand Operations. The Company
seeks to leverage its existing customer base, established regional presence,
advanced infrastructure and its knowledge of the market
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to expand its operations and service offerings in Latin America. The Company
seeks to increase its business by taking advantage of demand for additional
services from existing customers, increasing its customer base in each of the
countries in which it operates, in particular to address a broader universe of
business customers, and expanding its business in Latin America.
The first prong of this strategy is to continue to develop and sell new and
additional services to existing clients. The principal new services and products
developed and commercialized by the Company during 1997 include Minidat, Conexia
and Telecampus. Features currently under development include Intranet/Extranet
service, electronic commerce, information technology integration, and
"Broadband" (38 GHz, Ka-band frequency spectrum) telecommunications services.
The Company's customers often begin by purchasing limited VSAT services and
expand the services purchased by adding significant numbers of additional VSAT
microstations and/or adding additional services such as Dataplus and Interplus
services and Internet access. For examples of certain customer histories, see
"-- Customers." In addition, the Company plans to capitalize on its early market
entry and operating experience in providing private telecommunications network
services in Latin America to take advantage of revenue opportunities expected
from the deregulation of Latin American telecommunications markets, including
switched voice telecommunications and growing demand in Latin America for data
transmission services.
The second prong of this strategy is to expand the number of customers in
each of the countries in which the Company operates, both by selling services to
additional large national and multinational corporations, financial institutions
and governmental agencies, as well as by targeting medium-sized businesses in
Latin America, as they begin to require data transmission services. Many of the
larger national and multinational corporations doing business in Latin America
increasingly expect comprehensive telecommunications solutions in order to
integrate and coordinate geographically expansive business operations.
The third prong of this strategy includes identifying and exploiting
growing regional demand for private network telecommunications services where
incumbent providers offer inadequate service and where liberalization of
telecommunications regulations may be pending. To this end, the Company recently
established operations in Brazil. In addition, the Company intends to explore
opportunities, for example, through joint ventures or other cooperative efforts
with local partners, to be able to provide its customers with private
telecommunications network services throughout Latin America, including
countries in which the Company has no plan to establish a fixed base of
operations. The Company believes that its pan-Latin American presence will
contribute to its ability to satisfy a growing need in Latin America for a
source of "one-stop shopping" for private telecommunications network services.
The Company provides services in multiple countries to several of its
multinational customers. For example, affiliates of the Royal Dutch Shell group
of petroleum companies are customers of the Company in Argentina, Colombia and
Brazil, and Reuters is a client of the Company in Argentina, Colombia, Ecuador
and Venezuela. The Company believes that its early penetration in several Latin
American telecommunications markets provides it with key competitive advantages
that include (i) industry knowledge and experience; (ii) name recognition and
credibility with customers, suppliers, potential joint venture partners, and
sources of financing; and (iii) a developed customer base and network
infrastructure. The Company believes that its knowledge and experience in the
Latin American telecommunications market will enable it to assess and react
quickly to attractive business opportunities expected to arise from ongoing
telecommunications deregulation in the region.
HISTORY
IMPSAT Corporation was organized in 1994 as a Delaware holding company to
combine the IMPSAT businesses in Argentina, Colombia and Venezuela. The
Company's operations commenced in Argentina in 1990 under the name IMPSAT S.A.
(IMPSAT Argentina). The Company currently owns a 95.2% equity interest in IMPSAT
Argentina. The Company began operations outside of Argentina with the
establishment of IMPSAT Colombia in 1991 and the establishment of IMPSAT
Venezuela in 1992. New operating subsidiaries were created in Ecuador (IMPSAT
Ecuador) and Mexico (IMPSAT Mexico) in 1994; and in the United States (IMPSAT
USA) in 1995. In Brazil, the Company recently acquired a 99.9% ownership
interest in IMPSAT Brazil and has also signed a definitive agreement to purchase
a 75.1% interest in Mandic
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S.A., a Brazilian Internet service provider (as to which a 58.5% interest was
acquired on May 28, 1998, with the remaining 16.6% interest to be acquired by
May 1, 1999).
SERVICES AND RELATED INFRASTRUCTURE
General. The Company utilizes satellite, fiber optic cable and microwave
links and employs advanced technology in its network systems. The following
diagram illustrates a typical network configuration:
[GRAPHIC OMITTED]
The Company provides a full range of private telecommunications network
services which are tailored to meet the specific system requirements of its
customers. The Company's array of service offerings may be combined in different
ways to create a customized package that best suits each customer's private
telecommunications network system needs. The particular mix of services provided
to each customer is determined by such factors as the customer's locale,
transmission volume and cost requirements. The Company does not merely provide
the equipment and hardware for private telecommunications networks, but provides
telecommunications solutions which permit its customers to enjoy the advantages
of a private network while freeing the customers from the burdens of purchasing,
operating and maintaining the network.
The Company provides a wide range of private telecommunications network
services, including digital information (data, voice and video) transmission via
VSAT, SCPC, fiber optic and microwave technology and a wide range of value added
services, including Internet access and electronic commerce; fax, store and
forward; healthcare billing and insurance verification services;
video-conferencing; and long-distance learning.
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The following table shows the Company's revenue breakdown by service for
the years ended December 31, 1995, 1996 and 1997 and the six month periods ended
June 30, 1997 and 1998:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
----------------------------------------------------- --------------------------------
SERVICE 1995 1996 1997 1997 1998
- ------- --------------- --------------- --------------- -------------- --------------
(IN THOUSANDS AND PERCENTAGE OF CONSOLIDATED REVENUES)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
VSAT.................. $ 52,756 49.9% $ 55,680 43.4% $ 57,420 35.8% $30,255 40.0% $29,172 31.2%
Dataplus.............. 23,953 22.7 29,962 23.3 37,603 23.5 18,148 24.0 21,103 22.5
Interplus............. 2,806 2.7 4,457 3.5 11,400 7.1 5,108 6.8 9,114 9.7
Internet.............. 0 0 1,267 1.0 7,597 4.7 2,737 3.6 7,442 8.0
Other(1).............. 26,126 24.7 37,027 28.8 46,216 28.9 19,473 25.6 26,820 28.6
-------- ---- -------- ---- -------- ---- ------- ---- ------- ----
Total........ $105,641 100% $128,393 100% $160,236 100% $75,721 100% $93,651 100%
======== ==== ======== ==== ======== ==== ======= ==== ======= ====
</TABLE>
- ---------------
(1) The figure for "Other" includes revenues from Teledatos networks, Regional
Teleports, Difusat, Global Fax, Minidat, Conexia and Telecampus.
VSAT. VSAT (Very Small Aperture Terminal) was the first private
telecommunications network service provided by the Company. VSAT technology
permits the transmission of digital information between and among many remote
locations and a central location via satellite and a high-capacity hub earth
station known as a Teleport. VSAT services are particularly well-suited to
customers who need to communicate bursts of information for relatively short
periods of time and who do not require a permanent, dedicated transmission
channel. A typical VSAT customer would have several VSAT microstations linked to
each other by a Teleport and then linked to terrestrially connected sites by one
or more local Teledatos networks. Each remote VSAT location has a relatively
small antenna (typically ranging from 1.2 to 2.4 meters in diameter) and
utilizes Time Division Multiple Access ("TDMA") technology which enhances the
use of satellite capacity by enabling multiple VSATs to share a single satellite
channel. The Company's VSAT service is integrated into the customer's network
architecture, in part through protocol emulation technology which provides
support for various communications protocols including X.25 and Frame Relay.
The Company is a pioneer in Latin America in the use of a shared hub and
believes that it currently operates one of the largest shared hub VSAT networks
in Latin America (measured by the number of microstations installed). The use of
a shared hub earth station, whereby many different customers share a
Company-operated central teleport, allows the Company to reduce the cost of
telecommunications services to its customers, which expands the Company's
addressable market, particularly to smaller and medium-sized businesses. VSAT
has proven to be a cost-effective alternative to fixed-link data transmission in
Latin America for financial institutions, industrial companies and governmental
agencies that have geographically diverse locations because the service is
reliable and customers pay a fixed monthly fee rather than one based on usage
and distance. VSAT customers are billed according to the number of VSAT
microstations installed and the number of ports on each VSAT.
VSAT generates the largest share of the Company's revenues from services,
accounting for approximately 35.8% of such revenues during 1997. The Company
expects that VSAT services will decline both as a percentage of total Company
revenues and in absolute amount as many of the Company's customers utilize other
service offerings, such as Dataplus, as their telecommunications needs grow. At
June 30, 1998, the Company had 3,527 VSAT microstations installed in Latin
America.
Dataplus. Dataplus is the brand name for the Company's Single Carrier Per
Channel ("SCPC") service, which is designed for customers that require speedy
point-to-point transmission of large quantities of information. SCPC provides
the customer with a dedicated, permanent channel, whereas VSAT services provide
communication channels that are shared among customers. SCPC uses a multiplexer
that enables transmissions to be made either through several channels bundled
into one or through a single channel that can be used by a number of different
terminals (such as data, facsimile or video). In addition, a Dataplus earth
station (having a satellite dish larger and more powerful than that of the VSAT)
can communicate via
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satellite to another SCPC earth station or to a Teleport where the transmission
can be integrated with the Teledatos and VSAT networks. SCPC also offers greater
transmission capacity than do VSATs because SCPC utilizes dedicated satellite
links. The Dataplus service is therefore a particularly attractive private
telecommunications network option for customers who tend to communicate
relatively heavy flows of information. The Company's customers often supplement
or replace VSAT with Dataplus as their private telecommunications network needs
expand to require the transmission of larger quantities of data at faster
speeds. For examples of certain customer histories, see "-- Customers." The
Company charges its customers for the use of each Dataplus earth station and for
the multiplexer which makes possible the multiple use of an SCPC earth station.
Dataplus is the second most significant of the Company's private
telecommunications network service offerings in terms of revenue generation.
Dataplus accounted for approximately 23.5% of the Company's revenues from
services in 1997. At June 30, 1998, the Company had a total of 1,075 Dataplus
earth stations installed.
Teledatos Networks. Teledatos is the brand name of the Company's fiber
optic and/or microwave MANs. Teledatos provides "last mile" terrestrial
microwave and fiber optic links among and between points in a metropolitan area
and also with other points outside the MAN by means of satellite connections.
Fiber optic cable networks have significantly higher transmission capacity and
are less susceptible to electronic interference than copper wire networks, which
continue to be used to varying degrees in Latin American countries. The higher
capacity and lower maintenance characteristics of fiber optic cable are
well-suited for relaying the large amounts of digital information traffic found
in high density areas. Ground-based microwave systems transmit signals in the
form of radio waves from an antenna on top of a building or a transmission tower
and are suitable for use in local transmission because the reach of the
transmission signal typically is limited to one discrete area. While the primary
use of the Teledatos networks is for interconnection with the Company's
Teleports and Regional Teleports, the Company has customers who only use the
Teledatos service locally (for example, for air reservation systems, and between
a stock exchange and its members) and who are not users of the satellite
communication system.
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The following diagram illustrates the configuration of a typical Teledatos
network:
[GRAPHIC OMITTED]
The Company's first Teledatos network was established in Buenos Aires,
Argentina in 1990. Other Teledatos networks now exist in Cordoba, Mendoza,
Rosario, Mar del Plata, Tucuman and La Plata, Argentina; Medellin, Barranquilla
and Cali, Colombia; and Caracas, Venezuela. Additionally, the Company manages
and operates a fiber optic network covering 2,016 route miles in Bogota,
Colombia, pursuant to a joint venture with Empresa de Telecomunicaciones de
Santafe de Bogota ("ETB"), the Colombian PTO that provides local telephone
service in the Bogota region. A Teledatos network may consist of leased capacity
on existing fiber optic networks owned and maintained by a local PTO (as is the
case in Bogota) or the Company may design, engineer and manage the installation
of its own fiber optic network (as is the case in Buenos Aires). Customers pay a
monthly fee for each connection to the Teledatos network and for the number of
connections to the Teleport. At June 30, 1998, Teledatos networks were operating
in twelve cities, with a total of 6,408 connections to the Teledatos networks in
service.
Difusat. Difusat is the brand name for the Company's unidirectional
Teleport-to-VSAT broadcast service whereby a signal received by a Teleport is
transmitted to multiple locations. A Difusat network typically consists of the
Teleport and numerous receive-only remote VSAT terminals. The source of the
information to be broadcast is generally connected to the Teleport through a
Teledatos network. The Teleport transmits the information to the VSAT receptors
via satellite. The largest Difusat customer is Telam, the Argentine news
service. Other customers include Reuters, Bloomberg L.P. and DHL International.
The customer generally pays a monthly fee for the Difusat service which is based
on the number of Difusat microstations installed, the number of ports on each
microstation and the rate of the satellite transmission. At June 30, 1998, the
Company had installed 438 Difusat microstations.
Interplus. Interplus is the brand name for the Company's international
private line service which utilizes a combination of fiber optic, microwave or
SCPC satellite circuits to provide a dedicated telecommunications link between
customer locations in different countries. The Company currently provides
international integrated data, voice and video transmission services between and
among fifteen countries -- Brazil, Bolivia, Colombia, Chile, Costa Rica,
Ecuador, El Salvador, Mexico, Nicaragua, Panama, Paraguay, Peru, Uruguay,
Venezuela and the United States -- through Interplus. The Company is prohibited
by law from providing Interplus services to or from Argentina during the term of
a monopoly granted to Telintar with respect to
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international telecommunications services, unless the Company obtains Telintar's
consent or unless specifically authorized by the Argentine Comision Nacional de
Comunicaciones ("CNC"). Telintar's monopoly is due to expire in November 2000.
International private line services such as Interplus are traditionally
provided by local carriers in each country acting as correspondents and
establishing dedicated telecommunications links between their facilities. Due to
its widespread operational presence in Latin America, the Company is often able
to offer its Interplus service using its own facilities and personnel at both
ends of the private line circuit. For example, utilizing the Teleport serving
the country from which a transmission originates, Interplus can provide the
customer with SCPC access via a dedicated satellite transponder to a Teleport in
another country. Information thus received by the destination Teleport can then
be transmitted using VSAT, Dataplus or Teledatos networks. This end-to-end
control provides the Company with the ability to maintain customer service and
quality assurance at both ends of an Interplus link between the countries in
which it operates and allows the Company to realize better margins than when it
uses a correspondent carrier.
Where the regulatory environment in the destination country precludes
direct transmissions across its border, as is currently the case in Argentina,
or where the Company has no operational presence in the destination country, the
Interplus service will involve the Company's proprietary control of only part of
the transmission circuit. In such a case, a transmission between two customer
locations in different countries may be commenced using the Company's facilities
in the originating country and completed through a correspondent local carrier
in the destination country or vice-versa. To date, the Company has signed
Interplus correspondent agreements with carriers in Bolivia, Chile, Costa Rica,
El Salvador, Nicaragua, Panama, Paraguay, Peru and Uruguay. In addition, the
Company is currently negotiating correspondent agreements with carriers in
Jamaica and Trinidad. The Company charges customers a monthly fee for Interplus
which is based on the capacity of the circuit provided.
The Company is a member of the Americas-1 and Columbus-II undersea fiber
optic cable consortia, and has purchased an initial total of 2 Mbps capacity on
both systems for use in its Interplus service. Americas-1, which commenced
commercial operation in December 1994, is a 4,960 mile fiber optic cable system
connecting Vero Beach, Florida with the U.S. Virgin Islands, Trinidad, Brazil
and Venezuela. Americas-1 is owned by a consortium of 64 carriers from 42
countries and plans to extend its links to Curacao and Argentina. Columbus-II,
which commenced service in mid-1994 and is owned by 56 telecommunications
administrations in 40 countries, links Mexico, the United States, the U.S.
Virgin Islands, Spain, Portugal and Italy with about 7,440 miles of fiber optic
cable.
Teleports. A Teleport has a relatively large antenna (typically ranging
from 3.8 to 11 meters in diameter) as well as sophisticated radio frequency and
network management equipment. Teleports serve as the command center for VSAT
networks in the host country and also are linked to the Company's SCPC
installations and Teledatos networks. Each Teleport also contains a radio
microwave tower to transmit and receive transmissions to and from nearby
customer locations which are not connected to the Company's existing Teledatos
networks. The Company owns Teleports in Buenos Aires, Argentina; Bogota,
Colombia; Caracas, Venezuela; Quito, Ecuador; and Mexico City, Mexico. In the
United States, the Company utilizes two leased teleport facilities located in
Florida and New Jersey. The Company is currently constructing teleports in south
Florida and Curitiba, Brazil, each of which is expected to be in operation by
the end of 1998. In addition, the Company anticipates that it will commence the
construction of a teleport in Sao Paulo, Brazil by the end of 1998.
Regional Teleports. Regional Teleport is the Company's brand name for
smaller SCPC-based earth stations which have antennas ranging from 3.8 to 4.5
meters in diameter. Regional Teleports enable the Company to extend its network
to smaller metropolitan area networks outside a country's capital via satellite
to the Teleport in that country. Customers are connected to a Regional Teleport
through one of the Company's Teledatos networks, or by microwave radio or
satellite links. The first Regional Teleport was established in Mendoza,
Argentina in 1991, and the Company also has Regional Teleports in Cordoba,
Rosario, Tucuman, La Plata, Mar del Plata and Neuquen in Argentina; Medellin,
Cali and Barranquilla in Colombia; and Guayaquil, Ecuador. Customers generally
pay a fixed monthly fee for access to the Regional
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Teleport. The monthly fee is based on the number of services and connections
provided and varies with the particular specifications of the private
telecommunications network system designed and developed for the customer.
Internet Access. Since the Company commenced offering its Internet access
service in March 1996, the Company has experienced significant growth in this
service. The Company recorded approximately $7.6 million in revenues from
Internet access services during 1997, compared to $1.3 million in 1996. The
Company's revenues from Internet for the six month period ended June 30, 1998,
totalled $7.4 million (which included approximately $1.0 million in Internet
revenues from Mandic S.A.). The Company has taken a number of actions regarding
its expansion as a regional Internet access provider of dedicated and dial-up
connections between Latin America and the United States Internet backbone. To
this end, the Company is pursuing several avenues, including entering into
marketing agreements with local retail service providers and establishing
relationships with Internet service providers in the United States. The Company
directly markets Internet access to retail customers in Argentina, Colombia,
Venezuela and Ecuador. The Company intends to offer Internet access services to
new and existing customers, including universities, institutions, governmental
agencies and corporations. Services offered include high-speed ISDN (integrated
services digital network) communications capability and frame relay
connectivity, access software, worldwide web browser, electronic mail,
electronic commerce network and worldwide web site implementation and
maintenance. In the future, the Company plans to expand its Internet access
service to include Intranet (private telecommunications within a company via
Internet) and Extranet (private telecommunications between a company's Intranet
and selected persons outside such company via Internet). In providing Internet
access services, the Company utilizes Interplus links between its Teleports in
Latin America and IMPSAT USA's leased teleport facilities in Florida and New
Jersey, which then provide connections to the United States Internet backbone
through MCI, Sprint, Intermedia Communications and UUNET.
At June 30, 1998, the Company had in excess of 77,200 dial-up Internet
access retail customers and 142 dedicated Internet access corporate customers.
On July 2, 1998, IMPSAT Argentina's agreement with VideoCable Comunicaciones
S.A. ("VCC"), an Argentine cable company, pursuant to which VCC had agreed to
market IMPSAT Argentina's Internet services under IMPSAT's brand name, was
terminated. During the six months ended June 30, 1998, IMPSAT Argentina's
revenues relating to its agreement with VCC totalled $1.3 million. The
termination of its agreement with VCC is likely to have an adverse effect in the
short-term in the growth of the Company's Internet access business in Argentina.
The Company is undertaking efforts to strengthen its distribution and sales
efforts for Internet access and has commenced direct service to certain of the
subscribers who were previously served through VCC.
Pursuant to an agreement executed in December 1997 between the Company and
Harbinger Corporation, a leading supplier of electronic commerce software, the
Company has a license to provide electronic data interchange services
(electronic transactions via Internet) utilizing Harbinger's software products
in Argentina and Colombia on an exclusive basis, subject to certain exceptions
and conditions. The Agreement with Harbinger also grants the Company an option
to provide such services in Venezuela and Ecuador.
Global Fax. Global Fax is a fax store and forward service which receives
facsimile transmissions from customers, temporarily stores the data and then
retransmits it to designated addressees. In Argentina, at June 30, 1998, the
Company had 249 customers for this service and was handling approximately
138,600 transmission minutes per month.
New Services. The Company works closely with its suppliers to keep abreast
of new technologies and evaluates its technology requirements to remain among
the most technologically advanced digital information transmission providers in
Latin America. While the Company relies on its suppliers for hardware and
software upgrades, it devotes significant attention to the identification and
commercialization of new services to meet the changing needs of Latin American
businesses. The principal new services and products developed and commercialized
during 1997 include Minidat, Conexia and Telecampus.
In the first quarter of 1997, the Company initiated a new service called
Minidat. Minidat represents a lower cost alternative for satellite digital
information transmission for a category of customers that maintain a large
quantity of transmission points but require a lower volume usage of satellite
capacity than is provided by
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VSAT. Minidat was established to meet the data transmission requirements of
customers operating point of sales systems, automated teller machines, lottery
ticket sales, reservation systems, wholesaler and inventory control and
management systems and entertainment facilities (sports arenas, theaters, etc.).
Minidat utilizes USATs (ultra small aperture terminals), which tend to be about
half the size of VSATs, at customer locations. The Company's Minidat service is
provided for a lower monthly fee than its VSAT services. The Company provides
its Minidat customers with two pricing options, one in which the customer
purchases the remote terminals required to deliver the service and is charged a
basic monthly fee and one in which the Company provides the equipment (as is the
case for the Company's VSAT and Dataplus services) with the customer paying a
higher monthly fee. At June 30, 1998, the Company had installed 547 Minidat
microstations in Argentina, Colombia and Ecuador.
In the second quarter of 1997, IMPSAT Argentina introduced a new service
called Conexia for the private electronic transaction requirements of customers
such as health management organizations ("HMOs"). Through the Conexia service,
HMO customers are able to communicate patient billing, identification, insurance
eligibility and certain medical history information among their different
operating locations (laboratories, supply facilities, clinics and hospitals) in
real time, thereby increasing the efficiency of the operations. In order to
provide the Conexia service, IMPSAT Argentina has created a dedicated computer
center and customer service unit at its Buenos Aires Teleport facility.
Authorized access to centralized information via Conexia is accomplished by a
magnetic card carried by patients covered by affiliated health plans. In each
operating location (e.g., clinics or hospitals), point of sale ("POS") terminals
designed by the Company are installed. The Company currently has one Conexia
customer in Argentina, the Organization of National Civil Personnel ("OSPCN").
OSPCN provides HMO coverage to Argentina's workforce of public servants. The
Conexia service provided to OSPCN by the Company consists of 1,400 installed POS
terminals throughout the Buenos Aires metropolitan area and its suburbs.
Telecampus, a new service that was introduced by the Company in October
1997, involves the use of video teleconferencing, including interactive
teleconferencing for long-distance educational and training purposes. The
Company contemplates that such services would be provided to governmental,
educational, national and international businesses that desire to utilize
interactive teleconferencing for educational, training and conferencing
purposes. Telecampus may be accessed via VSAT or Dataplus. The Company currently
has one Telecampus customer, the Argentine Institute of Computers, a nationwide
computer training center.
Relative to the Company's other services, the potential customer base for
Conexia and Telecampus is narrower and more specialized -- i.e., larger entities
in the fields of health management and education, respectively. Traditionally,
such entities have been relatively slow to integrate new technologies in their
operations and to incur major corporate expenditures for the contracting of
technology-based services. With respect to Conexia, the Company believes that
delays in the planned privatization and deregulation of health care services by
the Argentine government have adversely affected the Company's target market for
the Conexia service. As a result, the Company expects the pattern of growth in
demand for Conexia and Telecampus to be gradual.
SATELLITE TECHNOLOGY AND SUPPLIERS
General. Satellites are well-suited for transmissions that must reach many
locations over vast distances simultaneously. Satellites can be accessed from
virtually anywhere within the geographic area they cover. Thus, satellite
systems are ideal for connecting locations that cannot be connected efficiently
or cost-effectively by terrestrial telecommunications networks. In addition,
unlike other transmission systems, the cost of satellite services does not
increase with distance. Satellite communications are therefore particularly
appropriate as a "last-mile" link for customers in Latin America, where reliable
access to the existing public switched networks often is not readily available.
Satellite transmissions utilize both C-band and Ku-band frequencies. The
Company's VSAT and SCPC services are able to take advantage of either C-band or
Ku-band satellite technology.
Satellite Capacity. As of June 30, 1998, the Company had a total leased
capacity of 516.7 MHz on six satellites. The Company has satellite leases on the
Intelsat 601, 706 and 709 satellites for 0.5 MHz, 67.1 MHz
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and 229.4 MHz of capacity, respectively. Various amounts of leased capacity on
Intelsat 601, 706 and 709 satellites are scheduled to expire from April 1998
through April 2008, respectively. The Company's satellite capacity on the
Intelsat satellites is leased both directly by the Company's operating
subsidiaries and through subleases with Intelsat participants, such as
Argentina's CNC. The Company also has leased 43.4 MHz of capacity on Nahuelsat's
Nahuel-1 satellite which will expire in January 2002. The Company has leased
72.7 MHz of leased capacity on PanAmSat's PAS-1 satellite until the end of the
useful life of the satellite (estimated to be December 31, 2001). The Company
has 80.6 MHz of capacity on PanAmSat's PAS-5 satellite expiring at the end of
2003. The Company also has 18.8 MHz of capacity on Mexico's Solidaridad-II
satellite which expires in January 2002. The Company's total lease payments for
satellite capacity totaled $13.9 million in 1996, and increased to approximately
$18.9 million in 1997. The Company will contract for additional leased satellite
capacity to the extent that the Company's business so requires. A portion of the
Company's satellite capacity is leased by ISCH, a wholly-owned subsidiary of the
Company. ISCH's principal function is to lease private satellite capacity from
satellite carriers and then sublease such capacity at market rates to the
Company's operating subsidiaries as required by those subsidiaries.
Equipment Suppliers. After a period of study, the Company selected Hughes
as its primary supplier of VSAT technology, including VSAT microstations and
related software. The Company entered into a non-exclusive agreement with Hughes
in 1988, pursuant to which Hughes provides equipment, related software licenses
and technical assistance to the Company. While the terms of the agreement with
Hughes permit the Company to resell the equipment, the software license is
nontransferable. The agreement may be terminated by either party upon 60 days
notice. From 1994 through 1997, the Company has purchased a total of $29.5
million in equipment and technical assistance under this agreement.
With respect to SCPC technology, the Company's current major suppliers are
among the leading companies in the industry, and include EF Data Corporation,
Scientific-Atlanta Inc., SSE Technologies Inc. and Fairchild Data Corporation.
Other equipment suppliers to the Company include General DataComm, Inc. for time
division multiplexers; ACT Networks Inc. for frame relay multiplexers; Digital
Microwave Corporation and California Microwave Corporation for radiolink
systems; and Alcatel Data Networks for packet switches. The Company also employs
local companies in each location where it operates for installation and
groundwork services.
The Company analyzes and studies potential suppliers and equipment with the
goal of obtaining the most technologically advanced equipment on a cost
efficient basis. The Company believes that there are a number of potential
providers of each of the significant items that are used in the Company's
operations and therefore that the Company is not dependent on any single source
of supply.
CUSTOMERS
The Company has grown rapidly since the commencement of its operations in
1990. Its customer base has grown from 125 corporate customers in two countries
at December 31, 1992 to 1,321 corporate customers in six countries as of at June
30, 1998.
Larger entities, which often have significant needs for reliable,
cost-effective data transmissions and other telecommunications services, were
the first to use the private telecommunications network services offered by the
Company. As a result, a significant proportion of the Company's revenues has
been derived from the Company's largest customers. In addition, because of the
Company's relatively short operational history outside of Argentina, a
significant number of the Company's customers, including its largest customers,
are located in Argentina.
An important component of the Company's strategy is to continue to increase
both the depth and breadth of its customer base. In furtherance of the first
goal, the Company seeks to sell additional services to existing customers. In
furtherance of the second goal, the Company attempts to market its services to
an expanded number of potential customers, principally additional large national
and multinational corporations, financial institutions and governmental
agencies, and also to medium-sized and smaller business customers, as such
businesses in Latin America increase their use of computers and begin to require
data transfer services.
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The Company's customers consist of major governmental agencies, financial
institutions and leading national and multinational corporations and private
sector companies, including YPF, Royal Dutch Shell, Banco de Galicia y Buenos
Aires, Siemens and Reuters. During 1997, the Company's ten largest customers
accounted for approximately 18.1% of the Company's revenues. The percentage of
revenues represented by the Company's ten largest customers for 1996 was
approximately 26.6%.
The Company's ten largest customers as of December 31, 1997 were: BNA, a
state-owned bank and the largest bank in Argentina, with 525 branches in
Argentina; Administracion Nacional de la Seguridad Social ("ANSeS"), the
Argentine social security administration; Banco de Galicia y Buenos Aires S.A.,
a private bank with more than 180 branches in Argentina; YPF S.A., which is
engaged in hydrocarbon exploitation and is one of the largest companies in
Argentina; Bancolombia S.A., a private bank headquartered in Bogota, Colombia
and the largest commercial bank in Colombia; Gendarmeria Nacional Argentina
("GNA"), the Argentine governmental agency charged with policing Argentina's
borders; Administracion Federal de Ingresos Publicos ("AFIP"), the Argentine
governmental agency charged with the collection of taxes; Perez Companc S.A., an
Argentine energy conglomerate; BANELCO S.A., a private company engaged in
electronic banking activities with approximately 510 electronic banking posts in
Argentina; and Bansud S.A., a private bank with approximately 120 branches in
Argentina.
The following table sets forth the Company's customers by country as of the
dates indicated(1):
<TABLE>
<CAPTION>
NUMBER OF CUSTOMERS AS OF
--------------------------
DECEMBER 31, JUNE 30,
-------------- ---------
COUNTRY 1996 1997 1998
- ------- ----- ------ ---------
<S> <C> <C> <C>
Argentina(2)......................................... 358 436 468
Colombia............................................. 410 524 567
Venezuela............................................ 75 102 114
Ecuador.............................................. 44 96 109
Mexico............................................... 7 16 27
USA.................................................. 10 15 15
Brazil............................................... 21
--- ----- -----
Total........................................... 904 1,189 1,321
=== ===== =====
</TABLE>
- ---------------
(1) Totals presented do not include customers from some of the Company's newer
services such as Global Fax, Internet and Conexia.
(2) The number of customers for IMPSAT Argentina is presented as of November 30,
1996 and 1997.
The Company's contracts with its customers typically range in duration from
six months to five years and are generally for three years. Contracts generally
may be terminated by the customer without penalty. The customer generally pays a
fixed monthly fee based on the number of services and connections provided and
varies with the particular specifications of the private telecommunications
network system designed and developed for the customer. See "-- Sales, Marketing
and Customer Service." In addition, the Company charges its customers a one-time
fee that is intended to cover the Company's costs of installing equipment on the
customers' premises.
Because of the relatively short period of time that the Company has been in
operation, a significant number of the Company's customers have not completed
the term of their initial contracts with the Company. Many of the Company's
customers have, however, expanded the amount and value of the services purchased
from the Company. The Company's customers typically begin by purchasing limited
VSAT services from the Company and then expand the services purchased from the
Company by adding significant numbers of additional VSAT microstations and/or
adding additional services such as Dataplus and Regional Teleport connections.
For example, Molinos Rio de la Plata S.A. ("Molinos"), a major Argentine company
in the food industry, began by purchasing five VSAT microstations for use by its
principal manufacturing plants in electronic mail transmission. Molinos then
expanded the services it purchases from the Company to include file transfer
capabilities for the majority of its facilities, and Dataplus and ancillary
voice transmission services for certain principal facilities. Similarly, Banco
de Galicia y Buenos Aires S.A. initially purchased services for
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31 VSAT microstations, and currently purchases services for a private
telecommunications network consisting of over 240 VSAT microstations, 54 with
voice channels, over 28 Teledatos connections, 123 Minidats and four Regional
Teleports.
By providing private telecommunications network solutions and superior
customer support service to serve comprehensively the particular needs of each
customer, the Company has been able to maintain ongoing relationships with
existing customers, thus sustaining a base of continuing revenues. The stability
of the Company's revenues is also supported by the nature of the private
telecommunications network services offered by the Company and the difficulty of
obtaining alternative services on short notice. The Company lost approximately
30 business customers in 1997 representing $4.9 million, or 3.1%, of the
Company's revenues for 1997.
The Company's contracts generally provide for payment in U.S. dollars or
for payment in local currency linked to the exchange rate at the time of
invoicing between the local currency and the U.S. dollar. Notwithstanding such
arrangements, the revenues of the customers of the Company are generally
denominated in local currencies and although the Company's customers include
some of the largest and most financially sound companies and financial
institutions in their markets, devaluation in such currencies relative to the
U.S. dollar could have a negative effect on the ability of the customers to pay
the Company for its services. Such currency devaluations could also result in
the Company's customers seeking to renegotiate their contracts with the Company
or, failing satisfactory renegotiation, defaulting on such contracts. The
continued Asian and Russian economic crises have had an adverse effect on the
foreign exchange markets in a number of Latin American countries, including
Brazil, Columbia, Mexico and Venezuela. In addition, the imposition of exchange
controls in the countries in which the Company operates could affect the
Company's access to, and the exchange rate for, U.S. dollars. Pursuant to
Brazilian law, the Company's contracts with customers in Brazil may not be
linked to the exchange rate between the Brazilian real and the U.S. dollar. The
Company's expansion in Brazil therefore will likely increase the Company's
exposure to exchange rate risks. See "Risk Factors -- Currency Fluctuations,
Devaluations and Restrictions."
SALES, MARKETING AND CUSTOMER SERVICE
The Company views its relationships with its customers as long-term
partnerships in which customer satisfaction is of paramount importance. The
Company does not simply provide its customers with the equipment and
infrastructure for a private telecommunications network system, but draws on a
diverse range of technologies to provide customized telecommunications solutions
to each customer.
The Company applies an integrated approach to its sales, marketing and
customer service functions. The Company's sales, marketing and customer service
professionals are organized into a number of service teams, each comprising up
to 12 persons and includes individuals with backgrounds in and responsibilities
for marketing, operations, engineering, maintenance, customer service and
administration. Each team is jointly responsible for all aspects of a particular
customer's or a group of customers' relationship with the Company and each
customer is able to call upon any of its service team representatives to respond
to the customer's service requirements. Each individual within each service team
is trained in a variety of skills so that no service team is dependent upon any
one individual to address the critical and time sensitive needs of its
customers.
In the Company's larger operations, including in Argentina and Colombia,
the Company has established several service teams, each focusing on a particular
type of client. For example, in Argentina, the Company has service teams devoted
to industrial customers, financial institutions, governmental agencies and
companies with headquarters in the interior of the country, as well as a special
service team that was established to service the particular needs of key
customers. Within each segment of the Company's market, the respective service
team is responsible both for new sales to potential customers within such
segment as well as for the servicing and customer satisfaction monitoring of
existing customers. In addition, each customer is assigned an account manager,
who has overall responsibility for relations with that customer. An important
function of the account manager is to identify new or enhanced services that can
be marketed to existing customers.
As the first step in the Company's marketing process, after an initial
contact has been established between the Company and a potential customer, the
Company evaluates the customer's telecommunications
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needs. After the Company has completed its study, the Company creates a plan for
the customer which includes a description of the Company's proposed tailor-made
technological solution, utilizing and combining those components of the
Company's private telecommunications network services that best serve the
customer's particular needs. With respect to the provision of services to
governmental agency customers, such proposals often are delivered in response to
public bid solicitations and related governmental bidding procedures that govern
the contracting of services by governmental agencies.
Following execution of a contract with a new customer, the Company
commences the detailed technical engineering work required to implement the
private telecommunications network system tailored to the customer's needs,
including fine-tuning the customer's software applications, and begins to
purchase the microstations and other equipment to construct the network and
connect the customer to the Company's existing facilities and infrastructure.
