<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 4, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
IMPSAT CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
DELAWARE 4899 52-1910372
<S> <C> <C>
(state or other jurisdiction (primary industrial (IRS Employer
of incorporation or classification code number) Identification Number)
organization)
</TABLE>
<TABLE>
<S> <C>
MAURICIO J. KLAU
IMPSAT USA, INC.
ALFEREZ PAREJA 256 (1107) 2040 NORTH DIXIE HIGHWAY
BUENOS AIRES, ARGENTINA WILTON MANORS, FLORIDA 33305
(5411) 4300-4007 (954) 779-7171
(Address, including zip code and (Name, address, including zip code,
telephone number, including area code, telephone number, including area code,
of registrant's principal executive offices) of agent for service for registrant)
</TABLE>
------------------------
Please send copies of communications to:
<TABLE>
<S> <C>
NEIL M. GOODMAN, ESQ. JAMES S. SCOTT, SR., ESQ.
ARNOLD & PORTER SHEARMAN & STERLING
555 TWELFTH STREET, N.W. 599 LEXINGTON AVENUE
WASHINGTON, D.C. 20004-1202 NEW YORK, NY 10022-4611
(202) 942-5000 (212) 848-4000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as possible after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
TITLE OF EACH CLASS OF PROPOSED MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common stock, $ par value...................... $150,000,000 $41,700
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457.
THE REGISTRANT HEREBY AMENDS THE REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and we are not soliciting offers to buy these
securities in any state where the offer or sale is not permitted.
PROSPECTUS (Subject to Completion)
Issued , 1999
Shares
[IMPSAT LOGO]
IMPSAT Corporation
COMMON STOCK
------------------------
IMPSAT CORPORATION IS OFFERING SHARES OF ITS COMMON STOCK. THIS IS OUR
INITIAL PUBLIC OFFERING AND NO PUBLIC MARKET CURRENTLY EXISTS FOR OUR SHARES. WE
ANTICIPATE THAT THE INITIAL PUBLIC OFFERING PRICE WILL BE BETWEEN $ AND
$ PER SHARE.
------------------------
WE HAVE APPLIED FOR OUR COMMON STOCK TO BE QUOTED ON THE NASDAQ NATIONAL MARKET
UNDER THE SYMBOL "IMPT."
------------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 10.
------------------------
PRICE $ A SHARE
------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS COMPANY
-------- ------------- -----------
<S> <C> <C> <C>
Per Share............................................ $ $ $
Total................................................ $ $ $
</TABLE>
We have granted the underwriters the right to purchase up to an additional
shares of common stock to cover over-allotments.
The Securities and Exchange Commission and state securities regulators have not
approved or disapproved these securities, or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
Morgan Stanley & Co. Incorporated expects to deliver the shares of common stock
to purchasers on , 1999.
------------------------
MORGAN STANLEY DEAN WITTER
GOLDMAN, SACHS & CO.
SALOMON SMITH BARNEY
, 1999
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 4
Risk Factors.......................... 10
Use of Proceeds....................... 23
Dividend Policy....................... 23
Capitalization........................ 24
Dilution.............................. 25
Selected Consolidated Financial and
Other Data.......................... 26
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 28
Industry Overview..................... 42
Business.............................. 45
Management............................ 68
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Certain Relationships and Related
Transactions........................ 75
Description of Our Indebtedness....... 79
Principal Stockholders................ 80
Description of Capital Stock.......... 82
Shares Eligible for Future Sale....... 86
Certain U.S. Tax Consequences to
Non-U.S. Holders.................... 87
Underwriters.......................... 90
Legal Matters......................... 92
Experts............................... 92
Where You Can Find More Information... 92
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
------------------------
You should rely only on the information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell shares of common stock and
seeking offers to buy shares of common stock only in jurisdictions where offers
and sales are permitted. The information contained in this prospectus is
accurate only as of the date of this prospectus, regardless of the time of
delivery of this prospectus or of any sale of the common stock. In this
prospectus, the "company," "IMPSAT," "we," "us" and "our" refer to IMPSAT
Corporation and its subsidiaries.
We have not taken any action to permit a public offering of our shares of common
stock outside the United States or to permit the possession or distribution of
this prospectus outside the United States. Persons outside the United States who
come into possession of this prospectus must inform themselves about and observe
any restrictions relating to the offering of the shares of common stock and the
distribution of this prospectus outside the United States.
Until , 1999, all dealers that buy, sell or trade in common stock,
whether or not participating in this offering, may be required to deliver a
prospectus. This delivery requirement is in addition to the dealers' obligation
to deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
------------------------
Our principal executive offices are located at Alferez Pareja 256, 1107 Buenos
Aires, Argentina and our telephone number is 011-54-11-4300-4007. Our World Wide
Web site address is www.IMPSAT.com. The information on our web site is not
incorporated by reference into this prospectus.
Our logo and certain titles and logos of our services are our trademarks. Each
trademark, trade name or service mark of any other company appearing in this
prospectus belongs to its holder. 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 our service marks or trademarks that are
registered or otherwise protected under the laws of various jurisdictions.
2
<PAGE> 4
FORWARD-LOOKING STATEMENTS
Some of the statements under "Risk Factors," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Business" and
elsewhere in this prospectus are forward-looking statements. These statements
involve known and unknown risks, uncertainties and other factors which may cause
our actual results, performance or achievements to be materially different from
any future results, performance or achievements expressed or implied by the
forward-looking statements. Forward-looking statements include but are not
limited to:
- our expectations and estimates as to completion dates, construction costs
and subsequent maintenance and growth of the broadband network we plan to
build
- our ability to implement successfully our operating strategy and to sell
capacity on our planned broadband network
- future financial performance, including growth in sales and income
- our plan to address the year 2000 issue, the costs associated with year
2000 compliance and the results of year 2000 non-compliance by us or one
or more of our customers, suppliers or other persons
In addition to factors that may be described in this prospectus,
particularly cautionary statements in "Risk Factors", the following factors,
among others, could cause our actual results to differ materially from those
expressed in any forward-looking statements we make:
- the rate of expansion of our network and/or customer base
- inaccuracies in our forecasts of customer or market demand
- loss of a customer that provides us with significant revenues
- highly competitive market conditions
- changes in or developments under laws, regulations and licensing
requirements
- changes in telecommunications technology
- currency fluctuations
- changes in economic conditions in the Latin American countries where we
operate
These factors should not be construed as exhaustive. We will not update or
revise any forward-looking statements.
------------------------
The information in this prospectus has been adjusted to reflect a
for common stock share split and the conversion of
outstanding shares of our preferred stock into shares of our common stock,
both of which will occur upon the closing of this offering. Except where
indicated, the information in this prospectus does not take into account the
exercise of any of our outstanding options or the possible issuance of
additional shares of our common stock relating to the underwriters'
over-allotment option.
This prospectus includes statistical data concerning the telecommunications
industry that we obtained from industry publications. These publications
generally indicate that they have obtained information from sources that they
believe are reliable, but that they do not guarantee the accuracy and
completeness of the information. Although we believe that these industry
publications are reliable, we have not independently verified their data. We
also have not sought the consent of any of these publications to refer to their
data in this prospectus.
3
<PAGE> 5
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding our company, our common stock being sold in this offering
and our financial statements and notes thereto appearing elsewhere in this
prospectus.
IMPSAT
OVERVIEW
We are a leading provider of private telecommunications network and
Internet services in Latin America. We offer tailor-made, integrated data, voice
and Internet solutions, with an increasing emphasis on broadband transmission,
for national and multinational companies, financial institutions, governmental
agencies and other business customers. We also offer dedicated Internet services
to Internet service and content providers.
We have operations in Argentina, Colombia, Venezuela, Ecuador, Mexico,
Brazil and the United States and also provide our services in other countries in
Latin America. We currently provide telecommunications and Internet services
through our networks, which consist of owned fiber optic and wireless links,
teleports, earth stations and leased fiber optic and satellite links. We own and
operate 12 metropolitan area networks in some of the largest cities in Latin
America, including Buenos Aires, Bogota, Caracas and Sao Paulo.
We are building an extensive pan-Latin American broadband fiber optic
network, which will enhance the services we presently provide and significantly
increase our transmission speed and capacity. Our new network will consist of
long-haul, high capacity fiber optic backbones and metropolitan area fiber optic
and wireless links and will use advanced transmission technologies, including
dense wave division multiplexing, or DWDM, asynchronous transfer mode, or ATM,
and Internet protocol, or IP. We call this new network our Broadband Network. We
already own and operate a long-haul, fiber optic network connecting the cities
of Cali, Medellin and Bogota in Colombia over a 422 mile route. By November
2000, we expect to have built out our Broadband Network to connect major cities
across Argentina and Brazil.
OUR COMPETITIVE STRENGTHS
We believe that we distinguish ourselves from our competitors through
several competitive strengths, including:
- strong presence in high growth telecommunications markets in Latin
America
- established and growing base of "blue chip" business customers
- early development of our extensive Broadband Network
- enduring commitment to superior customer service
- strong equity sponsors, including British Telecommunications and Morgan
Stanley Dean Witter
We also believe that we have differentiated ourselves from our competitors
through our proven historical operating performance. From 1992 to 1998:
- our business customer base grew from 125 customers in two countries to
1,467 customers in seven countries
- property, plant and equipment grew from $47.9 million to $330.7 million
- total consolidated revenues grew from $20.5 million to $208.1 million
- EBITDA grew from $7.9 million to $63.8 million
4
<PAGE> 6
OUR BUSINESS STRATEGY
We intend to strengthen our market leadership position by:
- expanding and enhancing our service offerings through our Broadband
Network
- focusing on business, government, Internet service provider and
telecommunications carrier customers in Latin America
- increasing our market share by capitalizing on our pan-Latin American
presence, one-stop shopping capability, operating experience and regional
reputation
THE BROADBAND NETWORK
The Latin American markets in which we operate are expected to experience
compounded annual telecommunications and data services revenue growth of
approximately 14% and 24%, respectively, from 1998 through 2002. We believe that
this forecasted growth, coupled with continued deregulation in Latin America,
will fuel demand for additional broadband capacity. To take advantage of this
demand, we are constructing our Broadband Network, which will enable us to
provide high capacity, high speed telecommunications services across Latin
America. Our Broadband Network will consist of:
- long-haul, high capacity fiber optic backbones linking major cities in
Latin America
- fiber optic local rings and wireless access points within major cities in
Latin America, including Buenos Aires, Sao Paulo, Rio de Janeiro, Bogota
and Caracas
- capacity on undersea cable systems to provide connections among major
Latin American cities, as well as global telecommunications connectivity
and Internet access
We believe that our Broadband Network will enable us to:
- cost-effectively offer more bandwidth-intensive services in the near
future, including intranet and extranet services
- substantially reduce our costs for leased satellite capacity and leased
telecommunications links as a percentage of our net revenues
- create a high capacity, pan-Latin American Internet backbone
- offer Latin American companies more efficient access to the U.S. Internet
backbone
- continue to provide consistent, high quality service by keeping our
customer traffic on our network
Upon completion, we expect that our Broadband Network will have the
capacity to transmit up to 5.7 terabits, or 5.7 trillion bits, of data per
second.
Nortel Agreements. In September 1999, we executed two agreements with
Nortel Networks Inc. to construct the Broadband Network in Argentina and Brazil
for approximately $265 million. We are also negotiating an agreement with Nortel
to finance this project.
Global Crossing Agreement. In July 1999, we signed an agreement with Global
Crossing Development Co. for our purchase of at least $46 million in
indefeasible rights of use of capacity on Global Crossing's South American fiber
optic network and on other segments of its networks. These rights should enable
us to interconnect our networks in Argentina and Brazil and other Latin American
markets, while giving us global telecommunications access.
Following the completion of the Broadband Network in Argentina and Brazil,
we plan to expand our Broadband Network to Colombia and Venezuela.
5
<PAGE> 7
THE IMPSAT SOLUTION
Our telecommunications solutions typically consist of combinations of
services from our five service lines:
- NETWORK SERVICES. We offer our customers a broad range of end-to-end
network services for their point-to-point and point-to-multipoint
telecommunications needs, ranging from simple connectivity to customized
private telecommunications network solutions.
- INTERNET SERVICES. We offer Internet services to corporate customers and
Internet service providers, or ISPs. Our Broadband Network will allow us
to offer these services at higher speeds, with greater capacity and wider
geographic coverage.
- CARRIER'S CARRIER SERVICES. In the year 2000, we intend to offer dark
fiber capacity, "lit fiber" services and duct capacity to ISPs and
telecommunications carriers. These services will include high-bandwidth
links, co-location services, operation and maintenance services and
equipment provisioning.
- TELEPHONY SERVICES. We intend to offer national and international long
distance services to our corporate customers and resellers. We have a
license to provide these services in Argentina starting in November 2000
and expect to provide these services in Brazil in 2004.
- OTHER SERVICES. We offer transactional services that facilitate the
e-commerce and e-business initiatives of our customers. We also offer
information technology services, which include the design, installation
and integration of intranets, extranets and virtual private data
networks.
6
<PAGE> 8
THE OFFERING
Common stock offered....... shares
Common stock to be
outstanding after this
offering................. shares
Over-allotment option...... shares
Voting rights.............. One vote per share
Use of proceeds............ We intend to use the net proceeds:
- to make capital expenditures relating to the
Broadband Network
- to redeem approximately $ million of our
outstanding preferred stock
- for potential acquisitions
- for working capital and general corporate
purposes, including to fund losses
Dividend policy............ We do not intend to pay dividends on our common
stock. We plan to retain earnings, if any, for use
in the operation of our business and to fund future
growth. In addition, our indentures severely
restrict the payment of dividends. See "Description
of Our Indebtedness."
Proposed Nasdaq National
Market symbol............ IMPT
As of September , 1999, we had shares of common stock outstanding,
as adjusted to give effect to the conversion of outstanding shares of
preferred stock into shares of common stock upon the closing of this
offering and the redemption of all remaining shares of our preferred stock. This
does not include outstanding options to purchase shares of common stock at
exercise prices of $ and $ per share. See "Capitalization,"
"Management -- Stock Option Grants" and "Underwriters."
7
<PAGE> 9
SUMMARY FINANCIAL AND OTHER DATA
The following financial data are derived from our audited consolidated
financial statements, except for the six-month data, which are derived from our
unaudited consolidated financial statements.
Our net loss per share on a pro forma basis and our balance sheet data on
an as adjusted basis give effect to:
- the common stock split
- this offering
- the redemption of approximately $ million of our preferred stock and
the conversion of the remaining shares of our preferred stock into shares
of our common stock
as if these events had occurred at the beginning of the periods presented. The
pro forma amounts do not give effect to any interest income earned on the
proceeds of this offering pending our application of those proceeds.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------- -------------------
1996 1997 1998 1998 1999
--------- --------- --------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues from services........... $ 128,393 $ 161,065 $ 208,089 $ 93,651 $111,218
Costs and expenses................... (110,328) (137,701) (181,219) (82,518) (109,551)
--------- --------- --------- -------- --------
Operating income..................... 18,065 23,364 26,870 11,133 1,667
Interest expense, net................ (23,185) (24,272) (44,698) (17,191) (28,106)
Income attributable to minority
interest........................... (1,766) (993) (2,502) (596) (141)
Net loss............................. $ (8,483) $ (7,591) $ (33,987) $(13,341) $(37,948)
========= ========= ========= ======== ========
Comprehensive loss................... $ (8,483) $ (7,591) $ (34,513) $(13,341) $(41,121)
========= ========= ========= ======== ========
Loss per common share, basic and
diluted............................
Net loss per share, pro forma........
Weighted average number of shares of
common stock outstanding, pro
forma..............................
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1999
-----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $151,501 $
Property, plant and equipment, net.......................... 346,894 346,894
Total assets................................................ 632,023
Total debt.................................................. 426,748 426,748
Total long-term debt, net of current portion................ 388,784 388,784
Minority interest........................................... 12,925 12,925
Stockholders' equity (deficit).............................. (21,420)
</TABLE>
8
<PAGE> 10
"EBITDA" is defined as operating income plus depreciation and amortization
expense. We are presenting EBITDA because some investors use it as a measure of
a company's ability to service its debt and as a measure of operating
performance. However, EBITDA is not determined using generally accepted
accounting principles and, therefore, our EBITDA is not necessarily comparable
to EBITDA of other companies. Investors should not view EBITDA as an alternative
to cash flows calculated under generally accepted accounting principles, which
we have also presented. EBITDA is not "free cash flow," because it will be used
to pay interest expense and, if we have anything left after we pay our interest
expense, to pay taxes and make capital expenditures.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------- -------------------
1996 1997 1998 1998 1999
--------- --------- --------- -------- --------
(IN THOUSANDS, EXCEPT OTHER DATA)
<S> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
EBITDA............................... $ 44,383 $ 52,037 $ 63,816 $ 27,762 $ 24,996
Cash flow provided by (used in):
Operating activities............... 9,843 17,139 16,740 18,338 (21,935)
Investing activities............... (53,681) (58,080) (128,155) (64,634) (40,032)
Financing activities............... 66,517 22,485 191,523 236,495 126,620
Capital expenditures................. 53,998 56,440 109,934 48,339 40,338
OTHER DATA (AT PERIOD END):
Customers............................ 907 1,192 1,467 1,321 1,579
Customer sites....................... 4,240 5,300 6,370 5,797 6,856
</TABLE>
9
<PAGE> 11
RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. The risks and uncertainties described below are not the
only ones facing our company. Additional risks not presently known to us or that
we currently deem immaterial may also impair our business operations.
Our business, financial condition and results of operations could be
materially adversely affected by any of the following risks. The trading price
of shares of our common stock could decline due to any of these risks, and you
might lose all or part of your investment.
This prospectus also contains forward-looking statements that involve risks
and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including the risks faced by us described below or elsewhere.
WE HAVE SUBSTANTIAL DEBT AND WE MAY LACK FINANCIAL RESOURCES TO MEET OUR
OBLIGATIONS OR SUPPORT OUR BUSINESS AND OPERATIONS
As of June 30, 1999, we had approximately $426.7 million of indebtedness on
a consolidated basis and our stockholder's equity was, on an as adjusted basis,
approximately $ million. Our significant indebtedness could have a
material adverse effect on our business, results of operations and the market
price of our common stock.
We had an annual net interest expense of approximately $44.7 million for
1998. At June 30, 1999, our ratio of debt to EBITDA for the prior four quarters
was 6.9 times. Our fixed charges exceeded our earnings by approximately $7.1
million, $2.7 million, and $22.5 million for 1996, 1997 and 1998, respectively.
For the first half of 1999, our fixed charges exceeded our earnings by $36.2
million.
Our indebtedness could have important consequences for our stockholders,
including:
- our level of indebtedness could make it difficult for us to obtain future
financing
- our level of indebtedness could limit our ability to react to changes in
the marketplace
- a substantial portion of our income must be allocated to making principal
and interest payments and is not available for other purposes
- we are more indebted than a number of our competitors and this may place
us at a competitive disadvantage in the future
WE MAY BE UNABLE TO RAISE THE ADDITIONAL CAPITAL NECESSARY TO CONTINUE GROWING
OUR BUSINESS
We will require significant amounts of additional capital to fund:
- the expansion of our private telecommunications networks, including the
Broadband Network
- the acquisition of businesses and investments in joint ventures and
strategic alliances
- working capital
Continuing to build out the Broadband Network will require significant
amounts of additional capital that is not available in our capital expenditures
budget. We cannot assure you that we will be able to obtain sufficient capital
on acceptable terms to fund the full reach of the Broadband Network. If we fail
to obtain financing, we may have to delay or abandon some or all of our
expansion plans, which could have a material adverse effect on us. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" for an estimate of our capital
expenditure requirements through the year 2000.
10
<PAGE> 12
The exact amount and timing of our future capital requirements will depend
upon many factors, including:
- the cost, timing and extent of upgrading or expanding our networks and
services
- the development of new services
- our ability to penetrate new markets
- regulatory changes
- the status of competing services
- the magnitude of potential acquisitions, investments and strategic
alliances
- our results of operations
During 1998, our cash flow from operations totaled $16.7 million and
capital expenditures totaled $110 million. In addition, as of June 30, 1999,
approximately $37.9 million of our debt was scheduled to mature in 1999, and
approximately $388.8 million thereafter. We have historically incurred
substantial amounts of short-term debt. Although we do not have material
commitments from any lenders or suppliers, we may borrow substantial amounts of
short-term debt in the future.
We or our subsidiaries may obtain new capital through subsequent public and
private equity and debt financings. If we incur additional indebtedness, we may
be subject to more restrictive financial covenants. We cannot assure you that
additional financing will be available on acceptable terms or at all. If
unplanned expenditures arise or our estimates of our capital requirements prove
to be inaccurate, we may require additional financing sooner than anticipated
and/or require more than we currently expect.
WE HAVE NOT BEEN OPERATING VERY LONG AND HAVE A HISTORY OF INCURRING LOSSES
WHICH MAY MAKE IT DIFFICULT TO FUND OUR FUTURE OPERATIONS
We have a limited operating history. We commenced commercial operations in
1990 and have experienced rapid growth, increasing annual revenues from $8.2
million in 1991 to $208.1 million in 1998. We have, however, incurred net losses
in every year except 1994. Our historic rate of growth and expansion may not
continue. In particular, our rates of growth in Argentina and Colombia have
slowed considerably in recent periods. If we do not achieve and sustain
profitability, our ability to respond effectively to market conditions, to make
capital expenditures and to take advantage of business opportunities could be
negatively affected.
We have recorded comprehensive losses of $2.8 million in 1993, $7.4 million
in 1995, $8.5 million in 1996, $7.6 million in 1997 and $34.5 million in 1998.
In 1994, we recorded net income of $3.0 million. Our ability to achieve and
sustain profitable operations depends on many circumstances, including market
demand, pricing and competition in the telecommunications industry in the
countries where we operate. Our failure to perform could have a material adverse
effect on our business, results of operations and financial condition and the
market price of our common stock.
CONTINUED GROWTH OF OUR BUSINESS DEPENDS UPON OUR ABILITY TO MANAGE EXPANSION
AND DEVELOPMENT EFFECTIVELY
Our ability to manage our expansion effectively will require us to continue
to implement and improve our operating, financial and accounting systems and to
hire, train and manage new employees. Among other things, the continued
expansion and development of our business will also depend upon our ability to:
- construct the Broadband Network
- design and develop integrated private telecommunications networks
- secure financing
- install telecommunications infrastructure
- obtain any required government authorizations
11
<PAGE> 13
- evaluate and penetrate potential new markets
- hire enough qualified employees
In addition, we must perform these tasks in a timely manner, at reasonable costs
and on satisfactory terms and conditions. Failure to effectively manage our
planned expansion could have a material adverse effect on our business, growth,
financial condition, results of operations and the market price of our common
stock.
Our expansion may involve acquiring other companies or assets. These
acquisitions could divert our resources and management attention and require
integration with our existing operations. We cannot assure you that these
acquisitions will be successful. We further cannot assure you that we will be
successful or timely in developing and marketing service enhancements or new
services that respond to technological change, changes in customer requirements
and emerging industry standards. Even if we are successful, we cannot assure you
that our lack of significant experience with respect to a new service or market
will not hinder our ability to successfully capitalize on any such opportunity.