Depending on the complexity of the package of services and the network to be
provided to the customer, the period between the date a contract is signed and
the customer's services are operating and generating revenue is typically
between 45 days and four months. Once a customer's system is in operation, the
Company provides customer service to address questions or problems on a 24-hour
per day, 365-day per year basis.
In addition to its salaried sales and marketing personnel, the Company
often utilizes the services of third-party sales representatives to assist in
generating sales and managing the contract process between the Company and
potential customers. Such third parties typically receive a commission and
royalties from the Company based on the value of the contract signed. To date
the practice of utilizing third-party sales representatives in connection with
the generation and servicing of customer contracts has been employed
predominantly in Argentina. With respect to the other countries in which the
Company currently operates, the Company principally has utilized its own sales
force for the generation and servicing of customer contracts. The Company
anticipates that it will continue to utilize such third-party sales
representatives in connection with its operations in Argentina and that it
primarily will use its own sales force in other countries in which it does
business. As of June 30, 1998, IMPSAT Argentina had entered into contracts with
third-party sales representatives for approximately 9.8% of its customer
contracts, including a number of its largest contracts. The financial terms of
IMPSAT Argentina's contracts with the third-party sales representatives vary
based on the customers involved and the particular assistance provided by the
representatives. Commissions paid by IMPSAT Argentina to third-party sales
representatives totaled approximately 5.8% of IMPSAT Argentina's revenues for
1997.
COMPETITION
The Company competes on the basis of its experience, quality, customer
service, range of services offered and price. The Company's competitors fall
into three broad categories. The first category is comprised of the PTOs in each
of the countries in which it operates. The second category of competitors is
comprised of other companies engaged in essentially the same business as the
Company. Such companies operate competing VSAT and other satellite data
transmission businesses, along with other terrestrial telecommunications links.
The third category is comprised of companies that sell the equipment for
privately owned networks that are operated and maintained by the customer but do
not sell data transmission services. In addition, potential future competitors
include certain of the large international telecommunications carriers which
will be able to enter the local Latin American telecommunications markets in the
coming years as the monopolies granted to the PTOs expire.
Regarding the first group of competitors, the Company's further expansion
into the integrated private telecommunications network systems market, along
with continued deregulation of the telecommunications industry in Latin America,
will bring the Company into greater competition with the PTOs. A number of PTOs
in the countries in which the Company operates have recently established and
marketed "large customer" or "grand user" business teams in an attempt to
provide dedicated services to the type of customer that represents the Company's
most significant targeted market. The Company believes that by establishing
itself as a reliable, high-quality provider of private telecommunications
network systems it will be able to maintain its current customers and
successfully attract new customers. The Company might consider strategic
alliances and other cooperative ventures with the PTOs in the area of private
telecommunications network services to take advantage of each partner's relative
strengths.
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With respect to the second category, the Company's competitors, many of
whom operate VSAT systems, include international satellite providers such as
COMSAT Corp. and local data transmission providers. Regarding these competitors,
the Company believes that it is able to compete successfully in data
transmission services by virtue of having a broad array of services and of
providing high-quality, custom-designed services that are tailored to meet the
specific needs of each customer.
The third category of competitors are comprised of companies that do not
sell data transmission services, but merely supply the equipment necessary for a
customer to establish and maintain its own private telecommunications network.
The Company believes that it possesses significant competitive advantages over
such competitors, including its ability to provide comprehensive
telecommunications services that offer the benefits of a private network while
freeing the customers from the burdens of operating and maintaining the network.
While the PTOs and international telecommunications carriers have in the
past focused on local and long distance telephony services, in the future they
may focus on the private telecommunications network systems segment of the
telecommunications market. Such entities have significantly greater financial
and other resources than the Company, including greater access to financing, and
may be able to subsidize their private telecommunications network businesses
with revenues from public telephony. More recently, global alliances have been
formed by major telecommunications carriers as deregulation in Latin America and
elsewhere opens new market opportunities. For example, Telefonica S.A. of Spain,
Worldcom and MCI recently announced the formation of an alliance to cooperate in
Latin America and elsewhere, through joint ventures and equity holdings in each
other's subsidiaries. The three companies reportedly announced an initial
expectation to invest up to $200 million in Latin America. There can be no
assurance that such greater competition will not adversely affect the Company's
financial condition or results of operations. See "Risk Factors -- Competition".
In addition, there can be no assurance that competing technologies will not
become available that will adversely affect the Company's position, although the
Company believes that it has the flexibility to act quickly to take advantage of
any significant technological development. For example, new technologies such as
asynchronous digital subscriber line ("ADSL") can significantly enhance the
speed of traditional copper lines. Such technologies could enable the Company's
PTO competitors to offer customers new high-speed services without undergoing
the expense of replacing their existing twisted-pair copper networks, thereby
negating the Company's "last mile" advantage. The Company's private
telecommunications services also could face future competition from entities
using or proposing to use new or emerging voice and data transmission services
or technologies which currently are not widely available in Latin America, such
as space based systems dedicated to data distribution services, generally known
as "Little-LEOs" and "Broadband" systems.
The Company has recently established operations in Brazil and expects to
face significant competition in that market. Brazil is by far the largest
telecommunications market in Latin America and is expected to attract numerous
providers, many of whom may be larger and better financed than the Company. At
the end of July 1998, Telebras, the Brazilian national telecommunications
company, was split into twelve companies by region and type of provider, and the
twelve companies were privatized. Winning bidders for the twelve operating
companies included STET, MCI and Telefonica S.A. In addition, numerous
additional concessions to provide telephony and data transmission services are
expected to be granted. It is likely that large international carriers will bid
on one or more of these holding companies. The winning bidders and
concessionaires are likely also to focus on parts of the Brazilian market beyond
those in which they initially obtain a concession. The presence of large
carriers in Brazil may negatively affect the Company's prospects in Brazil. As
the Brazilian telecommunications sector is liberalized and deregulated,
competition is likely to initially come from current telecommunications service
providers in that country, including Embratel, Brazil's monopoly long-distance
carrier which was acquired by MCI; Promon Eletronica Ltda., one of the largest
Brazilian private telecommunications companies and the local partner of Hughes
for the provision of satellite telecommunications networks; COMSAT do Brazil
Ltda.; and GSI, a wholly-owned data transmission services subsidiary of IBM, as
well as from other domestic and international entrants. Global One, the joint
venture of Deutsche Telekom AG, France Telecom S.A. and Sprint, recently
received a license to offer international and domestic telecommunications
services to corporations in Brazil. Moreover, large, well
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financed international telecommunications carriers, such as AT&T, Worldcom and
Sprint, may be expected to enter the Brazilian telecommunications market.
Rates are not regulated in the Company's countries of operation, and the
prices for the Company's services are strongly influenced by market forces. The
Company believes that increased competition in the coming years will result in
increased pricing pressures. Although the Company to date has not suffered
substantial price erosion, the Company has faced and expects to continue to face
declining prices and may experience margin pressure in the future as the PTOs in
the countries in which the Company has operations modernize their facilities,
adapt to a competitive marketplace and place greater emphasis on data
communications and as other companies enter the Latin American
telecommunications market. These price and margin declines may be accelerated if
new competitors enter its markets. The principal barriers to entry for
prospective providers of private telecommunications network services such as
those offered by the Company are the development of the requisite understanding
of customer needs, and the technological and commercial experience and know-how
and infrastructure to provide quality services to meet those needs. The Company
believes that its operating experience as a pioneer in providing shared hub VSAT
services, position as market leader, significant existing network infrastructure
in its markets, and ability to offer a diversity of cost-efficient networking
solutions, create significant competitive advantages.
REGULATION
The Company is subject to regulation by the national telecommunications
authorities of the countries in which it operates, and its operations require
the procurement of permits and licenses from such authorities. While the Company
believes it has received all authorizations from regulatory authorities that are
required for it to offer its services in the countries in which it currently
operates, the current conditions governing the Company's service offerings may
be altered by future legislation or regulation. Such future legislation or
regulation could favorably or unfavorably affect the Company's business and
operations.
Various countries in Latin America have taken initial steps towards
deregulation in the telecommunications market during the last few years. Several
Latin American countries have completely or partially privatized their national
carriers, including Argentina, Mexico and Venezuela. Furthermore, some countries
have scheduled the demonopolization of their state telecommunications providers.
For example, Argentina recently announced a telecommunications deregulation
decree which contemplates the demonopolization of telephony services of Telecom
Argentina and Telefonica. Brazil is in the process of opening its
telecommunications market to competition and privatizing its PTO pursuant to a
new law adopted in July 1997. Brazil established an independent regulator in
October 1997, and value added and private network services are already open to
competition. The Company believes that this trend toward deregulation, while
likely to increase competition, will also present significant opportunities for
the Company to expand its private telecommunications network services to, from
and within the region, as well as to present opportunities for the Company in
areas of telecommunications currently permitted to be conducted only by the
PTOs. The regulatory regime in each of the countries in which the Company has
operations, and the licenses and permits obtained by the Company, are separately
described in the country-specific business descriptions under "-- Description of
Country Operations" below.
EMPLOYEES
As of June 30, 1998, the Company employed a total of 874 persons, of whom
290 were employed by IMPSAT Argentina and 191 were employed by IMPSAT Colombia.
The number of employees of the Company has generally increased and is expected
to continue to increase as a result of the Company's expansion in the countries
in which it operates and into new countries. None of the Company's employees is
a member of any union. The Company believes that its relations with its
employees are good.
LEGAL MATTERS
The Company is involved in or subject to various other litigation and legal
proceedings incidental to the normal conduct of the Company's business,
including with respect to regulatory matters.
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In November 1996, IMPSAT Argentina filed suit against ENCOTESA for amounts
due under IMPSAT Argentina's contracts with ENCOTESA, which totaled $5.6
million, plus interest on such amounts. ENCOTESA was the Company's single
largest delinquent account as of December 31, 1997. In December 1996, ENCOTESA
filed its reply to IMPSAT Argentina's claim. The court has not yet ruled upon
IMPSAT Argentina's claim against ENCOTESA. At the end of 1996, IMPSAT Argentina
began to reserve 100% of all of its subsequent invoices submitted to ENCOTESA
and to charge such amounts directly to selling, general and administrative
expenses. Subsequently, IMPSAT Argentina reclassified its trade account
receivables due from ENCOTESA to noncurrent assets at their estimated net
realizable value. In September 1997, ENCOTESA, which was the Company's fourth
largest customer as of December 31, 1996, was privatized and replaced by Correo
Argentino S.A., ("Correo Argentino"), the entity formed by a private consortium
to acquire and operate the Argentine postal system. Trade receivables of IMPSAT
Argentina allocable to ENCOTESA were not transferred to or assumed by Correo
Argentino and remain an obligation of the Argentine government. In addition,
IMPSAT Argentina's contracts with ENCOTESA were not assumed by Correo Argentino.
The Company will continue to monitor the ENCOTESA receivables situation. IMPSAT
Argentina and ENCOTESA have held discussions in an effort to settle IMPSAT
Argentina's claims against ENCOTESA, and during the pendency of such discussions
the parties have deferred further court proceedings. To date, the parties have
been unable to reach any settlement of the matter. There can be no assurance
that the ENCOTESA receivables situation will not have a material adverse effect
on the Company's results of operations, liquidity or capital resources. For
further information regarding IMPSAT Argentina's relationship with ENCOTESA, see
"Risk Factors -- Receivables Risk," and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
DESCRIPTION OF COUNTRY OPERATIONS
The following are brief descriptions of certain specific matters relating
to the operations of the Company's subsidiaries in Argentina, Venezuela,
Colombia, Ecuador, Mexico, the United States and Brazil.
IMPSAT ARGENTINA
IMPSAT Argentina, the Company's first subsidiary, was established in 1988
and began commercial operations in 1990. The Company currently owns a 95.2%
equity interest in IMPSAT Argentina. Argentina has been the site of the initial
introduction of each of the services provided by the Company, except Interplus.
The Company's private telecommunications network services are provided in
Argentina through the Company's fiber optic, microwave and satellite facilities.
The Company's principal transmission facilities in Argentina include its
Teleport in Buenos Aires, Regional Teleports located in Cordoba, Mendoza,
Rosario, Mar del Plata, Tucuman, La Plata and Neuquen, and Teledatos networks in
Buenos Aires, Cordoba, Mendoza, Rosario, Mar del Plata, Tucuman and La Plata,
with an aggregate of approximately 41 route miles of fiber. In addition, IMPSAT
Argentina operates a digital microwave circuit that provides voice and data
telecommunications links between user sites in Buenos Aires and Mendoza. At June
30, 1998, the Company had installed approximately 2,444 VSAT microstations and
510 Dataplus earth stations in Argentina. The Company operates on both the
C-band and Ku-band in Argentina with access to the Intelsat 706 and 709, PAS-1,
PAS-5 and Nahuel-1 satellites. In addition, the CNC has allocated to IMPSAT
Argentina 200 MHz of the 38 GHz band specified for point-to-point and
point-to-multipoint microwave telecommunications services.
IMPSAT Argentina had 468 customers at June 30, 1998. Financial institution
customers provided approximately 37.8% of IMPSAT Argentina's revenues during
1997. The second largest sector of IMPSAT Argentina's customer base consists of
governmental agencies, which represented approximately 23.1% of its revenues
during 1997. IMPSAT Argentina's largest customers during 1997 included BNA (8.1%
of IMPSAT Argentina's 1997 revenues); ANSeS, the Argentine social security
administration, which has 136 branch offices (4.4% of IMPSAT Argentina's 1997
revenues); Banco de Galicia y Buenos Aires, the largest private bank in
Argentina with more than 180 branches throughout the country (3.7% of IMPSAT
Argentina's 1997 revenues); and YPF S.A., one of the largest companies in
Argentina, which is engaged in hydrocarbon
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exploitation (3.0% of IMPSAT Argentina's 1997 revenues). Revenues from IMPSAT
Argentina's top ten customers accounted for approximately 30.9% of IMPSAT
Argentina's revenues during 1997.
IMPSAT Argentina is a leader in data transmission and VSAT services in
Argentina and estimates that it had over 40% of the market share in private
telecommunications network services during 1997. The Company's principal
competitors in Argentina for the provision of private telecommunications network
services include Startel and Comsat Argentina S.A., a wholly-owned subsidiary of
COMSAT, which provides corporate data transmission services, primarily through
VSAT and SCPC technology.
IMPSAT ARGENTINA SELECTED FINANCIAL AND OTHER DATA
<TABLE>
<CAPTION>
MONTH
ENDED SIX MONTHS ENDED
FISCAL YEAR ENDED NOVEMBER 30, DECEMBER 31, JUNE 30,
------------------------------ ------------ -----------------
1995 1996 1997 1997 1997 1998
-------- -------- -------- ------------ ------- -------
(IN THOUSANDS, EXCEPT FOR OPERATING AND OTHER DATA)
<S> <C> <C> <C> <C> <C> <C>
SELECTED FINANCIAL DATA:
Net revenues from services........ $80,346 $85,145 $90,011 $8,130 $43,953 $48,070
Operating income.................. 14,327 18,870 18,712 1,903 9,765 8,906
Net income........................ 4,472 3,021 2,879 620 963 899
EBITDA............................ 30,394 37,656 36,504 3,465 18,481 18,514
Capital expenditures.............. 38,248 22,361 16,677 207 5,673 19,253
OPERATING DATA:
VSAT microstations installed...... 1,951 2,111 2,446 2,452 2,239 2,444
Dataplus earth stations
installed....................... 355 398 465 467 422 510
Teleports......................... 1 1 1 1 1 1
Regional Teleports................ 6 6 7 7 6 7
Teledatos networks (fiber
optic/microwave)................ 7 7 7 7 7 7
Customers......................... 319 358 436 439 428 468
OTHER DATA:
Per capita GDP.................... $ 8,117 $ 8,351 --
relative to U.S.............. 29.5% 29.3% --
Telephony revenue (U.S.$
millions)....................... $ 6,183 -- --
Per capita telephony revenues..... 180 -- --
relative to U.S.............. 26.6% -- --
Teledensity (lines in
service/population 100)......... 16.0 -- --
relative to U.S.............. 25.6% -- --
Population (in millions).......... 34.3 34.8 --
</TABLE>
- ---------------
Sources: The WEFA Group -- Latin America Outlook. International
Telecommunication Union -- World Telecommunication Development
International Data and Statistics, 1996.
REGULATION
The supervision and control of the Argentine telecommunications sector is
under the jurisdiction of the CNC and the Secretary of Communications. Prior to
1989, telecommunication services in Argentina were provided by Empresa Nacional
de Telecomunicaciones ("ENTel"), the former state-owned national
telecommunications monopoly. In 1989, the Argentine government enacted a series
of laws to deregulate the telecommunications sector. Under the current regime,
"basic telephone services" are supplied domestically by Telefonica and Telecom
Argentina, pursuant to an exclusive license until November 2000. On March 10,
1998, the Argentine Government announced a telecommunications deregulation
decree which contemplates the demonopolization of telephony services of Telecom
Argentina and Telefonica and the commencement of deregulation of local and
long-distance telephony markets in the year 2000. International voice and
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transmission services are supplied by Telintar, a joint venture between Telecom
Argentina and Telefonica, which has an exclusive license until no later than
2000. Other services, such as those rendered by IMPSAT Argentina, are provided
on a non-exclusive basis upon authorization by the CNC.
IMPSAT Argentina obtained a permit in 1989 from the Argentine government,
which was converted into a license with no expiration date in 1992, for the
provision of data transmission services with ancillary voice channels within
Argentina. The license does not specify what is meant by "ancillary" voice
channels, and no official interpretation has been provided. In the event that
regulations or other administrative guidance defining "ancillary" voice were to
be issued in a manner that caused IMPSAT Argentina to restrict the use of its
networks, the Company could be adversely affected. IMPSAT Argentina's license is
subject to no material conditions and has no expiration date. Under the terms of
the license, IMPSAT Argentina may provide point-to-point voice service in
Argentina only if such voice transmission is accomplished without use of the
local public telephone networks and only in connection with providing a service
channel to its data transmission customers. IMPSAT Argentina is not permitted
under its license to provide data transmission services from Argentina to points
outside Argentina during the term of Telintar's statutory monopoly, unless
Telintar permits IMPSAT Argentina to provide such services or unless
specifically authorized by the CNC.
IMPSAT Argentina provides value added services in the domestic and
international market pursuant to a license granted by the Secretary of
Communications in September 1995. Value added services include such services as
electronic data, voice and fax mail, fax store and forward and Internet access.
Argentine law requires that IMPSAT Argentina use international point-to-point
trunk lines leased from Telintar to provide value added services
internationally.
IMPSAT Argentina also has obtained licenses with no expiration date for the
provision of trunking and paging services within Argentina, although the Company
currently has no intention of entering into the business of providing trunking
and paging services. IMPSAT Argentina also has licenses with no expiration date
to provide domestic and international videoconferencing services.
Although certain services are provided on a competitive basis, the CNC is
in charge of the authorization, supervision and control of the
telecommunications services. IMPSAT Argentina is required to pay the CNC a
monthly fee of 0.5% of its net revenues.
IMPSAT COLOMBIA
IMPSAT Colombia began operations in December 1992. The Company holds a
74.2% equity interest in IMPSAT Colombia. Other principal shareholders of IMPSAT
Colombia are Suramericana de Seguros and Suramericana de Capitalizacion, the
insurance and finance arms of the Sindicato Antioqueno (Suramericana de Seguros,
Suramericana de Capitalizacion and all other entities affiliated with the
Sindicato Antioqueno being referred to as the "Suramericana Group"), which
together hold a 24.6% equity interest in IMPSAT Colombia. Sindicato Antioqueno,
which was formed in Medellin, Colombia in the mid-1970s, is a group of over 100
financial services, food, textile and apparel, construction and real estate
companies related through cross-ownerships and interlocking directorates. Member
companies of the Sindicato Antioqueno include Bancolombia, the largest
commercial bank in Colombia; Cementos Argos, Colombia's largest cement
manufacturer; and Nacional de Chocolates, one of Colombia's largest food
processing firms.
The Company's private telecommunications network services are provided in
Colombia through fiber optic, microwave and satellite networks. The Company's
principal transmission facilities in Colombia include the Teleport and Teledatos
network in Bogota and Regional Teleports and Teledatos networks located in
Medellin, Cali and Barranquilla. The Company's Teledatos network in Bogota is
provided through a joint venture with the ETB, the Colombian PTO that provides
local telephone service in the Bogota region, under which ETB provides the fiber
optic infrastructure for the network while IMPSAT Colombia provides multiplexing
equipment and terminal equipment on customer premises, controls and monitors the
network, provides technical support and sells network services to customers.
IMPSAT Colombia had approximately 898 VSAT microstations and 401 Dataplus earth
stations installed at June 30, 1998. IMPSAT Colombia operates on the C-band with
access to PAS-1 and the Intelsat 603 and 709 satellites.
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IMPSAT Colombia had 567 customers at June 30, 1998. Financial institutions
provided approximately 37% of IMPSAT Colombia's revenues for 1997. The second
largest sector of IMPSAT Colombia's customer base is comprised of industrial
companies (including oil companies) which provided approximately 21% of IMPSAT
Colombia's revenues for 1997. IMPSAT Colombia's largest customers during 1997
included Bancolombia S.A., the country's largest bank; Banco de la Republica,
Colombia's central bank; Interred, an Internet access provider; and Concasa, a
savings and loan corporation. Revenues from IMPSAT Colombia's top ten customers
accounted for approximately 17% of IMPSAT Colombia's revenues for 1997. IMPSAT
Colombia has recently entered into a five-year contract with Corporacion
Nacional de Ahorro y Vivienda ("Conavi"), one of Colombia's largest financial
institutions and a member of the Suramericana Group, to provide private
telecommunications network services. The contract with Conavi contemplates
monthly revenues to IMPSAT Colombia of $565,000 per month, but is terminable by
Conavi after notice. Upon the commencement of service under this contract,
Conavi will become the single largest customer of the Company.
The Company estimates that it is a leader in terms of market share in VSAT
and data transmission services at December 31, 1997. The Company's principal
competitors in Colombia are Telecom Colombia; Colomsat, S.A., a privately-owned
provider of facsimile, data and voice transmission services; Telegan, a provider
of VSAT services; and Americatel Colombia, a joint venture between ENTEL Chile
and Grupo Santo Domingo, Colombia's largest conglomerate, which provides voice,
data and video services primarily to Grupo Santo Domingo.
IMPSAT COLOMBIA SELECTED FINANCIAL AND OTHER DATA
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------ -------------------
1995 1996 1997 1997 1998
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT FOR OPERATING AND OTHER DATA)
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL DATA:
Net revenues from services................... $22,417 $35,116 $49,514 $23,791 $28,094
Operating income............................. 4,858 10,976 16,724 8,634 9,986
Net (loss) income............................ (135) 2,239 8,392 3,954 3,549
EBITDA....................................... 8,748 16,660 23,965 11,862 13,856
Capital expenditures......................... 19,684 15,447 20,256 10,380 14,732
OPERATING DATA:
VSAT microstations installed................. 812 1,066 886 1,042 898
Dataplus earth stations installed............ 65 174 324 257 401
Teleport..................................... 1 1 1 1 1
Regional Teleports........................... 3 3 3 3 3
Teledatos networks (fiber optic/microwave)... 4 4 4 4 4
Customers.................................... 271 410 524 482 567
OTHER DATA:
Per capita GDP............................... $ 2,256 $ 2,401 --
relative to U.S......................... 8.2% 8.4% --
Telephony revenues (U.S. $ millions)......... $ 1,213 -- --
Per capita telephony revenues................ 35 -- --
relative to U.S......................... 5.1% -- --
Teledensity (lines in service/population
100)....................................... 10.0 -- --
relative to U.S......................... 16.0% -- --
Population (in millions)..................... 35.2 35.9 --
</TABLE>
- ---------------
Sources: The WEFA Group -- Latin America Outlook. International
Telecommunication Union -- World Telecommunication Development
International Data and Statistics, 1996.
70
<PAGE> 71
REGULATION
The telecommunications industry in Colombia is subject to regulation by the
Colombian Ministry of Communications. Since 1992, the Ministry of Communications
has pursued a policy of liberalization, and has encouraged joint ventures
between public and private telecommunications companies to provide new and
improved telecommunications services.
IMPSAT Colombia obtained a license in September 1991 which permits it to
operate national and international digital information transmission services for
twenty years. The license may be renewed at that time so long as IMPSAT Colombia
complies with the terms and conditions of the license and any applicable laws
and regulations. The license permits IMPSAT Colombia to engage in digital voice,
data and video transmission services, the provision of value added services such
as fax store and forward and electronic mail and Internet access services, and
authorizes the use by IMPSAT Colombia of radio frequencies and satellite links
in Colombia necessary to provide such services. IMPSAT Colombia is prohibited by
the terms of the license from connecting to the Colombian public
telecommunications network for purposes of reselling voice communications.
IMPSAT Colombia is required to pay taxes equal to 5% of its gross revenues
to the Ministry of Communications.
IMPSAT VENEZUELA
IMPSAT Venezuela began operations in January 1993. The Company holds a 75%
equity interest in IMPSAT Venezuela. The remaining 25% equity interest in IMPSAT
Venezuela is held by members of the Suramericana Group. In 1997, IMPSAT
Venezuela recorded revenue from services of $8.6 million and a net loss of $5.4
million.
The Company's private telecommunications network services are provided in
Venezuela by microwave and satellite networks. The Company's principal
transmission facility in Venezuela is its Teleport in Caracas. The Company also
has a Teledatos network in Caracas. The Company had installed 214 VSAT
microstations and 87 Dataplus earth stations in Venezuela at June 30, 1998. The
Company operates on the C-band in Venezuela utilizing the PAS-1 and the Intelsat
709 satellites.
IMPSAT Venezuela estimates that it had approximately 20% of the market
share in data transmission services during 1997. The Company's principal
competitors in Venezuela include Compania Anonima Nacional de Telefonos de
Venezuela ("CANTV"), the Venezuelan PTO which is operated by a consortium led by
GTE Corporation; Infosat, C.A., a private provider of data and video
transmission services; MCI, which provides, data transmission and value added
services in Venezuela; T-Data, the data transmission and Internet services
division of Telcel, one of Venezuela's two cellular telephone providers; and
Bantel, which provides data and voice transmission services.
IMPSAT Venezuela had 114 customers at June 30, 1998. IMPSAT Venezuela's
largest customers are generally large national and multinational corporations.
IMPSAT Venezuela's largest customers during 1997 included Banco Mercantil SAICA,
one of Venezuela's largest commercial banks; Reacciun, a national academic
telecommunications network; Cadenas de Tiendas Venezolanas, S.A. ("Cativen"),
one of Venezuela's largest retail department stores and supermarket chains.
Corporacion Andina de Fomento, a multilateral development bank; Nabisco de
Venezuela C.A., a subsidiary of multinational food and tobacco conglomerate RJR
Nabisco Holdings Corp.; and Compania Occidental de Hidrocarburos, Inc., a
subsidiary of Occidental Petroleum Corp. Revenues from IMPSAT Venezuela's top
ten customers accounted for approximately 51.8% of IMPSAT Venezuela's revenues
for 1997. In addition, IMPSAT Venezuela recently signed a five-year contract to
provide private telecommunications network services to Instituto Nacional de
Hipodromos ("INH"), a horse racing track. The contract with INH contemplates
monthly revenues to IMPSAT Venezuela of $240,000 per month. Upon commencement of
service under this contract, INH will become the single largest customer of
IMPSAT Venezuela.
The Venezuelan telecommunications industry is regulated by the Comision
Nacional de Telecomunicaciones ("CONATEL"), which is under the jurisdiction of
the Ministry of Transport and Communications.
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<PAGE> 72
IMPSAT Venezuela obtained a license in December 1992, authorizing it to
build, maintain and operate a private telecommunications network for the
transmission of data, voice and video information. The license is valid for a
period of ten years, with an option to renew for an additional ten years. The
license prohibits IMPSAT Venezuela from providing its services through the
public switched telephone networks operated by CANTV and from switching and
sharing infrastructure with other operators of private telecommunications
networks.
A license was also issued to IMPSAT Venezuela in February 1996 for a period
of ten years, with an option to renew for an additional ten years, for the
provision of value added services such as fax store and forward, electronic mail
and Internet access. There are no prohibitions under this license with respect
to IMPSAT Venezuela's ability to switch with CANTV or other private networks in
connection with the provision of value added services.
IMPSAT Venezuela received a 10-year license in February 1996 which permits
it to switch with CANTV for the national and international transmission of data.
The license would not permit it to switch with CANTV in connection with the
transmission of voice until the year 2000.
Under each of the licenses described above, IMPSAT Venezuela is or will be
required to pay taxes and fees equal to 5.5% of a stipulated portion of its
gross revenues from the services that are provided pursuant to such license.
Such stipulated portion of its gross revenues currently represent approximately
70% of IMPSAT Venezuela's revenues.
IMPSAT ECUADOR
The Company began operations in January 1995 and holds a 100% equity
interest in IMPSAT Ecuador. For 1997, IMPSAT Ecuador recorded revenues from
services of $5.5 million and a net loss of $1.0 million.
The Company's private telecommunications network services are provided in
Ecuador through fiber optic, microwave and satellite links. The Company operates
on the C-band in Ecuador with access to the PAS-1 and PAS-5 satellites. A
Teleport located in Quito, Ecuador was constructed in September 1995 and a
Regional Teleport was constructed in Guayaquil in July 1995.
IMPSAT Ecuador had approximately 109 customers as of June 30, 1998.
Governmental entities and banks and financial institutions provided
approximately 34%, and industrial and commercial companies provided
approximately 21% of IMPSAT Ecuador's revenues for 1997.
IMPSAT Ecuador's largest customers at December 31, 1997 included Banco del
Pichincha, one of the largest Ecuadoran banks; Aduanas, the Ecuadoran customs
agency; and Diners Club del Ecuador, a leading credit card company. Revenues
from IMPSAT Ecuador's top ten customers accounted for approximately 52% of its
revenues for 1997. In addition, the Company provides international
communications services for the regional PTO located in the city of Cuenca.
The telecommunications industry in Ecuador is regulated by the Consejo
Nacional de Telecomunicaciones, the Secretaria Nacional de Telecomunicaciones
and is under the control and supervision of the Superintendencia de
Telecomunicaciones.
IMPSAT Ecuador believes that it is the leading provider of private
telecommunications network services in Ecuador. The Company's principal
competitors in Ecuador include: Empresa Estatal de Telecomunicaciones del
Ecuador ("EMETEL"), the Ecuadoran state-owned PTO; Suratel, S.A., which provides
national and international SCPC and voice services; Consorcio Ecuatoriano de
Telecomunicaciones S.A., which provides national and international SCPC services
and cellular telephony; and Ram Telecom Telecomunicaciones S.A., which provides
national SCPC services.
IMPSAT Ecuador obtained a license in June 1994, which is effective for
fifteen years, to provide data, voice and video transmission services so long as
the provision of such services does not use the installed networks owned by
EMETEL or any other company granted a monopoly for the provision of fixed
telephony services. The license authorizes the installation, operation and
exploitation by IMPSAT Ecuador of a satellite system to offer national and
international information transmission services, including the construction of
two
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<PAGE> 73
teleports (in Quito and Guayaquil), VSAT microstations and Dataplus earth
stations. IMPSAT Ecuador is required to pay an annual fee equal to 6% of certain
of its revenues which have historically represented approximately half of IMPSAT
Ecuador's revenues.
IMPSAT MEXICO
IMPSAT Mexico was incorporated in 1995. The Company has a 99.9% equity
interest in IMPSAT Mexico. For 1997, IMPSAT Mexico recorded net revenues from
services of $1.4 million and a net loss of $1.4 million.
The Company's private telecommunications network services are provided in
Mexico through a Teleport located in Mexico City. The Teleport, construction of
which was completed at the end of November 1996, is capable of providing
dedicated-link and private network services using satellites for the
transmission of voice, data and video signals. The Company operates on the
C-band in Mexico with access to Intelsat 709, which has been approved by the
Secretaria de Comunicaciones y Transportes ("SCT"), and to Solidaridad-II, a
Mexican satellite.
As of June 30, 1998, IMPSAT Mexico had 27 customers including: Wang de
Mexico S.A. de C.V, a developer of computer equipment software; Carvajal S.A. de
C.V., a publisher of textbooks and books of general interest and manufacturer of
school products such as notebooks; Becton & Dickinson and SmithKline Beecham,
two international pharmaceutical companies; and ATSI de Mexico S.A. de C.V., a
private pay phone provider and a subsidiary of American TeleSource
International, Inc.
IMPSAT Mexico's current market share is insignificant. However, the Company
believes that its technical experience, know-how and commitment to customer
service should enable it to increase its revenues and market share over time.
The Company's principal competitors in Mexico include: Telecomunicaciones de
Mexico ("Telecomm"), the PTO charged with the provision of national satellite
services, including satellite transmission services; Redes Via Satelites S.A. de
C.V., which sells telecommunications equipment and provides equipment
maintenance services, and recently began providing outsourcing services; SERSA/
GeoComm, which provides teleport services; Vitacom de Mexico S.A. de C.V., which
sells and manufactures equipment, provides maintenance and installation
services, and recently began to offer teleport services; Optel
Telecommunications, S.A. de C.V., which offers data transmission services and
provides national and international telecommunications services; and Satelitron,
S.A. de C.V., which principally offers national and international data
transmission links.
The telecommunications industry is regulated primarily by the SCT. An
agency of the SCT, Telecomm, is charged with the regulation of non-national
satellite and telegraph services. Telecomm supervises carriers and allocates
electronic frequencies for satellite communications. Satelites Mexicanos, S.A.
de C.V. ("SatMex"), formerly a Mexican government agency before its
privatization in December 1997, owns and operates Solidaridad II along with
other Mexican satellites.
IMPSAT Mexico obtained a permit from the SCT in May 1994, which authorizes
the installation, operation and exploitation by IMPSAT Mexico of a network of
earth stations to provide dedicated-link services, including VSAT services, for
the transmission of voice, data and videoconferencing signals. The permit
provides that such services must use Mexican satellites or those designated or
approved by the Mexican government. IMPSAT Mexico's permit imposes no
restrictions on IMPSAT Mexico's ability to carry voice. Interconnection of
IMPSAT Mexico's network to networks in other countries requires the approval of
the SCT. While IMPSAT Mexico's permit is valid for a period of fifteen years,
its terms and conditions may be revised for a nominal fee after the first five
years if the SCT believes such changes to be in the public interest. IMPSAT
Mexico has the right to renew the permit for an additional 15 years if it has
complied with the provisions of the permit and agrees to accept any new
conditions that may be imposed by the SCT.
IMPSAT Mexico is required to pay 5% of its telecommunications services
income to the Mexican government. In addition, IMPSAT Mexico is required to pay
to the government certain fees for having its signals transmitted and received
by satellite, and nominal fees for the installation of new earth stations.
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<PAGE> 74
On June 7, 1995, the Mexican government promulgated a law which restricts
foreign investment in concession holders to no more than a 49% interest. The
Company has been advised by local Mexican counsel that this restriction does not
apply to IMPSAT Mexico because IMPSAT Mexico provides its services pursuant to a
permit, and does not hold a concession. In addition, the law does not apply to
concessions granted prior to its enactment.
IMPSAT USA
IMPSAT USA began offering Interplus services between Latin America and
North America in February 1996. The Company holds a 100% equity interest in
IMPSAT USA. IMPSAT USA had revenues of $5.0 million and operating expenses of
$3.9 million during 1997.
IMPSAT USA has leased teleport facilities in south Florida and New Jersey
and has purchased switching hardware and software from General Datacom, ACT
Networks, Ascend Communications, Inc., Cisco Systems Inc., Adtran Inc., and
others. IMPSAT USA is currently constructing its own Teleport in south Florida,
which is expected to be completed by the end of 1998.
IMPSAT USA's target customer base can be divided into two distinct
segments: retail and wholesale. The retail segment consists of multinational
corporations with extensive voice and data communications needs, which are the
primary end-users in the United States/Latin American market for international
private-line services. IMPSAT USA's wholesale marketing campaign targets
U.S.-based Competitive Access Providers ("CAPs"), Latin American Internet
service providers and international long-distance carriers for specific niche
products. IMPSAT USA currently provides Interplus service to 15 customers
(excluding intercompany accounts). IMPSAT USA's customer accounts include
Intermedia Communications of Florida Inc., one of the largest CAPs in the United
States, which has an Interplus link between Florida and its customer's location
in Medellin, Colombia; UBESA, the Ecuadoran subsidiary of Dole Fresh Fruit
International Ltd.; and Business Technology Services, Inc., a call back services
provider based in Miami, Florida, both of which have Interplus links between
Florida and their locations in Ecuador. In addition, IMPSAT USA provides MCI
Global Resources, Inc. with circuits from Florida to MCI's customer locations in
Honduras and Colombia.
IMPSAT USA expects intense competition in the market for international
private line network services between the United States and Latin America. Such
competition is expected to come primarily from the "Big Four" long-distance
carriers (AT&T, MCI, Sprint and Worldcom) in conjunction with Latin American
PTOs, as well as from alternative regional carriers. The Company believes that
IMPSAT USA is positioned to compete effectively by offering better end-to-end
customer service and quality assurance in Latin America through its regional
knowledge and in-country contacts using IMPSAT sister companies.
The Federal Communications Commission ("FCC") exercises exclusive U.S.
jurisdiction over all facilities and services of communications carriers to the
extent that such facilities and services are used for interstate or
international communications. IMPSAT USA received authorization from the FCC in
September 1995 to provide facilities-based telecommunications services,
including switched voice and data and private line services, between the United
States and various international points using certain international satellite
facilities. In connection with these services, IMPSAT USA also is authorized to
lease and operate any necessary U.S. connecting facilities. On June 5, 1997,
IMPSAT USA's application for authorization to resell telecommunications services
of other international carriers between the United States and various
international points was granted by the FCC. On July 25, 1997, IMPSAT USA's
application to the FCC for authority to operate as an international
facilities-based and international global resale carrier was granted.
IMPSAT BRAZIL
IMPSAT Brazil was established by Nevasa to apply for a value added
telecommunications license in Brazil and to develop such business in Brazil with
the understanding between Nevasa and its then minority partner in the Company,
STET International, that IMPSAT Brazil would be combined with the Company at a
later date to be agreed upon. The Company presently holds an 99.9% ownership
interest in IMPSAT Brazil.
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<PAGE> 75
IMPSAT Brazil is currently providing Dataplus, Interplus and network
outsourcing services utilizing satellite capacity subleased from Embratel. Last
mile solutions in metropolitan areas are anticipated initially to be delivered
through microwave and fiber optic links leased from local PTOs. IMPSAT Brazil
plans to operate its network through two teleports to be located in Sao Paulo
and Curitiba. Depending on the Company's success, the Company anticipates that
it may construct additional teleports in the main Brazilian cities in the
future. After construction of a teleport, the Company expects its operations in
Brazil to utilize the C-bands and Ku-bands on Brazilsat, PanAmSat, Intelsat and
Nahuel satellites.
As of June 30, 1998, IMPSAT Brazil was providing private network
telecommunications services to a total of 21 customers, including Shell do
Brasil S.A., Fundacao Cultural e Educacional, Ultrafertil, Sony Music
Entertainment and HSBC Bamerindus, through a total of 20 Dataplus and two
Interplus earth stations and the outsourcing of a 200 VSAT microstation network
for HSBC Bamerindus. IMPSAT Brazil recorded revenues of $0.3 million and
operating expenses of $1.4 million for 1997, which were not consolidated with
the Company's operating results.
The Company expects to use its well-developed technological and commercial
experience and knowledge of private telecommunications network services in Latin
America for further market penetration and expansion of its customer base in
Brazil. Brazil, with an estimated population of 156 million people, potentially
represents one of the largest telecommunications markets in Latin America.
Brazil is four times the size of any other South American country and has more
people than all the other South American countries combined. It is the fifth
largest country in the world both in terms of area and population. Brazil's
economy is also the largest in Latin America with reported GDP of $803 billion
in 1997, a 3% gain over the previous year. The Brazilian population has been
urbanized over the past 40 years -- as a percentage of total population, urban
population in Brazil has grown from approximately 49% in 1970 to 74% in
1993 -- due to a rapid change from an agriculture based economy to an industrial
and service based economy. As a result, Brazil has numerous large urban areas
separated by great distances, a characteristic that is correlated with a high
demand for telecommunications services.
Commercial and governmental activity in Brazil are often dispersed among
multiple sites located great distances apart. The Company believes its
satellite-based private telecommunications network services are well-suited to
such an environment. The Company's services are designed to reach many locations
over vast distances simultaneously (i.e., point-to-multi-point transmission) and
for connecting a number of locations that cannot be connected efficiently or
cost-effectively by terrestrial telecommunications networks. Despite its large
land mass, population and economy, existing telecommunications infrastructure is
unreliable, inadequate and expensive. Telephony infrastructure and service
quality has not kept pace with rapidly increasing demand. Consistent with its
experience in its other Latin American markets, where the local
telecommunications infrastructure is often unreliable and not readily
accessible, the Company believes that significant opportunities exist in Brazil
for providers of private telecommunications network services.
The Company's experience in other Latin American markets indicates that the
rate of growth for private telecommunications network services is generally
greater than that of the telecommunications sector as a whole. The Company
believes that Brazil's low teledensity; poor telephony infrastructure, both
switched and non-switched; growing economy with strong, unsatisfied demand for
reliable, cost-effective telecommunications solutions in a variety of commercial
and industrial settings; and its recently commenced liberalization and
deregulation of the telecommunications sector all underscore the breadth of
opportunity in the private telecommunications network services market in that
country.
The Company expects intense competition in the market for private
telecommunications network services in Brazil. Such competition is expected to
come primarily from Embratel, Promon Eletronica Ltda., COMSAT do Brasil Ltda.,
Victori Comunicacoes (a joint venture between Globo Participacoes Ltda., STET
Victori Internacional Engenharia de Telecomunicacoes S.A. and Laboratorio
Digital Ltda.) and GSI, as well as from other domestic and international market
entrants as the Brazilian telecommunications industry is liberalized and
deregulated. These factors are expected to be particularly attractive to large,
multinational customers which prefer to be serviced by one company within the
region. The Company intends to use its well-developed technological and
commercial experience and knowledge in South America as a launching point for
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<PAGE> 76
expansion and market penetration in Brazil and as an integral part of its
pan-Latin American network of private telecommunications services. The Company
expects to compete effectively in Brazil by delivering tailor-made solutions to
meet the particular telecommunications needs of its customers; offering a broad
range of services; and providing personalized attention and uncompromising
customer service and support. The Company will initially focus on large
corporations, financial institutions and governmental entities, providing VSAT,
Dataplus and Interplus services, and adding Internet access and other value
added services as the network and customer base expands. The Company's sales
efforts in Brazil will focus primarily on the 500 largest companies and
international corporations based in the main economic centers of Brazil: Sao
Paulo, Rio de Janeiro, Minas Gerais, Parana, Rio Grande do Sul, Brasilia and
Bahia. The Company's sales strategy will aim to provide the customer with highly
personalized pre-sale, sale and post-sale attention. The Company believes that
such comprehensive customer service at all stages of the relationship should
promote customer loyalty and generate demand for additional services by existing
customers. See "Risk Factors -- Competition."
The telecommunications and postal services in Brazil are regulated by the
Ministry of Communications (the "Ministry") pursuant to the Telecommunications
Law of 1962, as amended in 1995 (the "Cable TV Law") and in 1996 (the "Minimum
Law"). Brazil's telecommunications laws recently underwent significant revision
with the enactment by the Brazilian legislature in September 1997 of a new
statute (the "General Telecommunications Law") authorizing the creation of the
Agencia Nacional de Telecomunicacoes ("Anatel"), an independent agency that
regulates all aspects of telecommunications services, except radio and TV
broadcasting, including the granting of licenses under the General
Telecommunications Law. In addition, competition both at the local and long
distance levels is expected to be introduced, with the privatization of Telebras
and the dismantling of its telecommunications monopoly.
Under the General Telecommunications Law, value added services may not be
provided in Brazil without prior governmental authorization. The Brazil License,
which was granted to IMPSAT Brazil by Anatel permits IMPSAT Brazil to lease
satellite capacity directly from satellite carriers and sell corporate
telecommunications services (data, voice and video) using terrestrial and
satellite links to third parties.
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<PAGE> 77
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
In accordance with its Bylaws, IMPSAT Corporation currently has eight
members on its Board of Directors. The directors of the Company will hold office
until the next annual meeting of stockholders and until successors of such
directors have been elected and qualified, or until their earlier death,
resignation or removal. The holders of the Series A Preferred Stock have, since
the issuance thereof, had the right to vote as a separate class to elect two
directors. Ms. Marianne Hay and Mr. Stephen Munger currently serve in such
capacities.
The President of IMPSAT Corporation is elected at the annual meeting of
stockholders. The other officers are elected at the annual meetings of the Board
of Directors. All officers hold office until their successors are elected and
qualified, or until their earlier death, resignation or removal.
Set forth below are the names, ages and positions of directors and
executive officers of the Company as of August 1, 1998. The officers designated
as executive officers of IMPSAT Corporation are employees of Resis, a
wholly-owned subsidiary of the Company, which provides services to the Company
pursuant to a management services agreement with the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- ------ --------
<S> <C> <C>
DIRECTORS
- ---------
Enrique M. Pescarmona.............. 54 Chairman of the Board
Ricardo A. Verdaguer............... 47 Director, President and Chief Executive Officer
Roberto A. Vivo.................... 44 Director, Deputy Chief Executive Officer
Alexander Rivelis.................. 57 Director and Vice President, Institutional Relations
Lucas Pescarmona................... 27 Director
Sofia Pescarmona................... 24 Director
Marianne Hay*...................... 46 Director
Stephen R. Munger*................. 40 Director
EXECUTIVE OFFICERS
Hector Alonso...................... 40 Chief Operating Officer
Guillermo Jofre.................... 42 Chief Financial Officer
Guillermo V. Pardo................. 47 Vice President, Planning
Jose R. Torres..................... 39 Vice President, Administration, Chief Accounting Officer
Alejandro Suarez del Cerro......... 44 Vice President, Technology
Rafael Carchak Canes............... 48 Head, Organizational Development Unit
Marcelo Girotti.................... 33 President of IMPSAT Argentina
Horacio Sajoux..................... 45 President of IMPSAT Colombia
Mariano Torre Gomez................ 47 President of IMPSAT Venezuela
Mauricio G. Klau................... 35 President of IMPSAT Mexico
Rodolfo Arroyo..................... 38 President of IMPSAT Ecuador
Richard Horner..................... 46 President of IMPSAT USA
Daniel V. Hourquescos.............. 46 President of IMPSAT Brazil
</TABLE>
- ---------------
* Pursuant to the terms of the Certificate of Designations, on March 19, 1998,
Ms. Marianne Hay and Mr. Stephen Munger were elected to the Company's Board of
Directors by the Morgan Stanley Investors. See "Certain Relationships and
Related Transactions -- STET Share Purchase and Series A Preferred Stock
Issuance."
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<PAGE> 78
BIOGRAPHIES OF DIRECTORS AND EXECUTIVE OFFICERS
Information with respect to the business experience and the affiliations of
the current directors and executive officers of the Company is set forth below.
Enrique M. Pescarmona has been Chairman of the Board of Directors of IMPSAT
Corporation since September 1994 and a member of the Board of Directors of
IMPSAT Argentina since March 1994. Mr. Pescarmona is also Chairman of
Corporacion IMPSA S.A. ("CORIM"), the holding company for the Pescarmona family,
and Industrias Metalurgicas Pescarmona S.A.I.C. y F. ("IMPSA"). He is a director
of Lagarde, S.A. (a wine company), Ingenieria y Computacion S.A. ("ICSA") (a
manufacturer of electronic components), Mercantil Andina S.A. ("Mercantil
Andina") (an insurance company), TCA S.A. ("TCA") (a manufacturer of automobile
parts), Buenos Aires al Pacifico San Martin S.A. ("BAPSA") and Ferrocarriles
Mesopotamico General Urquiza S.A. (Argentine railway companies). Mr. Pescarmona
is an electromechanical engineer with a master's degree in economics and
business administration from the University of Navarra in Spain.
Ricardo A. Verdaguer has been President, Chief Executive Officer and a
member of the Board of Directors of IMPSAT Corporation since September 1994. Mr.
Verdaguer has also served as President of IMPSAT Argentina from April 1988 until
February 1990 and has served as Chairman of the Board of Directors of IMPSAT
Argentina since 1990. Mr. Verdaguer served in a number of management positions
with IMPSA from 1976 to 1988, including as Manager of the Contracts and
Construction Department and Manager of the Commercial Department. Mr. Verdaguer
holds a degree in electromechanical engineering from Ingenieria de la
Universidad Juan Agustin Maza, Mendoza.
Roberto A. Vivo has been Deputy Chief Executive Officer and a member of the
Board of Directors of IMPSAT Corporation since September 1994. Mr. Vivo has also
served as Marketing Director of IMPSAT Argentina from April 1988 to December
1994 and as a member of the Board of Directors of IMPSAT Argentina from 1988 to
the present. Mr. Vivo also serves as Chairman of the Board of Directors of
FAICSA, an Argentina company engaged in public construction projects. Mr. Vivo
holds a degree in business administration from Universidad Argentina de la
Empresa.
Alexander Rivelis has been Vice President of Institutional Relations and a
member of the Board of Directors of IMPSAT Corporation since December 1994. Mr.
Rivelis served as President of IMPSAT Colombia from 1991 to March 1993,
President of IMPSAT USA from 1995 to 1993, and has held a variety of managerial
positions with companies in the Pescarmona group from 1978 through 1996. Mr.
Rivelis holds a degree in electrical and mechanical engineering from the
University of Rosario, Argentina.
Lucas Enrique Pescarmona, a son of Enrique M. Pescarmona, has been a member
of the Board of Directors of IMPSAT Corporation since February 1996. From 1993
to 1995 he held positions in the Buenos Aires, Argentina office of Arthur
Andersen & Co. In 1995 he transferred to Tecnologica em Componentes Automotivos
S.A. ("TCA Brazil"), a Brazilian manufacturer of automotive parts that is part
of the Pescarmona group, as senior investment analyst in Brazil. Mr. Pescarmona
is also a member of the Board of Directors of TCA, another company within the
Pescarmona group. Mr. Pescarmona holds degrees in economics and political
science from the University of Pittsburgh and holds a master of business
administration degree at SDA Bocconi in Milan.
Sofia Pescarmona, a daughter of Enrique M. Pescarmona, has been a member of
the Board of Directors of IMPSAT Corporation since February 1996. From August
1994 to December 1997, Ms. Pescarmona has held several positions in the Company,
including in the Internet unit and marketing department of IMPSAT Corporation
and the sales department of IMPSAT Argentina. Ms. Pescarmona holds a degree in
international relations from Tufts University. Ms. Pescarmona is currently
pursuing an MBA degree at IAE, Universidad Austral in Argentina.
Marianne Hay has been a member of the Board of Directors of IMPSAT
Corporation since March 1998. Ms. Hay is a Managing Director of Morgan Stanley
Dean Witter & Co. and is President of the Morgan Stanley Global Emerging Markets
Private Investment Fund, L.P. Ms. Hay joined Morgan Stanley in 1993.
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<PAGE> 79
Ms. Hay graduated from Edinburgh University with a degree in genetics and holds
a Diploma in education and the qualification of Association of the Institute of
Bankers in Scotland.
Stephen R. Munger has been a member of the Board of Directors of IMPSAT
Corporation since March 1998. Mr. Munger is a Managing Director in the Mergers,
Acquisitions and Restructuring Department of Morgan Stanley & Co. Incorporated
with a focus on the energy industry and is Head of Princes Gate. He joined the
Firm in 1988 as a Vice President in the Corporate Finance Department. He became
a principal in 1990 and a Managing Director in 1993. Since February 1998, Mr.
Munger has been a member of the Board of Directors of Wright Medical
Technologies, Inc. Mr. Munger graduated from Dartmouth College and received an
MBA from the Wharton School of the University of Pennsylvania.
Hector Alonso has been Chief Operating Officer of IMPSAT Corporation
beginning in September 1996 and was President of IMPSAT Colombia from September
1993 to August 1996. Prior to joining IMPSAT Colombia, Mr. Alonso had 14 years
of experience in a variety of senior management positions with companies in the
Pescarmona group. Mr. Alonso holds a degree in industrial engineering from
Universidad Argentina de la Empresa.
Guillermo Jofre has been Chief Financial Officer of IMPSAT Corporation
since May 1995. Prior to joining the Company, Mr. Jofre was Executive Vice
President of Banque Indosuez in Argentina from 1993 to 1995, and has had over
ten years of experience in management positions with companies in Argentina,
Germany and Switzerland. Presently, Mr. Jofre also serves as a member of the
Board of Directors of the investment fund Bemberg Inversiones S.A. Mr. Jofre
holds a degree in public accounting from University of Cordoba and an MBA from
Imede of Switzerland.
Guillermo V. Pardo has been Vice President, Planning of IMPSAT Corporation
since January 1995. Mr. Pardo was previously Managing Director of the Guido Di
Tella companies and has had over 20 years of experience in finance positions in
a number of companies in Argentina and Spain. Mr. Pardo is currently a member of
the Board of Directors of IMPSAT Argentina, FAICSA and the Fundacion Torcuato Di
Tella. Mr. Pardo holds a degree in business administration from Universidad de
Buenos Aires.
Jose R. Torres has been Vice President, Administration and Chief Accounting
Officer of IMPSAT Corporation since January 1995 and a Director of IMPSAT
Argentina since 1990. Mr. Torres served as external auditor of the Mendoza Stock
Exchange from 1982 to 1983. Mr. Torres previously worked as assistant finance
manager of IMPSA and as finance manager of IMPSAT Argentina until December 1994.
Mr. Torres holds a degree in public accounting from Universidad Nacional de
Cuyo.
Alejandro Suarez del Cerro has been Vice President, Technology of IMPSAT
Corporation since November 1997. Previously, Mr. Suarez del Cerro held a number
of management positions with IMPSAT Argentina, including the positions of
Technical Project Leader from 1988 to 1990, Technical Manager from 1990 to 1991,
Development Manager from 1991 to 1994 and Vice President, Technology from 1995
to 1997. Mr. Suarez del Cerro holds a degree in electronic engineering from
Universidad de Buenos Aires.
Rafael Carchak Canes has held a position at the Company as an executive
officer in charge of the Organizational Development Unit since August 1998. Mr.
Carchak also has been a Director of IMPSAT Argentina since May 1995. Previously,
Mr. Carchak was President of IMPSAT Argentina from May 1995 to July 1998. Prior
to joining the Company, Mr. Carchak served in a variety of management positions
with Eveready over a 15 year period, including Operations Manager of Eveready
Argentina from 1990 to 1992, and as President of Eveready Argentina from 1992,
in which position Mr. Carchak had responsibility for Eveready's operations in
Argentina, Paraguay and Chile. Mr. Carchak holds a degree in engineering from
Universidad de Buenos Aires.
Marcelo Girotti has been President of IMPSAT Argentina since August 1998.
Mr. Girotti joined IMPSAT Argentina in 1992 and has held several managerial
positions at IMPSAT Argentina during that period, including Business Manager of
the Interior Unit from 1992 to 1996, Manager of Special Accounts from 1996 to
1997 and Business Manager of the Value Added Unit from 1997 to 1998. Mr. Girotti
holds a degree in electrical engineering from Universidad Nacional de Rosario.
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<PAGE> 80
Horacio Sajoux has been President of IMPSAT Colombia since September 1996.
Previously, Mr. Sajoux held several management positions with IMPSAT Colombia,
including General Director of Teledatos S.A., the joint venture entity formed by
IMPSAT Colombia and ETB; Vice President, Commercial and Technology; and
Commercial Manager and Director of Technology. Prior to joining IMPSAT Colombia
in 1992, Mr. Sajoux was employed in a number of management positions at IMPSAT
Argentina beginning in 1989. Mr. Sajoux received a degree in electromechanical
engineering from Universidad de Buenos Aires.
Mariano Torre Gomez has been President of IMPSAT Venezuela since April
1997. Mr. Torre has served in a variety of positions involving engineering,
production, planning, business development and new markets for companies in the
Pescarmona group over a period of 17 years. Mr. Torre served two years as
President of IMPSAT Ecuador from 1997. Before that, Mr. Torre served four years
at IMPSAT Argentina in the Commercial and New Licenses Departments. Mr. Torre
holds a degree in engineering from Universidad Tecnologica Nacional.
Mauricio Gabriel Klau has been President of IMPSAT Mexico since June 1997.
Previously, Mr. Klau held several positions within IMPSAT Argentina and IMPSAT
Mexico. Mr. Klau holds a degree in electronic engineering from Universidad de
Buenos Aires.
Rodolfo Arroyo became President of IMPSAT Ecuador in March 1997, after
joining IMPSAT Ecuador as a General Manager in April 1996. From the end of 1991
until April 1996, Mr. Arroyo was employed in several different capacities at
IMPSAT Colombia, including Vice President, Planning and Control and Vice
President, Operations. Prior to joining the Company, Mr. Arroyo was employed by
IMPSA as Projects Manager from July 1988 until December 1991. Mr. Arroyo holds a
degree in civil engineering from Universidad Nacional de San Juan in Mendoza,
Argentina.
Richard Horner has been President of IMPSAT USA since July 1995. Prior to
joining IMPSAT USA, Mr. Horner was South American Sales Manager for
Scientific-Atlanta Network Systems Group from 1991 to 1995, where he was
responsible for commercialization of satellite-based network products to both
PTOs and emerging private sector carriers. Mr. Horner holds a Bachelor of Arts
degree from Amherst College, a degree in electrical engineering from the
University of Kansas and a Master of Arts degree in Latin American studies from
the University of Texas -- Austin.
Daniel V. Houquescos became President of IMPSAT Brazil on March 17, 1997.
Since 1990, Mr. Horquescos has held several positions in the Company, including
General Manager of IMPSAT Argentina from March 1993 to April 1995. Prior to
joining IMPSAT Argentina, Mr. Horquescos served as director of information
services of Direccion General Impositiva, the former Argentine governmental
agency charged with the collection of taxes, and associate Director of CMA
International Company. Mr. Horquescos holds a degree in industrial engineering
from the Instituto Tecnologico de Buenos Aires.
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EXECUTIVE COMPENSATION
The following tables set forth the compensation paid or accrued to the
chief executive officer and the three most highly compensated other executive
officers receiving over $100,000 per year of IMPSAT Corporation during 1997. No
bonuses were paid by IMPSAT Corporation to such executive officers during 1997.
The Company does not maintain any long term incentive plans and does not grant
stock appreciation rights, stock options or restricted stock awards.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-----------------------------------------
NAME AND OTHER ANNUAL
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
- ------------------ ---- -------- -------- ------------
<S> <C> <C> <C> <C>
Enrique M. Pescarmona............................... 1997 $291,045 $ -- $ --
Chairman of the Board
Ricardo A. Verdaguer................................ 1997 240,500 -- --
President and Chief Executive Officer
Roberto A. Vivo..................................... 1997 198,250 -- --
Director, Deputy Chief Executive Officer and Vice
President, Marketing
Rafael Carchak Canes................................ 1997 203,372 -- --
Director and President of IMPSAT Argentina
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company does not have a compensation committee. Decisions with respect
to compensation matters that otherwise would be decided by a compensation
committee are made by the Board of Directors as a whole. Pursuant to the terms
of the Securityholders Agreement (as defined below), for so long as any Morgan
Stanley Investors beneficially own a majority of the shares of Series A
Preferred Stock outstanding on their date of issuance, any material amendment or
change of the compensation arrangements of IMPSAT Corporation's Chief Executive
Officer, Chief Financial Officer, Deputy Chief Executive Officer or Chief
Operating Officer must be approved by the designees of the Morgan Stanley
Investors to the Board of Directors of the Company.
The Morgan Stanley Investors, which are affiliates of Morgan Stanley Dean
Witter & Co., own 25,000 shares of Series A Preferred Stock. Effective March 19,
1998, the holders of the Series A Preferred Stock designated Ms. Marianne Hay
and Mr. Stephen Munger as Directors of the Company. In addition, Morgan Stanley
& Co. Incorporated was the placement agent in connection with the offering of
the Existing Senior Notes, and was one of the Placement Agents in connection
with the Offering. See "Certain Relationships and Related Transactions -- STET
Share Purchase and Series A Preferred Stock Issuance" and "Principal
Stockholders."
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<PAGE> 82
PRINCIPAL STOCKHOLDERS
The following table and the accompanying notes set forth certain
information concerning the beneficial ownership of IMPSAT Corporation's capital
stock as of June 30, 1998 by (i) each person who owned of record, or was known
to own beneficially, more than five percent of any class of IMPSAT Corporation's
capital stock, (ii) each director, (iii) each executive officer and (iv) all
directors and executive officers as a group. Except as otherwise indicated, each
person listed in the table has informed the Company that such person has (i)
sole voting and investment power with respect to such person's shares of capital
stock and (ii) record and beneficial ownership with respect to such person's
shares of capital stock.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES PERCENT
- ------------------------------------ ---------- -------
<S> <C> <C>
IMPSAT Corporation Common Stock(1)
Beneficial Owners of more than 5%
Nevasa Holdings Limited(2).................................. 75,594,480 74.5%
17 Dame Street
Dublin 2, Ireland
Princes Gate Investors II, L.P.(3).......................... 20,724,944 20.4%
Morgan Stanley Global Emerging Markets Private Investment
Fund, L.P.(4)............................................. 5,181,236 5.1%
Directors and Executive Officers(2)......................... 0 0%
All Directors and Officers as a Group (19 persons)(2)....... 0 0%
IMPSAT Corporation Preferred Stock
Beneficial Owners of more than 5%
Princes Gate Investors II, L.P.(5).......................... 20,000 80%
Morgan Stanley Global Emerging Markets Private Investment
Fund, L.P.(6)............................................. 5,000 20%
Directors and Executive Officers(2)......................... 0 0%
All Directors and Officers as a Group (19 persons)(2)....... 0 0%
</TABLE>
- ---------------
(1) Determined on an as-converted basis, assuming the conversion of all issued
and outstanding shares of Series A Preferred Stock into Common Stock. As of
June 30, 1998, each share of Series A Preferred Stock was convertible into
1,036.25 shares of Common Stock, or a total of 25,906,180 shares of Common
Stock.
(2) Nevasa Holdings Limited is controlled by CORIM, Militello Ltd. and Rotling
International Corporation. CORIM, an Argentine corporation that holds an
82.54% equity interest in Nevasa, is controlled by Mr. Enrique Pescarmona,
Chairman of the Board of Directors of IMPSAT Corporation, and other members
of the Pescarmona family and is a holding company for businesses engaged in
a variety of activities including property, casualty and other insurance,
heavy-steel capital goods, manufacturing auto parts, cargo transportation
and environmental services. Militello Ltd., a British Virgin Islands
corporation, holds an 11.62% equity interest in Nevasa and is itself
controlled by Mr. Roberto Vivo, Deputy Chief Executive Officer of IMPSAT
Corporation. Rotling International Corporation, a British Virgin Islands
corporation, holds a 5.84% equity interest in Nevasa and is itself
controlled by Mr. Ricardo Verdaguer, President and Chief Executive Officer
of IMPSAT Corporation.
(3) Determined on an as-converted basis, assuming the conversion of 20,000
shares of Series A Preferred Stock, which were convertible into 20,724,944
shares of Common Stock on June 30, 1998, owned by Princes Gate and
affiliates of Princes Gate over which Princes Gate has sole voting power.
See Note 4 to this "Principal Stockholders" section.
(4) Determined on an as-converted basis, assuming the conversion of 5,000 shares
of Series A Preferred Stock, which were convertible into 5,181,236 shares of
Common Stock on June 30, 1998, owned by MSGEM and Morgan Stanley Global
Emerging Markets Private Investors, L.P. (collectively, the "MSGEM Fund")
over which MSGEM has sole voting power.
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(5) The shares of Series A Preferred Stock set forth on this line include 2,857
shares owned by certain affiliates of Princes Gate over which Princes Gate
has sole voting and dispositive power. The business address of Princes Gate
is Princes Gate Investors II, L.P., 1585 Broadway, 36th Floor, New York, NY
10036. Mr. Stephen Munger, who is the President of PG Investors II, Inc.,
the general partner of Princes Gate and Princes Gate's designee to IMPSAT
Corporation's Board of Directors, disclaims voting or dispositive power over
the shares of Series A Preferred Stock owned by Princes Gate and its
affiliates.
(6) The shares of Series A Preferred Stock set forth on this line include 4,712
shares owned by MSGEM and 288 shares owned by Morgan Stanley Global Emerging
Markets Private Investors, L.P. MSGEM, which is a subsidiary of Morgan
Stanley, manages the investment in, and has sole voting power over, the
shares of Series A Preferred Stock owned by each person comprising the MSGEM
Fund. The business address of each of such persons is c/o Morgan Stanley
Global Emerging Markets Private Investment Fund, L.P., 1221 Avenue of the
Americas, 33rd Floor, New York, NY 10020. Ms. Marianne Hay, who is President
of Morgan Stanley Global Emerging Markets, Inc., the general partner of the
MSGEM Fund, and the MSGEM Fund's designee to the IMPSAT Corporation's Board
of Directors, disclaims voting or dispositive power over the shares of
Series A Preferred Stock owned by the MSGEM Fund.
As described under "Certain Relationships and Related Transactions -- STET
Share Purchase and Series A Preferred Stock Issuance," on March 19, 1998, the
STET Shares were redeemed with the proceeds of a substantially concurrent
issuance and sale by the Company of $125 million of the Series A Preferred Stock
to the Morgan Stanley Investors. As a result, Nevasa currently owns 100% of the
Company's outstanding common stock of the Company and the Morgan Stanley
Investors own 100% of the Series A Preferred Stock. In connection with these
transactions, Nevasa and the Morgan Stanley Investors have entered into a
Securityholders Agreement (the "Securityholders Agreement"), effective as of
March 19, 1998, relating to the joint management of IMPSAT Corporation. The
Securityholders Agreement provides the Morgan Stanley Investors with veto rights
with respect to certain significant corporate actions and provides the Morgan
Stanley Investors with a minimum of two seats on the Company's Board of
Directors for so long as a majority of the Series A Preferred Stock initially
issued on March 19, 1998 are held by the Morgan Stanley Investors.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company in the normal course of its business provides private
telecommunications network services to companies in which CORIM, members of the
Pescarmona family, and entities affiliated with the Suramericana Group have an
interest. Total telecommunications services provided to companies in which CORIM
or members of the Pescarmona family have an interest during 1997 and for the
first six months of 1998 totaled approximately $2.7 million. Total
telecommunications services provided to companies affiliated with the
Suramericana Group from January 1, 1997 to June 30, 1998 totaled approximately
$7.9 million.
The Company holds a 74.2% equity interest in IMPSAT Colombia and the
Suramericana Group holds a 24.6% equity interest in IMPSAT Colombia. The
Suramericana Group also holds a 25% equity interest in IMPSAT Venezuela.
The following is a description of the most significant of transactions
between the Company and its subsidiaries and entities affiliated with CORIM and
the Suramericana Group. Although the Company believes that transactions with its
affiliates are generally conducted on an arm's length basis, conflicts of
interest are inherent in such transactions.
IMPSAT Argentina provides telecommunications services to IMPSA, a company
controlled by CORIM that produces heavy steel capital goods, including
hydromechanical equipment and cranes, and through subsidiaries, engages in other
business including but not limited to cargo transportation, auto parts
manufacturing and general environmental services. Total telecommunications
services provided to IMPSA for the period from January 1, 1997 to June 30, 1998
totaled approximately $511,000.
IMPSAT Argentina provides telecommunications services to TCA, a company
controlled by CORIM and IMPSA that produces wire harnesses for automobile
electrical systems and coil springs for automobile
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suspension systems in Argentina and Brazil. Total telecommunications services
provided to TCA for the period from January 1, 1997 to June 30, 1998 totaled
approximately $117,000.
IMPSAT Argentina provides telecommunications services to BAPSA, a company
controlled by CORIM and IMPSA that operates the San Martin Railway between
Buenos Aires and the Cuyo region in central-western Argentina and provides cargo
transportation services along the San Martin Railway. Total telecommunications
services provided to BAPSA for the period from January 1, 1997 to June 30, 1998
totaled approximately $1.6 million.
IMPSAT Argentina provides telecommunications services to Mercantil Andina,
an insurance company owned by CORIM and members of the Pescarmona family. Total
telecommunications services provided to Mercantil Andina for the period from
January 1, 1997 to June 30, 1998 totaled approximately $405,000.
IMPSAT Argentina provides telecommunications services to Lagarde, a company
owned by members of the Pescarmona family that owns and operates a winery in the
Mendoza province of Argentina. Total telecommunications services provided to
Lagarde S.A. for the period from January 1, 1997 to June 30, 1998 totaled
approximately $87,000.
IMPSAT Colombia provides telecommunications services to several companies
within the Suramericana Group, including Suramericana de Seguros, an insurance
company, Corporacion Financiera Nacional y Suramericana S.A. ("Corfinsura"), a
financial institution, Susalud, a health services company, Proteccion S.A., a
pension fund, Suleasing, a finance company, and Sufinanciamiento, a finance
company. During 1997 and the first six months of 1998, the total amount of
telecommunications services rendered to the Suramericana Group totaled
approximately $7.9 million, the most significant of which are detailed in the
following breakdown:
<TABLE>
<S> <C>
Bancolombia................................................. $2,883,000
Conavi...................................................... 1,471,000
Suramericana de Seguros..................................... 1,133,000
Industrias Noel............................................. 573,000
Almacenes Exito............................................. 248,000
Corfinsura.................................................. 246,000
Proteccion.................................................. 208,000
Suvalor..................................................... 219,000
Sufinanciamiento............................................ 170,000
Acerias Paz del Rio......................................... 166,000
Sodexho Pass................................................ 153,000
Suleasing................................................... 131,000
Susalud..................................................... 114,000
Cementos Rio Claro.......................................... 93,000
</TABLE>
During 1997 and the first six months of 1998, IMPSAT Venezuela provided
telecommunications services to several companies within the Suramericana Group,
including Industrias Alimenticias Noel de Venezuela S.A., which totaled
approximately $108,000 and Cadena de Tiendas Venezolanas S.A., which totaled
approximately $774,000.
In the normal course of business, the Company enters into transactions with
companies in which CORIM, members of the Pescarmona family or the Suramericana
Group have an interest. The following is a description of the most significant
of such transactions.
Corfinsura and Bancolombia are creditors of IMPSAT Colombia. As of June 30,
1998, IMPSAT Colombia was indebted to Corfinsura in the amount of $6.4 million
and to Bancolombia in the amount of approximately $10.6 million. The total
interest paid for the period from January 1, 1997 to June 30, 1998 was
approximately $2.6 million.
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Suramericana de Seguros acts from time to time as an insurance broker and
an insurer for IMPSAT Colombia. IMPSAT Colombia paid premiums to Suramericana de
Seguros totaling approximately $647,000 for the period from January 1, 1997 to
June 30, 1998.
Certain other companies within the Suramericana Group, including Suleasing
S.A. and Suleasing Panama, provide financial leasing services to IMPSAT
Colombia. The total indebtedness as of June 30, 1998 was approximately $1.9
million and the total interest paid for the period from January 1, 1997 to June
30, 1998 was approximately $228,000.
Other payments by IMPSAT Colombia to companies of Suramericana Group in
1997 and the first six months of 1998 included: payments of approximately
$381,000 to Proteccion, S.A. for pension fund services; Susalud, had total
payments of approximately $293,000 to Susalud, S.A. for health benefit services;
and payments of approximately $383,000 to Sodexho Pass for employee luncheon
services.