WE FACE NUMEROUS RISKS THAT COULD ADVERSELY AFFECT THE DEVELOPMENT OF OUR
BROADBAND NETWORK
DEVELOPING AND IMPLEMENTING THE BROADBAND NETWORK MAY HAVE A NEGATIVE IMPACT
ON OUR RESULTS OF OPERATIONS
Developing and implementing the build-out of the Broadband Network, which
includes the expansion into new services for our business customers, will
involve:
- regulatory risks, including obtaining the appropriate licenses
- interconnection difficulties
- large amounts of capital expenditures
- competition from large, well-financed international telecommunications
carriers (such as AT&T Corporation, MCI WorldCom, Inc., Sprint
Corporation, Telecom Italia, Spain's Telefonica S.A. and others)
- substantial start-up and marketing costs
The development and implementation of the Broadband Network may have a
negative impact on our results of operations, at least over the short term. For
example, when we shift our customers from our satellite based networks to our
Broadband Network's terrestrial facilities, our revenues and results of
operations could be adversely affected by the service disruptions and conversion
costs (for example, earth station de-installation expenses) associated with
complying with these requests.
WE MUST COMPLETE THE BROADBAND NETWORK EFFICIENTLY AND ON SCHEDULE TO
IMPLEMENT SUCCESSFULLY OUR BUSINESS STRATEGY
The construction, operation and any upgrading of the Broadband Network is a
significant undertaking. Administrative, technical, operational and other
problems that could arise may be more difficult to address and solve due to its
size and complexity. The Broadband Network may be more costly than planned and
may take longer to complete than we currently estimate. We may be materially
adversely affected as a result of any significant increase in the estimated cost
of the Broadband Network or any significant delay in its anticipated completion.
The successful and timely completion of the Broadband Network will be affected
by a variety of factors, many of which we cannot control, including:
- our management of costs related to construction of route segments
- our ability to obtain required licenses, regulatory approvals and
rights-of-way
- timely performance by contractors, including Nortel
12
<PAGE> 14
- performance of the fiber and equipment used in the Broadband Network
- our ability to attract and retain qualified personnel
- our ability to obtain any needed additional financing
WE NEED TO OBTAIN AND MAINTAIN THE NECESSARY RIGHTS-OF-WAY FOR THE BROADBAND
NETWORK
We have obtained rights-of-way covering approximately 90% of the long-haul
segments of the Broadband Network in Argentina and Brazil and are currently
negotiating for rights-of-way covering our proposed metropolitan area rings in
Argentina and Brazil. While we believe that we will obtain all remaining
rights-of-way, we cannot assure you that we will be able to maintain all of our
existing rights and permits or that we will be able to obtain and maintain all
additional rights and permits needed to construct and operate the Broadband
Network in accordance with our plans.
EXPANSION OF THE BROADBAND NETWORK WILL REQUIRE SUBSTANTIAL ADDITIONAL
RESOURCES THAT WE MAY NOT HAVE
We may need to expand and adapt the Broadband Network to respond to:
- higher than expected growth in the number of our customers
- increased demands by our existing customers to transmit larger amounts of
data
- changes in our customers' service requirements
- technological advances by our competitors
We will require substantial additional financial, operational and
managerial resources to expand or adapt the Broadband Network. If we are unable
to expand or adapt the Broadband Network to respond to these developments on a
timely basis and at a commercially reasonable cost, then our business will be
materially adversely affected.
OUR FAILURE TO ACQUIRE, INTEGRATE AND OPERATE NEW TECHNOLOGIES COULD HARM OUR
COMPETITIVE POSITION
The telecommunications industry is characterized by rapid and significant
technological advancements and the introduction of new products and services. We
do not possess significant intellectual property rights with respect to the
technologies we use and we are dependent on third parties for the development of
and access to new technology. In addition, we generally own the equipment we use
to provide our services and we will own the fiber optic networks, including
switching equipment, that will constitute the Broadband Network. Therefore,
technological changes that render our equipment out of date, less efficient or
more expensive to operate than newer equipment could cause us to incur
substantial increases in capital expenditures to upgrade or replace such
equipment.
We cannot predict the effect on our business of technological changes, such
as changes relating to emerging wireline and wireless transmission technologies
and the use of the Internet for traditional voice, data or other broadband
services. In addition, it is impossible for us to predict with any certainty
whether demand for data transmission services in our markets will continue to be
strong or which data transmission technology will prove to be the most economic,
efficient or capable of attracting new customers. A reduction in the demand for
data transmission services or a failure by us to obtain and adapt to new
technology in our markets could have a material adverse effect on our ability to
compete successfully.
WE FACE SIGNIFICANT COMPETITION IN LATIN AMERICA
The private telecommunications network industry in Latin America is highly
competitive and is generally characterized by low barriers to entry. We expect
that competition in the industry is likely to increase substantially. We compete
on the basis of our experience, quality, customer service, range of services
offered and price.
13
<PAGE> 15
Recently we have experienced pricing pressure for some of our services in
our more mature markets, and we expect to continue to face pricing pressure. We
may further experience declining operating profit margins as the monopoly public
telephony operators, or PTOs, in the countries in which we operate become more
competitive and place greater emphasis on data telecommunications. In addition,
we expect new competitors to enter our markets.
PTOS HAVE COMPETITIVE ADVANTAGES IN THE MARKETPLACE
In most of our markets, our principal 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. These advantages
generally include:
- close ties with national regulatory authorities
- control over connections to local telephone lines
- ability to subsidize competitive services with revenues generated from
services they provide on a monopoly basis
- reluctance of regulators to adopt policies and grant regulatory approvals
that will result in increased competition
For example, our principal competitors in Argentina are Telecom Soluciones
S.A. and Advance Telecomunicaciones S.A., which are data transmission companies
controlled by Telecom Argentina STET-France Telecom S.A. and Telefonica de
Argentina S.A., respectively. Telecom Argentina and Telefonica are the PTOs in
northern and southern Argentina, respectively. Telecom Soluciones and Advance
Telecomunicaciones use the infrastructure of their PTO owners to deliver
services to their customers. In addition, we face competition from emerging
private telecommunications providers such as MetroRED Telecommunications S.A and
Diginet S.A. These companies are data transmission service providers with
expanding operations in Argentina and Brazil.
In the future, the PTOs may devote substantially more resources to the
sale, marketing and provision of services that compete with us, which could have
a material adverse effect on our business, results of operations and financial
condition and the market price of our common stock.
INTERNATIONAL TELECOMMUNICATIONS CARRIERS HAVE GREATER RESOURCES THAN WE DO
We compete with private operators of VSAT (very small aperture terminal)
networks, other satellite data transmission networks and terrestrial
telecommunications links. We also compete with companies that sell the equipment
for privately owned data transmission networks that are maintained by the user.
We expect to face new competition from large international telecommunications
carriers, such as AT&T, MCI WorldCom and Sprint, or from other industry
participants. While international telecommunications carriers have 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, when the Argentine government permits
competition in long distance telephony in 2000, these large telecommunications
carriers may enter the Argentine telephony market and provide data transmission
services as well. Many of these potential competitors have substantially greater
financial and other resources than we do. In addition, consolidation of
telecommunications companies and the formation of strategic alliances within the
telecommunications industry could give rise to significant new competitors. For
example, Spain's Telefonica and MCI WorldCom have formed an alliance to
cooperate globally, including in Latin America. If any of our competitors or
potential competitors devote significant additional resources to the provision
of private telecommunications network services to our customers, there could be
a material adverse effect on our business, financial condition and results of
operations and the market price of our common stock.
14
<PAGE> 16
OUR COMPETITORS COULD TAKE ADVANTAGE OF NEW OR COMPETING TECHNOLOGIES TO OUR
DETRIMENT
Although we believe we have the flexibility to act quickly to take
advantage of any significant technological development, new competing
technologies may negatively affect our business. For example, new technologies
such as asynchronous digital subscriber line, or ADSL, can significantly enhance
the speed of traditional copper lines. ADSL or other technologies could enable
our PTO competitors to offer new high-speed services without undergoing the
expense of replacing their existing copper networks. Widespread use of ASDL in
our markets could have a material adverse effect on our "last mile" advantage.
Our private telecommunications network services may face competition from
entities that use new or emerging voice and data transmission services or
technologies which currently are not widely available in Latin America. Examples
of these technologies are space-based systems dedicated to data distribution
services, generally known as "Little-LEOs" (low earth orbit satellites) and
"Broadband" (Ka-band) systems. Furthermore, competing technologies may gain
market and commercial acceptance. If these technologies are successful, they may
provide significant long-term competition that could have a material adverse
effect on our business, results of operations and financial condition and the
market price of our common stock.
OUR REVENUES WILL DETERIORATE IF WE CANNOT COLLECT ON OUR CUSTOMER ACCOUNTS
Our subsidiaries provide trade credit to their customers in the normal
course of business. As of June 30, 1999, excluding two customers against whom we
have commenced legal collection actions, approximately 11% of our gross accounts
receivable were past due more than six months but less than one year and
approximately 16% were past due more than one year. Excluding those two
customers, our allowance for doubtful accounts was approximately $10.8 million
(or 20% of gross accounts receivable) at June 30, 1999.
A significant part of our past due receivables relates to Banco de la
Nacion Argentina, or BNA, and Empresa Nacional de Correos y Telegrafos S.A., the
former Argentine national postal service known as ENCOTESA. For descriptions of
these matters, see "Business -- Legal Matters."
Prior to June 30, 1998, we generally reserved an amount equal to 30% of
accounts receivable in excess of 180 days past due but less than one year, and
100% of accounts receivable in excess of 360 days past due. At the end of the
second quarter of 1998, we decided to change our policy of reserving for
doubtful accounts and increased our reserve to cover 100% of accounts receivable
in excess of 180 days past due. We have not applied this policy to a past due
receivable if the president of the operating subsidiary that generated the
receivable determines that it will be collected within a further 60 days.
We have decided to change our provisioning policy to remove the discretion
previously granted to the presidents of our operating subsidiaries to override
the provisioning of amounts more than 180 days past due and to reserve 100% of
our outstanding receivables due from BNA and ENCOTESA. We anticipate that our
new policy will be reflected in our results of operations for the third quarter
of 1999 and will result in a one-time charge of approximately $8.5 million. In
addition, in light of a slowdown in the collection of receivables commencing in
the second quarter of 1999, which we believe is due to economic difficulties
experienced in our countries of operation, we have decided to add approximately
$1.9 million to our allowance for doubtful accounts. This charge will be
recorded in the third quarter of 1999.
We cannot assure you that difficulties in collecting amounts due from
customers will not have a material adverse effect on our business, results of
operations and financial condition and the market price of our common stock.
ECONOMIC AND POLITICAL CONDITIONS IN LATIN AMERICA POSE NUMEROUS RISKS TO OUR
OPERATIONS
Substantially all of our revenues from services are derived from operations
in Latin America. During 1998 and the first six months of 1999, we derived
approximately 46.7% and 50.8%, respectively, of our consolidated net revenues
from services provided by IMPSAT Argentina and approximately 27.7% and 30.0%,
respectively, by IMPSAT Colombia. We have also established operations in
Venezuela, Mexico and Ecuador, and in 1998 we began operations in Brazil. An
investment in our common stock is subject to risks of doing business in
15
<PAGE> 17
Latin America. Other than the United States, each country where we operate 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, events over
the past twelve months in other developing markets have placed pressures on the
stability of the currencies of a number of countries in Latin America, including
Argentina, Brazil, Colombia, Ecuador and Venezuela. Continued pressures on the
local currencies in the countries in which we operate are likely to have an
adverse effect on many of our customers, which could in turn adversely affect
us. Volatility in regional currencies and capital markets has also had an
adverse effect on our ability and that of our customers to gain access to
international capital markets for necessary financing and refinancing. Continued
closure of international capital sources to emerging market borrowers could have
a material adverse effect on us and many of our customers.