As of June 30, 1998, IMPSAT Brazil had an outstanding loan with TCA Brazil,
a subsidiary of IMPSA, for an aggregate amount of $500,000. Such amount was
repaid on July 8, 1998.
STET Share Purchase and Series A Preferred Stock Issuance. The acquisition
by IMPSAT Corporation of the STET Shares and the 0.64% interest in IMPSAT
Argentina (the "Argentina Shares") then held by STET International, was
consummated on March 19, 1998, pursuant to the terms of the Stock Purchase and
Termination Agreement dated as of February 27, 1998 among Nevasa, STET
International and certain other parties (the "Stock Purchase and Termination
Agreement"). In accordance with the terms of the Stock Purchase and Termination
Agreement, the Shareholders Agreement dated as of December 16, 1994, among
Nevasa, STET International and certain other parties relating to the ownership
of capital stock of, and certain management rights in respect of, the Company,
was terminated. Pursuant to a series of transactions, on March 19, 1998, the
STET Shares were redeemed and the Argentina Shares were acquired by IMPSAT
Corporation with the proceeds of a substantially concurrent issuance and sale by
IMPSAT Corporation of $125 million of the Series A Preferred Stock to the Morgan
Stanley Investors.
The Series A Preferred Stock was convertible into 25% of the common stock
of IMPSAT Corporation on the date of issuance. The Certificate of Voting Powers,
Designations, Preferences and Relative Participating, Optional or Other Special
Rights and Qualifications, Limitations and Restrictions Thereof of the Series A
Convertible Preferred Stock of IMPSAT Corporation (the "Certificate of
Designations") was filed by IMPSAT Corporation with the Secretary of State of
Delaware on March 19, 1998. The following are some of the principal features of
the Series A Preferred Stock, as more particularly specified in the Certificate
of Designations: (a) cumulative dividends at the rate of 10% per annum,
compounded quarterly and, with certain exceptions, payable in kind; (b)
mandatorily redeemable in cash by IMPSAT Corporation at maturity (ten years
after issuance) plus accrued and unpaid dividends; (c) callable under certain
circumstances by IMPSAT Corporation, in whole, at 100% of the principal amount,
plus accrued and unpaid dividends; (d) convertible into common stock of IMPSAT
Corporation at any time at the option of the holders (including upon a call by
IMPSAT Corporation), at a specified conversion rate subject to certain
antidilution rights; (e) the right by Morgan Stanley Investors holding a
majority of the shares of Series A Preferred Stock initially issued to appoint
two directors to the IMPSAT Corporation's Board of Directors as well as to
immediately appoint half of the members of IMPSAT Corporation's Board of
Directors upon the occurrence of certain specified events; and (f) the right by
Directors appointed by the Morgan Stanley Investors to a veto over certain major
corporate actions.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
The following summary of the material provisions of certain agreements
governing certain indebtedness of IMPSAT Corporation and IMPSAT Argentina. Such
summary does not purport to be complete and is subject to, and qualified in its
entirety by reference to, all of the provisions of such agreements, including
the definition of certain terms therein. Terms used and not defined herein have
the meanings given to them in the documents described herein. Copies of such
agreements are available from IMPSAT Corporation upon request.
Existing Senior Notes. In July 1996 the Company completed the offering of
the Existing Senior Notes, of which an aggregate of $125,000,000 in principal
amount is outstanding as of the date hereof. The Existing Senior Notes bear
interest at the rate of 12 1/8% per annum payable semi-annually in cash on
January 15 and July 15 of each year. The Existing Senior Notes have the benefit
of a guarantee issued on a senior unsecured basis by IMPSAT Argentina. The 1996
Indenture contains certain covenants which, among other things, restrict the
ability of IMPSAT Corporation and its restricted subsidiaries to incur
additional indebtedness; create liens; engage in sale-leaseback transactions;
make restricted payments; sell assets; create restrictions on the ability of
restricted subsidiaries to make certain payments; issue or sell stock of certain
subsidiaries; enter into transactions with stockholders or affiliates; and, with
respect to IMPSAT Corporation, consolidate, merge or sell all or substantially
all of its assets.
THE EXCHANGE OFFER
The Old Notes were sold by the Company on June 17, 1998 to a limited number
of institutional investors (the "Purchasers"). In connection with the sale of
the Old Notes, the Company and the Purchasers entered into a registration rights
agreement dated as of June 17, 1998 (the "Registration Rights Agreement"), which
requires the Company (i) to cause the Old Notes to be registered under the
Securities Act or (ii) to file with the Commission a registration statement
under the Securities Act with respect to the New Notes, and to use its best
efforts to cause such registration statement to become effective under the
Securities Act. The Company is further obligated, upon the effectiveness of that
registration statement, to offer the holders of the Old Notes the opportunity to
exchange their Old Notes for a like principal amount of New Notes, which will be
issued without a restrictive legend and may be reoffered and resold by the
holders thereof without restrictions or limitations under the Securities Act. A
copy of the Registration Rights Agreement has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part. The Exchange Offer is
being made pursuant to the Registration Rights Agreement to satisfy the
Company's obligations thereunder. The term "Holder" with respect to the Exchange
Offer means any person in whose name Old Notes are registered on the Company's
books or any other person who has obtained a properly completed assignment from
the registered holder.
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), the Company will accept for exchange Old Notes which are
properly tendered on or prior to the Expiration Date and not withdrawn as
permitted below. As used herein, the term "Expiration Date" means 5:00 p.m., New
York City time, on October 26, 1998; provided, however, that if the Company, in
its sole discretion, has extended the period of time during which the Exchange
Offer is open, the term "Expiration Date" means the latest time and date to
which the Exchange Offer is extended.
As of the date of this Prospectus, $225,000,000 aggregate principal amount
of the Old Notes is outstanding. This Prospectus, together with the Letter of
Transmittal, is first being sent on or about September 28, 1998, 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 customary
conditions as set forth under "-- Certain Conditions to the Exchange Offer"
below.
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 or
written notice of such extension to the Holders thereof as described below.
During any such
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extension, all Old Notes previously tendered will remain subject to the Exchange
Offer and may be accepted for exchange by the Company. 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.
Old Notes tendered in the Exchange Offer must be in denominations of
principal amount of $1,000 or any integral multiple thereof.
The Company expressly reserves the right to amend or terminate the Exchange
Offer, and not to accept for exchange any Old Notes not theretofore accepted for
exchange, upon the occurrence of any of the conditions of the Exchange Offer
specified below under "-- Certain Conditions to the Exchange Offer." The Company
will give oral or written notice of any extension, amendment, non-acceptance or
termination to the Holders of the Old Notes as promptly as practicable, such
notice in the case of any extension to be issued by means of a press release or
other public announcement no later than 9:00 a.m., New York City time, on the
next business day after the previously scheduled Expiration Date.
PROCEDURES FOR TENDERING OLD NOTES
Only a registered holder of Old Notes may tender such Old Notes in the
Exchange Offer. 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 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 Bank of New
York (the "Exchange Agent") at the address[es] 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, (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 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 ASSURE TIMELY DELIVERY. NO LETTERS OF
TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY.
Any beneficial owner whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trust company, or other nominee and who wishes
to tender should contact the registered holder promptly and instruct such
registered holder to tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such owner's behalf, such owner must, prior
to completing and executing the Letter of Transmittal and delivering such
owner's Old Notes, either make appropriate arrangements to register ownership of
the Old Notes in such beneficial owner's name or obtain a properly completed
bond power from the registered holder. The transfer of registered ownership may
take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal described
below (see "-- Withdrawal Rights"), as the case may be, must be guaranteed (see
"-- Guaranteed Delivery Procedures") 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 guaranties must be by a financial
institution (including most banks, savings and loan associations and brokerage
houses) that is a participant in the Securities Transfer Agents Medallion
Program, the New York Stock Exchange Medallion Program or the Stock Exchanges
Medallion Program (collectively,
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"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 exactly
as the name or names of the registered holder or holders appear on the Old Notes
with the signature thereon guaranteed by an Eligible Institution.
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 not to accept any
particular Old Note which acceptance might, in the judgment of the Company or
its counsel, be unlawful. The Company also reserves the absolute right to waive
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. None of the Company, the Exchange Agent or 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 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 person 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 with the Letter of Transmittal.
Based on a previous interpretation by the staff of the Securities and
Exchange Commission (the "Commission") set forth in no-action letters to third
parties, the Company believes that the New Notes issued pursuant to the Exchange
Offer in exchange for Old Notes may be offered for resale, resold, and otherwise
transferred by a holder thereof (other than (i) a broker-dealer who purchases
such New Notes directly from the Company to resell pursuant to Rule 144A or any
other available exemption under the Securities Act or (ii) a person that is an
affiliate of the Company (within the meaning of Rule 405 under the Securities
Act)) without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that the holder is acquiring the New
Notes in its ordinary course of business and is not participating, and has no
arrangement or understanding with any person to participate, in the distribution
of the New Notes.
By tendering, each Holder will represent to the Company that, among other
things, the New Notes acquired pursuant to the Exchange Offer are being obtained
in the ordinary course of business of the person receiving such New Notes,
whether or not such person is the Holder, and that neither the Holder nor such
other person has any arrangement or understanding with any person to participate
in the distribution of the New Notes. If any Holder or any such other person is
an "affiliate", as defined under Rule 405 of the Securities Act, of the Company
or is engaged in or intends to engage in, or has an arrangement or understanding
with any person to participate in, a distribution of such New Notes to be
acquired pursuant to the Exchange Offer, such Holder or any such other person
(i) may not rely on the applicable interpretation of the staff of the SEC and
(ii) must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any resale transaction. 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 meeting the requirements of the Securities Act in connection with any
resale of such New Notes. See "Plan of Distribution." 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.
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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 and will issue the New Notes promptly after acceptance of the
Old Notes. See "-- Certain Conditions to the Exchange Offer" below. For purposes
of the Exchange Offer, the Company will be deemed to have accepted properly
tendered Old Notes for exchange when, as and if the Company has given oral or
written notice thereof to the Exchange Agent.
For each Old Note accepted for exchange, the Holder of such Old Note will
receive as set forth below under "Description of the Notes -- Book-Entry,
Delivery and Form" a New Note having a principal amount equal to that of the
surrendered Old Note. Accordingly, registered holders of New Notes on the
relevant record date for the first interest payment date following the
consummation of the Exchange Offer will receive interest accruing from the most
recent date to which interest has been paid on the Old Notes or, if no interest
has been paid, from June 17, 1998. Old Notes accepted for exchange will cease to
accrue interest from and after the date of consummation of the Exchange Offer.
Holders whose Old Notes are accepted for exchange will not receive any payment
in respect of accrued interest on such Old Notes otherwise payable on any
interest payment date the record date for which occurs on or after consummation
of the Exchange Offer. If the Exchange Offer is not consummated and a Shelf
Registration Statement is not declared effective on or prior to December 17,
1998, the annual interest rate borne by the Notes will be increased by 0.5%.
Upon consummation of the Exchange Offer or the effectiveness of the Shelf
Registration Statement, the interest rate on the Notes will revert to the rate
set forth on the cover page of this Prospectus. See "Description of the
Notes -- Registration Rights." Old Notes not tendered or not accepted for
exchange will continue to accrue interest from and after the date of
consummation of the Exchange Offer.
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 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 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 or termination of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus, and
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 at the Book-Entry Transfer Facility in accordance with such
Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Old Notes may be effected through book-entry transfer at the
Book-Entry Transfer Facility, the Letter of Transmittal or a facsimile thereof,
with any required signature guarantees and any other required documents, must,
in any case, be transmitted to and received by the Exchange Agent at one of the
addresses set forth below under "-- Exchange Agent" on or prior to the
Expiration Date or the guaranteed delivery procedures described below must be
complied with.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the Old Notes desires to tender such Old Notes
and the Old Notes are not immediately available, or time will not permit such
Holder's Old Notes or other required documents to reach the Exchange Agent
before the Expiration Date, or the procedure for book-entry transfer cannot be
completed
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on a timely basis, a tender may be effected if (i) the tender is made through an
Eligible Institution, (ii) on or prior to 5:00 P.M., New York City time, on the
Expiration Date, the Exchange Agent receives from such Eligible Institution a
properly completed and duly executed Letter of Transmittal (or a facsimile
thereof) and Notice of Guaranteed Delivery, substantially in the form provided
by the Company (by telegram, telex, facsimile transmission, mail or hand
delivery), setting forth the name and address of the Holder of Old Notes and the
amount of Old Notes tendered, stating that the tender is being made thereby and
guaranteeing that within three New York Stock Exchange ("NYSE") trading days
after the date of execution of the Notice of Guaranteed Delivery, the
certificates for all physically tendered Old Notes, in proper form for transfer,
or a Book-Entry Confirmation, as the case may be, and any other documents
required by the Letter of Transmittal will be deposited by the Eligible
Institution with the Exchange Agent, and (iii) the certificates for all
physically tendered Old Notes, in proper form for transfer, or a Book-Entry
Confirmation, as the case may be, and any other documents required by the Letter
of Transmittal will be deposited by the Eligible Institution within three NYSE
trading days after the date of execution of the Notice of Guaranteed Delivery.
WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to 5:00 P.M., New
York City time, on the Expiration Date. For a withdrawal to be effective, a
written notice of withdrawal must be received by the Exchange Agent at one of
the addresses set forth below under "-- Exchange Agent." 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 principal
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. 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 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 in which case such guarantee will
not be required. 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,
whose 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 maintained with
such Book-Entry Transfer Facility for the Old Notes) as soon as practicable
after 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.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provisions of the Exchange Offer, and subject to
its obligations pursuant to the Registration Rights Agreement, 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 New Notes for exchange, any of the following
events shall occur:
(i) any injunction, order or decree shall have been issued by any
court or any governmental agency that would prohibit, prevent or otherwise
materially impair the ability of the Company to proceed with the Exchange
Offer; or
(ii) the Exchange Offer will violate any applicable law or any
applicable interpretation of the staff of the Commission.
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The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company in whole or in part at any time and from time to time in
its sole discretion. 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 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 is threatened by the SEC or in effect with respect
to the Registration Statement of which this Prospectus is a part or the
qualification of the Indenture under the Trust Indenture Act of 1939, as
amended.
The Exchange Offer is not conditioned on 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 executed Letters of Transmittal should be directed to the
Exchange Agent at one of the addresses set forth below. Questions and requests
for assistance, requests for additional copies of this Prospectus or of the
Letter of Transmittal and requests or Notices of Guaranteed Delivery should be
directed to the Exchange Agent addressed as follows:
The Bank of New York, Exchange Agent
By Mail:
101 Barclay Street
New York, New York 10286
Attention: Corporate Trust Operations, 7E
By Hand or Overnight Courier:
101 Barclay Street
New York, New York 10286
Attn: Securities Processing Window
Ground Level Reorganization, 7E
By Facsimile: 212-571-3080
Confirm by Telephone: 212-815-2742
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF TRANSMITTAL.
FEES AND EXPENSES
The Company will not make any payment to brokers, dealers, or others
soliciting acceptances of the Exchange Offer.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company. Such expenses include registration fees, fees and
expenses of the Exchange Agent and Trustee, accounting and legal fees and
printing costs, among others.
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TRANSFER TAXES
Holders who tender their Old Notes for exchanges 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 that 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 the
applicable transfer tax thereon.
CONSEQUENCES OF FAILURE TO EXCHANGE OLD 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 provisions in
the Indenture regarding transfer and exchange of the Old Notes and 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 state securities laws. In general, the Old Notes may not be
offered or sold, unless registered under 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 "Description of the Notes -- Exchange
Offer; Registration Rights". Based on interpretations by the staff of the SEC,
as set forth in no-action letters issued to third parties, the Company believes
that New Notes issued pursuant to the Exchange Offer in exchange for Old Notes
may be offered for resale, resold or otherwise transferred by holders thereof
(other than any such holder which is an "affiliate" of the Company within the
meaning of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that such New Notes are acquired in the ordinary course or such holders'
business and such holders, other than broker-dealers, have no arrangement or
understanding with any person to participate in the distribution of such New
Notes. However, the SEC has not considered the Exchange Offer in the context of
a no-action letter and there can be no assurance that the staff of the SEC would
make a similar determination with respect to the Exchange Offer as in such other
circumstances. Each Holder, other than a broker-dealer, must acknowledge that it
is not engaged in, and does not intend to engage in, a distribution of such New
Notes and has no arrangement or understanding to participate in a distribution
of New Notes. If any Holder is an affiliate of the company or is engaged in or
intends to engage in or 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) may 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 any resale transaction.
Each broker-dealer that receives New Notes for its own account in exchange for
Old Notes pursuant to the Exchange Offer must acknowledge that such Old Notes
were acquired by such broker-dealer as a result of market-making activities or
other trading activities and that it will deliver a prospectus meeting the
requirements of the Securities Act 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. 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". 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
jurisdictions or any exemption from registration or qualification is available
and is complied with. The Company has agreed, pursuant to the Registration
Rights Agreement, subject to certain limitations specified therein, to register
or qualify the New Notes for offer or sale under the securities laws of such
jurisdictions as any holder reasonably requests in writing. Unless a holder so
requests, the Company does not currently intend to register or qualify the sale
of the New Notes in any such jurisdictions.
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DESCRIPTION OF THE NOTES
The Old Notes were to be issued under an Indenture, to be dated as of June
17, 1998 (the "Indenture"), between the Company, as issuer, and The Bank of New
York, as Trustee (the "Trustee"). The Old Notes and the New Notes will be
treated as a single class under the Indenture. The following summary of certain
provisions of the Indenture does not purport to be complete and is subject to,
and is qualified in its entirety by reference to, all the provisions of the
Indenture, including the definitions of certain terms therein and those terms
made a part thereof by the Trust Indenture Act of 1939, as amended. A copy of
the Indenture is available from the Company upon request. Whenever particular
defined terms of the Indenture not otherwise defined herein are referred to,
such defined terms are incorporated herein by reference. For definitions of
certain capitalized terms used in the following summary, see "-- Certain
Definitions." As used in this "Description of the Notes," the term "Company"
means IMPSAT Corporation, a Delaware corporation, and excludes its Subsidiaries.
The term "Notes" means the New Notes and the Old Notes treated as a single
class.
GENERAL
The Notes will be unsecured unsubordinated obligations of the Company,
initially limited to $225 million aggregate principal amount, and will mature on
June 15, 2008. Each Note will bear interest at the rate per annum shown on the
front cover of this Prospectus from the Closing Date, or from the most recent
Interest Payment Date to which interest has been paid or provided for, payable
semiannually (to Holders of record at the close of business on the June 1 or
December 1 immediately preceding the Interest Payment Date) on June 15 and
December 15 of each year, commencing December 15, 1998. 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 may be exchanged or transferred, at the office or agency of the
Company in the Borough of Manhattan, the City of New York (which initially will
be the corporate trust office of the Trustee at 101 Barclay Street, Floor 21
West, New York, New York 10286); provided that, at the option of the Company,
payment of interest may be made by check mailed to the Holders at their
addresses as they appear in the Security Register.
The Notes will be issued only in fully registered form, without coupons, in
denominations of $1,000 of principal amount and any integral multiple thereof.
See "-- Book-Entry; Delivery and Form." No service charge will be made for any
registration of transfer or exchange of Notes, but the Company may require
payment of a sum sufficient to cover any transfer tax or other similar
governmental charge payable in connection therewith.
Subject to the covenants described below under "Covenants" and applicable
law, the Company may issue additional Notes under the Indenture. The Notes
offered hereby and any additional Notes subsequently issued would be treated as
a single class for all purposes under the Indenture.
For purposes of determining compliance with the Indenture, the U.S. dollar
equivalent of any amounts denominated in a foreign currency shall be calculated
using the noon dollar buying rate in New York City for wire transfers of such
currency as published by the Federal Reserve Bank of New York on the date such
foreign currency amount is received, incurred or paid. For other financial
reporting purposes, currency translations will be performed in accordance with
U.S. GAAP.
OPTIONAL REDEMPTION
The Notes will be redeemable, at the Company's option, in whole or in part,
at any time or from time to time, on or after June 15, 2003 and prior to
maturity, upon not less than 30 nor more than 60 days' prior notice mailed by
first class mail to each Holder's last address as it appears in the Security
Register. The Notes will be redeemable at the redemption prices (expressed in
percentages of principal amount) set forth below, plus accrued and unpaid
interest, if any, to the Redemption Date (subject to the right of Holders of
record on the relevant Regular Record Date that is on or prior to the Redemption
Date to receive interest due on an Interest
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Payment Date), if redeemed during the 12-month period commencing June 15 of the
years set forth below. The redemption prices with respect to the Notes are as
follows:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
- ---- ----------------
<S> <C>
2003........................................................ 106.188%
2004........................................................ 104.125
2005........................................................ 102.063
2006 and thereafter......................................... 100.000
</TABLE>
In addition, at any time prior to June 15, 2001, the Company may redeem up
to 35% of the principal amount of the Notes originally issued with the Net Cash
Proceeds of one or more public or private issuances of Capital Stock (other than
Disqualified Stock) at any time or from time to time in part, at a redemption
price of 112.375% of the principal amount thereof on the redemption date,
together with accrued and unpaid interest, if any, thereon; provided that (i) at
least 65% of the principal amount of the Notes remain outstanding after each
such redemption and (ii) notice of such redemption is mailed within 60 days of
such issuance.
In the case of any partial redemption, selection of the Notes for
redemption will be made by the Trustee in compliance with the requirements of
the principal national securities exchange, if any, on which the Notes are
listed or, if the Notes are not listed on a national securities exchange, by lot
or by such other method as the Trustee in its sole discretion shall deem to be
fair and appropriate; provided that no Note of $1,000 in principal amount at
maturity or less shall be redeemed in part. If any Note is to be redeemed in
part only, the notice of redemption relating to such Note shall state the
portion of the principal amount thereof to be redeemed. A new Note in principal
amount equal to the unredeemed portion thereof will be issued in the name of the
Holder thereof upon cancellation of the original Note.
SINKING FUND
There will be no sinking fund payments for the Notes.
REGISTRATION RIGHTS
The Company has agreed pursuant to the Registration Rights Agreement to use
its best efforts to cause to be filed a registration statement covering the
offering by the Company of the New Notes, to have the Exchange Offer consummated
not later than 60 days after the effective date of such registration statement
and to have such registration statement remain effective until the closing of
the Exchange Offer.
The Company and the Guarantor also agreed that in the event that the
Exchange Offer is not consummated by December 17, 1998, the Company will use its
best efforts (i) to cause to be filed as soon as possible, a shelf registration
statement (the "Shelf Registration Statement") providing for the sale by the
holders of all of the Old Notes; (ii) to have such Shelf Registration Statement
declared effective by the Commission; and (iii) to keep the Shelf Registration
continuously effective until the expiration of the period referred to in Rule
144(k) under the Securities Act with respect to the Registrable Securities or
such shorter period that will terminate when all of the Old Notes have been sold
pursuant to the Shelf Registration Statement. The Registration Rights Agreement
provides that in the event that the Exchange Offer is not consummated and a
Shelf Registration Statement is not declared effective on or prior to December
17, 1998, annual interest rate borne by the Notes will be increased by 0.5%.
Upon consummation of the Exchange Offer or the effectiveness of the Shelf
Registration Statement, the interest rate on the Notes will revert to the rate
set forth on the cover page of this Prospectus.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Registration Rights
Agreement, a copy of which has been filed as an exhibit to the Registration
Statement of which this Prospectus forms a part.
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RANKING
The Indebtedness evidenced by the Notes will rank pari passu in right of
payment with all existing and future unsubordinated indebtedness of the Company
and senior in right of payment to all existing and future subordinated
indebtedness of the Company. At June 30, 1998, on a pro forma basis after giving
effect to the application of the proceeds of the Offering, the Company (on an
unconsolidated basis) would have had approximately $132.0 million of
indebtedness (other than the Notes). The Company is a holding company, and the
Notes will be effectively subordinated to all existing and future liabilities
(including trade payables) of the Company's subsidiaries. On June 30, 1998, on
the same pro forma basis, the Company's subsidiaries would have had
approximately $150.8 million of liabilities (excluding intercompany payables and
the guarantee of the Existing Senior Notes), including approximately $79.5
million of indebtedness. The Indenture permits the Company and its subsidiaries
to incur substantial amounts of additional indebtedness.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
covenants and other provisions of the Indenture. Reference is made to the
Indenture for the definition of any other capitalized term used herein for which
no definition is provided.
"Acquired Indebtedness" means Indebtedness of a Person existing at the time
such Person becomes a Restricted Subsidiary or assumed in connection with an
Asset Acquisition by a Restricted Subsidiary and not Incurred in connection
with, or in anticipation of, such Person becoming a Restricted Subsidiary or
such Asset Acquisition.
"Adjusted Consolidated Net Income" means, for any period, the aggregate net
income (or loss) of the Company and its Restricted Subsidiaries for such period
determined in conformity with GAAP; provided that the following items shall be
excluded in computing Adjusted Consolidated Net Income (without duplication):
(i) the net income (or loss) of any Person that is not a Restricted Subsidiary,
except (x) with respect to net income, to the extent of the amount of dividends
or other distributions actually paid to the Company or any of its Restricted
Subsidiaries by such Person during such period and (y) with respect to net
losses, to the extent of the amount of Investments made by the Company or any
Restricted Subsidiary in such Person during such period; (ii) solely for the
purposes of calculating the amount of Restricted Payments that may be made
pursuant to clause (C) of the first paragraph of the "Limitation on Restricted
Payments" covenant described below (and in such case, except to the extent
includable pursuant to clause (i) above), the net income (or loss) of any Person
accrued prior to the date it becomes a Restricted Subsidiary or is merged into
or consolidated with the Company or any of its Restricted Subsidiaries or all or
substantially all of the property and assets of such Person are acquired by the
Company or any of its Restricted Subsidiaries; (iii) the net income of any
Restricted Subsidiary to the extent that the declaration or payment of dividends
or similar distributions by such Restricted Subsidiary of such net income is not
at the time permitted by the operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to such Restricted Subsidiary; (iv) any gains or losses
(on an after-tax basis) attributable to Asset Sales; (v) except for purposes of
calculating the amount of Restricted Payments that may be made pursuant to
clause (C) of the first paragraph of the "Limitation on Restricted Payments"
covenant described below, any amount paid or accrued as dividends on Preferred
Stock of the Company or any Restricted Subsidiary owned by Persons other than
the Company and any of its Restricted Subsidiaries; (vi) all extraordinary gains
and extraordinary losses; and (vii) any compensation expense paid or payable
solely with Capital Stock (other than Disqualified Stock) of the Company or any
options, warrants or other rights to acquire Capital Stock (other than
Disqualified Stock) of the Company.
"Adjusted Consolidated Net Tangible Assets" means the total amount of
assets of the Company and its Restricted Subsidiaries (less applicable
depreciation, amortization and other valuation reserves), except to the extent
resulting from write-ups of capital assets (excluding write-ups in connection
with accounting for acquisitions in conformity with GAAP), after deducting
therefrom (i) all current liabilities of the Company and its Restricted
Subsidiaries (excluding intercompany items) and (ii) all goodwill, trade names,
trademarks, patents, unamortized debt discount and expense and other like
intangibles, all as set forth on the most
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recent quarterly or annual consolidated balance sheet of the Company and its
Restricted Subsidiaries, prepared in conformity with GAAP and filed with the
Commission or provided to the Trustee pursuant to the "Commission Reports and
Reports to Holders" covenant.
"Affiliate" means, as applied to any Person, any other Person directly or
indirectly controlling, controlled by, or under direct or indirect common
control with, such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as applied to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
"Asset Acquisition" means (i) an investment by the Company or any of its
Restricted Subsidiaries in any other Person pursuant to which such Person shall
become a Restricted Subsidiary or shall be merged into or consolidated with the
Company or any of its Restricted Subsidiaries; provided that such Person's
primary business is related, ancillary or complementary to the businesses of the
Company and its Restricted Subsidiaries on the date of such investment or (ii)
an acquisition by the Company or any of its Restricted Subsidiaries of the
property and assets of any Person other than the Company or any of its
Restricted Subsidiaries that constitute substantially all of a division or line
of business of such Person; provided that the property and assets acquired are
related, ancillary or complementary to the businesses of the Company and its
Restricted Subsidiaries on the date of such acquisition.
"Asset Disposition" means the sale or other disposition by the Company or
any of its Restricted Subsidiaries (other than to the Company or another
Restricted Subsidiary) of (i) all or substantially all of the Capital Stock of
any Restricted Subsidiary or (ii) all or substantially all of the assets that
constitute a division or line of business of the Company or any of its
Restricted Subsidiaries.
"Asset Sale" means any sale, transfer or other disposition (including by
way of merger, consolidation or sale-leaseback transaction) in one transaction
or a series of related transactions by the Company or any of its Restricted
Subsidiaries to any Person other than the Company or any of its Restricted
Subsidiaries of (i) all or any of the Capital Stock of any Restricted
Subsidiary, (ii) all or substantially all of the property and assets of an
operating unit or business of the Company or any of its Restricted Subsidiaries
or (iii) any other property and assets (other than the Capital Stock of, or
other Investment in, an Unrestricted Subsidiary) of the Company or any of its
Restricted Subsidiaries outside the ordinary course of business of the Company
or such Restricted Subsidiary and, in each case, that is not governed by the
provisions of the Indenture applicable to mergers, consolidations and sales of
all or substantially all of the assets of the Company; provided that "Asset
Sale" shall not include (a) sales or other dispositions of equipment that has
become obsolete or no longer useful in the business of the Company or its
Restricted Subsidiaries or inventory, receivables and other current assets, (b)
sales, transfers or other dispositions of assets constituting a Restricted
Payment permitted to be made under the "Limitation on Restricted Payments"
covenant, (c) sales, transfers or other dispositions of assets with a fair
market value (as certified in an Officers' Certificate) not in excess of $1
million in any transaction or series of related transactions, (d) sales or other
dispositions of assets for consideration at least equal to the fair market value
of the assets sold or disposed of, to the extent that the consideration received
would constitute property or assets of the kind described in clause (B) of the
"Limitation on Asset Sales" covenant or (e) issuances and sales of Common Stock
of Restricted Subsidiaries in accordance with clauses (i), (iii) or (v) of the
second paragraph of the "Limitation on the Issuance of and Sale of Capital Stock
of Restricted Subsidiaries" covenant.
"Average Life" means, at any date of determination with respect to any debt
security, the quotient obtained by dividing (i) the sum of the products of (a)
the number of years from such date of determination to the dates of each
successive scheduled principal payment of such debt security and (b) the amount
of such principal payment by (ii) the sum of all such principal payments.
"Bank" means Banco Rio de la Plata S.A. and any other party that the Board
of Directors has determined does not present any material credit risk.
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"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) in equity of such Person, whether outstanding on the
Closing Date or issued thereafter, including, without limitation, all Common
Stock and Preferred Stock.
"Capitalized Lease" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) of which the discounted present value
of the rental obligations of such Person as lessee, in conformity with GAAP, is
required to be capitalized on the balance sheet of such Person.
"Capitalized Lease Obligations" means the discounted present value of the
rental obligations under a Capitalized Lease.
"Change of Control" means such time as (i) (a) prior to the occurrence of a
Public Market, a "person" or "group" (within the meaning of Sections 13(d) and
14(d)(2) of the Exchange Act) becomes the ultimate "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act) of Voting Stock representing a
greater percentage of the total voting power of the Voting Stock of the Company,
on a fully diluted basis, than is beneficially owned by the Existing
Stockholders on such date and (b) after the occurrence of a Public Market, a
"person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the
Exchange Act) becomes the ultimate "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act) of Voting Stock representing more than 30% of the total
voting power of the Voting Stock of the Company on a fully diluted basis and
such ownership represents a greater percentage of the total voting power of the
Voting Stock of the Company, on a fully diluted basis, than is held by the
Existing Stockholders on such date; or (ii) individuals who on the Closing Date
constitute the Board of Directors (together with any new directors whose
election by the Board of Directors or whose nomination for election by the
Company's stockholders was approved by a vote of at least two-thirds of the
members of the Board of Directors then in office who either were members of the
Board of Directors on the Closing Date or whose election or nomination for
election was previously so approved) cease for any reason to constitute a
majority of the members of the Board of Directors then in office.
"Closing Date" means the date on which the Notes are originally issued
under the Indenture.
"Consolidated EBITDA" means, for any period, Adjusted Consolidated Net
Income for such period plus, to the extent such amount was deducted in
calculating such Adjusted Consolidated Net Income, (i) Consolidated Interest
Expense, (ii) income taxes (other than income taxes (either positive or
negative) attributable to extraordinary and non-recurring gains or losses or
sales of assets) and the portion of any other tax payable as a result of
generating income before taxes, (iii) depreciation expense, (iv) amortization
expense and (v) all other non-cash items reducing Adjusted Consolidated Net
Income (other than items that will require cash payments and for which an
accrual or reserve is, or is required by GAAP to be, made), less all non-cash
items increasing Adjusted Consolidated Net Income, all as determined on a
consolidated basis for the Company and its Restricted Subsidiaries in conformity
with GAAP; provided that, if any Restricted Subsidiary is not a Wholly-Owned
Restricted Subsidiary, Consolidated EBITDA shall be reduced (to the extent not
otherwise reduced in accordance with GAAP) by an amount equal to (A) the amount
of the Adjusted Consolidated Net Income attributable to such Restricted
Subsidiary multiplied by (B) the percentage ownership interest in the income of
such Restricted Subsidiary not owned on the last day of such period by the
Company or any of its Restricted Subsidiaries.
"Consolidated Interest Expense" means, for any period, the aggregate amount
of interest in respect of Indebtedness (including, without limitation,
amortization of original issue discount on any Indebtedness and the interest
portion of any deferred payment obligation, calculated in accordance with the
effective interest method of accounting; all commissions, discounts and other
fees and charges owed with respect to letters of credit and bankers' acceptance
financing; the net costs associated with Interest Rate Agreements; and interest
paid or accrued (by any Person) on Indebtedness that is Guaranteed or secured by
the Company or any of its Restricted Subsidiaries) and all but the principal
component of rentals in respect of Capitalized Lease Obligations paid, accrued
or scheduled to be paid or to be accrued by the Company and its Restricted
Subsidiaries during such period; excluding, however, (i) any amount of such
interest of any Restricted Subsidiary if the net income of such Restricted
Subsidiary is excluded in the calculation of Adjusted
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Consolidated Net Income pursuant to clause (iii) of the definition thereof (but
only in the same proportion as the net income of such Restricted Subsidiary is
excluded from the calculation of Adjusted Consolidated Net Income pursuant to
clause (iii) of the definition thereof) and (ii) any premiums, fees and expenses
(and any amortization thereof) payable in connection with the offering of the
Notes, the placement of the Series A Preferred Stock and the offering of the
12 1/8% Senior Guaranteed Notes due 2003 all as determined on a consolidated
basis (without taking into account Unrestricted Subsidiaries) in conformity with
GAAP.
"Consolidated Net Worth" means, at any date of determination, stockholders'
equity as set forth on the quarterly or annual consolidated balance sheet of the
Company and its Restricted Subsidiaries most recently filed with the Commission
or provided to the Trustee pursuant to the "Commission Reports and Reports to
Holders" covenant described below, less the amount of stockholders' equity
attributable to Unrestricted Subsidiaries and any amounts attributable to
Disqualified Stock or any equity security convertible into or exchangeable for
Indebtedness, the cost of treasury stock and the principal amount of any
promissory notes receivable from the sale of the Capital Stock of the Company or
any of its Restricted Subsidiaries, each item to be determined in conformity
with GAAP (excluding the effects of foreign currency exchange adjustments under
Financial Accounting Standards Board Statement of Financial Accounting Standards
No. 52).