We do not expect fundamental improvements in macroeconomic conditions in
Latin America in the short term. We cannot assure you that economic difficulties
in Latin America will cease, including volatility in regional currencies and
capital markets, which would have a material adverse effect on our business,
results of operations and financial condition and the market price of our common
stock.
Argentina. While we anticipate that our business outside Argentina will
increase in the coming years, Argentina is expected to remain our most
significant market for the foreseeable future and, accordingly, developments in
Argentina are of particular importance to our future success.
The instability and volatility in the world financial markets, which began
with the crisis in the markets of Southeast Asia in 1998 and spread to Russia
and Brazil, has negatively affected the Argentine economy and financial markets.
In addition to the effects of the economic difficulties experienced in Brazil,
Argentina's largest trading partner, in the first six months of 1999, Argentina
has experienced a decline in investor confidence as a result of domestic
political and economic developments. In August 1999, Moody's Investors Services
put Argentina's sovereign debt on a negative credit watch. Investors are
concerned about Argentina's economy because of a growing economic recession, an
increasing budget deficit and political uncertainties related to the upcoming
presidential election in October 1999. The investment community's primary
concern with respect to the presidential elections is that the new government
may not have an investor-friendly economic agenda or that it may reverse some of
the economic restructuring initiatives such as the convertibility system (in
which the Argentine peso and the dollar can be used interchangeably) implemented
by the current government. We are unable to predict the effect of the recession
on our business, financial condition and results of operations or the market
price of our common stock. In addition, we cannot assure you that future
uncertainties preceding and resulting from the presidential elections will not
negatively impact the Argentine economy, or that the Argentine monetary
authorities will continue to support the existing peso/dollar exchange rate.
Colombia. Colombia is our second largest market. The Colombian economy
began experiencing a severe economic crisis in 1998. During the last quarter of
1998, Colombia's economy contracted by 6% from 1997. A combination of low
international commodity prices, a decline in global lending to emerging markets,
a drop in domestic consumption and high interest rates have resulted in an
economic recession and a negative economic forecast for the remainder of 1999.
Preliminary figures indicate that the Colombian economy will contract in 1999
for the first time in over half a century and that Colombia's GDP fell by 4.8%
in the first quarter of 1999. In June of this year, Colombia's central bank
effectively devalued the Colombian peso by 9% by widening the foreign exchange
band for the peso, and in September 1999, the central bank discontinued the use
of the foreign exchange band and permitted the peso to float freely against the
U.S. dollar. In the third quarter of 1999, citing Colombia's macroeconomic
imbalances and rising levels of government debt, Moody's Investors Services and
Standard & Poor's downgraded the country's credit rating to below "investment
grade." In addition to increasing borrowing costs for Colombian companies, the
impairment of Colombia's credit rating could further lower investor confidence
in that country and compound its economic difficulties.
Colombia has experienced periods of criminal violence over the past four
decades, primarily from leftist guerrilla groups and drug-related activities.
Despite the promise of peace negotiations between the Colombian government and
the main left-wing guerrilla group, known as FARC, a recent offensive by FARC
resulted in
16
<PAGE> 18
an estimated over 200 deaths among Colombian armed forces, guerilla members and
non-combatants. The offensive led the Colombian government to cede effective
control of certain portions of the country to guerilla forces, order a curfew in
certain regions of the country and place the military on a heightened state of
alert. We cannot assure you that these matters, individually or cumulatively,
will not materially adversely affect our business, results of operations and
financial condition and the market price of our common stock.
Venezuela. Our operations in Venezuela, which is currently our third
largest market in terms of revenues generated, are expected to grow. The
Venezuelan government exercises significant control over the Venezuelan economy.
This control has included extensive regulation, including foreign exchange and
price controls. In the last 15 years, Venezuela has experienced periods of slow
or negative growth, high inflation, currency devaluations and limited
availability of foreign exchange. Venezuela's ongoing budget deficit, due in
part to the decline in international oil prices in 1998 and the first half of
1999, has put pressure on the Venezuelan economy. Venezuela has experienced high
levels of inflation during the past decade. The general rate of inflation, as
measured by the consumer price index, was 103.2% in 1996, 37.6% in 1997 and
29.9% in 1998.
The Venezuelan economy is expected to decline by over 5% in 1999. In
addition, Venezuela is experiencing a period of political uncertainty as a
result of the actions of a Constitutional Assembly that was elected to propose a
new constitution. This project is part of a program by Venezuela's newly elected
president, Mr. Hugo Chavez, to reform and amend the Venezuelan political system.
To date, the Constitutional Assembly has declared constitutional emergencies and
taken steps to exert authority over and replace Venezuela's judiciary and
Congress. The heightened tensions between the executive branch and the
Constitutional Assembly, on the one hand, and the Venezuelan Congress, on the
other hand, have made investors reluctant to provide funds to Venezuela. The
Constitutional Assembly is expected to draft a new Constitution for ratification
by the end of 1999. We cannot assure you that continued tension between the
different branches of Venezuela's government or the implementation of a new
Constitution will not have a material adverse effect on the Venezuelan economy
and our business, results of operations and prospects in Venezuela.
Brazil. Although our business in Brazil is currently limited, we expect
Brazil to constitute an increasing share of our business and revenues.
Throughout the 1980s and into the 1990s, the Brazilian economy has suffered from
periods of extremely high rates of inflation and recession. Historically,
Brazil's currency has frequently depreciated in relation to the U.S. dollar. At
the end of 1998, foreign exchange reserves in Brazil declined to $40 billion
from nearly $70 billion at the end of August 1998. Outflows of Brazil's foreign
reserves as a result of the Russian economic crisis (and the subsequent impact
on risk perception of investments in emerging market countries in general) and
high rates of inflation prevailing in the Brazilian economy put pressure on the
real. The Brazilian government permitted the real to float freely against the
U.S. dollar in January 1999. Since that time, the real has devalued to a low of
R$2.165 = $1.00 on March 3, 1999. At September 15, 1999, the real traded at a
rate of R$1.781 = $1.00. We cannot assure you 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. A continued downturn in Brazil's
economy could further affect other Latin American countries through the loss of
investor confidence and shocks to intra-regional trade.
Rapid changes in Brazilian political and economic conditions require us to
continually assess the risks associated with our operations in Brazil and adjust
our business and operating strategy. Although the Brazilian government has
indicated that it is committed to solving the recent economic crisis caused by
the devaluation of the Brazilian real, it will have to overcome internal
political resistance to austerity measures as the economic recession worsens and
unemployment figures rise. Economic forecasts suggest that the Brazilian economy
could suffer a recession for the remainder of 1999 as economic austerity
measures and high interest rates depress consumption and investment. If the
Brazilian government fails to contain the current economic crisis, it could have
an adverse material effect on our business, results of operations and financial
condition and the market price of our common stock.
17
<PAGE> 19
WE ARE VULNERABLE TO CURRENCY FLUCTUATIONS, DEVALUATIONS AND RESTRICTIONS THAT
MAY RESULT IN LOSSES OR INCONSISTENT PROFITABILITY
A substantial portion of our costs, including lease payments for satellite
transponder capacity, purchases of capital equipment, and payments of interest
and principal on our indebtedness, is payable in U.S. dollars. To date, we have
not entered into hedging or swap contracts to address currency risks because our
contracts with our 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. These contractual
provisions are structured to reduce our risk if currency exchange rates
fluctuate. However, given that the exchange rate is generally set at the date of
invoicing and that in some cases we experience substantial delays in collecting
receivables, we are exposed to exchange rate risk. Pursuant to Brazilian law,
our contracts with customers in Brazil cannot be linked to the exchange rate
between the Brazilian real and the U.S. dollar. Our expansion in Brazil,
including our development of the Broadband Network in Brazil, will therefore
increase our exposure to exchange rate risks.
We are negatively affected by currency devaluations as our customers'
revenues are generally denominated in local currencies. Substantial or continued
devaluations in local currencies relative to the U.S. dollar could have a
material adverse effect on the ability of our customers to absorb the costs of a
devaluation. This could result in our customers seeking to renegotiate their
contracts with us or, failing satisfactory renegotiation, defaulting on or
canceling their contracts. Our 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, 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. For example, in late 1994 and 1995, several Latin American countries
were adversely affected 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 market countries, leading to increased
pressures on local interest rates and currencies, including in Argentina and
Brazil. These pressures, in turn, have inhibited the ability of companies
operating in emerging markets to obtain necessary financing and increase prices.
Any devaluation of local currencies in the countries where we operate, or
restrictions on the expatriation of earnings or capital from such countries,
could have a material adverse effect on our business, results of operations and
financial condition and the market price of our common stock.
WE FACE REGULATORY RISKS AND UNCERTAINTY WITH RESPECT TO LOCAL LAWS AND
REGULATIONS
Our business is dependent upon the procurement and maintenance of licenses
to provide private telecommunications network services in the various countries
in which we operate. We believe that we have all licenses required for the
conduct of our current operations. We expect that those licenses that are
subject to expiration will be renewed in due course upon our application to the
appropriate authorities. Due to the political and economic risks associated with
the countries in which we operate, we cannot assure you that we will be able to
maintain our licenses in force or that they will be renewed upon their
expiration. The loss, or substantial limitation upon the terms, of our licenses
could have a material adverse effect on our results of operations. For specific
details of our licenses in the various countries in which we operate, including
the expiration date of such licenses, see "Business -- Description of Country
Operations." We cannot assure you that we will succeed in obtaining all
requisite regulatory approvals to operate in those countries in which we may
desire to do business.
Local laws and regulations differ significantly among the jurisdictions in
which we operate and in which we may operate in the future. The interpretation
and enforcement of these 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 conditions governing our service offerings may be
altered by future legislation or regulation. We are prohibited by law from
providing international services to or from Argentina during the term of the
monopoly granted to the two international long-distance service providers owned
by Telecom Argentina and Telefonica, unless we obtain the consent of these
entities. This international long-distance monopoly, which is
18
<PAGE> 20
jointly held by Telecom International S.A., a subsidiary of Telecom Argentina
and Telefonica Larga Distancia de Argentina S.A., a subsidiary of Telefonica, is
due to expire in November 2000. In some of our principal existing and target
markets, laws and regulations prohibit or limit the provision of certain
telecommunications services.
FAILURE OF OUR COMPUTER SYSTEMS OR OF SATELLITES TO RECOGNIZE THE YEAR 2000
COULD DISRUPT OUR BUSINESS AND OPERATIONS
The year 2000 problem refers to the failure of installed computerized
systems and software products to recognize or accept four digit date entries. In
this case, systems that have date-sensitive features might, for example,
recognize a date using "00" as the year 1900 rather than the year 2000. This
problem could cause malfunctions in certain computer systems, software and
databases with respect to dates on or after January 1, 2000, unless corrected.
We face risks arising from year 2000 issues which could have a material
adverse effect on our business and the price of our common stock. For example,
we risk incurring contractual liabilities if we fail to provide services to our
customers because of the malfunctioning of a satellite due to a year 2000
problem with the satellite. Based on our testing and remediation, we believe
that our software and hardware systems are year 2000 compliant. However, we
cannot assure you that all systems will then function adequately until the year
2000 occurs. According to U.S. government reports, some countries in Latin
America are at risk of potential year 2000-related disruptions, particularly in
key sectors such as telecommunications. We do not know whether the computer
systems of our customers and other parties on whose services we depend for
transmission capacity are year 2000 compliant. If the computer systems of the
PTOs and other carriers and our satellite providers are not year 2000 compliant,
we could be materially adversely effected. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Year 2000" for a
discussion of these risks.
OUR BUSINESS IS HIGHLY DEPENDENT ON SATELLITE SYSTEMS AND THEY MAY FAIL AND
IMPAIR OUR ABILITY TO PROVIDE SERVICES TO OUR CUSTOMERS
We depend heavily on the integrity, capability and maintenance of third
party controlled satellite systems. The loss or disruption of any facility or
equipment related to these satellite systems, or the interruption of any such
facility's or equipment's transmission capabilities, could have a material
adverse effect on our operations and our ability to provide service to our
customers. Loss or disruption could also cause one or more of our customers to
terminate their contracts with us or fail to renew their contracts. We believe
that the satellite systems upon which we depend are highly reliable. However,
they have in the past and may in the future experience material operational
anomalies and failures. For example, in April 1999, Nahuelsat's Nahuel-1
satellite failed and service to part of our telecommunications networks was lost
for approximately 12 hours.
WE ARE DEPENDENT ON KEY PERSONNEL FOR OUR FUTURE SUCCESS
Our success depends to a significant degree on members of our senior
management and certain key employees, who generally are not bound by employment
contracts with us, although Mr. Ricardo Verdaguer, our President and Chief
Executive Officer, and Mr. Roberto Vivo, our Deputy Chief Executive Officer, are
indirect holders of our stock. Our success also depends in part upon our 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, we cannot assure you
that we will be able to hire or retain necessary personnel.
In addition, the successful implementation of our Broadband Network will
require us to recruit, hire and retain a significant number of highly skilled
employees. There may be a limited supply of qualified personnel in our countries
of operations.
19
<PAGE> 21
WE FACE MULTIPLE RISKS ASSOCIATED WITH PROVIDING INTERNET SERVICES
We offer Internet access to Internet service and content providers and
business and governmental customers. We had $21.1 million in revenues from
Internet services in 1998 (including Internet access revenues generated by
Mandic S.A.) and $7.8 million in 1997. As of June 30, 1999 we had over 78,076
dial-up Internet access retail customers and 137 dedicated Internet access
corporate customers. In August 1999, we entered into an agreement in principle
with El Sitio, Inc., an Internet content provider, for the sale of our retail
Internet businesses in Argentina, Brazil and Colombia for approximately $21.5
million. See "Certain Relationships and Related Transactions -- El Sitio."
As is typical in newer industries, demand and market acceptance remain
unknown factors in the provision of Internet access services. 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, many businesses in Latin America and elsewhere
have been deterred from purchasing Internet access services. These businesses
have been deterred for a number of reasons, including:
- inconsistent service
- lack of cost-effective, high-speed options
- limited 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
- a lack of tools to simplify Internet access and use
Published reports have also indicated that capacity constraints caused by
growth in the use of the Internet may, unless resolved, constrain 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 services in that region. Furthermore, in some
parts of Latin America, the Internet is not seen as an alternative method of
exchanging information or doing business and we cannot guarantee that the
Internet will be widely accepted in the region as an alternative means of
communicating and conducting business.
We could be exposed to liability with respect to the material that may be
accessible through our Internet services. The nature and scope of existing or
future laws in various jurisdictions relating to the Internet is uncertain and
may take years to resolve. This uncertainty could expose us to substantial
liability for which we might not be indemnified. Any new or existing legislation
or regulation relating to the Internet could have a material adverse effect on
our business, results of operations and financial condition and the market price
of our common stock.
OUR AFFAIRS AND BUSINESS POLICIES ARE SUBJECT TO CONTROL BY OUR PRINCIPAL
STOCKHOLDERS
We are a privately held corporation. After this offering, % of our
issued and outstanding common stock will be held by Nevasa Holdings Ltd., %
by Nunsgate Limited, a wholly owned subsidiary of British Telecommunications,
and % by certain affiliates of Morgan Stanley Dean Witter (whom we refer to
as the Morgan Stanley investors). Nevasa Holdings is a holding company
controlled by the Pescarmona family, Mr. Verdaguer, our President and Chief
Executive Officer, and Mr. Vivo, our Deputy Chief Executive Officer. As a result
of this stock ownership, these stockholders control our affairs and business
policies, including the election of directors.
20
<PAGE> 22
WE WILL HAVE ANTI-TAKEOVER PROVISIONS IN OUR CERTIFICATE OF INCORPORATION AND
BYLAWS THAT MAY PRECLUDE OUR BEING ACQUIRED EVEN IF IT WOULD BENEFIT
STOCKHOLDERS
Some provisions that will be included in our certificate of incorporation
and bylaws, effective upon the closing of this offering, may discourage, delay
or prevent an acquisition of our company at a premium price. These provisions
will:
- authorize the issuance of "blank check" preferred stock
- prohibit cumulative voting in the election of directors
- limit the removal of directors by the stockholders to removal for cause
- require a super-majority stockholder vote to effect certain amendments to
our certificate of incorporation and bylaws
- limit the persons who may call special meetings of stockholders
- prohibit stockholder action by written consent
- establish advance notice requirements for nominations for election to our
board of directors or for proposing matters that can be acted on by
stockholders at stockholder meetings.
In addition, we intend to adopt a stockholder rights plan prior to the
completion of this offering. A stockholder rights plan would cause substantial
dilution to any person or group that attempts to acquire our company on terms
not approved in advance by our board of directors.
Our stockholder rights plan and some of our employment agreements may
delay, deter or prevent someone from acquiring us in a transaction that results
in stockholders receiving a premium over the market price for the shares of
their common stock. See "Description of Capital Stock -- Our Certificate of
Incorporation and Bylaws." In addition, some of the governmental agencies that
have regulatory authority over us or our licensing process, including the
Argentine Comision Nacional de Comunicaciones, Brazil's Agencia Nacional de
Telecomunicacoes and the U.S. Federal Communications Commission, require prior
approval of transfers of control, including pro forma transfers of control
resulting from corporate reorganizations and assignments of regulatory
authorization. These requirements may delay, prevent or deter a change in
control of our company.
THERE IS NO PRIOR PUBLIC MARKET FOR OUR COMMON STOCK AND OUR STOCK PRICE MAY BE
VOLATILE
There is no public market for our common stock. An active public market for
our common stock may not develop or be sustained after this offering. The price
of our common stock is likely to change after this offering. The market price of
our common stock may fluctuate significantly in response to a number of factors
(some of which are beyond our control), including:
- variations in operating results
- changes in financial estimates by securities analysts
- changes in market valuations of telecommunications companies
- announcements by us or our competitors of significant contracts,
acquisitions, strategic partnerships, joint ventures or capital
commitments
- our success or failure to implement our Broadband Network and expansion
plans
- an adverse decision by a regulatory agency in one of our primary markets
- increases or decreases in reported holdings by insiders or mutual funds
- additions or departures of key personnel
- future sales of common stock
- stock market price and volume fluctuations
21
<PAGE> 23
SHARES OF OUR COMMON STOCK BECOMING AVAILABLE FOR SALE COULD ADVERSELY AFFECT
THE MARKET PRICE OF OUR COMMON STOCK AND MAY IMPAIR OUR ABILITY TO RAISE CAPITAL
THROUGH THE SALE OF ADDITIONAL STOCK
The shares sold in this offering will generally be freely
tradable without restriction. shares of our common stock outstanding
upon completion of this offering will be "restricted securities" as that term is
defined in Rule 144 under the Securities Act.
The shares of our common stock that will be held by the Morgan
Stanley investors after shares of our preferred stock are converted
upon completion of this offering and the and shares of
common stock held by Nevasa Holdings and Nunsgate Limited, respectively, will be
entitled to certain registration rights. See "Underwriters."
Immediately after this offering, we also will have an additional
shares of common stock that are the subject of options that will not then be
currently exercisable. To the extent that these options are properly exercised,
the underlying shares of common stock will be freely tradable immediately upon
exercise of the options.
Our existing stockholders have executed lock-up agreements that limit their
ability to sell such common stock. These stockholders have agreed not to sell or
otherwise dispose of any shares of our common stock for a period of at least 180
days after the date of this prospectus without the prior written approval of
Morgan Stanley & Co. Incorporated. When the lock-up agreements expire, these
shares and the shares underlying the options will become eligible for sale, in
some cases subject to the volume, manner of sale and notice requirements of Rule
144. See "Shares Eligible for Future Sale."
OUR COMMON STOCK MAY BE SUBSTANTIALLY DILUTED AS A RESULT OF THE INITIAL PUBLIC
OFFERING PRICE
The initial public offering price of our common stock is substantially in
excess of the net tangible book value per share, which results in a benefit to
all of our existing stockholders. As a result, purchasers of common stock in
this offering will experience immediate and substantial dilution of $ per
share (assuming an initial public offering price of $ per share) of our
common stock from the public offering price. In addition, the shares
of common stock outstanding and owned by Nevasa Holdings prior to this offering
were originally acquired for an aggregate consideration of $ , or an average
of $ per share, as compared to new investors who will pay $ , or $
per share, for the shares of common stock offered hereby. Accordingly,
the Nevasa Holdings stockholders will benefit from an unrealized appreciation of
$ per share of common stock ($ million in the aggregate) in the value of
their shares of our common stock as a result of this offering.
WE DO NOT INTEND TO PAY DIVIDENDS ON OUR COMMON STOCK AND ANY FUTURE PAYMENT OF
DIVIDENDS IS LIMITED BY THE TERMS OF INDENTURES TO WHICH WE ARE A PARTY
We have never paid dividends on our common stock and do not currently
intend to pay cash dividends on our common stock. Any future decisions as to the
payment of dividends will be at the discretion of our board of directors,
subject to applicable law. Our ability to pay dividends is also limited by the
terms of indentures to which we are a party. These indentures also contain
covenants restricting our ability to make certain restricted payments, incur
additional indebtedness, make certain investments, create liens, guarantee
indebtedness, sell or acquire assets and enter into mergers or consolidations,
which may restrict our ability to expand or make acquisitions. See "Dividend
Policy."
22
<PAGE> 24
USE OF PROCEEDS
We will receive net proceeds from this offering of approximately $
million (approximately $
million if the underwriters exercise their over-allotment option in full). This
assumes that our common stock is offered at $ per share, the midpoint of the
range set forth on the cover page of this prospectus, and is after deducting
underwriting discounts and commissions and the estimated expenses of this
offering. We intend to use the net proceeds to make capital expenditures
relating to the Broadband Network, to redeem approximately $ million of our
preferred stock, for potential acquisitions and for working capital and general
corporate purposes, including to fund losses.
DIVIDEND POLICY
We have not paid any cash dividends on our common stock and we do not
intend to pay cash dividends in the foreseeable future. We plan to retain
earnings, if any, for use in the operation of our business and to fund future
growth. In addition, our indentures currently severely restrict the payment of
dividends. See "Description of Our Indebtedness."