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Disqualified Stock" means any class or series of Capital Stock of any
Person that by its terms or otherwise is (i) required to be redeemed prior to
the Stated Maturity of the Notes, (ii) redeemable at the option of the holder of
such class or series of Capital Stock at any time prior to the Stated Maturity
of the Notes or (iii) convertible into or exchangeable for Capital Stock
referred to in clause (i) or (ii) above or Indebtedness having a scheduled
maturity prior to the Stated Maturity of the Notes; provided that any Capital
Stock that would not constitute Disqualified Stock but for provisions thereof
giving holders thereof the right to require such Person to repurchase or redeem
such Capital Stock upon the occurrence of an "asset sale" or "change of control"
occurring prior to the Stated Maturity of the Notes shall not constitute
Disqualified Stock if the "asset sale" or "change of control" provisions
applicable to such Capital Stock are no more favorable to the holders of such
Capital Stock than the provisions in favor of Holders that are contained in
"Limitation on Asset Sales" and "Repurchase of Notes upon a Change of Control"
covenants described below and such Capital Stock, or the agreements or
instruments governing the redemption rights thereof, specifically provides that
such Person will not repurchase or redeem any such stock pursuant to such
provision prior to the Company's repurchase of such Notes as are required to be
repurchased pursuant to the "Limitation on Asset Sales" and "Repurchase of Notes
upon a Change of Control" covenants described below.
"Existing Stockholders" means (i) Mr. Enrique Pescarmona, Mrs. Silvia
Monica Pescarmona de Baldini, Mrs. Liliana Pescarmona de Mayol, Mr. Roberto Vivo
and Mr. Ricardo Verdaguer, (ii) a parent, brother or sister of any of the
individuals named in clause (i), (iii) the spouse of any individual named in
clause (i) or (ii), (iv) the lineal descendants of any person named in clauses
(i) through (iii), (v) the estate or any guardian, custodian or other legal
representative of any individual named in clauses (i) through (iv), (vi) any
trust established solely for the benefit of any one or more of the individuals
named in clauses (i) through (v), (vii) any Person in which all of the equity
interests are owned, directly or indirectly, by any one or more of the Persons
named in clauses (i) through (vi) or clauses (viii) or (ix), (viii) Nevasa
Holdings Ltd., (ix) Corporacion IMPSA, S.A., (x) Princes Gate Investors II,
L.P., (xi) Morgan Stanley Global Emerging Markets Private Investment Fund, L.P.,
and (xii) any Affiliate of either of the Persons named in clauses (x) or (xi).
"fair market value" means the price that would be paid in an arm's-length
transaction between an informed and willing seller under no compulsion to sell
and an informed and willing buyer under no compulsion to buy, as determined in
good faith by the Board of Directors, whose determination shall be conclusive if
evidenced by a Board Resolution.
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"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the date of determination, including, without
limitation, those set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other entity as approved by a significant segment
of the accounting profession. All ratios and computations contained or referred
to in the Indenture shall be computed in conformity with GAAP applied on a
consistent basis, except that calculations made for purposes of determining
compliance with the terms of the covenants and with other provisions of the
Indenture shall be made without giving effect to (i) the amortization of any
expenses incurred in connection with the offering of the Notes, the placement of
the Series A Preferred Stock and the offering of the 12 1/8% Senior Guaranteed
Notes due 2003, (ii) except as otherwise provided, the amortization of any
amounts required or permitted by Accounting Principles Board Opinion Nos. 16 and
17 and (iii) any nonrecurring charges associated with the adoption, after the
Closing Date, of Financial Accounting Standard Nos. 106 and 109.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness or other obligation of any
other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness or other obligation of such other Person (whether arising by virtue
of partnership arrangements, or by agreements to keep-well, to purchase assets,
goods, securities or services (unless such purchase arrangements are on
arm's-length terms and are entered into in the ordinary course of business), to
take-or-pay, or to maintain financial statement conditions or otherwise) or (ii)
entered into for purposes of assuring in any other manner the obligee of such
Indebtedness or other obligation of the payment thereof or to protect such
obligee against loss in respect thereof (in whole or in part); provided that the
term "Guarantee" shall not include endorsements for collection or deposit in the
ordinary course of business. The term "Guarantee" used as a verb has a
corresponding meaning.
"Incur" means, with respect to any Indebtedness, to incur, create, issue,
assume, Guarantee or otherwise become liable for or with respect to, or become
responsible for, the payment of, contingently or otherwise, such Indebtedness,
including, with respect to the Company and its Restricted Subsidiaries, an
"Incurrence" of Acquired Indebtedness; provided that neither the accrual of
interest nor the accretion of original issue discount shall be considered an
Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person at any date of
determination (without duplication), (i) all indebtedness of such Person for
borrowed money, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments, (iii) all obligations of such
Person in respect of letters of credit or other similar instruments (including
reimbursement obligations with respect thereto, but excluding obligations with
respect to letters of credit (including trade letters of credit) securing
obligations (other than obligations described in (i) or (ii) above or (v), (vi)
or (vii) below) entered into in the ordinary course of business of such Person
to the extent such letters of credit are not drawn upon or, if drawn upon, to
the extent such drawing is reimbursed no later than the third Business Day
following such drawing), (iv) all obligations of such Person to pay the deferred
and unpaid purchase price of property or services, which purchase price is due
more than six months after the date of placing such property in service or
taking delivery and title thereto or the completion of such services, except
Trade Payables, (v) all Capitalized Lease Obligations of such Person, (vi) all
Indebtedness of other Persons secured by a Lien on any asset of such Person,
whether or not such Indebtedness is assumed by such Person; provided that the
amount of such Indebtedness shall be the lesser of (A) the fair market value of
such asset at such date of determination and (B) the amount of such
Indebtedness, (vii) all Indebtedness of other Persons Guaranteed by such Person
to the extent such Indebtedness is Guaranteed by such Person and (viii) to the
extent not otherwise included in this definition, obligations under Currency
Agreements and Interest Rate Agreements. The amount of Indebtedness of any
Person at any date shall be (without duplication) the outstanding balance at
such date of all unconditional obligations as described above and, with respect
to contingent obligations, the maximum liability upon the occurrence of the
contingency giving rise to the obligation (unless the underlying contingency has
not occurred and the occurrence of the underlying contingency is entirely within
the control of the Company or its
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Restricted Subsidiaries), provided (A) that the amount outstanding at any time
of any Indebtedness issued with original issue discount is the original issue
price of such Indebtedness, (B) that money borrowed and set aside at the time of
the Incurrence of any Indebtedness in order to prefund the payment of the
interest on such Indebtedness shall not be deemed to be "Indebtedness" and (C)
that Indebtedness shall not include any liability for federal, state, local or
other taxes.
"Indebtedness to EBITDA Ratio" means, on any Transaction Date, the ratio of
(i) the aggregate amount of Indebtedness of the Company and its Restricted
Subsidiaries on a consolidated basis outstanding on such Transaction Date to
(ii) the aggregate amount of Consolidated EBITDA for the then most recent four
fiscal quarters for which financial statements of the Company have been filed
with the Commission or provided to the Trustee pursuant to the "Commission
Reports and Reports to Holders" covenant described below (such four fiscal
quarter period being the "Four Quarter Period"); provided that, in making the
foregoing calculation, (A) pro forma effect shall be given to any Indebtedness
to be Incurred or repaid on the Transaction Date; (B) pro forma effect shall be
given to Asset Dispositions and Asset Acquisitions (including giving pro forma
effect to the application of proceeds of any Asset Disposition) that occur from
the beginning of the Four Quarter Period through the Transaction Date (the
"Reference Period"), as if they had occurred and such proceeds had been applied
on the first day of such Reference Period; and (C) pro forma effect shall be
given to asset dispositions and asset acquisitions (including giving pro forma
effect to the application of proceeds of any asset disposition) that have been
made by any Person that has become a Restricted Subsidiary or has been merged
with or into the Company or any Restricted Subsidiary during such Reference
Period and that would have constituted Asset Dispositions or Asset Acquisitions
had such transactions occurred when such Person was a Restricted Subsidiary as
if such asset dispositions or asset acquisitions were Asset Dispositions or
Asset Acquisitions that occurred on the first day of such Reference Period;
provided that to the extent that clause (B) or (C) of this sentence requires
that pro forma effect be given to an Asset Acquisition or Asset Disposition,
such pro forma calculation shall be based upon the four full fiscal quarters
immediately preceding the Transaction Date of the Person, or division or line of
business of the Person, that is acquired or disposed of for which financial
information is available.
"Interest Rate Agreement" means any interest rate protection agreement,
interest rate future agreement, interest rate option agreement, interest rate
swap agreement, interest rate cap agreement, interest rate collar agreement,
interest rate hedge agreement, option or future contract or other similar
agreement or arrangement.
"Intermediary Documents" means documents relating to the issuance of one or
more Certificates of Deposit (the "Certificates of Deposit") by the Issuer to
the Company, the issuance of one or more promissory notes (having a principal
amount equal to the principal amount of the Certificate of Deposit (the
"Promissory Notes")) by IMPSAT Argentina to the Bank and the Guarantees of the
Promissory Notes by the Company.
"Investment" in any Person means any direct or indirect advance, loan or
other extension of credit (including, without limitation, by way of Guarantee or
similar arrangement; but excluding advances to customers (other than
Unrestricted Subsidiaries of the Company) and accounts payable to suppliers in
the ordinary course of business that are, in conformity with GAAP, recorded as
accounts receivable or accounts payable, as the case may be, on the balance
sheet of the Company or its Restricted Subsidiaries and Trade Payables) 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 or acquisition of Capital Stock, bonds, notes,
debentures or other similar instruments issued by, such Person and shall include
(i) the designation of a Restricted Subsidiary as an Unrestricted Subsidiary and
(ii) the fair market value of the Capital Stock (or any other Investment), held
by the Company or any of its Restricted Subsidiaries, of (or in) any Person that
has ceased to be a Restricted Subsidiary, including without limitation, by
reason of any transaction permitted by clause (iii) of the "Limitation on the
Issuance and Sale of Capital Stock of Restricted Subsidiaries" covenant. For
purposes of the definition of "Unrestricted Subsidiary" and the "Limitation on
Restricted Payments" covenant described below, (i) "Investment" shall include
the fair market value of the assets (net of liabilities, other than liabilities
to the Company or any of its Restricted Subsidiaries) of any Restricted
Subsidiary at the time that such Restricted Subsidiary is designated an
Unrestricted Subsidiary, (ii) the fair market value of the assets (net of
liabilities, other than liabilities to the
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Company or any of its Restricted Subsidiaries) of any Unrestricted Subsidiary at
the time that such Unrestricted Subsidiary is designated a Restricted Subsidiary
shall be considered a reduction in outstanding Investments and (iii) any
property transferred to or from an Unrestricted Subsidiary shall be valued at
its fair market value at the time of such transfer.
"Issuer" means the Cayman Islands branch of the Bank or any other party
that the Board of Directors has determined does not present any material credit
risk.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including, without limitation, any conditional sale or other
title retention agreement or lease in the nature thereof, any sale with recourse
against the seller or any Affiliate of the seller, or any agreement to give any
security interest), but excluding any right of first refusal.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means, (a) with respect to any Asset Sale, the proceeds
of such Asset Sale in the form of cash or cash equivalents, including payments
in respect of deferred payment obligations (to the extent corresponding to the
principal, but not interest, component thereof) when received in the form of
cash or cash equivalents (except to the extent such obligations are financed or
sold with recourse to the Company or any Restricted Subsidiary) and proceeds
from the conversion of other property received when converted to cash or cash
equivalents, net of (i) brokerage commissions and other fees and expenses
(including fees and expenses of counsel and investment bankers) related to such
Asset Sale, (ii) provisions for all taxes (whether or not such taxes will
actually be paid or are payable) as a result of such Asset Sale without regard
to the consolidated results of operations of the Company and its Restricted
Subsidiaries, taken as a whole, (iii) payments made to repay Indebtedness
outstanding at the time of such Asset Sale that either (A) is secured by a Lien
on the property or assets sold or (B) is required to be paid as a result of such
sale and (iv) appropriate amounts to be provided by the Company or any
Restricted Subsidiary as a reserve against any liabilities associated with 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, all as determined in conformity with GAAP and (b) with respect to any
issuance or sale of Capital Stock, the proceeds of such issuance or sale in the
form of cash or cash equivalents, including payments in respect of deferred
payment obligations (to the extent corresponding to the principal, but not
interest, component thereof) when received in the form of cash or cash
equivalents (except to the extent such obligations are financed or sold with
recourse to the Company or any Restricted Subsidiary) and proceeds from the
conversion of other property received when converted to cash or cash
equivalents, net of attorney's fees, accountants' fees, underwriters' or
placement agent fees, discounts or commissions and brokerage, consultant and
other fees incurred in connection with such issuance or sale and net of taxes
paid or payable as a result thereof.
"Offer to Purchase" means an offer to purchase Notes by the Company from
the Holders commenced by mailing a notice to the Trustee and each Holder
stating: (i) the covenant pursuant to which the offer is being made and that all
such Notes validly tendered will be accepted for payment on a pro rata basis;
(ii) the purchase price and the date of purchase (which shall be a Business Day
no earlier than 30 days nor later than 60 days from the date such notice is
mailed) (the "Payment Date"); (iii) that any such Note not tendered will
continue to accrue interest pursuant to its terms; (iv) that, unless the Company
defaults in the payment of the purchase price, any Note accepted for payment
pursuant to the Offer to Purchase shall cease to accrue interest on and after
the Payment Date; (v) that Holders electing to have such Note purchased pursuant
to the Offer to Purchase will be required to surrender the Note, together with
the form entitled "Option of the Holder to Elect Purchase" on the reverse side
of the Note completed, to the Paying Agent at the address specified in the
notice prior to the close of business on the Business Day immediately preceding
the Payment Date; (vi) that Holders will be entitled to withdraw their election
if the Paying Agent receives, not later than the close of business on the third
Business Day immediately preceding the Payment Date, a telegram, facsimile
transmission or letter setting forth the name of such Holder, the principal
amount of Notes delivered for purchase and a statement that such Holder is
withdrawing his election to have such Notes purchased; and (vii) that Holders
whose Notes are being purchased only in part will be issued new Notes equal in
principal
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amount to the unpurchased portion of the Notes surrendered; provided that each
Note purchased and each new Note issued shall be in a principal amount of $1,000
or an integral multiple thereof. On the Payment Date, the Company shall (i)
accept for payment on a pro rata basis Notes or portions thereof tendered
pursuant to an Offer to Purchase; (ii) deposit with the Paying Agent money
sufficient to pay the purchase price of all Notes or portions thereof so
accepted; and (iii) deliver, or cause to be delivered, to the Trustee all Notes
or portions thereof so accepted together with an Officers' Certificate
specifying the Notes or portions thereof accepted for payment by the Company.
The Paying Agent shall promptly mail to the Holders of Notes so accepted payment
in an amount equal to the purchase price, and the Trustee shall promptly
authenticate and mail to such Holders a new Note equal in principal amount to
any unpurchased portion of the Note surrendered; provided that each Note
purchased and each new Note issued shall be in a principal amount of $1,000 or
an integral multiple thereof. The Company will publicly announce the results of
an Offer to Purchase as soon as practicable after the Payment Date. The Trustee
shall act as the Paying Agent for an Offer to Purchase. The Company will comply
with Rule 14e-1 under the Exchange Act and any other securities laws and
regulations thereunder to the extent such laws and regulations are applicable,
in the event that the Company is required to repurchase Notes pursuant to an
Offer to Purchase.
"Permitted Investment" means (i) an Investment in the Company or a
Restricted Subsidiary or a Person which will, upon the making of such
Investment, become a Restricted Subsidiary or be merged or consolidated with or
into or transfer or convey all or substantially all its assets to, the Company
or a Restricted Subsidiary; provided that such Person's primary business is
related, ancillary or complementary to the businesses of the Company and its
Restricted Subsidiaries on the date of such Investment; (ii) Temporary Cash
Investments; (iii) payroll, travel and similar advances to cover matters that
are expected at the time of such advances ultimately to be treated as expenses
in accordance with GAAP; (iv) loans or advances to employees made in the
ordinary course of business in accordance with past practice of the Company or
its Restricted Subsidiaries and that do not in the aggregate exceed $1 million
at any time outstanding; (v) stock, obligations or securities received in
satisfaction of judgments, work-outs or similar arrangements; (vi) Investments,
in an aggregate amount at any one time outstanding not to exceed $15 million
during the first three years following July 30, 1996 and $20 million thereafter
in Common Stock of the International Telecommunications Satellite Organization
("Intelsat"); (vii) participations in Indebtedness of any Restricted Subsidiary
permitted to be Incurred by clause (xii) of the second paragraph of the
"Limitation on Indebtedness" covenant; and (viii) Investments consisting of one
or more Certificates of Deposit, having an aggregate principal amount not to
exceed the aggregate principal amount of the Promissory Notes then outstanding;
provided that (1) upon making any such Investment after May 13, 1997, the
Company shall deliver an Officers' Certificate to the Trustee, to the effect
that applicable law regarding rights of set off has not changed since May 13,
1997, (2) the Stated Maturity of each such Certificate of Deposit shall be the
same as a Promissory Note of equal principal amount and (3) at the time that any
Investment in any Certificate of Deposit is made the Company shall deliver an
Officer's Certificate to the Trustee to the effect that (A) the Bank and the
Issuer are not under intervention, receivership or any similar arrangement or
proceeding and (B) the Company does not have any reason to believe there is a
material possibility that the Bank or the Issuer may be subject to intervention,
receivership or any similar arrangement or proceeding.
"Permitted Liens" means (i) Liens for taxes, assessments, governmental
charges or claims that are being contested in good faith by appropriate legal
proceedings promptly instituted and diligently conducted and for which a reserve
or other appropriate provision, if any, as shall be required in conformity with
GAAP shall have been made; (ii) statutory and common law Liens of landlords and
carriers, warehousemen, mechanics, suppliers, materialmen, repairmen or other
similar Liens arising in the ordinary course of business and with respect to
amounts not yet delinquent or being contested in good faith by appropriate legal
proceedings promptly instituted and diligently conducted and for which a reserve
or other appropriate provision, if any, as shall be required in conformity with
GAAP shall have been made; (iii) Liens incurred or deposits made in the ordinary
course of business in connection with workers' compensation, unemployment
insurance and other types of social security; (iv) Liens incurred or deposits
made to secure the performance of tenders, bids, leases, statutory or regulatory
obligations, bankers' acceptances, surety and appeal bonds, contracts (other
than for Indebtedness), performance and return-of-money bonds and other
obligations of a similar nature incurred in the ordinary course of business
(exclusive of obligations for the payment of borrowed money) and
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any bank's unexercised right of setoff with respect to deposits made in the
ordinary course of business of the Company or any Restricted Subsidiary; (v)
easements, rights-of-way, municipal and zoning ordinances and similar charges,
encumbrances, title defects or other irregularities that do not materially
interfere with the ordinary course of business of the Company or any of its
Restricted Subsidiaries; (vi) Liens (including extensions and renewals thereof)
upon real or personal property acquired after the Closing Date; provided that
(a) such Lien is created solely for the purpose of securing Indebtedness
Incurred, in accordance with the "Limitation on Indebtedness" covenant described
below, (1) to finance the cost (including the cost of design, development,
acquisition, construction, installation, improvement, transportation or
integration) of the item of property or assets subject thereto and such Lien is
created prior to, at the time of or within six months after the later of the
acquisition, the completion of construction or the commencement of full
operation of such property or (2) to refinance any Indebtedness previously so
secured, (b) the principal amount of the Indebtedness secured by such Lien does
not exceed 100% of such cost and (c) any such Lien shall not extend to or cover
any property or assets other than such item of property or assets and any
improvements on such item; (vii) leases or subleases granted to others that do
not materially interfere with the ordinary course of business of the Company and
its Restricted Subsidiaries, taken as a whole; (viii) Liens encumbering property
or assets under construction arising from progress or partial payments by a
customer of the Company or its Restricted Subsidiaries relating to such property
or assets; (ix) any interest or title of a lessor in the property subject to any
Capitalized Lease or operating lease; (x) Liens arising from filing Uniform
Commercial Code financing statements regarding leases; (xi) Liens on property
of, or on shares of Capital Stock or Indebtedness of, any Person existing at the
time such Person becomes, or becomes a part of, any Restricted Subsidiary;
provided that such Liens do not extend to or cover any property or assets of the
Company or any Restricted Subsidiary other than the property or assets acquired;
(xii) Liens in favor of the Company or any Restricted Subsidiary; (xiii) Liens
arising from the rendering of a final judgment or order against the Company or
any Restricted Subsidiary that does not give rise to an Event of Default; (xiv)
Liens securing reimbursement obligations with respect to letters of credit that
encumber documents and other property relating to such letters of credit and the
products and proceeds thereof; (xv) Liens in favor of customs and revenue
authorities arising as a matter of law to secure payment of customs duties in
connection with the importation of goods; (xvi) Liens encumbering customary
initial deposits and margin deposits, and other Liens that are within the
general parameters customary in the industry and incurred in the ordinary course
of business, in each case, securing Indebtedness under Interest Rate Agreements
and Currency Agreements and forward contracts, options, future contracts,
futures options or similar agreements or arrangements designed solely to protect
the Company or any of its Restricted Subsidiaries from fluctuations in interest
rates, currencies or the price of commodities; (xvii) Liens arising out of
conditional sale, title retention, consignment or similar arrangements for the
sale of goods entered into by the Company or any of its Restricted Subsidiaries
in the ordinary course of business in accordance with the past practices of the
Company and its Restricted Subsidiaries prior to the Closing Date; (xviii) Liens
on or sales of receivables; and (xix) Liens that secure Indebtedness with an
aggregate principal amount not in excess of $5 million at any time outstanding.
"Public Equity Offering" means an underwritten primary public offering of
Common Stock of the Company pursuant to an effective registration statement
under the Securities Act.
A "Public Market" shall be deemed to exist if (i) a Public Equity Offering
has been consummated and (ii) at least 15% of the total issued and outstanding
Common Stock of the Company immediately prior to the consummation of such Public
Equity Offering has been distributed by means of an effective registration
statement under the Securities Act or sales pursuant to Rule 144 under the
Securities Act.
"Restricted Subsidiary" means any Subsidiary of the Company other than an
Unrestricted Subsidiary.
"Series A Preferred Stock" means the Company's Series A Convertible
Preferred Stock.
"Significant Subsidiary" means, at any date of determination, any
Restricted Subsidiary that, together with its Subsidiaries, (i) for the most
recent fiscal year of the Company, accounted for more than 10% of the
consolidated revenues of the Company and its Restricted Subsidiaries or (ii) as
of the end of such fiscal year, was the owner of more than 10% of the
consolidated assets of the Company and its Restricted Subsidiaries, all
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as set forth on the consolidated financial statements of the Company for the
fiscal year most recently filed pursuant to the "Commission Reports and Reports
to Holders" covenant.
"S&P" means Standard & Poor's Ratings Services and its successors.
"Stated Maturity" means, (i) with respect to any debt security, the date
specified in such debt security as the fixed date on which the final installment
of principal of such debt security is due and payable and (ii) with respect to
any scheduled installment of principal of or interest on any debt security, the
date specified in such debt security as the fixed date on which such installment
is due and payable.
"Strategic Subordinated Indebtedness" means Indebtedness of the Company
Incurred to finance the acquisition of a Person engaged in a business that is
related, ancillary or complementary to the business conducted by the Company or
any of its Restricted Subsidiaries, which Indebtedness by its terms, or by the
terms of any agreement or instrument pursuant to which such Indebtedness is
Incurred, (i) is expressly made subordinate in right of payment to the Notes and
(ii) provides that no payment in cash or assets of the Company or any Restricted
Subsidiaries of principal, premium or interest on, or any other payment with
respect to, such Indebtedness may be made prior to the payment in full of all of
the Company's obligations under the Notes; provided that such Indebtedness may
provide for and be repaid at any time from the proceeds of a capital
contribution or the sale of Capital Stock (other than Disqualified Stock) of the
Company after the Incurrence of such Indebtedness.
"Subsidiary" means, with respect to any Person, any corporation,
association or other business entity of which Voting Stock representing more
than 50% of the total voting power of the outstanding Voting Stock is owned,
directly or indirectly, by such Person and one or more other Subsidiaries of
such Person.
"Temporary Cash Investment" means any of the following: (i) direct
obligations of the United States of America or any agency thereof or obligations
fully and unconditionally guaranteed by the United States of America or any
agency thereof, (ii) time deposit accounts, certificates of deposit and money
market deposits maturing within one year of the date of acquisition thereof
issued by a bank or trust company which is organized under the laws of the
United States of America, any state thereof or any foreign country recognized by
the United States of America, and which bank or trust company has capital,
surplus and undivided profits aggregating in excess of $50 million (or the
foreign currency equivalent thereof) and has outstanding debt which is rated "A"
(or such similar equivalent rating) or higher by at least one nationally
recognized statistical rating organization (as defined in Rule 436 under the
Securities Act) or any moneymarket fund sponsored by a registered broker dealer
or mutual fund distributor, (iii) repurchase obligations with a term of not more
than 30 days for underlying securities of the types described in clause (i)
above entered into with a bank meeting the qualifications described in clause
(ii) above, (iv) commercial paper, maturing not more than one year after the
date of acquisition, issued by a corporation (other than an Affiliate of the
Company) organized and in existence under the laws of the United States of
America, any state thereof or any foreign country recognized by the United
States of America with a rating at the time as of which any investment therein
is made of "P-1" (or higher) according to Moody's or "A-1" (or higher) according
to S&P, (v) securities with maturities of six months or less from the date of
acquisition issued or fully and unconditionally guaranteed by any state,
commonwealth or territory of the United States of America, or by any political
subdivision or taxing authority thereof, and rated at least "A" by S&P or
Moody's and (vi) certificates of deposit maturing not more than one year after
the acquisition thereof by a Restricted Subsidiary and issued by any of the ten
largest banks (based on assets as of the last December 31) organized under the
laws of the country in which the Restricted Subsidiary that acquires such
certificates of deposit is organized, provided that such bank is not under
intervention, receivership or any similar arrangement at the time of the
acquisition of such certificates of deposit.
"Trade Payables" means, with respect to any Person, any accounts payable or
any other indebtedness or monetary obligation to trade creditors created,
assumed or Guaranteed by such Person or any of its Subsidiaries arising in the
ordinary course of business in connection with the acquisition of goods or
services and required to be paid within one year.
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"Transaction Date" means, with respect to the Incurrence of any
Indebtedness by the Company or any of its Restricted Subsidiaries, the date such
Indebtedness is to be Incurred and, with respect to any Restricted Payment, the
date such Restricted Payment is to be made.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below; and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Restricted
Subsidiary (including any newly acquired or newly formed Subsidiary of the
Company) to be an Unrestricted Subsidiary unless such Subsidiary owns any
Capital Stock of, or owns or holds any Lien on any property of, the Company or
any Restricted Subsidiary; provided that (A) any Guarantee by the Company or any
Restricted Subsidiary of any Indebtedness of the Subsidiary being so designated
shall be deemed an "Incurrence" of such Indebtedness by the Company or such
Restricted Subsidiary (or both, if applicable) at the time of such designation;
(B) either (I) the Subsidiary to be so designated has total assets of $1,000 or
less or (II) if such Subsidiary has assets greater than $1,000, such designation
would be permitted under the "Limitation on Restricted Payments" covenant
described below; and (C) if applicable, the Incurrence of Indebtedness would be
permitted under the Indenture. The Board of Directors may designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; provided that immediately
after giving effect to such designation (x) the Company could Incur $1.00 of
additional Indebtedness under the first paragraph of the "Limitation on
Indebtedness" covenant described below and (y) no Default or Event of Default
shall have occurred and be continuing. Any such designation by the Board of
Directors shall be evidenced to the Trustee by promptly filing with the Trustee
a copy of the Board Resolution giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing provisions.
"Voting Stock" means with respect to any Person, Capital Stock of any class
or kind ordinarily having the power to vote for the election of directors,
managers or other voting members of the governing body of such Person.
"Wholly-Owned" means, with respect to any Subsidiary of any Person, the
ownership of all of the outstanding Capital Stock of such Subsidiary (other than
any director's qualifying shares or Investments by foreign nationals mandated by
applicable law) by such Person or one or more Wholly-Owned Subsidiaries of such
Person.
COVENANTS
Limitation on Indebtedness
(a) The Company will not, and will not permit any of its Restricted
Subsidiaries to, Incur any Indebtedness (other than the Notes and Indebtedness
existing on the Closing Date); provided that the Company may Incur Indebtedness
if, after giving effect to the Incurrence of such Indebtedness and the receipt
and application of the proceeds therefrom, the Indebtedness to EBITDA Ratio
would be greater than zero and less than 4:1.
Notwithstanding the foregoing, the Company and any Restricted Subsidiary
(except as specified below) may Incur each and all of the following: (i)
Indebtedness outstanding at any time in an aggregate principal amount not to
exceed the greater of (A) $200 million or (B) the Consolidated EBITDA for the
four preceding quarters for which financial statements of the Company have been
filed with the Commission or provided to the Trustee pursuant to the "Commission
Reports and Reports to Holders" covenant, in each case less any amount of
Indebtedness permanently repaid as provided under the "Limitation on Asset
Sales" covenant described below (other than any Notes permanently repaid);
provided that no more than 25% of the Indebtedness Incurred under this clause
(i) may be used for purposes other than capital expenditures; (ii) Indebtedness
owed (A) to the Company evidenced by a promissory note or (B) to any Restricted
Subsidiary; provided that any event which results in any such Restricted
Subsidiary ceasing to be a Restricted Subsidiary or any subsequent transfer of
such Indebtedness (other than to the Company or another Restricted Subsidiary)
shall be deemed, in each case, to constitute an Incurrence of such Indebtedness
not permitted by this clause (ii); (iii) Indebtedness issued in exchange for, or
the net proceeds of which are used to refinance or refund, then outstanding
Indebtedness (other than Indebtedness Incurred under clause (ii), (vi), (viii)
or
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(x) of this paragraph) and any refinancings thereof in an amount not to exceed
the amount so refinanced or refunded (plus premiums, accrued interest, fees and
expenses); provided that Indebtedness the proceeds of which are used to
refinance or refund the Notes or Indebtedness that is pari passu with, or
subordinated in right of payment to, the Notes shall only be permitted under
this clause (iii) if (A) in case the Notes are refinanced in part or the
Indebtedness to be refinanced is pari passu with the Notes, such new
Indebtedness, by its terms or by the terms of any agreement or instrument
pursuant to which such new Indebtedness is outstanding, is expressly made pari
passu with, or subordinate in right of payment to, the remaining Notes, (B) in
case the Indebtedness to be refinanced is subordinated in right of payment to
the Notes, such new Indebtedness, by its terms or by the terms of any agreement
or instrument pursuant to which such new Indebtedness is issued or remains
outstanding, is expressly made subordinate in right of payment to the Notes at
least to the extent that the Indebtedness to be refinanced is subordinated to
the Notes and (C) such new Indebtedness, determined as of the date of Incurrence
of such new Indebtedness, does not mature prior to the Stated Maturity of the
Indebtedness to be refinanced or refunded, and the Average Life of such new
Indebtedness is at least equal to the remaining Average Life of the Indebtedness
to be refinanced or refunded; and provided further that in no event may
Indebtedness of the Company be refinanced by means of any Indebtedness of any
Restricted Subsidiary pursuant to this clause (iii); (iv) Indebtedness (A) in
respect of performance, surety or appeal bonds provided in the ordinary course
of business, (B) under Currency Agreements and Interest Rate Agreements;
provided that such agreements (a) are designed solely to protect the Company or
its Restricted Subsidiaries against fluctuations in foreign currency exchange
rates or interest rates and (b) do not increase the Indebtedness of the obligor
outstanding at any time other than as a result of fluctuations in foreign
currency exchange rates or interest rates or by reason of fees, indemnities and
compensation payable thereunder; and (C) arising from agreements providing for
indemnification, adjustment of purchase price or similar obligations, or from
Guarantees or letters of credit, surety bonds or performance bonds securing any
obligations of the Company or any of its Restricted Subsidiaries pursuant to
such agreements, in any case Incurred in connection with the disposition of any
business, assets or Restricted Subsidiary (other than Guarantees of Indebtedness
Incurred by any Person acquiring all or any portion of such business, assets or
Restricted Subsidiary for the purpose of financing such acquisition), in a
principal amount not to exceed the gross proceeds actually received by the
Company or any Restricted Subsidiary in connection with such disposition; (v)
Indebtedness of the Company, to the extent the net proceeds thereof are promptly
(A) used to purchase Notes tendered in an Offer to Purchase made as a result of
a Change in Control or (B) deposited to defease the Notes as described below
under "Defeasance"; (vi) Guarantees of the Notes and Guarantees of Indebtedness
of the Company by any Restricted Subsidiary provided the Guarantee of such
Indebtedness is permitted by and made in accordance with the "Limitation on
Issuance of Guarantees by Restricted Subsidiaries" covenant described below;
(vii) Indebtedness (including Guarantees) Incurred to finance the cost
(including the cost of design, development, acquisition, construction,
installation, improvement, transportation or integration) to acquire equipment,
inventory or network assets (including acquisitions by way of Capitalized Lease
and acquisitions of the Capital Stock of a Person that becomes a Restricted
Subsidiary to the extent of the fair market value of the equipment, inventory or
network assets so acquired) by the Company or a Restricted Subsidiary after the
Closing Date; (viii) Indebtedness of the Company not to exceed, at any one time
outstanding, two times the sum of (A) the Net Cash Proceeds received by the
Company after the Closing Date as a capital contribution or from the issuance
and sale of its Capital Stock (other than Disqualified Stock) to a Person that
is not a Subsidiary of the Company, to the extent (I) such capital contribution
or Net Cash Proceeds are not, at the Company's option, added to the amount
calculated pursuant to clause (C)(2) of the first paragraph of the "Limitation
on Restricted Payments" covenant or used to make a Restricted Payment pursuant
to clause (iii), (iv) or (viii) of the second paragraph of the "Limitation on
Restricted Payments" covenant and (II) if such capital contribution or Net Cash
Proceeds are used to consummate a transaction pursuant to which the Company
Incurs Acquired Indebtedness, the amount of such Net Cash Proceeds exceeds
one-half of the amount of Acquired Indebtedness so Incurred and (B) 80% of the
fair market value of property (other than cash and cash equivalents) received by
the Company after the Closing Date from the sale of its Capital Stock (other
than Disqualified Stock) to a Person that is not a Subsidiary of the Company, to
the extent (I) such capital contribution or sale of Capital Stock has not been
used to make a Restricted Payment pursuant to clause (iii), (iv) or (viii) of
the second paragraph of the "Limitation on Restricted Payments" covenant and
(II) if such capital contribution or Capital Stock is used
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to consummate a transaction pursuant to which the Company Incurs Acquired
Indebtedness, 80% of the fair market value of the property received exceeds
one-half of the amount of Acquired Indebtedness so Incurred; provided that such
Indebtedness does not mature prior to the Stated Maturity of the Notes and has
an Average Life longer than the Notes; (ix) Acquired Indebtedness; (x) Strategic
Subordinated Indebtedness; (xi) Indebtedness consisting of one or more loans to
IMPSAT Argentina, evidenced by one or more Promissory Notes and Guaranteed by
the Company, in each case under the Intermediary Documents; provided that the
Promissory Notes shall, at all times, have an aggregate principal amount equal
to the aggregate principal amount of the Certificates of Deposit and shall not
be outstanding at any time that the Certificates of Deposit are not validly
outstanding and beneficially owned by the Company; (xii) Indebtedness of any
Restricted Subsidiary, to the extent that the Company is the beneficial owner of
such Indebtedness and such Indebtedness is evidenced by an unsubordinated
promissory note or participation certificate issued to the Company by the record
holder of such Indebtedness; (xiii) Indebtedness of the Company, the proceeds of
which are used to make an Investment in Intelsat, in an amount at any one time
outstanding not to exceed $15 million during the first three years following
July 30, 1996 and $20 million thereafter; provided that the Company reasonably
believes, at the time such Indebtedness is Incurred, that the benefits of such
Investment will result in cash flow sufficient to cover the payment of interest
and principal on such Indebtedness and (xiv) subordinated Indebtedness of the
Company (in addition to Indebtedness permitted under clauses (i) through (xiii)
above) in an aggregate principal amount outstanding at any time not to exceed
$100 million, less any amount of such Indebtedness permanently repaid as
provided under the "Limitation on Asset Sales" covenant described below.
(b) Notwithstanding any other provision of this "Limitation on
Indebtedness" covenant, the maximum amount of Indebtedness that the Company or a
Restricted Subsidiary may Incur pursuant to this "Limitation on Indebtedness"
covenant shall not be deemed to be exceeded, with respect to any outstanding
Indebtedness due solely to the result of fluctuations in the exchange rates of
currencies.
(c) For purposes of determining any particular amount of Indebtedness under
this "Limitation on Indebtedness" covenant, (1) Guarantees, Liens or obligations
with respect to letters of credit supporting Indebtedness otherwise included in
the determination of such particular amount shall not be included and (2) any
Liens granted pursuant to the equal and ratable provisions referred to in the
"Limitation on Liens" covenant described below shall not be treated as
Indebtedness. For purposes of determining compliance with this "Limitation on
Indebtedness" covenant, in the event that an item of Indebtedness meets the
criteria of more than one of the types of Indebtedness described in the above
clauses, the Company, in its sole discretion, shall classify, and from time to
time may reclassify, such item of Indebtedness and only be required to include
the amount and type of such Indebtedness in one of such clauses.
Limitation on Restricted Payments
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, (i) declare or pay any dividend or make any distribution
on or with respect to its Capital Stock held by Persons other than the Company
or any Restricted Subsidiary (other than (x) dividends or distributions payable
solely in shares of its or such Restricted Subsidiary's Capital Stock (other
than Disqualified Stock) or in options, warrants or other rights to acquire
shares of such Capital Stock and (y) pro rata dividends or distributions on
Common Stock of Restricted Subsidiaries), (ii) purchase, redeem, retire or
otherwise acquire for value any shares of Capital Stock of the Company
(including options, warrants or other rights to acquire such shares of Capital
Stock) held by Persons other than the Company or any of its Wholly-Owned
Restricted Subsidiaries, (iii) make any voluntary or optional principal payment,
or voluntary or optional redemption, repurchase, defeasance, or other
acquisition or retirement for value, of Indebtedness of the Company that is
subordinated in right of payment to the Notes or (iv) make any Investment, other
than a Permitted Investment, in any Person (such payments or any other actions
described in clauses (i) through (iv) above being collectively "Restricted
Payments") if, at the time of, and after giving effect to, the proposed
Restricted Payment: (A) a Default or Event of Default shall have occurred and be
continuing, (B) the Company could not Incur at least $1.00 of Indebtedness under
the first paragraph of the "Limitation on Indebtedness" covenant or (C) the
aggregate amount of all Restricted Payments (the amount, if other than in cash,
to be determined in good
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faith by the Board of Directors, whose determination shall be conclusive and
evidenced by a Board Resolution) made after the Closing Date shall exceed the
sum of (1) 50% of the aggregate amount of the Adjusted Consolidated Net Income
(or, if the Adjusted Consolidated Net Income is a loss, minus 100% of the amount
of such loss) (determined by excluding income resulting from transfers of assets
by the Company or a Restricted Subsidiary to an Unrestricted Subsidiary) accrued
on a cumulative basis during the period (taken as one accounting period)
beginning on the first day of the fiscal quarter immediately following the
Closing Date and ending on the last day of the last fiscal quarter preceding the
Transaction Date for which reports have been filed with the Commission or
provided to the Trustee pursuant to the "Commission Reports and Reports to
Holders" covenant plus (2) the aggregate Net Cash Proceeds received by the
Company after the Closing Date as a capital contribution or from the issuance
and sale of its Capital Stock (other than Disqualified Stock) to a Person who is
not a Subsidiary of the Company, including an issuance or sale permitted by the
Indenture of Indebtedness of the Company for cash subsequent to the Closing Date
upon the conversion of such Indebtedness into Capital Stock (other than
Disqualified Stock) of the Company, or from the issuance to a Person who is not
a Subsidiary of the Company of any options, warrants or other rights to acquire
Capital Stock of the Company (in each case, exclusive of any convertible
indebtedness, Disqualified Stock or any options, warrants or other rights that
are redeemable at the option of the holder, or are required to be redeemed,
prior to the Stated Maturity of the Notes), in each case except to the extent
such Net Cash Proceeds are used to Incur Indebtedness pursuant to clause (viii)
of the second paragraph under the "Limitation on Indebtedness" covenant, plus
(3) an amount equal to the net reduction in Investments made pursuant to this
first paragraph of this "Limitation on Restricted Payments" covenant in any
Person resulting from payments of interest on Indebtedness, dividends,
repayments of loans or advances, or other transfers of assets, in each case to
the Company or any Restricted Subsidiary or from the Net Cash Proceeds from the
sale of any such Investment (except, in each case, to the extent any such
payment or proceeds are included in the calculation of Adjusted Consolidated Net
Income), or from redesignations of Unrestricted Subsidiaries as Restricted
Subsidiaries (valued in each case as provided in the definition of
"Investments"), not to exceed, in each case, the amount of Investments
previously made by the Company or any Restricted Subsidiary in such Person or
Unrestricted Subsidiary.
The foregoing provision shall not be violated by reason of: (i) the payment
of any dividend within 60 days after the date of declaration thereof if, at said
date of declaration, such payment would comply with the foregoing paragraph;
(ii) the redemption, repurchase, defeasance or other acquisition or retirement
for value of Indebtedness that is subordinated in right of payment to the Notes
including premium, if any, and accrued and unpaid interest, with the proceeds
of, or in exchange for, Indebtedness Incurred under clause (iii) of the second
paragraph of part (a) of the "Limitation on Indebtedness" covenant; (iii) the
repurchase, redemption or other acquisition of Capital Stock of the Company (or
options, warrants or other rights to acquire such Capital Stock) in exchange
for, or out of the proceeds of a capital contribution or a substantially
concurrent offering of, shares of Capital Stock (other than Disqualified Stock)
of the Company (or options, warrants or other rights to acquire such Capital
Stock); (iv) the making of any principal payment or the repurchase, redemption,
retirement, defeasance or other acquisition for value of Indebtedness of the
Company which is subordinated in right of payment to the Notes in exchange for,
or out of the proceeds of a capital contribution or a substantially concurrent
offering of, shares of the Capital Stock (other than Disqualified Stock) of the
Company (or options, warrants or other rights to acquire such Capital Stock);
(v) payments or distributions, to dissenting stockholders pursuant to applicable
law, pursuant to or in connection with a consolidation, merger or transfer of
assets that complies with the provisions of the Indenture applicable to mergers,
consolidations and transfers of all or substantially all of the property and
assets of the Company; (vi) Investments in Unrestricted Subsidiaries not to
exceed, at any one time outstanding, the greater of (A) $5 million or (B) 10% of
Consolidated EBITDA for the proceeding four quarters for which reports have been
filed pursuant to the "Commission Reports and Reports to Holders" covenant,
(vii) Investments in any Person the primary business of which is related,
ancillary or complementary to the business of the Company and its Restricted
Subsidiaries on the date of such Investments; provided that the aggregate amount
of Investments made pursuant to this clause (vii) does not exceed $20 million;
(viii) Investments acquired in exchange for Capital Stock (other than
Disqualified Stock) of the Company or with the proceeds of such Capital Stock;
provided that such proceeds are so applied within 90 days of receipt thereof;
(ix) the
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declaration or payment of dividends on the Common Stock of the Company following
a Public Equity Offering of such Common Stock of up to 6% per annum of the Net
Cash Proceeds received by the Company in such Public Equity Offering; (x) prior
to the occurrence of a Public Market, the purchase, redemption, retirement or
other acquisition for value of shares of Capital Stock of the Company or options
to purchase such shares, held by directors, employees or officers, or former
directors, employees or officers, of the Company or a Restricted Subsidiary (or
their estates or beneficiaries under their estates), upon the death, disability,
retirement, termination of employment or pursuant to the terms of any agreement
under which such shares of Capital Stock or options were issued; provided that
the aggregate consideration paid for such purchase, redemption, retirement or
other acquisition for value of such shares or options after the Closing Date
does not exceed $5 million in the aggregate (unless such repurchases are made
with the proceeds of insurance policies and the shares are purchased from the
executors, administrators, testamentary trustees, heirs, legatees or
beneficiaries); and (xi) other Restricted Payments in an aggregate amount not to
exceed $25 million; provided that, except in the case of clauses (i) and (iii),
no Default or Event of Default shall have occurred and be continuing or occur as
a consequence of the actions or payments set forth therein. The value of any
Restricted Payment made other than in cash shall be the fair market value
thereof. The amount of any Investment "outstanding" at any time shall be deemed
to be equal to the amount of such Investment on the date made, less the return
of capital to the Company and its Restricted Subsidiaries with respect to such
Investment (up to the amount of such Investment).
Each Restricted Payment permitted pursuant to the preceding paragraph
(other than the Restricted Payment referred to in clause (ii) thereof, an
exchange of Capital Stock for Capital Stock or Indebtedness referred to in
clause (iii) or (iv) thereof and an Investment referred to in clause (vi)
thereof), and the Net Cash Proceeds from any capital contribution or any
issuance of Capital Stock referred to in clauses (iii), (iv) and (viii), shall
be included in calculating whether the conditions of clause (C) of the first
paragraph of this "Limitation on Restricted Payments" covenant have been met
with respect to any subsequent Restricted Payments. If the proceeds of an
issuance of Capital Stock of the Company are used for the redemption, repurchase
or other acquisition of the Notes, or Indebtedness that is pari passu with the
Notes, then the Net Cash Proceeds of such issuance shall be included in clause
(C) of the first paragraph of this "Limitation on Restricted Payments" covenant
only to the extent such proceeds are not used for such redemption, repurchase or
other acquisition of Indebtedness. For purposes of determining compliance with
this "Limitation on Restricted Payments" covenant, in the event that a
Restricted Payment meets the criteria of more than one of the types of
Restricted Payments described in clauses (i) through (xii) of the preceding
paragraph, the Company, in its sole discretion, shall classify such Restricted
Payment and only be required to include the amount and type of such Restricted
Payment in one of such clauses.
Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries
The Company will not, and will not permit any Restricted Subsidiary to,
create or otherwise cause or suffer to exist or become effective any consensual
encumbrance or restriction of any kind on the ability of any Restricted
Subsidiary to (i) pay dividends or make any other distributions permitted by
applicable law on any Capital Stock of such Restricted Subsidiary owned by the
Company or any other Restricted Subsidiary, (ii) pay any Indebtedness owed to
the Company or any other Restricted Subsidiary, (iii) make loans or advances to
the Company or any other Restricted Subsidiary or (iv) transfer any of its
property or assets to the Company or any other Restricted Subsidiary.
The foregoing provisions shall not restrict any encumbrances or
restrictions: (i) existing on the Closing Date in the Indenture or any other
agreements in effect on the Closing Date, and any extensions, refinancings,
renewals or replacements of such agreements; provided that the encumbrances and
restrictions in any such extensions, refinancings, renewals or replacements are
no less favorable in any material respect to the Holders than those encumbrances
or restrictions that are then in effect and that are being extended, refinanced,
renewed or replaced; (ii) existing under or by reason of applicable law; (iii)
existing with respect to any Person or the property or assets of such Person
acquired by the Company or any Restricted Subsidiary, existing at the time of
such acquisition and not incurred in contemplation thereof, which encumbrances
or restrictions are not applicable to any Person or the property or assets of
any Person other than such Person or
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the property or assets of such Person so acquired; (iv) in the case of clause
(iv) of the first paragraph of this "Limitation on Dividend and Other Payment
Restrictions Affecting Restricted Subsidiaries" covenant, (A) that restrict in a
customary manner the subletting, assignment or transfer of any property or asset
that is a lease, license, conveyance or contract or similar property or asset,
(B) existing by virtue of any transfer of, agreement to transfer, option or
right with respect to, or Lien on, any property or assets of the Company or any
Restricted Subsidiary not otherwise prohibited by the Indenture or (C) arising
or agreed to in the ordinary course of business, not relating to any
Indebtedness, and that do not, individually or in the aggregate, detract from
the value of property or assets of the Company or any Restricted Subsidiary in
any manner material to the Company or any Restricted Subsidiary; (v) with
respect to a Restricted Subsidiary and imposed pursuant to an agreement that has
been entered into for the sale or disposition of all or substantially all of the
Capital Stock of, or property and assets of, such Restricted Subsidiary during
the period between the execution of such agreement and the closing thereunder
within three months of such execution; (vi) with respect to Restricted
Subsidiaries in which, on and subsequent to the Closing Date, the Company and
other Restricted Subsidiaries only make Investments that are evidenced by
unsubordinated promissory notes that bear a reasonable rate of interest and are
payable prior to the Stated Maturity of the Notes; provided that such
encumbrances and restrictions expressly allow the payment of interest and
principal on such promissory notes; (vii) solely of the type referred to in
clause (iii) or (iv) of the preceding paragraph that are contained in any
stockholders' agreement, joint venture agreement or similar agreement among
owners of Common Stock of a Restricted Subsidiary; provided that such
restrictions consist solely of requirements that transactions between such
Restricted Subsidiaries and affiliates thereof (including the Company and its
Restricted Subsidiaries) be on fair and reasonable terms no less favorable to
such Restricted Subsidiary than could be obtained in a comparable arm's-length
transaction with a Person that is not such an affiliate; or (viii) contained in
the terms of any Indebtedness or any agreement pursuant to which such
Indebtedness was issued if (A) the encumbrance or restriction applies only in
the event of a payment default or a default with respect to a financial covenant
contained in such Indebtedness or agreement, (B) the encumbrance or restriction
is not materially more disadvantageous to the Holders of the Notes than is
customary in comparable financings (as determined by the Company) and (C) the
Company determines that any such encumbrance or restriction will not materially
affect the Company's ability to make principal or interest payments on the
Notes. Nothing contained in this "Limitation on Dividend and Other Payment
Restrictions Affecting Restricted Subsidiaries" covenant shall prevent the
Company or any Restricted Subsidiary from (1) creating, incurring, assuming or
suffering to exist any Liens otherwise permitted in the "Limitation on Liens"
covenant or (2) restricting the sale or other disposition of property or assets
of the Company or any of its Restricted Subsidiaries that secure Indebtedness of
the Company or any of its Restricted Subsidiaries.
Limitation on the Issuance and Sale of Capital Stock of Restricted
Subsidiaries
The Company will not sell, and will not permit any Restricted Subsidiary,
directly or indirectly, to issue or sell, any shares of Capital Stock of a
Restricted Subsidiary (including options, warrants or other rights to purchase
shares of such Capital Stock) except (i) to the Company or a Wholly-Owned
Restricted Subsidiary; (ii) issuances of director's qualifying shares or sales
to foreign nationals of shares of Capital Stock of foreign Restricted
Subsidiaries, to the extent required by applicable law; (iii) if, immediately
after giving effect to such issuance or sale, such Restricted Subsidiary would
no longer constitute a Restricted Subsidiary and any Investment in such Person
remaining after giving effect to such issuance or sale would have been permitted
to be made under the "Limitation on Restricted Payments" covenant if made on the
date of such issuance or sale; or (iv) the sale of Common Stock of Restricted
Subsidiaries that is not Disqualified Stock, if the proceeds of such issuance or
sale are applied in accordance with clause (A) or (B) of the first paragraph of
the "Limitation on Asset Sales" covenant or (v) the transfer of up to 3% of the
Common Stock of each Restricted Subsidiary to employees of such Restricted
Subsidiary in connection with such employment.
Limitation on Issuances of Guarantees by Restricted Subsidiaries
The Company will not permit any Restricted Subsidiary, directly or
indirectly, to Guarantee any Indebtedness of the Company which is pari passu
with or subordinate in right of payment to the Notes ("Guaranteed
Indebtedness"), unless (i) such Restricted Subsidiary simultaneously executes
and delivers a
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supplemental indenture to the Indenture providing for a Guarantee (a "Subsidiary
Guarantee") of payment of the Notes by such Restricted Subsidiary and (ii) such
Restricted Subsidiary waives and will not in any manner whatsoever claim or take
the benefit or advantage of, any rights of reimbursement, indemnity or
subrogation or any other rights against the Company or any other Restricted
Subsidiary as a result of any payment by such Restricted Subsidiary under its
Subsidiary Guarantee; provided that this paragraph shall not be applicable to
any Guarantee of any Restricted Subsidiary that existed at the time such Person
became a Restricted Subsidiary and was not Incurred in connection with, or in
contemplation of, such Person becoming a Restricted Subsidiary. If the
Guaranteed Indebtedness is (A) pari passu with the Notes, then the Guarantee of
such Guaranteed Indebtedness shall be pari passu with, or subordinated to, the
Subsidiary Guarantee or (B) subordinated to the Notes, then the Guarantee of
such Guaranteed Indebtedness shall be subordinated to the Subsidiary Guarantee
at least to the extent that the Guaranteed Indebtedness is subordinated to the
Notes.
Notwithstanding the foregoing, any Subsidiary Guarantee by a Restricted
Subsidiary may provide by its terms that it shall be automatically and
unconditionally released and discharged upon (i) any sale, exchange or transfer,
to any Person not an Affiliate of the Company, of all of the Company's and each
Restricted Subsidiary's Capital Stock in, or all or substantially all the assets
of, such Restricted Subsidiary (which sale, exchange or transfer is not
prohibited by the Indenture) or (ii) the release or discharge of the Guarantee
which resulted in the creation of such Subsidiary Guarantee, except a discharge
or release by or as a result of payment under such Guarantee.
Limitation on Transactions with Shareholders and Affiliates
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, enter into, renew or extend any transaction (including,
without limitation, the purchase, sale, lease or exchange of property or assets,
or the rendering of any service) with any holder (or any Affiliate of such
holder) of 5% or more of any class of Capital Stock of the Company or with any
Affiliate of the Company or any Restricted Subsidiary, except upon fair and
reasonable terms no less favorable to the Company or such Restricted Subsidiary
than could be obtained, at the time of such transaction or, if such transaction
is pursuant to a written agreement, at the time of the execution of the
agreement providing therefor, in a comparable arm's-length transaction with a
Person that is not such a holder or an Affiliate.
The foregoing limitation does not limit, and shall not apply to (i)
transactions (A) approved by a majority of the disinterested members of the
Board of Directors or (B) for which the Company or a Restricted Subsidiary
delivers to the Trustee a written opinion of a nationally recognized U.S.
investment banking firm stating that the transaction is fair to the Company or
such Restricted Subsidiary from a financial point of view; (ii) any transaction
solely between the Company and any of its Wholly-Owned Restricted Subsidiaries
or solely between Wholly-Owned Restricted Subsidiaries; (iii) the payment of
reasonable and customary regular fees to directors of the Company who are not
employees of the Company; (iv) any payments or other transactions pursuant to
any tax-sharing agreement between the Company and any other Person with which
the Company files a consolidated tax return or with which the Company is part of
a consolidated group for tax purposes; or (v) any Restricted Payments not
prohibited by the "Limitation on Restricted Payments" covenant (other than
pursuant to clause (iv) of the definition or "Permitted Investment").
Notwithstanding the foregoing, any transaction or series of related transactions
covered by the first paragraph of this "Limitation on Transactions with
Shareholders and Affiliates" covenant and not covered by clauses (ii) through
(v) of this paragraph, the aggregate amount of which exceeds $1 million in
value, must be approved or determined to be fair in the manner provided for in
clause (i)(A) or (B) above.
Limitation on Liens
The Company will not, and will not permit any Restricted Subsidiary to,
create, incur, assume or suffer to exist any Lien on any of its assets or
properties of any character (including, without limitation, licenses), or any
shares of Capital Stock or Indebtedness of any Restricted Subsidiary, without
making effective provision for all of the Notes and all other amounts due under
the Indenture to be directly secured equally and ratably
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with (or, if the obligation or liability to be secured by such Lien is
subordinated in right of payment to the Notes, prior to) the obligation or
liability secured by such Lien.
The foregoing limitation does not apply to (i) Liens existing on the
Closing Date; (ii) Liens granted after the Closing Date on any assets or Capital
Stock of the Company or its Restricted Subsidiaries created in favor of the
Holders; (iii) Liens with respect to the assets of a Restricted Subsidiary
granted by such Restricted Subsidiary to the Company or a Wholly-Owned
Restricted Subsidiary to secure Indebtedness owing to the Company or such other
Restricted Subsidiary; (iv) Liens securing Indebtedness which is Incurred to
refinance secured Indebtedness which is permitted to be Incurred under clause
(iii) of the second paragraph of the "Limitation on Indebtedness" covenant;
provided that such Liens do not extend to or cover any property or assets of the
Company or any Restricted Subsidiary other than the property or assets securing
the Indebtedness being refinanced; (v) Liens on the Capital Stock of, or any
property or assets of, a Restricted Subsidiary securing Indebtedness of such
Restricted Subsidiary permitted under the "Limitation on Indebtedness" covenant;
(vi) Liens on the Capital Stock of Restricted Subsidiaries securing up to $100.0
million of Indebtedness Incurred under clause (vii) of the second paragraph of
the "Limitation on Indebtedness" covenant; (vii) Liens on assets having a fair
market value equal to no more than 10% of the fair market value of the Adjusted
Consolidated Net Tangible Assets that are not subject to Liens on the Closing
Date; or (viii) Permitted Liens.
Limitation on Sale-Leaseback Transactions
The Company will not, and will not permit any Restricted Subsidiary to,
enter into any sale-leaseback transaction involving any of its assets or
properties whether now owned or hereafter acquired, whereby the Company or a
Restricted Subsidiary sells or transfers such assets or properties and then or
thereafter leases such assets or properties or any part thereof or any other
assets or properties which the Company or such Restricted Subsidiary, as the
case may be, intends to use for substantially the same purpose or purposes as
the assets or properties sold or transferred.
The foregoing restriction does not apply to any sale-leaseback transaction
if (i) the lease is for a period, including renewal rights, of not in excess of
three years; (ii) the lease secures or relates to industrial revenue or
pollution control bonds; (iii) the transaction is solely between the Company and
any Wholly-Owned Restricted Subsidiary or solely between Wholly-Owned Restricted
Subsidiaries; or (iv) the Company or such Restricted Subsidiary, within 12
months after the sale or transfer of any assets or properties is completed,
applies an amount not less than the net proceeds received from such sale in
accordance with clause (A) or (B) of the first paragraph of the "Limitation on
Asset Sales" covenant described below.
Limitation on Asset Sales
The Company will not, and will not permit any Restricted Subsidiary to,
consummate any Asset Sale, unless (i) the consideration received by the Company
or such Restricted Subsidiary is at least equal to the fair market value of the
assets sold or disposed of and (ii) at least 75% of the consideration received
consists of cash or Temporary Cash Investments; provided, however, that this
clause (ii) shall not apply to long-term assignments in capacity in a
telecommunications network. In the event and to the extent that the Net Cash
Proceeds received by the Company or any of its Restricted Subsidiaries from one
or more Asset Sales occurring on or after the Closing Date in any period of 12
consecutive months exceed 10% of Adjusted Consolidated Net Tangible Assets
(determined as of the date closest to the commencement of such 12-month period
for which a consolidated balance sheet of the Company and its Subsidiaries has
been filed with the Commission pursuant to the "Commission Reports and Reports
to Holders" covenant), then the Company shall or shall cause the relevant
Restricted Subsidiary to (i) within 12 months after the date Net Cash Proceeds
so received exceed 10% of Adjusted Consolidated Net Tangible Assets (A) apply an
amount equal to such excess Net Cash Proceeds to permanently repay
unsubordinated Indebtedness of the Company, or any Restricted Subsidiary
providing a Subsidiary Guarantee pursuant to the "Limitation on Issuances of
Guarantees by Restricted Subsidiaries" covenant described above or Indebtedness
of any other Restricted Subsidiary, in each case owing to a Person other than
the Company or any of its Restricted Subsidiaries or (B) invest an equal amount,
or the amount not so applied pursuant to clause (A) (or enter into a definitive
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agreement committing to so invest within 12 months after the date of such
agreement), in property or assets (other than current assets) of a nature or
type or that are used in a business (or in a company having property and assets
of a nature or type, or engaged in a business) similar or related to the nature
or type of the property and assets of, or the business of, the Company and its
Restricted Subsidiaries existing on the date of such investment (as determined
in good faith by the Board of Directors, whose determination shall be conclusive
and evidenced by a Board Resolution) and (ii) apply (no later than the end of
the 12-month period referred to in clause (i)) such excess Net Cash Proceeds (to
the extent not applied pursuant to clause (i)) as provided in the following
paragraph of this "Limitation on Asset Sales" covenant. The amount of such
excess Net Cash Proceeds required to be applied (or to be committed to be
applied) during such 12-month period as set forth in clause (i) of the preceding
sentence and not applied as so required by the end of such period shall
constitute "Excess Proceeds."
If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not theretofore subject to an Offer to Purchase pursuant to this
"Limitation on Asset Sales" covenant totals at least $5 million, the Company
must commence, not later than the fifteenth Business Day of such month, and
consummate an Offer to Purchase from the Holders on a pro rata basis an
aggregate principal amount of Notes equal to the Excess Proceeds on such date,
at a purchase price equal to 101% of the principal amount of the Notes, plus
accrued interest (if any) to the Payment Date.
REPURCHASE OF NOTES UPON A CHANGE OF CONTROL
The Company must commence, within 30 days of the occurrence of a Change of
Control, and consummate an Offer to Purchase for all Notes then outstanding, at
a purchase price equal to 101% of the principal amount of the Notes on the
relevant Payment Date, plus, accrued interest (if any) to the Payment Date.
Prior to the mailing of the notice to Holders commencing such Offer to Purchase,
but in any event within 30 days following any Change of Control, the Company
covenants to (i) repay in full all indebtedness of the Company that would
prohibit the repurchase of the Notes pursuant to such Offer to Purchase or (ii)
obtain any requisite consents under instruments governing any such indebtedness
of the Company to permit the repurchase of the Notes. The Company shall first
comply with the covenant in the preceding sentence before it shall be required
to repurchase Notes pursuant to this "Repurchase of Notes upon a Change of
Control" covenant.
If the Company is unable to repay all of its indebtedness that would
prohibit repurchase of the Notes or is unable to obtain the consents of the
holders of indebtedness, if any, of the Company outstanding at the time of a
Change of Control whose consent would be so required to permit the repurchase of
Notes, then the Company will have breached such covenant. This breach will
constitute an Event of Default under the Indenture if it continues for a period
of 30 consecutive days after written notice is given to the Company by the
Trustee or the Holders of at least 25% in aggregate principal amount of the
Notes outstanding. In addition, the failure by the Company to repurchase the
Notes at the conclusion of the Offer to Purchase will constitute an Event of
Default without any waiting period or notice requirements.
There can be no assurance that the Company will have sufficient funds
available at the time of any Change of Control to make any debt payment
(including repurchases of Notes) required by the foregoing covenant (as well as
may be contained in other securities of the Company which might be outstanding
at the time). The above covenant requiring the Company to repurchase the Notes
will, unless consents are obtained, require the Company to repay all
indebtedness then outstanding which by its terms would prohibit such Note
repurchase, either prior to or concurrently with such Note repurchase.
COMMISSION REPORTS AND REPORTS TO HOLDERS
Whether or not the Company is then required to file reports with the
Commission, if any Notes are outstanding, the Company shall file with the
Commission all such reports and other information as it would be required to
file with the Commission by Sections 13(a) or 15(d) under the Securities
Exchange Act of 1934, as amended, if it were subject thereto, unless the Company
shall be unable to effect such filing or the Commission shall refuse to accept
such filing. The Company shall supply the Trustee and each Holder or shall
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supply to the Trustee for forwarding to each Holder, without cost to such
Holder, copies of such reports and other information, whether or not the Company
shall be unable to effect such filing or the Commission refuses to accept such
filing.
EVENTS OF DEFAULT
The following events will be defined as "Events of Default" in the
Indenture: (a) default in the payment of principal of (or premium, if any, on)
any Note when the same becomes due and payable at maturity, upon acceleration,
redemption or otherwise; (b) default in the payment of interest on any Note when
the same becomes due and payable, and such default continues for a period of 30
days; (c) the Company defaults in the performance of or breaches any other
covenant or agreement of the Company in the Indenture or under the Notes and
such default or breach continues for a period of 30 consecutive days after
written notice by the Trustee or the Holders of 25% or more in aggregate
principal amount of the Notes; (d) there occurs with respect to any issue or
issues of Indebtedness of the Company or any Significant Subsidiary having an
outstanding principal amount of $5 million or more in the aggregate for all such
issues of all such Persons, whether such Indebtedness now exists or shall
hereafter be created, (I) an event of default that has caused the holder thereof
to declare such Indebtedness to be due and payable prior to its Stated Maturity
and such Indebtedness has not been discharged in full or such acceleration has
not been rescinded or annulled within 30 days of such acceleration and/or (II)
the failure to make a principal payment at the final (but not any interim) fixed
maturity and such defaulted payment shall not have been made, waived or extended
within 30 days of such payment default; (e) any final judgment or order (not
covered by insurance) for the payment of money in excess of $5 million in the
aggregate for all such final judgments or orders against all such Persons
(treating any deductibles, self-insurance or retention as not so covered) shall
be rendered against the Company or any Significant Subsidiary and shall not be
paid or discharged, and either (A) an enforcement proceeding shall have been
commenced by a creditor upon such judgment or order or (B) there shall be any
period of 30 consecutive days following entry of the final judgment or order
that causes the aggregate amount for all such final judgments or orders
outstanding and not paid or discharged against all such Persons to exceed $5
million during which a stay of enforcement of such final judgment or order, by
reason of a pending appeal or otherwise, shall not be in effect; (f) a court
having jurisdiction in the premises enters a decree or order for (A) relief in
respect of the Company or any Significant Subsidiary in an involuntary case
under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, (B) appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of the Company or any
Significant Subsidiary or for all or substantially all of the property and
assets of the Company or any Significant Subsidiary or (C) the winding up or
liquidation of the affairs of the Company or any Significant Subsidiary and, in
each case, such decree or order shall remain unstayed and in effect for a period
of 30 consecutive days; or (g) the Company or any Significant Subsidiary (A)
commences a voluntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, or consents to the entry of an order for
relief in an involuntary case under any such law, (B) consents to the
appointment of or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of the Company or any
Significant Subsidiary or for all or substantially all of the property and
assets of the Company or any Significant Subsidiary or (C) effects any general
assignment for the benefit of creditors.
If an Event of Default (other than an Event of Default specified in clause
(f) or (g) above that occurs with respect to the Company) occurs and is
continuing under the Indenture, the Trustee or the Holders of at least 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 at the request of such Holders shall, declare the principal of,
premium, if any, and accrued interest on the Notes to be immediately due and
payable. Upon a declaration of acceleration, such principal of, premium, if any,
and accrued interest on the Notes shall be immediately due and payable. In the
event of a declaration of acceleration because an Event of Default set forth in
clause (d) above has occurred and is continuing, such declaration of
acceleration shall be automatically rescinded and annulled if the event of
default triggering such Event of Default pursuant to clause (d) shall be
remedied or cured by the Company or the relevant Significant Subsidiary or
waived by the holders of the relevant Indebtedness within 60 days after the
declaration of acceleration with respect thereto, and no other Defaults under
the Indenture have occurred and are continuing after giving pro forma effect to
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such remedy, cure or waiver. If an Event of Default specified in clause (f) or
(g) above occurs with respect to the Company, the principal of, premium, if any,
and accrued interest on the Notes then outstanding shall ipso facto become and
be immediately due and payable without any declaration or other act on the part
of either Trustee or any Holder. The Holders of at least a majority in principal
amount of the outstanding Notes by written notice to the Trustee, may waive all
past defaults and rescind and annul a declaration of acceleration and its
consequences if (i) all existing Events of Default, other than the nonpayment of
the principal of, premium, if any, and interest on the Notes that have become
due solely by such declaration of acceleration, have been cured or waived and
(ii) the rescission would not conflict with any judgment or decree of a court of
competent jurisdiction. For information as to the waiver of defaults, see
"-- Modification and Waiver."
The Holders of at least a majority in aggregate principal amount of the
outstanding Notes may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee. However, the Trustee may refuse to follow any
direction that conflicts with law or the Indenture, that may involve the Trustee
in personal liability, or that the Trustee determines in good faith may be
unduly prejudicial to the rights of Holders of Notes not joining in the giving
of such direction and may take any other action it deems proper that is not
inconsistent with any such direction received from Holders of Notes. A Holder
may not pursue any remedy with respect to the Indenture or the Notes unless: (i)
the Holder gives the Trustee written notice of a continuing Event of Default;
(ii) the Holders of at least 25% in aggregate principal amount of outstanding
Notes make a written request to the Trustee to pursue the remedy; (iii) such
Holder or Holders offer the Trustee indemnity satisfactory to the Trustee
against any costs, liability or expense; (iv) the Trustee does not comply with
the request within 60 days after receipt of the request and the offer of
indemnity; and (v) during such 60-day period, the Holders of a majority in
aggregate principal amount of the outstanding Notes do not give the Trustee a
direction that is inconsistent with the request. However, such limitations do
not apply to the right of any Holder of a Note to receive payment of the
principal of, premium, if any, or interest on, such Note or to bring suit for
the enforcement of any such payment, on or after the due date expressed in the
Notes, which right shall not be impaired or affected without the consent of the
Holder.
The Indenture requires certain officers of the Company to certify, on or
before a date not more than 90 days after the end of each fiscal year, that a
review has been conducted of the activities of the Company and its Restricted
Subsidiaries and the Company's, and its Restricted Subsidiaries' performance
under the Indenture and that the Company has fulfilled all obligations
thereunder, or, if there has been a default in the fulfillment of any such
obligation, specifying each such default and the nature and status thereof. The
Company will also be obligated to notify the Trustee of any default or defaults
in the performance of any covenants or agreements under the Indenture.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company will not consolidate with, merge with or into, or sell, convey,
transfer, lease or otherwise dispose of all or substantially all of its property
and assets (as an entirety or substantially an entirety in one transaction or a
series of related transactions) to, any Person (other than a consolidation or
merger with or into a Wholly-Owned Restricted Subsidiary with a positive net
worth; provided that, in connection with any such merger or consolidation, no
consideration (other than Common Stock in the surviving Person or the Company)
shall be issued or distributed to the stockholders of the Company) or permit any
Person to merge with or into the Company unless: (i) the Company shall be the
continuing Person, or the Person (if other than the Company) formed by such
consolidation or into which the Company is merged or that acquired or leased
such property and assets of the Company shall be a corporation organized and
validly existing under the laws of the United States of America or any
jurisdiction thereof and shall expressly assume, by a supplemental indenture,
executed and delivered to the Trustees, all of the obligations of the Company on
all of the Notes and under the Indenture; (ii) immediately after giving effect
to such transaction, no Default or Event of Default shall have occurred and be
continuing; (iii) immediately after giving effect to such transaction on a pro
forma basis, the Company or any Person becoming the successor obligor of the
Notes shall have a Consolidated Net Worth equal to or greater than the
Consolidated Net Worth of the Company immediately prior to such transaction;
(iv) immediately after giving effect to such transaction on a pro forma basis
the
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Company, or any Person becoming the successor obligor of the Notes, as the case
may be, could Incur at least $1.00 of Indebtedness under the first paragraph of
the "Limitation on Indebtedness" covenant; provided that this clause (iv) shall
not apply to (x) a consolidation, merger or sale of all (but not less than all)
of the assets of the Company if all Liens and Indebtedness of the Company or any
Person becoming the successor obligor on the Notes, as the case may be, and its
Restricted Subsidiaries outstanding immediately after such transaction would, if
Incurred at such time, have been permitted to be Incurred (and all such Liens
and Indebtedness, other than Liens and Indebtedness of the Company and its
Restricted Subsidiaries outstanding immediately prior to the transaction, shall
be deemed to have been Incurred) for all purposes of the Indenture or (y) a
consolidation, merger or sale of all or substantially all of the assets of the
Company if immediately after giving effect to such transaction on a pro forma
basis, the Company or any Person becoming the successor obligor of the Notes
shall have an Indebtedness to EBITDA Ratio equal to or less than the
Indebtedness to EBITDA Ratio of the Company immediately prior to such
transaction; and (v) the Company delivers to the Trustee an Officers'
Certificate (attaching the arithmetic computations to demonstrate compliance
with clauses (iii) and (iv) above) and Opinion of Counsel, in each case stating
that such consolidation, merger or transfer and such supplemental indenture
complies with this provision and that all conditions precedent provided for
herein relating to such transaction have been complied with; provided, however,
that clauses (iii) and (iv) above do not apply if, in the good faith
determination of the Board of Directors of the Company, whose determination
shall be evidenced by a Board Resolution, the principal purpose of such
transaction is to change the state of incorporation of the Company; and provided
further that any such transaction shall not have as one of its purposes the
evasion of the foregoing limitations.