23
<PAGE> 25
CAPITALIZATION
The following table shows our cash and cash equivalents, short-term debt
and total capitalization as of June 30, 1999:
- on an historical basis
- as adjusted to give effect to this offering, the redemption of
approximately $ million of our preferred stock, the conversion of the
remaining shares of our preferred stock into shares of our common
stock
This table should be read in conjunction with our consolidated financial
statements and the notes at the back of this prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1999
-----------------------
ACTUAL AS ADJUSTED
--------- -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
CASH AND CASH EQUIVALENTS................................... $ 151,501 $
========= =========
SHORT-TERM DEBT:
Short-term debt........................................... $ 21,007 $ 21,007
Current portion of long-term debt......................... 16,957 16,957
--------- ---------
Total short-term debt............................. $ 37,964 $ 37,964
========= =========
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.............. 38,784 38,784
--------- ---------
Total long-term debt, net......................... 388,784 388,784
--------- ---------
MINORITY INTEREST........................................... 12,925 12,925
--------- ---------
REDEEMABLE, CONVERTIBLE PREFERRED STOCK..................... 141,853
--------- ---------
STOCKHOLDERS' EQUITY:
Common stock, $ par value per share;
( shares issued and outstanding, actual;
shares issued and outstanding, as
adjusted)................................................. 120,951
Treasury stock, shares, at cost.................... (125,000) --
Amount paid in excess of carrying value of assets acquired
from related party..................................... (5,111) (5,111)
Additional paid in capital................................ 100,778
Accumulated deficit....................................... (109,339) (109,339)
Accumulated other comprehensive loss...................... (3,699) (3,699)
--------- ---------
Total stockholders' equity (deficit).............. (21,420)
--------- ---------
Total capitalization......................... $ 522,142 $
========= =========
</TABLE>
24
<PAGE> 26
DILUTION
As of June 30, 1999, our net tangible book value, after giving effect to
the redemption of approximately $ million of our preferred stock and the
conversion of the remaining shares of our preferred stock into shares of our
common stock , was $ , or $ per share of common stock. Net tangible book
value per share represents the amount of our total tangible assets reduced by
the amount of our total liabilities, divided by the number of shares of common
stock outstanding. As of June 30, 1999, our net tangible book value, as adjusted
for the sale of shares in this offering at an assumed initial public
offering price of $ per share (the midpoint of the range indicated on the
cover of this prospectus), and after deducting the estimated underwriting
discounts and commissions and other expenses, would have been approximately
$ per share of common stock. This represents an immediate increase of $
per share to existing stockholders and an immediate dilution of $ per share
to new investors. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Net tangible book value per share as of June 30, 1999..... $
Increase in net tangible book value per share attributable
to purchases in this offering..........................
------
Net tangible book value per share after this offering.......
------
Dilution per share to new investors......................... $
======
</TABLE>
The following table summarizes, as of June 30, 1999, after giving effect to
the conversion by the Morgan Stanley investors of shares of preferred stock
into shares of our common stock upon the closing of this offering, the
total consideration paid to us and the average price per share paid by the
existing stockholders and by the investors purchasing shares of common stock in
this offering (before deducting the estimated underwriting discounts and
commissions and other expenses):
<TABLE>
<CAPTION>
TOTAL
SHARES PURCHASED CONSIDERATION AVERAGE
---------------- ---------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------ ------- ------ ------- ----------
<S> <C> <C> <C> <C> <C>
Existing stockholders....................... % $ % $
New investors in this offering..............
------ ------- ------ -------
Total............................. 100.0% $ 100.0%
====== ======= ====== =======
</TABLE>
If the underwriters' over-allotment option is exercised in full:
- the number of shares of common stock held by the existing stockholders
would be reduced to or % of the total number of shares of
common stock to be outstanding after this offering
- the number of shares of common stock held by new investors would be
increased to or % of the total number of shares of common
stock to be outstanding after this offering
The tables above assume no exercise of stock options outstanding as of June
30, 1999. As of June 30, 1999, there were approximately shares of common
stock subject to outstanding options at exercise prices of approximately $
and $ per share. To the extent outstanding options are exercised, there will
be further dilution to new investors. See "Capitalization,"
"Management -- Executive Compensation" and "Management -- 1998 Stock Option
Plan."
25
<PAGE> 27
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The following financial data are derived from our consolidated financial
statements, which have been audited by Deloitte & Touche LLP, independent
auditors, except for the six-month data, which are derived from our unaudited
financial statements. The selected financial data set forth below should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our financial statements and notes included at
the back of this prospectus.
Our net loss per share on a pro forma basis and our balance sheet data on
an as adjusted basis give effect to:
- the common stock split
- this offering
- the redemption of approximately $ million of our preferred stock and
the conversion of the remaining shares of our preferred stock into shares
of our common stock
as if these events had occurred at the beginning of the periods presented. The
pro forma amounts do not give effect to any interest income earned on the
proceeds of this offering pending application.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------------------- -------------------
1994 1995 1996 1997 1998 1998 1999
------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues from services....................... $77,679 $105,641 $128,393 $161,065 $208,089 $ 93,651 $111,218
Costs and expenses:
Variable cost of services...................... 12,770 18,818 21,494 27,333 36,369 13,747 20,341
Leased telecommunications links................ 7,734 10,973 13,925 19,230 24,507 14,382 20,908
Salaries, wages and benefits................... 13,528 22,220 25,561 29,109 38,198 16,962 22,192
Selling, general and administrative............ 19,148 26,094 23,030 33,356 45,199 20,798 22,781
Depreciation and amortization.................. 12,874 20,653 26,318 28,673 36,946 16,629 23,329
------- -------- -------- -------- -------- -------- --------
Operating income................................. 11,625 6,883 18,065 23,364 26,870 11,133 1,667
Other income (expenses):
Interest expense, net.......................... (8,231) (15,677) (23,185) (24,272) (44,698) (17,191) (28,106)
Net gain (loss) on foreign exchange............ 1,352 1,838 910 (276) 675 (158) (7,986)
Other income (expenses), net................... 599 511 1,035 (151) 760 498 (564)
------- -------- -------- -------- -------- -------- --------
Income (loss) before income taxes and minority
interest....................................... 5,345 (6,445) (3,175) (1,335) (16,393) (5,718) (34,989)
Benefit from (provision for) income taxes........ 3,155 740 (3,542) (5,263) (3,805) (2,251) 4,017
------- -------- -------- -------- -------- -------- --------
(Loss) income before cumulative effect and
minority interest.............................. 8,500 (5,705) (6,717) (6,598) (20,198) (7,969) (30,972)
Cumulative effect of change in accounting
principle, net of tax.......................... -- -- -- -- (1,269) (1,269) --
(Income) loss attributable to minority
interest....................................... (5,464) (1,712) (1,766) (993) (2,502) (596) (141)
Dividends on redeemable preferred stock.......... -- -- -- -- (10,018) (3,507) (6,835)
------- -------- -------- -------- -------- -------- --------
Net income (loss)................................ $ 3,036 $ (7,417) $ (8,483) $ (7,591) $(33,987) $(13,341) $(37,948)
======= ======== ======== ======== ======== ======== ========
Comprehensive income (loss)...................... $ 3,036 $ (7,417) $ (8,483) $ (7,591) $(34,513) $(13,341) $(41,121)
======= ======== ======== ======== ======== ======== ========
Loss per common share, basic and diluted.........
Net loss per share, pro forma....................
Weighted average common shares outstanding.......
Weighted average common shares outstanding, pro
forma..........................................
</TABLE>
26
<PAGE> 28
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30, 1999
----------------------------------------------------- ----------------------
1994 1995 1996 1997 1998 ACTUAL AS ADJUSTED
-------- -------- -------- -------- --------- -------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............. $ 32,135 $ 6,216 $ 28,895 $ 10,439 $ 90,021 $151,501 $
Total current assets.................. 57,948 36,906 68,304 65,015 159,099 230,517
Net property, plant and equipment..... 152,909 199,701 227,086 255,422 330,726 346,894 346,894
Total assets.......................... 222,684 249,095 315,230 339,916 527,218 632,023
Total current liabilities............. 68,984 128,813 78,125 103,438 97,910 96,581 96,581
Total short-term debt and current
portion of long-term debt........... 48,047 97,510 42,874 60,375 40,400 37,964 37,964
Total long-term debt, net............. 59,437 30,200 156,230 159,677 379,292 388,784 388,784
Minority interest..................... 24,893 28,476 30,242 10,398 13,071 12,925 12,925
Redeemable preferred stock............ -- -- -- -- 135,018 141,853
Stockholders' equity (deficit)........ 62,780 55,363 46,881 63,389 (101,519) (21,420)
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------------------- -------------------
1994 1995 1996 1997 1998 1998 1999
------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT OTHER DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
EBITDA........................................... $24,499 $ 27,536 $ 44,383 $ 52,037 63,816 $ 27,762 $ 24,996
Cash flow provided by (used in):
Operating activities........................... 17,257 18,894 9,843 17,139 16,740 18,338 (21,935)
Investing activities........................... (87,603) (66,910) (53,681) (58,080) (128,155) (64,634) (40,032)
Financing activities........................... 93,351 22,097 66,517 22,485 191,523 236,495 126,620
Capital expenditures............................. 87,541 67,060 53,998 56,440 109,934 48,339 40,338
OTHER DATA (AT PERIOD END):
Customers........................................ 445 656 907 1,192 1,467 1,321 1,579
Customer sites................................... 2,196 3,336 4,240 5,300 6,370 5,797 6,856
</TABLE>
27
<PAGE> 29
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
We are a leading provider of private telecommunications network and
Internet services in Latin America. We offer tailor-made, integrated data, voice
and Internet solutions, with an increasing emphasis on broadband transmission,
for national and multinational companies, financial institutions, governmental
agencies and other business customers. We also offer dedicated Internet services
to Internet service and content providers.
We have operations in Argentina, Colombia, Venezuela, Ecuador, Mexico,
Brazil and the United States and also provide our services in other countries in
Latin America. We currently provide telecommunications and Internet services
through our networks, which consist of owned fiber optic and wireless links,
teleports, earth stations and leased fiber optic and satellite links. We own and
operate 12 metropolitan area networks in some of the largest cities in Latin
America, including Buenos Aires, Bogota, Caracas and Sao Paulo.
We are building our Broadband Network to enhance the services we presently
provide and significantly increase our transmission speed and capacity. This
network will consist of long-haul, high capacity fiber optic backbones and
metropolitan area fiber optic and wireless links and will use advanced
transmission technologies, including DWDM, ATM and IP. We already own and
operate a long-haul, fiber optic network connecting the cities of Cali, Medellin
and Bogota in Colombia over a 422 mile route. By November 2000, we expect to
have built out our Broadband Network to connect major cities across Argentina
and Brazil.
Revenues. We provide services to our customers under 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. Except in Brazil, the fees stipulated in the contracts are generally
denominated in U.S. dollar equivalents. Services (other than installation fees)
are billed on a monthly, predetermined basis, which coincide with the rendering
of the services. We report our revenues net of deductions for sales taxes.
Recently we have experienced, and anticipate that we will continue to
experience, downward pressure on our prices as we continue to expand our
customer base and as competition for private telecommunications network services
grows. When we have renewed and/or expanded our contracts with existing
customers, the prices we charge to our customers have generally declined. As a
result, our revenues per unit of satellite capacity used have been decreasing.
In addition, as our business in a particular country matures, our rate of growth
in that country tends to slow. In particular, this has occurred in Argentina
and, to a lesser extent, in Colombia. To compensate for slower growth in
maturing markets, we will seek to expand into new countries and to provide new
services through our Broadband Network.
Although we believe that our geographic diversification provides some
protection against economic downturns in any particular country, our results of
operations and business prospects are influenced by the overall financial and
economic conditions in Latin America. Many of the countries in which we operate
have experienced political and economic volatility in recent years. With the
exception of the United States and Mexico (which account for only a small
portion of our consolidated revenues), each of the countries in which we operate
has experienced economic contraction and financial difficulties during 1999. In
particular, Argentina and Colombia, our two largest markets, are currently
experiencing significant recessions. We cannot predict whether prevailing
economic conditions in Latin America will improve or worsen, or what effect
these conditions will have on the countries in which we operate or upon our
business. These conditions may have material adverse effects on our business,
results of operation and financial condition and the market price of our common
stock.