DEFEASANCE
Defeasance and Discharge. The Indenture provides that the Company will be
deemed to have paid and will be discharged from any and all obligations in
respect of the Notes on the 123rd day after the deposit referred to below, and
the provisions of the Indenture will no longer be in effect with respect to the
Notes (except for, among other matters, certain obligations to register the
transfer or exchange of the Notes, to replace stolen, lost or mutilated Notes,
to maintain paying agencies and to hold monies for payment in trust) if, among
other things, (A) the Company has deposited with the Trustee, in trust, money
and/or U.S. Government Obligations that through the payment of interest and
principal in respect thereof in accordance with their terms will provide money
in an amount sufficient to pay the principal of, premium, if any, and accrued
interest on the Notes on the Stated Maturity of such payments in accordance with
the terms of the Indenture and the Notes, (B) the Company has delivered to the
Trustee (i) either (x) an Opinion of Counsel to the effect that Holders will not
recognize income, gain or loss for federal income tax purposes as a result of
the Company's exercise of its option under this "Defeasance" provision and will
be subject to federal income tax on the same amount and in the same manner and
at the same times as would have been the case if such deposit, defeasance and
discharge had not occurred, which Opinion of Counsel must be based upon (and
accompanied by a copy of) a ruling of the Internal Revenue Service to the same
effect unless there has been a change in applicable federal income tax law after
the Closing Date such that a ruling is no longer required or (y) a ruling
directed to the Trustee received from the Internal Revenue Service to the same
effect as the aforementioned Opinion of Counsel and (ii) an Opinion of Counsel
to the effect that the creation of the defeasance trust does not violate the
Investment Company Act of 1940 and after the passage of 123 days following the
deposit, the trust fund will not be subject to the effect of Section 547 of the
United States Bankruptcy Code or Section 15 of the New York Debtor and Creditor
Law, (C) immediately after giving effect to such deposit on a pro forma basis,
no Event of Default, or event that after the giving of notice or lapse of time
or both would become an Event of Default, shall have occurred and be continuing
on the date of such deposit or during the period ending on the 123rd day after
the date of such deposit, and such deposit shall not result in a breach or
violation of, or constitute a default under, any other agreement or instrument
to which the Company or any of its Subsidiaries is a party or by which the
Company or any of its Subsidiaries is bound and (D) if at such time the Notes
are listed on a national securities exchange, the Company has delivered to the
Trustee an Opinion of Counsel to the effect that the Notes will not be delisted
as a result of such deposit, defeasance and discharge.
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Defeasance of Certain Covenants and Certain Events of Default. The
Indenture further provides that the provisions of the Indenture will no longer
be in effect with respect to clauses (iii) and (iv) under "Consolidation, Merger
and Sale of Assets" and all the covenants described herein under "Covenants,"
and clause (c) under "Events of Default" with respect to such clauses (iii) and
(iv) under "Consolidation, Merger and Sale of Assets," and clauses (d) and (e)
under "Events of Default" shall be deemed not to be Events of Default upon,
among other things, the deposit with the Trustee, in trust, of money and/or U.S.
Government Obligations that through the payment of interest and principal in
respect thereof in accordance with their terms will provide money in an amount
sufficient to pay the principal of, premium, if any, and accrued interest on the
Notes on the Stated Maturity of such payments in accordance with the terms of
the Indenture and the Notes, the satisfaction of the provisions described in
clauses (B)(ii), (C) and (D) of the preceding paragraph and the delivery by the
Company to the Trustee of an Opinion of Counsel to the effect that, among other
things, the Holders will not recognize income, gain or loss for federal income
tax purposes as a result of such deposit and defeasance of certain covenants and
Events of Default and will be subject to federal income tax on the same amount
and in the same manner and at the same times as would have been the case if such
deposit and defeasance had not occurred.
Defeasance and Certain Other Events of Default. If the Company exercises
its option to omit compliance with certain covenants and provisions of the
Indenture with respect to the Notes as described in the immediately preceding
paragraph and the Notes are declared due and payable because of the occurrence
of an Event of Default that remains applicable, the amount of money and/or U.S.
Government Obligations on deposit with the Trustee will be sufficient to pay
amounts due on the Notes at the time of their Stated Maturity but may not be
sufficient to pay amounts due on the Notes at the time of the acceleration
resulting from such Event of Default. However, the Company will remain liable
for such payments.
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by the Company
and the Trustee with the consent of the Holders of not less than a majority in
aggregate principal amount of the outstanding Notes; provided, however, that no
such modification or amendment may, without the consent of each Holder affected
thereby, (i) change the Stated Maturity of the principal of, or any installment
of interest on, any Note, (ii) reduce the principal amount of, or premium, if
any, or interest on, any Note, or adversely affect any right of repayment at the
option of any Holder of any Note, (iii) change the place or currency of payment
of principal of, or premium, if any, or interest on, any Note, (iv) impair the
right to institute suit for the enforcement of any payment on or after the
Stated Maturity (or, in the case of a redemption, on or after the Redemption
Date) of any Note, (v) reduce the above-stated percentage of outstanding Notes
the consent of whose Holders is necessary to modify, supplement or amend the
Indenture, (vi) waive a default in the payment of principal of, premium, if any,
or interest on the Notes or (vii) reduce the percentage or aggregate principal
amount of outstanding Notes the consent of whose Holders is necessary for waiver
of compliance with certain provisions of the Indenture or for waiver of certain
defaults.
NO PERSONAL LIABILITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS, DIRECTORS, OR
EMPLOYEES
The Indenture provides that no recourse for the payment of the principal
of, premium, if any, or interest on any of the Notes or for any claim based
thereon or otherwise in respect thereof, and no recourse under or upon any
obligation, covenant or agreement of the Company in the Indenture, or in any of
the Notes or because of the creation of any Indebtedness represented thereby,
shall be had against any incorporator, stockholder, officer, director, employee
or controlling person of the Company or of any successor Person thereof. Each
Holder, by accepting the Notes, waives and releases all such liability.
CONCERNING THE TRUSTEE
The Indenture provides that, except during the continuance of a Default,
the Trustee will not be liable, except for the performance of such duties as are
specifically set forth in such Indenture. If an Event of Default has occurred
and is continuing, the Trustee will use the same degree of care and skill in its
exercise of the
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rights and powers vested in it under the Indenture as a prudent person would
exercise under the circumstances in the conduct of such person's own affairs.
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, 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, it must eliminate such conflict or resign.
GOVERNING LAW AND SUBMISSION TO JURISDICTION
The Notes and the Indenture are governed by the laws of the State of New
York. The Company has submitted to the jurisdiction of the U.S. federal and New
York state courts located in the City of New York for purposes of all legal
actions and proceedings instituted in connection with the Notes and the
Indenture.
CURRENCY INDEMNITY
U.S. dollars are the sole currency of account and payment for all sums
payable by the Company under or in connection with the Notes, including damages.
Any amount received or recovered in a currency other than dollars (whether as a
result of, or of the enforcement of, a judgment or order of a court of any
jurisdiction, in the winding-up or dissolution of the Company or otherwise) by
any Holder of a Note in respect of any sum expressed to be due to it from the
Company shall only constitute a discharge to the Company to the extent of the
dollar amount which the recipient is able to purchase with the amount so
received or recovered in that other currency on the date of that receipt or
recovery (or, if it is not practicable to make that purchase on that date, on
the first date on which it is practicable to do so). If that dollar amount is
less than the dollar amount expressed to be due to the recipient under any Note,
the Company shall indemnify the recipient against any loss sustained by it as a
result. In any event, the Company shall indemnify the recipient against the cost
of making any such purchase. For the purposes of this paragraph, it will be
sufficient for the Holder of a Note to certify in a satisfactory manner
(indicating the sources of information used) that it would have suffered a loss
had an actual purchase of dollars been made with the amount so received in that
other currency on the date of receipt or recovery (or, if a purchase of dollars
on such date had not been practicable, on the first date on which it would have
been practicable, it being required that the need for a change of date be
certified in the manner mentioned above). These indemnities constitute a
separate and independent obligation from the Company's other obligations, shall
give rise to a separate and independent cause of action, shall apply
irrespective of any indulgence granted by any Holder of a Note and shall
continue in full force and effect despite any other judgment, order, claim or
proof for a liquidated amount in respect of any sum due under any Note.
BOOK-ENTRY; DELIVERY AND FORM
Except as set forth below, the New Notes to be issued upon the consummation
of the Exchange Offer will be issued in the form of a single global note (the
"Global Note"). The Global Note will be deposited with the Trustee as custodian
for, and registered in the name of, a nominee of DTC. Except as set forth below,
the Global Note may be transferred, in whole and not in part, only to the DTC or
another nominee of the DTC.
Ownership of beneficial interests in a Global Note will be limited to
persons who have accounts with DTC ("participants") or persons who hold
interests through participants. Ownership of beneficial interests in a Global
Note 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
participants) and the records of participants (with respect to interests of
persons other than participants).
So long as DTC, or its nominee, is the registered owner or holder of a
Global Note, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the Notes represented by such Global Note for all
purposes under the Indenture and the Notes. No beneficial owner of an interest
in a Global Note will be able to transfer that interest except in accordance
with DTC's applicable procedures.
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Payments of the principal of, and interest on, a Global Note will be made
to DTC or its nominee, as the case may be, as the registered owner thereof.
Neither the Company, either Trustee nor any Paying Agent will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in a Global Note or
for maintaining, supervising or reviewing any records relating to such
beneficial ownership 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 credit participants'
accounts with payments in 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 participants to
owners of beneficial interests in such Global Note held through such
participants will 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 participants.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in same-day funds.
The Company expects that DTC 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 participants to whose account the
DTC interests in a Global Note is credited and only in respect of such portion
of the aggregate principal amount of Notes as to which such participant or
participants has or have given such direction.
The Company understands that: 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
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 a Global Note 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 nor either
Trustee will have any responsibility for the performance by DTC or its
participants or indirect participants of their respective obligations under the
rules and procedures governing their operations.
If DTC is at any time unwilling or unable to continue as a depositary for
the Global Notes and a successor depositary is not appointed by the Company
within 90 days, the Company will issue Certificated Notes, which may bear the
legend referred to under "Transfer Restrictions," in exchange for the Global
Notes. Holders of an interest in a Global Note may receive Certificated Notes,
which may bear the legend referred to under "Transfer Restrictions," in
accordance with the DTC's rules and procedures in addition to those provided for
under the Indenture.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following general discussion summarizes certain of the principal
material United States federal income tax consequences of the exchange of Old
Notes for New Notes, and the ownership, and disposition of the New Notes. This
discussion is a summary for general information only and does not consider all
aspects of United States federal income taxation that may be relevant to a
prospective investor in light of that investor's particular circumstances. This
discussion also deals only with Notes purchased at their "issue price" (as
defined below) and held as capital assets within the meaning of Section 1221 of
the United States Internal Revenue Code of 1986, as amended to the date hereof
(the "Code"). This summary does not address all of the tax consequences that may
be relevant to a holder of Notes nor does it address the federal income tax
consequences to holders subject to special treatment under the United States
federal income tax laws, such as brokers or dealers in securities or currencies,
certain securities traders, tax-exempt entities, banks, thrifts, insurance
companies, other financial institutions, persons that hold the Notes as a
position in a "straddle" or as part of a "synthetic security," "hedging,"
"conversion" or other integrated instrument, persons that have a "functional
currency" other than the United States dollar, investors in pass-through
entities and certain United States expatriates. Further, this summary does not
address (i) the income tax consequences to shareholders in or partners or
beneficiaries of, a holder of the Notes, (ii) the United States federal
alternative minimum tax consequences of the purchase, ownership or disposition
of the Notes, or (iii) any state, local or foreign tax consequences of the
purchase, ownership, or disposition of the Notes.
This discussion is based upon the Code, existing and proposed Treasury
regulations thereunder, and current administrative rulings and court decisions.
All of the foregoing are subject to change, possibly on a retroactive basis, and
any such change could affect the continuing validity of this discussion.
HOLDERS CONSIDERING EXCHANGING NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS
CONCERNING THE APPLICATION OF UNITED STATES FEDERAL INCOME TAX LAWS, AS WELL AS
THE LAWS OF ANY STATE, LOCAL, OR FOREIGN TAXING JURISDICTION TO THE EXCHANGE AND
TO THE OWNERSHIP AND DISPOSITION OF NOTES.
UNITED STATES HOLDERS
For purposes of this discussion, the term "United States Holder" means a
beneficial owner of Notes that for United States federal income tax purposes is
(i) a citizen or resident (as defined in 7701(b)(1) of the Code) of the United
States, (ii) a corporation or partnership created or organized under the laws of
the United States or any political subdivision thereof, (iii) an estate the
income of which is includible in its gross income for United States federal
income tax purposes without regard to its source, or (iv) a trust if a court
within the United States is able to exercise primary supervision over its
administration and one or more United States persons have the authority to
control all substantial decisions of the trust. Certain United States federal
income tax consequences relevant to a holder other than a United States Holder
(a "Non-U.S. Holder") are discussed separately below.
Exchange of Notes. The exchange of Old Notes for the New Notes pursuant to
the Exchange Offer should not be a taxable event to the holder and thus the
holder should not recognize any taxable gain or loss as a result of the
exchange. A holder's adjusted tax basis in the New Notes will be the same as his
adjusted tax basis in the Old Notes exchange therefor, his holding period for
the Old Notes will be included in his holding period for the New Notes and the
issue price and adjusted issue price of the old Notes will be the issue price
and adjusted price of the New Notes. Old Notes and New Notes are discussed
collectively below as "Notes."
Payments of Interest. Stated interest paid or accrued on the Notes
generally will be taxable to a United States Holder as ordinary income in
accordance with the holder's method of accounting for United States federal
income tax purposes.
Foreign Source. At present, the Company believes that it is an "80/20
company" for United States federal income tax purposes (as defined below), and
therefore that interest income on the Notes generally will be treated as foreign
source income for United States federal income tax purposes. A U.S. corporation
is an 80/20 company if at least 80 percent of its gross income during an
applicable testing period is, directly or
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through its subsidiaries, "active foreign business income." However, the 80%
test for active foreign business income is applied on a periodic basis, and the
Company's operations and business plans may change in future years. Therefore,
while at present it appears that interest income on the Notes will be treated as
foreign source income, no assurance can be made regarding future treatment. In
addition, special source rules will apply to interest paid to certain holders
related to the Company.
Premium. The excess of the United States Holder's basis in a Note over its
principal amount generally is treated as amortizable bond premium. A United
States Holder may elect to deduct such amortizable bond premium (with a
corresponding reduction in the holder's tax basis) over the remaining term of
the Note (or a shorter period to the first call date, if a smaller deduction
would result) on an economic accrual basis. The election would apply to all
taxable debt instruments held by the United States Holder at any time during the
first taxable year to which the election applies and to any such debt
instruments that are later acquired by the United States Holder. The election
may not be revoked without the consent of the IRS.
Market Discount. If a United States Holder purchases a Note for an amount
that is less than its principal amount, the amount of the difference will be
treated as market discount for U.S. federal income tax purposes, unless such
difference is less than a specified de minimis amount. Under the market discount
rules, a United States Holder must accrue market discount on a straight-line
basis, or may elect to accrue it on an economic accrual basis. Absent the
election described in the next paragraph, a United States Holder will not
include market discount in income as it accrues. A United States Holder will be
required to treat any principal payment on, or any amount received on the sale,
exchange, retirement or other disposition of, a Note as ordinary income to the
extent of accrued market discount which has not previously been included in
income.
In addition, the United States Holder may be required to defer, until the
maturity of the Note or its earlier disposition in a taxable transaction, the
deduction of a portion of the interest expense of any indebtedness incurred or
continued to purchase or carry such a Note. A United States Holder of a Note
acquired at a market discount may elect to include market discount in income as
interest as it accrues, in which case the interest deferral rule described in
the prior sentence would not apply. This election would apply to all bonds with
market discount acquired by the electing United States Holder on or after the
first day of the taxable year to which the election applies and is separate from
the election concerning the rate of accrual described above. The election may be
revoked only with the consent of the IRS.
Repurchase Premium. The Company has concluded that the possibility that it
will be required to offer to repurchase Notes at a premium as described under
"Description of Notes -- Covenants -- Limitation on Asset Sales" and
"Description of Notes -- Repurchase of Notes upon a Change of Control" is
"remote" or "incidental" within the meaning of the applicable Treasury
regulations. If an event occurs that triggers the Company's obligation to make
such an offer, there may be additional consequences under the rules governing
the taxation of original issue discount.
Sale or Redemption of the Notes. Upon the disposition of a Note by sale,
exchange or redemption, a United States Holder generally will recognize gain or
loss equal to the difference, if any, between (i) the amount realized on the
disposition (other than amounts attributable to accrued and unpaid interest) and
(ii) the United States Holder's tax basis in the Note. A United States Holder's
tax basis in a Note generally will equal the cost of the Note to the United
States Holder. When a Note is sold, disposed of or redeemed between interest
payment dates, the portion of the amount realized on the disposition that is
attributable to interest accrued to the date of sale must be reported as
interest income by a cash method investor and an accrual method investor that
has not included the interest in income as it accrued.
Assuming the Note is held as a capital asset, such gain or loss generally
will constitute capital gain or loss and will be long-term capital gain or loss
if the United States Holder has held such Note for longer than one year. Federal
income tax rates on capital gain received by individuals vary based on the
individual's income and the holding period for the asset. Holders should contact
their tax advisors for more information or for the capital gains tax rate
applicable to particular sale of Notes. Subject to certain limited exceptions,
capital losses cannot be applied to offset ordinary income.
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NON-U.S. HOLDERS
The following discussion summarizes certain United States federal income
tax consequences relevant to a Non-U.S. Holder of a Note. This discussion does
not deal with all aspects of United States federal income taxation that may be
relevant to any particular Non-U.S. Holder in light of that holder's personal
circumstances with respect to such holder's purchase, ownership or disposition
of the Notes, including such holder holding the Notes through a partnership. For
example, persons who are partners in foreign partnerships and beneficiaries of
foreign trusts or estates who are subject to United States federal income tax
because of their own status, such as United States residents or foreign persons
engaged in a trade or business in the United States, may be subject to United
States federal income tax even though the entity is not subject to such tax.
Stated Interest on the Notes. If the Company is an 80/20 company as
described above, subject to the discussion of backup withholding below, payments
of stated interest on a Note by the Company or any paying agent to a Non-U.S.
Holder will not be subject to United States federal income tax, including
withholding tax, unless the holder has an office or other fixed place of
business in the United States to which the interest is attributable and the
interest either (i) is derived in the active conduct of a banking, financing or
similar business within the United States or (ii) is received by a corporation
the principal business of which is in trading stocks or securities for its own
account, and certain other conditions exist. Special rules will apply to
payments of interest to Non-U.S. Holders related to the Company.
If the Company is not an 80/20 company, then under current United States
federal income tax law, and subject to the discussion of backup withholding
below, payments of stated interest on a Note by the Company or any paying agent
to a Non-U.S. Holder will not be subject to withholding of United States federal
income tax if (i) such payment is effectively connected with a trade or business
within the United States by such Non-U.S. Holder, or (ii) both (a) the holder
does not actually or constructively own 10 percent or more of the combined
voting power of all classes of stock of the Company and is not a controlled
foreign corporation related to the Company through stock ownership and (b) the
beneficial owner provides a statement signed under penalties of perjury that
includes its name and address and certifies (on an IRS Form W-8 or a
substantially similar substitute form) that it is a Non-U.S. Holder in
compliance with applicable requirements. Interest on a Note that is effectively
connected with the conduct of a trade or business in the United States by a
Non-U.S. Holder, although exempt from the withholding tax (assuming appropriate
certification is provided), generally will be subject to graduated United States
federal income tax on a net income basis as if such amounts were earned by a
United States Holder. Corporate Non-U.S. holders receiving effectively connected
interest may also be subject to an additional branch profits tax.
Sale or Redemption of Notes. Except as described below and subject to the
discussion concerning backup withholding, a Non-U.S. Holder generally will not
be subject to withholding of United States federal income tax with respect to
any gain realized upon the sale or redemption of Notes. Further, a Non-U.S.
Holder generally will not be subject to United States federal income tax with
respect to any such gain unless (i) the gain is effectively connected with a
United States trade or business of such Non-U.S. Person, (ii) subject to certain
exceptions, the Non-U.S. Holder is an individual who holds such Notes as a
capital asset and is present in the United States for 183 days or more in the
taxable year of the disposition, or (iii) the Non-U.S. Holder is subject to tax
pursuant to the provisions of United States tax law applicable to certain United
States expatriates.
New Regulations Relating to Withholding and Information Reporting for
Non-U.S. Holders. The IRS recently issued final regulations relating to
withholding and information reporting (described below) with respect to payments
made to Non-U.S. Holders. The regulations generally apply to payments made after
December 31, 1999. However, withholding certificates that are valid under the
present rules on December 31, 1999 remain valid until the earlier of December
31, 2000 or the expiration date of the certificate under the present rules
(unless otherwise invalidated due to changes in the circumstances of the person
whose name is on the certificate).
When effective, the new regulations will streamline and, in some cases,
alter the types of statements and information that must be furnished to claim a
reduced rate of withholding. While various IRS forms (such as
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IRS Forms 1001 and 4224) currently are used to claim exemption from withholding
or a reduced withholding rate, the preamble to the regulations states that the
IRS intends most certifications to be made on revised Form W-8. The regulations
also clarify the duties of United States payors making payments to foreign
persons and modify the rules concerning withholding on payments made to Non-U.S.
Holders through foreign intermediaries. With some exceptions, the new
regulations treat a payment to a foreign partnership as a payment directly to
the partners.
INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, information reporting requirements will apply to payments made
on, and proceeds from the sale of, Notes held by a noncorporate United States
Holder within the United States. In addition, payments made on, and payments of
proceeds from the sale of such Notes to a Non-U.S. Holder made to or through the
United States office of a broker or the non-U.S. office of a broker that is (i)
a United States person, (ii) a controlled foreign corporation for United States
federal income tax purposes, (iii) a foreign person 50% or more of whose gross
income is effectively connected with a United States trade or business for a
specified three-year period, or (iv) (in the case of payments made after
December 31, 1999) a foreign partnership with certain connections to the United
States, are subject to information reporting unless the holder thereof certifies
as to its non-U.S. status or otherwise establishes an exemption from information
reporting and backup withholding.
Payments made on, and proceeds from the sale of, Notes held by a United
States Holder may be subject to a "backup" withholding tax of 31% unless the
holder complies with certain identification or exemption requirements. Backup
withholding at a rate of 31% will apply to payments by the Company or its agent
on Notes held by Non-U.S. Holders and proceeds from the sale or other
disposition of such Notes through certain brokers unless the Non-U.S. Holder
certifies to its Non-U.S. status or otherwise establishes entitlement to
exemption. A Non-U.S. Holder may certify to its non-U.S. status and obtain
exemption from backup withholding by providing an IRS Form W-8 or a
substantially similar substitute form. Backup withholding may apply to any
payment if the broker has actual knowledge that a payee claiming non-U.S. status
is a United States Holder. Any amounts so withheld will be allowed as a credit
against the holder's income tax liability, or refunded, provided the required
information is provided to the IRS.
Non-U.S. Holders of Notes should consult their tax advisers regarding the
application of information reporting and backup withholding in their particular
situations, the availability of an exemption therefrom, and the procedure for
obtaining such an exemption, if available.
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 a prospectus meeting
the requirements of the Securities Act 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 in connection with resales of New Notes received
in exchange for Old Notes where such Old Notes were acquired 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, as amended or supplemented, available to any broker-dealer for use
in connection with any such resale.
The Company will not receive any proceeds from any sale of 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, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such 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 broker or dealer that participates in a distribution of
such New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of New Notes and
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any commission or concessions received by any such persons 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 meeting the requirements of the Securities Act, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act.
The Company has agreed, pursuant to the Registration Rights Agreement, to
pay all expenses incident to the Exchange Offer (including the expenses of one
counsel for all the holders of the Notes as a single class) other than
commissions or concessions of any brokers or dealers and will indemnify the
holders of the Notes (including any broker-dealers) against certain liabilities,
including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the New Notes offered hereby will be passed upon by Arnold
& Porter, Washington, D.C., U.S. counsel to the Company.
EXPERTS
The financial statements of the Company as of December 31, 1996 and 1997
and for each of the three years in the period ended December 31, 1997 included
in this Prospectus have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report appearing herein, and is included in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.
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GLOSSARY
Analog: Describes a method of storing, processing and transmitting
information that employs variable and continuous (rather than pulsed or digital)
electrical signals that provide a "representation" or analog of the sound or
image to be transmitted.
Backbone: The core infrastructure of a network. A high-speed transmission
facility or arrangement of such facilities designed to interconnect one central
location to lower speed distribution channels or clusters of dispersed users or
devices. Similar to a water main, the backbone is the high volume conduit for
transmissions input by multiple smaller connections ("last mile" connections)
from ultimate end-users.
Bandwidth: The range of frequencies that can be passed through a medium
without distortion. Bandwidth is expressed in hertz (Hz) by subtracting the
lowest frequency in the band from the highest frequency in the band. The greater
the bandwidth, the greater the information carrying capacity of the medium. This
would in turn allow, for example, greater and faster information transfer
between remote sites and the network's host computer.
Bit: A contraction for "binary digit." The smallest piece of data a
computer can process represented as a binary digit 0 or 1. Bits are generally
arranged in groups of eight or sixteen to form a single unit of information
("byte") such as a letter, number or other character.
Bps (Bits per second): A universal measurement of the signaling speed of a
data transmission equivalent to the maximum number of bits that are transmitted
per second.
CAP (Competitive Access Provider): A company that provides its customers
with an alternative to the local exchange carriers by using its own networks to
connect end users to long distance carriers or to interconnect long distance
carriers (special access services), and where authorized, to connect end users
to other end users using dedicated communications paths (private line services).
C-Band: That portion of the electromagnetic spectrum that is the frequency
band range 4-7 GHz and is used heavily for satellite and microwave
transmissions.
Channel: A single path for transmitting electric signals.
Digital: Describes a method of storing, processing and transmitting
information through the use of distinct electronic or optical pulses that
represent binary digits 0 and 1. Digital transmission technologies employ a
sequence of these pulses to represent information, as opposed to continuously
variable analog signals. The precise digital numbers virtually eliminate any
distortion (such as graininess or snow, in the case of video transmission, or
static or other background distortion, in the case of audio transmission).
Fiber Optics: Technology based on thin filaments of glass or other
transparent materials used as the medium for relaying coded light pulses that
represent data, image and sound at extremely transmission high speeds.
Frame Relay: A high-speed, packet-switching protocol for data
transmissions within digital networks at transmission speeds between 56Kbps and
1.544 Mbps. Frame Relay provides about a 300% increase in data throughout
relative to packet-switched networks using the traditional and more commonly
used X.25 protocol.
Frequency: Usually expressed in hertz (Hz), represents the number of
oscillations per second made by an electronic signal travelling as a radio wave.
The distance between two consecutive oscillations is the wavelength and,
therefore, the shorter the wavelength of a radio signal the higher its
frequency.
Ghz (Gigahertz): Approximately one billion hertz.
Hertz (Hz): A unit of measurement of frequency. One Hz is one cycle per
second.
Internet: A global interconnection of thousands of separate computer
networks through high-speed data lines and wireless systems. First established
and controlled by the U.S. Military in the early 1960s, computer access to the
Internet is now available to millions of academic, commercial and individual
users worldwide.
Kbps: Approximately one thousand bits per second.
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Ka Band: That portion of the electromagnetic spectrum that is the
frequency band range 20-30 Ghz. Experimental satellites have recently been
deployed to develop this new band.
Ku Band: That portion of the electromagnetic spectrum that is the
frequency band range 10 to 18 GHz. It is being used increasingly for satellite
transmissions.
Last Mile: A shorthand reference to the last section of a
telecommunications connection to the ultimate end-user which may be less than or
greater than one mile.
Low Earth Orbit (LEO): Satellites deployed in close proximity to the
earth's surface (450-1200 miles) so as to reduce or eliminate transmission
delays. Because of their low altitude, multiple LEOs are required to cover the
same footprint of a high orbit geostationary satellite. While large LEOs are
capable of broadband transmissions of voice, video, data and fax, the less
expensive and increasingly common "Little LEOs" are small, "data only"
satellites, which typically operate on spectrum bands below 1 Ghz.
MAN (Metropolitan Area Network): A telecommunications network connecting
various user sites within a city.
Mbps: Approximately one million bits per second.
Microwave: A short electromagnetic wave used in the super-high frequency
radio spectrum with frequencies from about 2 to 20 GHz.
Multiplexer: A device that allows two or more users to share a common
physical transmission medium. A multiplexer is usually installed at both ends of
the communications medium, permitting multiplexing of the multiple user inputs
and demultiplexing into multiple output ports.
Packet-Switching: A transmission technique wherein digitized information
is segmented and routed in discrete "packets" each with its own protocol
controls for routing, sequencing and error checking.
Port: A point of access into a computer, a network or other electronic
device.
Private Line: A dedicated communications path directly between end-user
locations (excluding long distance carriers' points-of-presence).
Protocol: Standard rules that govern the format, timing, sequencing and
error control of batches of information exchanged between equipment within a
network.
Protocol Emulation: To be compatible, equipment within a network must
communicate using the same protocol. Protocol emulation technology acts as a
"translator" between equipment that would communicate using otherwise
incompatible protocols.
PTO (Public Telephony Operator): The monopoly providers of public
telephony services.
SCPC (Single Carrier Per Channel): The fixed assignment of transponder
capacity through dedication of overall frequency bandwidth to a single
transmitting earth station.
Transponder: That part of the satellite that accepts the incoming signal,
filters it, converts the incoming frequency to the outgoing frequency, amplifies
it, and relays the signal to the satellite antenna for transmission to the
intended destination.
USAT (Ultra Small Aperture Terminal): A satellite ground antenna for point
to multi-point or multi-point to point satellite communications, which tends to
be about half the size of VSATs.
VSAT (Very Small Aperture Terminal): A satellite ground antenna, typically
between 1 and 3 meters in size, that is typically used in large corporate
wide-area communications networks for point to multi-point or multi-point to
point satellite communications.
X.25: An established and widely used protocol for block transfer between a
host computer and a packet switching network. X.25 was invented for analog
lines, whereas newer, faster protocols such as Frame Relay were designed to run
on less error prone digital fiber connections. The higher error checking
features of X.25 accounts for its slower speed compared to Frame Relay.
126
<PAGE> 127
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS OF IMPSAT CORPORATION AND
ITS SUBSIDIARIES
Independent Auditors' Report.............................. F-2
Consolidated Balance Sheets as of December 31, 1996 and
1997 and as of June 30, 1998........................... F-3
Consolidated Statements of Operations for Each of the
Three Years in the Period Ended December 31, 1997 and
the Six Months Ended June 30, 1997 and 1998............ F-4
Consolidated Statements of Stockholders' Equity for Each
of the Three Years in the Period Ended December 31,
1997 and the Six Months Ended June 30, 1998............ F-5
Consolidated Statements of Cash Flows for Each of the
Three Years in the Period Ended December 31, 1997 and
the Six Months Ended June 30, 1997 and 1998............ F-6
Notes to Consolidated Financial Statements................ F-7
</TABLE>
F-1
<PAGE> 128
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS OF IMPSAT CORPORATION:
We have audited the accompanying consolidated balance sheets of IMPSAT
Corporation and its subsidiaries as of December 31, 1996 and 1997, and the
related consolidated statements of operations, stockholders' equity and of cash
flows for each of the three years in the period ended December 31, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by the 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, such consolidated financial statements present fairly, in
all material respects, the financial position of IMPSAT Corporation and its
subsidiaries at December 31, 1996 and 1997, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1997 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Miami, Florida
April 13, 1998
F-2
<PAGE> 129
IMPSAT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------- -----------
1996 1997 1998
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.............................. $ 28,895 $ 10,439 $200,638
Trade accounts receivable, net......................... 22,969 36,596 42,967
Other receivables...................................... 12,372 15,583 20,359
Prepaid expenses....................................... 4,068 2,397 3,318
-------- -------- --------
Total current assets.............................. 68,304 65,015 267,282
-------- -------- --------
PROPERTY, PLANT & EQUIPMENT, Net............................ 227,086 255,422 290,822
-------- -------- --------
NON-CURRENT ASSETS:
Trade accounts receivable, net......................... 5,143 5,143 5,143
Intangible assets, net................................. 2,413 2,003 8,120
Investment at cost..................................... 1,126 4,178 9,149
Deferred income taxes, net............................. 4,812 -- 1,345
Deferred financing costs, net.......................... 4,761 4,044 9,872
Other non-current assets............................... 1,585 4,111 1,498
-------- -------- --------
Total non-current assets.......................... 19,840 19,479 35,127
-------- -------- --------
TOTAL....................................................... $315,230 $339,916 $593,231
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable -- trade.............................. $ 19,250 $ 25,289 $ 35,443
Short-term debt........................................ 31,852 50,189 65,656
Current portion of long-term debt...................... 11,022 10,186 14,441
Accrued liabilities.................................... 11,708 8,878 13,038
Deferred income taxes, net............................. -- 247 --
Other liabilities...................................... 4,293 8,649 15,668
-------- -------- --------
Total current liabilities......................... 78,125 103,438 147,753
-------- -------- --------
LONG-TERM DEBT, NET......................................... 156,230 159,677 384,567
-------- -------- --------
OTHER LONG-TERM LIABILITIES................................. 3,752 3,014 3,710
-------- -------- --------
COMMITMENTS AND CONTINGENCIES (Note 11)
MINORITY INTEREST........................................... 30,242 10,398 11,563
-------- -------- --------
REDEEMABLE PREFERRED STOCK, Convertible, Series A, 10%
cumulative dividend, 25,000 shares authorized, issued and
outstanding, liquidation preference $5,140 per share...... -- -- 128,507
======== ======== ========
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $1 par value; 77,750,640 and 100,792,640
shares issued and outstanding at December 31, 1996
and 1997, respectively and 75,594,480 shares issued
and outstanding at June 30, 1998..................... 77,751 100,793 100,793
Treasury Stock, 25,198,160 shares, at cost............. (125,000)
Amount paid in excess of carrying value of assets
acquired from related party.......................... (5,679)
Accumulated deficit.................................... (30,870) (37,404) (49,476)
-------- -------- --------
Total stockholders' equity (deficit).............. 46,881 63,389 (79,362)
-------- -------- --------
TOTAL....................................................... $315,230 $339,916 $593,231
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 130
IMPSAT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------ -------------------
1995 1996 1997 1997 1998
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET REVENUES FROM SERVICES.............. $105,641 $128,393 $160,236 $ 75,721 $ 93,651
-------- -------- -------- -------- --------
COST AND EXPENSES:
Variable cost of services.......... 18,818 21,494 27,629 12,226 14,980
Satellite capacity cost............ 10,973 13,925 18,906 8,841 12,841
Salaries, wages and benefits....... 22,220 26,631 29,209 13,662 16,962
Selling, general and
administrative................... 26,094 21,960 32,739 14,031 21,106
Depreciation and amortization...... 20,653 26,318 28,514 13,776 16,629
-------- -------- -------- -------- --------
Total cost and expenses............ 98,758 110,328 136,997 62,536 82,518
-------- -------- -------- -------- --------
Operating income.............. 6,883 18,065 23,239 13,185 11,133
-------- -------- -------- -------- --------
OTHER INCOME (EXPENSES):
Interest expense, net.............. (15,677) (23,185) (24,743) (12,271) (17,191)
Net gain (loss) on foreign
exchange......................... 1,838 910 (279) (196) (158)
Other income (expense), net........ 511 1,035 (155) (260) 498
-------- -------- -------- -------- --------
(LOSS) INCOME BEFORE INCOME TAXES AND
MINORITY INTEREST..................... (6,445) (3,175) (1,938) 458 (5,718)
BENEFIT FROM (PROVISION FOR) INCOME
TAXES................................. 740 (3,542) (5,047) (2,729) (2,251)
-------- -------- -------- -------- --------
LOSS BEFORE MINORITY INTEREST........... (5,705) (6,717) (6,985) (2,271) (7,969)
INCOME ATTRIBUTABLE TO MINORITY
INTEREST.............................. (1,712) (1,766) (981) (581) (596)
-------- -------- -------- -------- --------
NET LOSS................................ $ (7,417) $ (8,483) $ (7,966) $ (2,852) $ (8,565)
DIVIDENDS ON REDEEMABLE PREFERRED
STOCK................................. (3,507)
-------- -------- -------- -------- --------
NET LOSS ATTRIBUTABLE TO COMMON
SHAREHOLDERS.......................... $ (7,417) $ (8,483) $ (7,966) $ (2,852) $(12,072)
======== ======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 131
IMPSAT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARES AMOUNT)
<TABLE>
<CAPTION>
AMOUNT PAID IN
EXCESS OF CARRYING
COMMON STOCK VALUE OF NET ASSETS
---------------------- IMPSAT TREASURY ACQUIRED FROM ACCUMULATED
SHARES AMOUNT ARGENTINA STOCK RELATED PARTY DEFICIT
----------- -------- --------- --------- -------------------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31,
1994............................. 51,300,000 $ 51,300 $ 13,360 $ (1,879)
Additional capitalization
IMPSAT Venezuela.............