28
<PAGE> 30
We could experience significant fluctuations in our future revenues due to
a variety of factors, many of which are outside of our control, including:
- demand for and market acceptance of our products and services
- introduction of technological advances in services or enhancements by us
and our competitors
- competitive factors that affect our pricing
- the timing and magnitude of capital expenditures, including costs
relating to the Broadband Network
- the retention of key personnel
- conditions specific to the private telecommunications network and
Internet industries in Latin America, as well as general economic factors
- new government legislation or regulation
We expect to experience substantial operating losses and negative free cash
flows for at least the next several years due to the large investments required
for the Broadband Network, including increased depreciation, interest expense
and selling, general and administrative expenses. We cannot assure you that we
will ever be able to generate operating income or positive cash flows in the
future or that our negative cash flows will not increase. As a result, we
believe that our operating results in past periods cannot be relied upon as
indicators of future performance. Any failure to generate operating income or
positive cash flows could have a material adverse effect on our business,
results of operation and financial condition or the market price of our common
stock.
Costs and Expenses. Our costs and expenses principally include:
- variable cost of services
- leased telecommunications links (payments for leased satellite and fiber
optic capacity)
- salaries, wages and benefits
- selling, general and administrative expenses
- 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 for our network infrastructure.
Installation and de-installation costs are the costs we incur when we install or
remove earth stations, microstations and other equipment on or from customer
premises. Installation and maintenance costs include services contracted from
outside providers. Our selling, general and administrative expenses consist
principally of:
- publicity and promotion costs
- provisions for doubtful accounts
- fees and other remuneration
- travel and entertainment
- rent
- plant services and corporate telecommunication and energy expenses
Capacity Transactions. We recently sold indefeasible rights of use of
telecommunications capacity to Global Crossing for approximately $25 million. We
expect to have other similar transactions in the future. For these transactions,
we expect to recognize revenue and expenses ratably over the term of the
indefeasible rights of use from the date the fiber optic cables are placed in
service for the term of the indefeasible right of use.
29
<PAGE> 31
Currency Risks. Except in Brazil, our contracts with 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. Accordingly, inflationary pressures on local economies in the
countries in which we operate did not have a material effect on our revenues
during 1998 and the first six months of 1999. Given that the exchange rate is
generally set at the date of invoicing and that we in some cases experience
substantial delays in collecting receivables, we are exposed to exchange rate
risk. Furthermore, under Brazilian law, our contracts with customers in Brazil
cannot be linked to the exchange rate between the Brazilian real and the U.S.
dollar. Our expansion in Brazil will increase our exposure to exchange rate
risks.
Sale of Retail Internet Business. In August 1999, we entered into an
agreement in principle to sell our retail Internet businesses in Argentina,
Brazil and Colombia to El Sitio for approximately $21.5 million. El Sitio
provides Internet content in Latin America. We also agreed to subscribe for
$21.5 million in convertible preferred stock of El Sitio and El Sitio has agreed
to enter into a telecommunications services agreement with us to provide
services to El Sitio, including access to the U.S. Internet backbone. We
determined that retail Internet access was not one of our top priorities and was
inconsistent with our emphasis on providing telecommunications services to
businesses and governmental customers, telecommunications carriers and ISPs.
The revenues and expenses associated with the retail Internet businesses
that we are selling to El Sitio were as follows for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
---------------- ---------------
1997 1998 1998 1999
------ ------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net revenues:
Argentina............................................... $2,634 $ 2,982 $1,778 $1,776
Colombia................................................ 1,817 2,131 1,152 895
Brazil.................................................. -- 6,159 998 3,745
------ ------- ------ ------
Total........................................... $4,451 $11,272 $3,928 $6,416
====== ======= ====== ======
Direct costs and expenses:
Argentina............................................... $1,957 $ 2,181 $1,037 $1,087
Colombia................................................ 1,274 2,014 926 966
Brazil.................................................. -- 3,792 739 3,560
------ ------- ------ ------
Total........................................... $3,231 $ 7,987 $2,702 $5,613
====== ======= ====== ======
</TABLE>
RESULTS OF OPERATIONS
The following financial table summarizes our results of operations:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------------------------------------ -----------------------------------
1996 1997 1998 1998 1999
---------------- ---------------- ---------------- ---------------- ----------------
(IN THOUSANDS AND AS A PERCENTAGE OF CONSOLIDATED REVENUES)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues from services.... $128,393 100.0% $161,065 100.0% $208,089 100.0% $ 93,651 100.0% $111,218 100.0%
Variable costs of services.... 21,494 16.7 27,333 17.0 36,369 17.5 13,747 14.7 20,341 18.3
Salaries, wages and
benefits.................... 25,561 19.9 29,109 18.1 38,198 18.4 16,962 18.1 22,192 20.0
Leased telecommunications
links....................... 13,925 10.8 19,230 11.9 24,507 11.8 14,382 15.4 20,908 18.8
Selling, general and
administrative expenses..... 23,030 17.9 33,356 20.7 45,199 21.7 20,798 22.2 22,781 20.5
Depreciation and
amortization................ 26,318 20.5 28,673 17.8 36,946 17.8 16,629 17.8 23,329 21.0
Interest expense, net......... 23,185 18.1 24,272 15.1 44,698 21.5 17,191 18.4 28,106 25.3
Net gain (loss) on foreign
exchange.................... 910 0.7 (276) (0.2) 675 0.3 (158) (0.2) (7,986) (7.2)
Benefit from (provision for)
income taxes................ (3,542) (2.8) (5,263) (3.3) (3,805) (1.8) (2,251) (2.4) 4,017 3.6
Comprehensive gain (loss)..... (8,483) (6.6) (7,591) (4.7) (34,513) (16.6) (13,341) 14.3 (41,121) 37.0
</TABLE>
30
<PAGE> 32
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
General. Our results of operations for the first half of 1999 were not as
positive as prior periods for four principal reasons:
- recessions facing our markets in Latin America, which lowered our rate of
revenue growth
- the fact that we purchased too much satellite capacity because we did not
anticipate the breadth of the recession in Latin America
- competitive pricing pressures in our more mature markets (especially in
Argentina and Colombia)
- expenses of developing the Broadband Network and our Brazilian operations
(which are in a relatively early stage of development)
Revenues. Our net revenues for the six months ended June 30, 1999 totaled
$111.2 million, an increase of $17.6 million (or 18.8%) from net revenues for
the same period in 1998. Recessions in most of the countries in which we
operate, and competitive pressures in Argentina and Colombia, contributed to our
lower rate of revenue growth during the first half of 1999 compared to prior
periods. These conditions could also affect future periods.
The following table shows our revenues by operating subsidiary for the
periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------
1998 1999
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
IMPSAT Argentina............................................ $47,534 $51,927
IMPSAT Colombia............................................. 28,095 30,106
IMPSAT Venezuela............................................ 6,387 10,174
IMPSAT Ecuador.............................................. 4,139 6,206
IMPSAT Mexico............................................... 1,645 1,572
IMPSAT Brazil............................................... 504 2,462
Mandic S.A.................................................. 999 4,264
IMPSAT USA.................................................. 4,348 4,449
</TABLE>
Our revenue growth for the first half of 1999 was attributable to a net
increase in the number of customers and services we provided to them. Excluding
customers of our Internet and fax store and forward services, we had a total of
1,579 customers at June 30, 1999, compared to 1,321 customers at June 30, 1998.
The recessions in Argentina and Colombia and increased competition resulted
in some of our customers canceling their contracts or reducing the services we
provide to them. For example, our contract in Argentina with Banco Bansud S.A.,
one of Argentina's largest private commercial banks and one of IMPSAT
Argentina's top ten customers in 1998, was terminated due to pricing competition
in April 1999. We recorded $1.6 million in net revenues from this contract
during 1998. In Colombia, our contracts with six customers within the
Suramericana group were renegotiated during the first quarter of 1999. This
renegotiation resulted in an approximately 24% decrease in our prices under
these contracts. Our net revenues from these six companies totaled $2.0 million
during 1998. The Suramericana group includes some of our largest customers in
Colombia.
In addition, revenue growth at IMPSAT Ecuador could decline during the
remainder of 1999 due to the effects of the economic crisis there. Although
IMPSAT Ecuador's revenues and revenue growth have not yet been adversely
affected to date by the recession in Ecuador, we cannot predict the recession's
effect on our results for the remainder of 1999.
Revenues recorded by our Brazilian operations were negatively affected by
the devaluation of the Brazilian real against the U.S. dollar. Although IMPSAT
Brazil's expansion of its customer base (72 customers as of June 30, 1999
compared to 21 customers as of the same date in 1998) and operations continued,
adverse economic conditions in Brazil, including the devaluation of the real
against the U.S. dollar,
31
<PAGE> 33
caused IMPSAT Brazil's revenues in U.S. dollar terms to be lower than expected.
The real was at R$1.21 = $1.00 on January 1, 1999 and R$1.79 = $1.00 on June 30,
1999.
At June 30, 1999, we had more than 92,000 retail dial-up access Internet
customers, compared to more than 77,000 at June 30, 1998. Mandic's net revenues
from Internet services for the first half of 1999 totaled $4.0 million compared
to $1.0 million in the first half of 1998. IMPSAT Argentina's net revenues from
Internet services for the first half of 1999 totaled $4.3 million, an increase
of $0.9 million compared to the first half of 1998. In August 1999, we signed an
agreement to sell our retail Internet business in Argentina, Brazil and Colombia
for approximately $21.5 million. See "Certain Relationships and Related
Transactions -- El Sitio."
Variable Cost of Services. Our variable cost of services for the six months
ended June 30, 1999 totaled $20.3 million, an increase of $6.6 million (or
48.0%), compared to the same period in 1998. Of our total variable cost of
services for the six months ending June 30, 1999, $11.6 million related to the
operations of IMPSAT Argentina and $6.1 million related to the operations of
IMPSAT Colombia. This compares to $8.5 million at IMPSAT Argentina and $4.1
million at IMPSAT Colombia for the six months ended June 30, 1998. Variable
costs of services for Mandic and IMPSAT Brazil, both of which commenced
operations towards the end of the second quarter of 1998, totaled $0.9 million
and $0.8 million, respectively, for the six months ended June 30, 1999.
Maintenance costs for our telecommunications network infrastructure totaled
$6.1 million, compared to $4.6 million for the corresponding period in 1998,
because we had more infrastructure.
Installation costs totaled $4.5 million and $3.2 million for the
corresponding period in 1998. Installation costs at IMPSAT Argentina totaled
$2.7 million for the six months ended June 30, 1999 as compared to $1.9 million
for the corresponding period in 1998. The increase in these costs was due in
part to:
- a higher number of de-installations of VSAT microstations due to customer
cancellations and customer upgrades to SCPC technology
- private telecommunications network installations completed in the first
half of 1999 in connection with IMPSAT Argentina's contracts to provide
private telecommunications network services to the Government of the
Province of Buenos Aires and Banco de la Provincia de Buenos Aires
Sales commissions paid to third-party sales representatives totaled $3.6
million compared to $3.2 million for the six months ended June 30, 1998. Most of
these commissions related to customers of IMPSAT Argentina.
In addition, royalties paid in connection with our licenses to governmental
entities increased to $1.0 million from $0.6 million for the six months ended
June 30, 1998. This increase was principally related to new telecommunications
regulations in Colombia that broadened the base of IMPSAT Colombia's revenues
upon which the royalties are levied.
Salaries, Wages and Benefits. Salaries, wages and benefits totaled $22.2
million, an increase of $5.2 million (or 30.8%), from the first six months of
1998. The increase resulted primarily from:
- an increase in the number of employees, from 874 employees at June 30,
1998 to 1,156 at June 30, 1999, particularly in connection with the
commencement of operations at IMPSAT Brazil and Mandic and the
development of the Broadband Network in Argentina and Brazil
- increases in the salaries, wages and benefits of our personnel to match
market rates for personnel with the expertise we require and increases in
cost of living
Salaries, wages and benefits for the first half of 1999 relating to the
Broadband Network totaled $0.7 million. Salaries, wages and benefits for the six
months ended June 30, 1999 paid with respect to IMPSAT Brazil and Mandic totaled
$3.2 million.