Net loss for the year.......... (7,417)
----------- -------- -------- --------- ------- --------
BALANCE AT DECEMBER 31,
1995............................. 51,300,000 51,300 13,360 (9,296)(*)
IMPSAT Argentina exchange
(51%)........................ 26,450,640 26,451 (13,360) (13,091)
Net loss for the year.......... (8,483)
----------- -------- -------- --------- ------- --------
BALANCE AT DECEMBER 31,
1996............................. 77,750,640 77,751 -- (30,870)(*)
IMPSAT Argentina exchange
(43.5%)...................... 23,042,000 23,042
Additional capitalization
IMPSAT Colombia and IMPSAT
Venezuela....................
Adjustment for change in IMPSAT
Argentina's fiscal year end
(Note 2)..................... 1,432
Net loss for the year.......... (7,966)
----------- -------- -------- --------- ------- --------
BALANCE AT DECEMBER 31,
1997............................. 100,792,640 100,793 -- (37,404)(*)
Change in minority interest
IMPSAT Argentina.............
Acquisition of Treasury
stock........................ (25,198,160) $(125,000)
Amount paid in excess of
carrying value of net assets
acquired from related
party........................ $(5,679)
Change in minority interest
related to the acquisition of
Mandic S.A...................
Dividends on redeemable
preferred stock.............. (3,507)
Net loss for the six months
ended........................ (8,565)
----------- -------- -------- --------- ------- --------
BALANCE AT JUNE 30, 1998
(unaudited)...................... 75,594,480 $100,793 -- $(125,000) $(5,679) $(49,476)(*)
=========== ======== ======== ========= ======= ========
<CAPTION>
MINORITY
TOTAL INTEREST
-------- --------
<S> <C> <C>
BALANCE AT DECEMBER 31,
1994............................. $ 62,781 $24,892
Additional capitalization
IMPSAT Venezuela............. 1,872
Net loss for the year.......... (7,417) 1,712
-------- -------
BALANCE AT DECEMBER 31,
1995............................. 55,364 28,476
IMPSAT Argentina exchange
(51%)........................
Net loss for the year.......... (8,483) 1,766
-------- -------
BALANCE AT DECEMBER 31,
1996............................. 46,881 30,242
IMPSAT Argentina exchange
(43.5%)...................... 23,042 (22,393)
Additional capitalization
IMPSAT Colombia and IMPSAT
Venezuela.................... 1,537
Adjustment for change in IMPSAT
Argentina's fiscal year end
(Note 2)..................... 1,432 31
Net loss for the year.......... (7,966) 981
-------- -------
BALANCE AT DECEMBER 31,
1997............................. 63,389 10,398
Change in minority interest
IMPSAT Argentina............. (354)
Acquisition of Treasury
stock........................ (125,000)
Amount paid in excess of
carrying value of net assets
acquired from related
party........................ (5,679)
Change in minority interest
related to the acquisition of
Mandic S.A................... 923
Dividends on redeemable
preferred stock.............. (3,507)
Net loss for the six months
ended........................ (8,565) 596
-------- -------
BALANCE AT JUNE 30, 1998
(unaudited)...................... $(79,362) $11,563
======== =======
</TABLE>
- ---------------
(*) Includes an appropriation of retained earnings amounting to $449, $1,254,
$1,410 and $1,622 at December 31, 1995, 1996 and 1997 and June 30, 1998,
respectively, to comply with legal reserve requirements in Argentina.
See notes to consolidated financial statements.
F-5
<PAGE> 132
IMPSAT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE,
------------------------------ --------------------
1995 1996 1997 1997 1998
-------- -------- -------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss......................................... $ (7,417) $ (8,483) $ (7,966) $ (2,852) $ (8,565)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Amortization and depreciation............... 20,653 26,318 28,514 13,776 16,629
Deferred income tax (benefit) provision..... (936) 3,012 4,748 1,268 (1,592)
Adjustment for change in IMPSAT
Argentina's fiscal year end............... 1,432
Net change in minority interest............. 1,712 1,766 981 581 242
Changes in assets and liabilities:
Increase in trade accounts receivable,
net................................... (5,940) (6,525) (13,627) (5,933) (6,121)
Decrease (increase) in prepaid
expenses.............................. 1,513 (1,406) 1,671 (1,277) (723)
Increase in other receivables and other
non-current assets.................... (446) (5,521) (4,678) (1,095) (436)
Increase (decrease) in accounts payable
-- trade.............................. 8,444 (41) 4,627 (2,930) 7,497
Increase in accrued and other
liabilities........................... 1,658 4,340 1,526 5,204 10,711
(Decrease) increase in other long-term
liabilities........................... (347) (2,491) (89) (2,290) 696
-------- -------- -------- -------- ---------
Net cash provided by operating
activities....................... 18,894 10,969 17,139 4,452 18,338
-------- -------- -------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment....... (66,796) (53,648) (55,028) (19,911) (48,226)
Cash paid in Mandic S.A. acquisition, net........ (6,307)
Cash paid in IMPSAT Brazil merger................ (5,100)
Increase in investment........................... (1,126) (3,052) (3,052) (5,001)
Capitalized preoperating costs................... (114) (33)
-------- -------- -------- -------- ---------
Net cash used by investing activities....... (66,910) (54,807) (58,080) (22,903) (64,634)
-------- -------- -------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings from (payments on) short-term
debt........................................... 15,533 (28,483) 18,337 22,553 15,036
Capital contribution from minority interest...... 1,872 1,537
Proceeds from long-term debt..................... 8,545 132,888 10,483 3,810 228,097
Repayments of long-term debt..................... (3,853) (37,888) (7,872) (7,292) (6,638)
Acquisition of treasury stock.................... (125,000)
Proceeds from issuance of redeemable preferred
stock.......................................... 125,000
-------- -------- -------- -------- ---------
Net cash provided by financing activities... 22,097 66,517 22,485 19,071 236,495
-------- -------- -------- -------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS........................................ (25,919) 22,679 (18,456) 560 190,199
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD..... 32,135 6,216 28,895 28,895 10,439
-------- -------- -------- -------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD........... $ 6,216 $ 28,895 $ 10,439 $ 29,455 $ 200,638
======== ======== ======== ======== =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid.................................... $ 16,498 $ 19,413 $ 23,442 $ 11,344 $ 20,317
======== ======== ======== ======== =========
Foreign income taxes paid........................ $ 244 $ 1,015 $ 1,375 $ 2
======== ======== ======== ========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
ACTIVITIES
Equipment in transit............................. $ 264 $ 350 $ 1,412 $ 9,394 $ 2,207
======== ======== ======== ======== =========
Common stock issued in exchange for an additional
44% of IMPSAT Argentina........................ $ 23,043
========
Accrued dividends on redeemable preferred
stock.......................................... $ 3,507
=========
Mandic S.A. acquisition:
Fair value of net assets acquired.............. $ 1,300
=========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 133
IMPSAT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF U.S. DOLLARS)
1. BACKGROUND AND EVOLUTION
IMPSAT Corporation, a Delaware holding company (the "Company"), is a
privately-held corporation which provides and operates private networks of
integrated data and voice telecommunications systems in a number of countries in
Latin America. The Company's principal line of business comprises the provision
of data transmission services for large national and multinational companies,
financial institutions, and governmental agencies and other business customers
in Latin America. The Company provides its services through its advanced
telecommunications networks comprised of owned teleports, earth stations, fiber
optic and microwave links, and leased satellite and fiber optic links.
The Company was formed in August 1994 for the purpose of combining
operating entities in Argentina, Colombia and Venezuela, which were previously
controlled by common ownership. The original operating entity was established in
Argentina in 1990 under the name of IMPSAT S.A. ("IMPSAT Argentina").
Thereafter, operating entities were established in Colombia in 1992 ("IMPSAT
Colombia") and in Venezuela in 1993 ("IMPSAT Venezuela"). Other operating
subsidiaries have been created or acquired in Mexico, Ecuador, Peru (inactive),
the United States and Brazil. As part of the formation of the Company, a
shareholder of the Company contributed its ownership in the operating entities
in Colombia and Venezuela in exchange for common stock. At the same time, cash
was contributed by four shareholders in exchange for common stock. In July 1996,
shareholders of IMPSAT Argentina exchanged a 51% ownership interest in IMPSAT
Argentina for 26,450,640 shares of common stock of the Company. During June and
July 1997, effective as of January 1, 1997, an additional 43.5% ownership
interest was exchanged for 23,042,000 shares of common stock of the Company.
The Company's operating subsidiaries at December 31, 1997 and June 30, 1998
are as follows:
<TABLE>
<CAPTION>
NET
REVENUES OPERATING
OWNERSHIP TOTAL FROM INCOME
COUNTRY OPERATING SUBSIDIARIES PERCENTAGE ASSETS SERVICES (LOSS)
------- ---------------------- ---------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
DECEMBER 31, 1997
Argentina Impsat S.A.................. 94.5% $191,029 $ 89,960 $19,813
Colombia Impsat S.A.................. 74.2 87,546 49,514 20,213
Telecomunicaciones Impsat
Venezuela S.A....................... 75.0 29,751 8,625 (811)
Mexico Impsat S.A. de C.V.......... 99.9 7,417 1,427 (1,809)
Ecuador Impsatel del Ecuador S.A.... 100.0 13,262 5,513 1,651
USA Impsat USA, Inc............. 100.0 5,931 5,019 297
-------- -------- -------
Subtotal for operating
subsidiaries.............. 334,936 160,058 39,354
Parent company, others and
eliminations.............. 4,980 178 (16,115)
-------- -------- -------
Consolidated total.......... $339,916 $160,236 $23,239
======== ======== =======
</TABLE>
F-7
<PAGE> 134
IMPSAT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. BACKGROUND AND EVOLUTION -- (CONTINUED)
<TABLE>
<CAPTION>
NET
REVENUES OPERATING
OWNERSHIP TOTAL FROM INCOME
COUNTRY OPERATING SUBSIDIARIES PERCENTAGE ASSETS SERVICES (LOSS)
------- ---------------------- ---------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
JUNE 30, 1998
Argentina Impsat S.A.................. 95.2% $234,808 $ 47,533 $ 9,511
Colombia Impsat S.A.................. 74.2 102,064 28,095 11,319
Venezuela Telecomunicaciones Impsat
S.A....................... 75.0 32,203 6,387 693
Mexico Impsat S.A. de C.V.......... 99.9 9,912 1,645 (1,055)
Ecuador Impsatel del Ecuador S.A.... 100.0 18,142 4,140 1,208
USA Impsat USA, Inc............. 100.0 9,355 4,348 953
Brazil Impsat Comunicacoes Ltda.... 99.9 10,624 504 (5,175)
Brazil Mandic BBS Planejamento e
Informatica S.A........... 58.5 3,599 999 174
----- -------- -------- -------
Subtotal for operating
subsidiaries.............. 420,707 93,651 17,628
Parent company, others and
eliminations.............. 171,601 (6,495)
-------- -------- -------
Consolidated total.......... $592,308 $ 93,651 $11,133
======== ======== =======
</TABLE>
In addition, the Company owns other subsidiaries which serve as
intermediaries or provide support functions to the Company and its operating
subsidiaries. They are Resis Ingenieria, S.A. (Argentina) and International
Satellite Capacity Holding, NG (Liechtenstein).
2. MERGERS AND ACQUISITIONS
On June 1, 1998, the Company acquired from Nevasa Holdings Limited
("Nevasa"), the Company's parent, 99.9% of the capital stock of IMPSAT
Comunicacoes Ltda. ("IMPSAT Brazil"), a Brazilian company, for approximately
$5.1 million. The purchase price for IMPSAT Brazil represented the total amount
of pre-operating and development costs and expenses incurred for IMPSAT Brazil
by Nevasa. IMPSAT Brazil was established by Nevasa and operates under a value
added telecommunications license permitting IMPSAT Brazil to lease satellite
capacity directly from EMBRATEL, Brazil's long-distance carrier and sell
corporate private telecommunications network services (data, voice and video)
using terrestrial and satellite links to third parties. The acquisition, as is
generally the case for transactions among companies under common control, has
been accounted for in a manner similar to the pooling of interests method of
accounting, whereby all assets and liabilities have been recorded at their
historical carrying amounts and the acquisition was recorded as if the
transaction occurred on January 1, 1998. IMPSAT Brazil did not have material
operations in 1997 as it was in the pre-operating phase. Amounts paid in excess
of carrying value of the underlying net assets acquired is recorded as a
reduction of stockholders' equity (deficit) and will be amortized on a
straight-line basis over a period of 10 years.
On April 20, 1998, the Company signed a definitive agreement to purchase a
75.1% interest in Mandic BBS Planejamento e Informatica S.A. ("Mandic S.A."), a
Brazilian internet access provider, for approximately $9.8 million. Upon
consummation of the transaction, the Company will acquire 75.1% of the common
stock of Mandic S.A., and the remaining 24.9% will be owned by Mr. Aleksander
Mandic, the founder and current president of Mandic S.A. The initial stage of
the acquisition of Mandic S.A., pursuant to which the
F-8
<PAGE> 135
IMPSAT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. MERGERS AND ACQUISITIONS -- (CONTINUED)
Company acquired a 58.5% interest, was consummated on May 29, 1998, and the
remaining 16.6% interest is scheduled to be acquired by May 1, 1999. The
acquisition was accounted for as a purchase.
The purchase price was allocated as follows:
<TABLE>
<S> <C>
Estimated fair value of net assets acquired:................ $1,300
Goodwill.................................................... 6,307
------
Purchase price for 58.5% interest:.......................... $7,607
======
</TABLE>
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION -- The 1996 and 1997 financial statements are
presented on a consolidated basis and include the accounts of the Company and
its subsidiaries. The 1995 financial statements are presented on a combined
basis by virtue of common ownership, as described in Note 1. For 1995 and 1996,
IMPSAT Argentina has been consolidated on the basis of its fiscal year-end,
November 30. Effective December 31, 1997, IMPSAT Argentina changed its fiscal
year to December 31. All significant intercompany transactions and balances have
been eliminated.
INTERIM FINANCIAL INFORMATION -- The unaudited consolidated statements as
of June 30, 1998 and for the six months ended June 30, 1997 and 1998 have been
prepared on the same basis as the audited consolidated financial statements. In
the opinion of management, such unaudited consolidated financial statements
include all adjustments (consisting only of normal recurring adjustments)
necessary to present fairly the results for such period. The operating results
for the six months period ended June 30, 1997 and 1998 are not necessarily
indicative of the operating results to be expected for the full fiscal year or
for any future period.
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.
CASH AND CASH EQUIVALENTS -- Cash and cash equivalents are highly liquid
investments, including short-term investments and time deposits with maturities
of three months or less at the time of purchase. Cash equivalents and short-term
investments are stated at cost, which approximates market value.
REVENUE RECOGNITION -- The Company provides services to its customers
pursuant to contracts which typically range from six months to five years but
generally are for three years. The customer generally pays an installation
charge at the beginning of the contract and a monthly fee based on the number of
microsystem installations. The fees stipulated in the contracts are denominated
in U.S. dollars equivalents. Services are billed on a monthly, predetermined
basis, which coincides with when the services are rendered. No single customer
accounted for greater than 10% of total net revenue from services for the years
ended December 31, 1995, 1996 and 1997 and for the six months ended June 30,
1997 and 1998.
PROPERTY, PLANT AND EQUIPMENT COSTS -- Property, plant and equipment are
recorded at cost and depreciated using the straight-line method over the
following estimated useful lives:
<TABLE>
<S> <C>
Buildings and improvements.................................. 10-25 years
Operating communications equipment.......................... 5-10 years
Furniture, fixtures and other equipment..................... 2-10 years
</TABLE>
INTANGIBLE ASSETS -- Intangible assets include license and permit costs and
goodwill. License and permit costs, such as legal costs, regulatory fees and
application costs incurred to obtain and make functional the
F-9
<PAGE> 136
IMPSAT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
operating licenses in each respective country in the amount of approximately
$3,700, were capitalized and are being amortized on the straight-line basis over
periods not to exceed ten years. Goodwill, representing the excess of the
purchase price over the estimated fair value of the net assets acquired of
Mandic S.A. (see note 2), of approximately $6,307 is being amortized on a
straight-line basis of over a period of 15 years. The Company reviews the
carrying value of its intangible assets on an ongoing basis. If such review
indicates that these values may not be recoverable, the Company's carrying value
will be reduced to its estimated fair value.
INCOME TAXES -- Deferred income taxes result from temporary differences in
the recognition of expenses for tax and financial reporting purposes and are
accounted for in accordance with Statement of Financial Accounting Standards
("SFAS") No. 109, Accounting for Income Taxes, which requires the liability
method of computing deferred income taxes. Under the liability method, deferred
taxes are adjusted for tax rate changes as they occur.
DEFERRED FINANCING COSTS -- Debt issuance costs and transaction fees, which
are associated with the issuance of the Company's 12 1/8% Senior Guaranteed
Notes due 2003 (the "Senior Guaranteed Notes") and the Company's 12 3/8% Senior
Notes due 2008 (the "Senior Notes") (see Note 7) are being amortized (and
charged to interest expense) over the term of the related notes on a method
which approximates the level yield method.
INVESTMENT -- Investment represents a less than 1.0% ownership interest by
the Company in an unaffiliated cooperative established for the purchase and
leasing of satellite capacity time and is accounted for under the cost method.
FOREIGN CURRENCY TRANSLATION -- The Company's subsidiaries use the U.S.
dollar as the functional currency. Accordingly, the financial statements of the
subsidiaries were remeasured. The effects of foreign currency transactions and
of remeasuring the financial position and results of operations into the
functional currency are included as net gain (loss) on foreign exchange.
FAIR VALUE OF FINANCIAL INSTRUMENTS -- The Company's financial instruments
include receivables, payables, short and long-term debt. The fair value of such
financial instruments have been determined using available market information
and interest rates as of December 31, 1997.
At December 31, 1996 and 1997, the fair value of the Senior Guaranteed
Notes was approximately $132,000 and $129,000, respectively, compared to the
carrying value of $125,000. The fair value of all other financial instruments
were not materially different from their carrying value.
LONG LIVED ASSETS -- Long-lived assets are reviewed on an ongoing basis for
impairment based on comparison of carrying value against undiscounted future
cash flows. If an impairment is identified, the assets carrying amount is
adjusted to fair value. No such adjustments were recorded during the years ended
December 31, 1995, 1996 and 1997 and during the six months ended June 30, 1997
and 1998.
RECLASSIFICATIONS -- Certain amounts in the 1995, 1996 and June 30, 1997
consolidated financial statements have been reclassified to conform with the
1997 and June 30, 1998 presentations, respectively.
NEW ACCOUNTING PRONOUNCEMENTS -- In June 1997, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 130, Reporting Comprehensive Income.
SFAS No. 130 requires that all components of comprehensive income be reported on
one of the following: (1) the statement of income; (2) the statement of changes
in stockholders' equity, or (3) a separate statement of comprehensive income.
Comprehensive income is comprised of net income and all changes to stockholders'
equity, except those due to investments by owners (changes in paid-in capital)
and distributions to owners (dividends). SFAS No. 130 is effective for fiscal
years beginning after December 15, 1997. The adoption of SFAS No. 130 during the
first
F-10
<PAGE> 137
IMPSAT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
quarter of 1998 did not have a material impact on the Company's consolidated
financial statements presentation.
In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of
an Enterprise and Related Information. SFAS No. 131 changes the way public
companies report information about segments of their business in their annual
financial statements and requires them to report selected segment information in
their quarterly reports issued to shareholders. SFAS No. 131 also requires
entity-wide disclosures about the products and services an entity provides, the
foreign countries in which it holds assets and reports revenues, and its major
customers. SFAS No. 131 is effective for fiscal years beginning after December
15, 1997. The adoption of SFAS No. 131 during the first quarter of 1998 did not
to have a material impact on the Company's consolidated financial statement
presentation.
4. TRADE ACCOUNTS RECEIVABLE
Trade accounts receivable, by operating subsidiaries are summarized as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- JUNE 30,
1996 1997 1998
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
IMPSAT Argentina...................................... $17,958 $27,531 $31,109
IMPSAT Colombia....................................... 5,846 10,102 13,443
IMPSAT Venezuela...................................... 1,331 2,202 3,090
IMPSAT USA............................................ 24 1,359 2,679
All Others............................................ 613 1,335 1,980
------- ------- -------
Total............................................ 25,772 42,529 52,301
Less: allowance for doubtful accounts................. (2,803) (5,933) (9,334)
------- ------- -------
Trade accounts receivable, net........................ $22,969 $36,596 $42,967
======= ======= =======
</TABLE>
The Company's subsidiaries provide trade credit to their customers in the
normal course of business. The collection of a substantial portion of the trade
receivables are susceptible to changes in the Latin American economies and
political climates. Prior to extending credit, the customers' financial history
is analyzed.
The activity for the allowance for doubtful accounts is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ JUNE 30,
1995 1996 1997 1998
------ ------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Beginning balance.............................. $ 712 $1,130 $2,803 $5,933
Provision for doubtful accounts................ 418 1,673 3,269 4,158
Write-offs..................................... (139) (757)
------ ------ ------ ------
Ending balance................................. $1,130 $2,803 $5,933 $9,334
====== ====== ====== ======
</TABLE>
In addition, see Note 11.
F-11
<PAGE> 138
IMPSAT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. OTHER RECEIVABLES
Other receivables consist primarily of refunds or credits pending from
local governments for taxes other than income and other miscellaneous amounts
due to the Company and its operating subsidiaries as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- JUNE 30,
1996 1997 1998
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
IMPSAT Argentina...................................... $ 4,290 $ 4,753 $ 6,322
IMPSAT Colombia....................................... 3,696 4,460 4,917
IMPSAT Venezuela...................................... 2,224 2,133 2,052
IMPSAT Ecuador........................................ 494 548 967
All Others............................................ 1,668 3,689 6,101
------- ------- -------
Total............................................ $12,372 $15,583 $20,359
======= ======= =======
</TABLE>
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30,
1996 1997 1998
-------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Land............................................... $ 1,478 $ 1,478 $ 1,528
Building and improvements.......................... 22,604 23,312 25,165
Operating communications equipment................. 258,593 310,321 354,510
Furniture, fixtures and other equipment............ 11,311 14,503 17,379
-------- --------- ---------
Total......................................... 293,986 349,614 398,582
Less: accumulated depreciation..................... (73,046) (101,051) (116,826)
-------- --------- ---------
Total......................................... 220,940 248,563 281,756
Deposit on purchase of equipment and in transit.... 6,146 6,859 9,066
-------- --------- ---------
Property, plant and equipment, net................. $227,086 $ 255,422 $ 290,822
======== ========= =========
</TABLE>
The recap of accumulated depreciation is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------- JUNE 30,
1995 1996 1997 1998
------- ------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Beginning balance.......................... $27,188 $47,155 $ 73,046 $101,051
Depreciation expense....................... 20,268 25,913 29,665 16,430
Retirements and disposals.................. (301) (22) (1,660) (655)
------- ------- -------- --------
Ending balance............................. $47,155 $73,046 $101,051 $116,826
======= ======= ======== ========
</TABLE>
F-12
<PAGE> 139
IMPSAT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. SHORT-TERM DEBT
The Company's short-term debt is detailed as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- JUNE 30,
1996 1997 1998
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Commercial paper (7.55% to 11%)....................... $20,000 $25,000 $50,000
Short-term credit facilities, denominated in US
dollars; interest rates ranging from 6.26% to 15%;
IMPSAT Argentina................................. 327 15,850
IMPSAT Colombia.................................. 3,345 5,414 7,079
IMPSAT Venezuela................................. 1,400 1,714 566
IMPSAT Ecuador................................... 53 992 2,803
IMPSAT USA....................................... 65
IMPSAT Brazil.................................... 606
Mandic S.A....................................... 390
Short-term credit facilities, denominated in local
currencies; local interest rates;
IMPSAT Argentina (8.75% to 9%)................... 1,157
IMPSAT Colombia (47.15%)......................... 5,700 1,878
IMPSAT Venezuela (32%)........................... 1,027 1,219 1,112
------- ------- -------
Total short-term debt................................. $31,852 $50,189 $65,656
======= ======= =======
</TABLE>
The Company has historically refinanced these short-term credit facilities
on an annual basis.
F-13
<PAGE> 140
IMPSAT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. LONG-TERM DEBT
The Company's long-term debt is detailed as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30,
1996 1997 1998
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
12 1/8% Senior Guaranteed Notes due 2003............ $125,000 $125,000 $125,000
12 3/8% Senior Notes due 2008....................... 225,000
Term notes payable:
IMPSAT Colombia; with maturities through 2002
collateralized by equipment with a carrying
value of approximately $14,000 and the
assignment of customer contracts totaling
approximately $12,000 denominated in:
U.S. dollars (Interest rates
8.5% -- 13%)............................ 25,324 27,111 21,663
Local currency (24.93% -- 34%)............ 1,551 6,380 13,527
IMPSAT Argentina (6.56% -- 7%), maturing semi-
annually through 2001, collateralized by
certain assets............................... 4,374 2,435 6,217
IMPSAT Venezuela (9% -- 10.75%), maturing
through 2001................................. 5,922 5,550 4,505
IMPSAT USA (8.75%), maturing through 2003...... 556
Eximbank notes payable (6.56%), maturing
semi-annually through 1999........................ 5,081 3,387 2,540
-------- -------- --------
Total long-term debt...................... 167,252 169,863 399,009
Less: current portion............................... (11,022) (10,186) (14,441)
-------- -------- --------
Long-term debt, net................................. $156,230 $159,677 $384,567
======== ======== ========
</TABLE>
The scheduled maturities of long-term debt at December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998........................................................ $ 10,186
1999........................................................ 16,280
2000........................................................ 14,234
2001........................................................ 3,058
2002 and thereafter......................................... 126,105
--------
$169,863
========
</TABLE>
The Senior Guaranteed Notes, Senior Notes, and some of the term notes
payable for IMPSAT Colombia and IMPSAT Venezuela contain certain covenants
requiring certain financial ratios, limiting the incurrence of additional
indebtedness and capital expenditures, and restricting the ability to pay
dividends.
9. INCOME TAXES
For the years ended December 31, 1995, 1996 and 1997 and for the six months
ended June 30, 1997 and 1998, the provision for (benefits from) income taxes,
all of which are for foreign taxes, consist of a current provision of $196,
$530, $299, $1,461 and $3,843 respectively, and a deferred (benefit) provision
of $(936), $3,012, $4,748, $1,268 and $(1,592) respectively. The foreign
statutory tax rates range from 20% to 35% depending on the particular country.
There is no provision or benefit for U.S. income taxes for the Company,
F-14
<PAGE> 141
IMPSAT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. INCOME TAXES -- (CONTINUED)
as it has net operating loss carryforwards in the amount of $7,223 which begin
to expire in the year 2010. Deferred taxes result primarily from temporary
differences in the capitalization policies of preoperating costs and net
operating loss carryforwards. The composition of net deferred tax assets at
December 31 is as follows:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
DEFERRED TAX ASSETS:
Pre-operating costs:
IMPSAT Colombia........................................ $ 2,038 $ 1,698
IMPSAT Venezuela....................................... 1,695 1,380
IMPSAT Ecuador......................................... 85 58
Net operating loss carryforwards:
IMPSAT Colombia........................................ 900
IMPSAT Venezuela....................................... 4,625 4,048
IMPSAT Mexico.......................................... 1,741 2,487
IMPSAT Ecuador......................................... 684 876
Company and IMPSAT USA................................. 255 2,745
Other:
IMPSAT Colombia........................................ 273 139
IMPSAT Mexico.......................................... 54
------- -------
Gross deferred tax assets................................... 12,296 13,485
------- -------
DEFERRED TAX LIABILITIES:
IMPSAT Argentina....................................... (743) (4,301)
IMPSAT Colombia........................................ (389)
IMPSAT Mexico.......................................... (336) (293)
------- -------
Gross deferred tax liabilities.............................. (1,079) (4,983)
------- -------
Less: valuation allowance................................... (6,405) (8,749)
------- -------
Net deferred tax (liabilities) assets....................... $ 4,812 $ (247)
======= =======
</TABLE>
As there is no assurance that the Company will generate sufficient earnings
to utilize its available tax assets, a valuation allowance has been established
to offset deferred tax assets.
10. REDEEMABLE PREFERRED STOCK
On March 19, 1998, the Company redeemed 25% of its outstanding common stock
previously held by STET International Netherlands NV (the "STET Shares") with
the proceeds of a substantially concurrent issuance and sale of $125,000 of the
Company's Series A Redeemable Preferred Stock (the "Series A Preferred Stock").
The Series A Preferred Stock was offered and sold to Princes Gate Investors II,
L.P. ("Princes Gate") and Morgan Stanley Global Emerging Markets Private
Investment Fund, L.P. ("MSGEM"), two private equity funds that are affiliates of
Morgan Stanley Dean Witter & Co., and to certain other investors affiliated with
Princes Gate and MSGEM (such investors along with Princes Gate and MSGEM, the
"Purchasers"). The Series A Preferred Stock was convertible at June 30, 1998
into 25.5% of the common stock of the Company.
The following are some of the principal features of the Series A Preferred
Stock: (a) cumulative dividends at the rate of 10% per annum, compounded
quarterly and, with certain exceptions, payable in kind; (b) mandatorily
redeemable in cash by the Company at maturity (ten years after issuance) plus
accrued and unpaid dividends; (c) callable under certain circumstances by the
Company, in whole, at 100% of the
F-15
<PAGE> 142
IMPSAT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. REDEEMABLE PREFERRED STOCK -- (CONTINUED)
principal amount, plus accrued and unpaid dividends; (d) convertible into common
stock of the Company at any time at the option of the Purchasers (including upon
a call by the Company), at a specified conversion rate subject to certain
antidilution rights; (e) the right by Purchasers holding a certain minimum
number of outstanding Series A Preferred Stock to appoint two directors to the
Company's Board of Directors as well as to immediately appoint half of the
members of the Company's Board of Directors upon the occurrence of certain
specified events; and (f) the right of Directors appointed by the Purchasers
holding a certain minimum number of outstanding Series A Preferred Stock to a
veto over certain major corporate actions.
11. COMMITMENTS AND CONTINGENCIES
The Company leases satellite capacity with annual rental commitments of
approximately $26,000. In addition, the Company has commitments to purchase
communications equipment amounting to approximately $8,500 and $11,600 and was
obligated under letters of credit amounting to approximately $400 and $350 at
December 31, 1997 and June 30, 1998, respectively.
The Company is a third party guarantor of up to 75% of a $6,000 credit
facility provided to IMPSAT Venezuela by a regional development fund. At
December 31, 1997 and June 30, 1998, the balance outstanding on this credit
facility amounted to approximately $5,600 and $4,500, respectively.
During May, 1997, the Company and one of its subsidiaries entered into a
three party arrangement with a financial institution whereby $60,000 was
borrowed by the subsidiary and concurrently a like amount Certificate of Deposit
was placed at the financial institution by the Company. The arrangements
establish a right of setoff and, accordingly, the amounts have been netted for
purposes of the consolidated financial statements presentation. The arrangements
expire in May 1999.
The Company is involved in or subject to various litigation and legal
proceedings incidental to the normal conduct of its business. Whenever
justified, the Company expects to vigorously prosecute or defend such claims,
although there can be no assurance that the Company will ultimately prevail with
respect to any such matters.
In November 1996, IMPSAT Argentina filed suit against one of its customers,
ENCOTESA, for amounts due and arising under IMPSAT Argentina's contract with
ENCOTESA, the Argentine national postal service. In December 1996, ENCOTESA
filed its reply to IMPSAT Argentina's claim. The court has not yet ruled upon
IMPSAT Argentina's claim against ENCOTESA. In September 1997, ENCOTESA was
privatized and emerged as Correo Argentino S.A. In connection therewith, the
claim by IMPSAT Argentina remained with ENCOTESA. Based on these developments,
the Company has reclassified the trade account receivables from ENCOTESA to
non-current assets at the estimated net realizable value of $5,143 as determined
by the Company's management based on the advice of local legal counsel. IMPSAT
Argentina and ENCOTESA have held discussions in an effort to settle IMPSAT
Argentina's claims against ENCOTESA, and during the pendency of such discussions
the parties have deferred further court proceedings. To date, the parties have
been unable to reach any settlement of the matter. The Company will continue to
assess the effect that the ENCOTESA receivables will have on its results of
operations, liquidity or capital resources.
F-16
<PAGE> 143
- ------------------------------------------------------
- ------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY TO ANY PERSON OR BY ANYONE IN ANY JURISDICTION
IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL OR TO ANY PERSON TO WHOM
IT IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 4
Prospectus Summary.................... 5
Risk Factors.......................... 16
Capitalization........................ 30
Selected Financial and Other Data..... 31
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 35
Business.............................. 50
Management............................ 77
Principal Stockholders................ 82
Certain Relationships and Related
Transactions........................ 83
Description of Certain Indebtedness... 86
The Exchange Offer.................... 86
Description of the Notes.............. 93
Certain United States Federal Income
Tax Considerations.................. 120
Plan of Distribution.................. 123
Legal Matters......................... 124
Experts............................... 124
Glossary.............................. 125
Index to Financial Statements......... F-1
</TABLE>
---------------------
UNTIL DECEMBER 27, 1998 (90 DAYS AFTER THE DATE OF THIS EXCHANGE OFFER),
ALL DEALERS OFFERING TRANSACTIONS IN THE NEW NOTES, WHETHER OR NOT PARTICIPATING
IN THIS EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
$225,000,000
IMPSAT CORPORATION
12 3/8% SENIOR NOTES DUE 2008
--------------------
PROSPECTUS
--------------------
SEPTEMBER 28, 1998
- ------------------------------------------------------
- ------------------------------------------------------