32
<PAGE> 34
Leased Telecommunications Links Cost. Our leased telecommunication links
expenses totaled $20.9 million, which represented an increase of $6.5 million
(or 45.4%) from the corresponding period in 1998. We had approximately 882.1 MHz
of leased satellite capacity at June 30, 1999 and 516.7 MHz at June 30, 1998.
The expansion of our satellite capacity was primarily attributable to
contractually scheduled increases in satellite capacity to match anticipated
growth in customer demand. A portion of this increase was related to the growth
in our SCPC services compared to our VSAT services. SCPC earth stations use
larger amounts of satellite capacity than do VSAT microstations. However, we
have not needed as much satellite capacity as we contracted for, due to adverse
economic conditions in Latin America. As a result, our satellite capacity cost
as a percentage of revenues has increased substantially from prior periods.
In addition, to satisfy increasing customer demand for high bandwidth
telecommunications links, during the first six months of 1999, we increased our
leased dedicated capacity on third-party fiber optic networks in Argentina,
spending $1.8 million compared to $0.4 million for the first half of 1998. Due
to this need for greater bandwidth, we expect our leased telecommunication links
expense to increase until we implement the Broadband Network. Leased fiber optic
capacity in Argentina is quite expensive due to the very limited number of
entities that currently have fiber optic networks.
Selling, General and Administrative Expenses. We incurred SG&A expenses of
$22.8 million for the six months ended June 30, 1999. Although they decreased as
a percentage of net revenue, SG&A expenses increased $2.0 million (or 9.6%) from
the six months ended June 30, 1998. SG&A expenses at IMPSAT Argentina totaled
$9.6 million, a decrease of $1.7 million (or 15.1%) from SG&A expenses incurred
by IMPSAT Argentina for the six months ended June 30, 1998.
The increase in SG&A expenses reflects:
- increased SG&A expenses incurred by our two newest subsidiaries, IMPSAT
Brazil and Mandic, both of which commenced operations around the end of
the second quarter of 1998. SG&A expenses incurred by IMPSAT Brazil
totaled $2.4 million compared to $1.2 million in the corresponding period
in 1998. Mandic's SG&A expenses totaled $1.1 million compared to $0.3
million in the corresponding period in 1998.
- increased maintenance expenses for our various offices, which totaled
$2.2 million, compared to $1.7 million for the corresponding period in
1998
- legal and tax adviser fees, which totaled $3.5 million, compared to $3.3
million for the corresponding period in 1998
The increased SG&A expenses reflect growth in our operations, including the
development and implementation of the Broadband Network.
We recorded a provision for doubtful accounts of $3.1 million compared to
$4.2 million for the same period in 1998. During the second quarter of 1998, we
changed our policy on provisioning for doubtful accounts receivable. Under the
new, more conservative policy, we generally provision accounts receivable that
are more than 180 days past due. Adopting this policy increased our accounts
receivable provision in the first six months of 1998 by approximately $2.7
million. At June 30, 1999, excluding amounts owed by two large former customers
that are the subject of litigation, approximately 11% of our gross trade
accounts receivable were past due more than six months but less than one year
and approximately 20% were past due more than one year. See "Business -- Legal
Matters" for a description of these litigations.
The recession in Argentina adversely affected the collection of our
receivables during the first half of 1999. IMPSAT Argentina's average days
outstanding for net trade receivables due increased from 62 days at June 30,
1998 to 97 days at June 30, 1999. Although the increased collection time has not
been reflected in our provisions for doubtful accounts because most of these
receivables are not yet 180 days past due, we cannot know whether it will be
necessary to increase our provision for doubtful accounts in the future. We have
recently increased efforts to collect past due receivables. During July 1999,
IMPSAT Argentina collected
33
<PAGE> 35
approximately $12.7 million (or 19.4%) of total accounts receivable outstanding
at the beginning of that month, compared to approximately $8.4 million (or
13.5%) during June 1999 and approximately $7.3 million or (12.6%) during May
1999.
We have decided to change our provisioning policy to remove the discretion
previously granted to the presidents of our operating subsidiaries to override
the provisioning of amounts more than 180 days past due and to reserve 100% of
our outstanding receivables due from BNA and ENCOTESA. The effect of this
change, which we intend to record in the third quarter of 1999, will result in a
charge of approximately $8.5 million. In addition, in light of a slowdown in the
collection of receivables commencing in the second quarter of 1999, which we
believe is due to economic difficulties experienced in our countries of
operation, we have decided to add approximately $1.9 million to our allowance
for doubtful accounts. This charge will be recorded in the third quarter of
1999.
Depreciation and Amortization. Our depreciation and amortization expenses
for the six months ended June 30, 1999 totaled $23.3 million, an increase of
$6.7 million (or 40.3%) from the six months ended June 30, 1998. We expect these
expenses to increase in future periods due to our build-out of the Broadband
Network. In view of technological advances in our industry, we anticipate that
we will change the depreciable life of some of our telecommunications equipment
from 10 years to 5 years. The effect of this change, which will be approximately
$50.0 million, will be recorded in the fourth quarter of 1999.
Interest Expense, Net. Our net interest expense totaled $28.1 million. This
consists of interest expense of $31.1 million and interest income of $3.0
million. Our net interest expense increased $10.9 million (or 63.5%) from net
interest expense for the six months ended June 30, 1998.
The increase in our net interest expense reflects higher average
outstanding indebtedness in the first half of 1999 compared to the first half of
1998 as a result of our issuance in June 1998 of $225 million principal amount
of 12 3/8% Senior Notes due 2008. For the first half of 1999, the average
interest rate on our indebtedness was 12.0%, compared to an average interest
rate of 12.5% for the first half of 1998. Our total indebtedness as of June 30,
1999 was $426.8 million, as compared to $464.7 million as of June 30, 1998. We
anticipate that interest expense will increase in the future based on expected
increased levels of borrowing associated with our development of the Broadband
Network. See "-- Liquidity and Capital Resources."
Net Loss on Foreign Exchange. We recorded a net loss on foreign exchange of
$8.0 million, compared to $0.2 million for the corresponding period in 1998. The
increase was principally caused by the devaluation of the Brazilian real against
the U.S. dollar.
Provision for Income Taxes. We recorded a benefit for income taxes (all of
which are for foreign taxes) of $4.0 million compared to a provision for income
taxes of $2.3 million for the corresponding period in 1998.
Comprehensive Loss. We incurred a comprehensive loss of $41.1 million, an
increase of $27.8 million, compared to a comprehensive loss of $13.3 million for
the six months ended June 30, 1998. In addition to the items described in the
preceding paragraphs, the principal reasons for the increase in our
comprehensive loss as compared to prior periods related to:
- accrued dividends of $6.8 million on our preferred stock, compared to
$3.5 million during the first half of 1998
- the foreign currency translation adjustment loss of $3.2 million for the
first half of 1999 related to the effect of the devaluation of the real
on the stated carrying value of IMPSAT Brazil's and Mandic's property,
plant and equipment
34
<PAGE> 36
1998 COMPARED TO 1997
Revenues. Revenues for 1998 totaled $208.1 million, compared to $161.1
million for 1997, representing a $47.0 million increase from revenues for 1997.
The following table shows our revenues by operating subsidiary for 1998 and
1997:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1997 1998
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
IMPSAT Argentina............................................ $90,790 $98,145
IMPSAT Colombia............................................. 49,513 59,903
IMPSAT Venezuela............................................ 8,607 14,865
IMPSAT Ecuador.............................................. 5,716 9,817
IMPSAT Mexico............................................... 1,427 4,344
IMPSAT Brazil............................................... -- 3,646
Mandic...................................................... -- 8,246
IMPSAT USA.................................................. 5,018 9,123
</TABLE>
The increase in IMPSAT Argentina's revenues in 1998 was primarily
attributable to increased revenues from Internet services, as described below.
Excluding customers of our Internet and our fax store and forward services,
we had a total of 1,467 customers at December 31, 1998, compared to 1,192
customers at December 31, 1997. During 1998, we commenced our operations in
Brazil. At December 31, 1998, IMPSAT Brazil had a total of 48 customers,
compared to 21 customers at the end of the second quarter of 1998.
Our net revenues in 1998 increased principally from growth in services
other than our VSAT based service offerings. For a description of our service
offerings, see "Business -- Existing Network Infrastructure." Revenues from VSAT
services during 1998 totaled $56.7 million, a decrease of $0.7 million (or 1.2%)
from 1997. As a percentage of our net revenues, revenues from VSAT services
declined to 27.3% for 1998 from 35.7% in 1997, reflecting downward pressure on
the prices for our VSAT services. Revenues from Dataplus services for 1998
totaled $45.7 million, an increase of $8.1 million (or 21.6%) from 1997.
In addition, our revenues from newer service offerings such as Internet and
Minidat increased significantly during 1998. Internet service revenues totaled
$21.1 million in 1998, as compared to $7.9 million for 1997. At December 31,
1998, we had in excess of 79,000 retail Internet customers and 252 corporate
Internet customers, compared to 19,000 retail Internet customers and 45
corporate Internet customers at December 31, 1997. Mandic's net revenues from
Internet services in 1998 (after our acquisition) totaled $8.3 million. IMPSAT
Argentina's net revenues from Internet services in 1998 totaled $6.3 million, an
increase of $1.8 million (or 41.4%), from 1997. Revenues from Minidat services
for 1998 totaled $2.3 million compared to revenues of $17,000 in 1997. At
December 31, 1998, we had installed 763 Minidat microstations compared to
installations of 119 Minidat microstations at December 31, 1997.
In 1998, competitive pressures, including lower pricing, resulted in
relatively flat revenues from Argentina's non-value-added service offerings.
IMPSAT Argentina's revenues from VSAT and Dataplus services for 1998 totaled
$37.6 million and $23.5 million, respectively, an increase of $1.7 million (or
4.7%) and a decrease of $0.1 million (or 0.6%) from 1997.
As part of net revenues, we recorded revenues of $4.7 million from certain
equipment sales in 1998 and $3.1 million in 1997.
Variable Cost of Services. Our variable cost of services totaled $36.4
million, an increase of $9.0 million (or 33.1%) from 1997. Of total variable
cost of services for 1998, $17.9 million related to the operations of IMPSAT
Argentina and $8.2 million related to IMPSAT Colombia (compared to $14.6 million
at IMPSAT Argentina and $7.3 million at IMPSAT Colombia in 1997).
In 1998, our maintenance costs totaled $10.3 million, an increase of $0.1
million from 1997.
35
<PAGE> 37
In 1998, our installation costs totaled $7.6 million compared to $4.7
million in 1997.
Sales commissions paid to third party sales representatives totaled $6.8
million, compared to $5.7 million in 1997. Sales commissions increased in 1998
as a result of new private telecommunications network services contracts that we
obtained in 1998 through the use of third-party sales representatives.
In addition, we incurred costs of equipment sold of $3.7 million, compared
to $3.1 million in 1997.
Salaries, Wages and Benefits. Salaries, wages and benefits totaled $38.2
million, an increase of $9.1 million (or 31.2%), from 1997. We increased the
salaries, wages and benefits of our personnel to match market rates and
increases in cost of living. The increase also reflects the acquisitions during
the second quarter of 1998 of IMPSAT Brazil and Mandic, which had 107 and 67
employees, respectively, at December 31, 1998. Salaries, wages and benefits paid
with respect to IMPSAT Brazil and Mandic for 1998 totaled $3.6 million and $1.1
million, respectively. We maintained a total of 1,018 employees at December 31,
1998, compared to 748 employees at December 31, 1997. Of our total employees at
December 31, 1998, 28 individuals were assigned to the Broadband Network.
Salaries, wages and benefits for 1998 relating to the Broadband Network totaled
$0.5 million.
Leased Telecommunications Links Cost. Our satellite lease payments totaled
$24.5 million, an increase of $5.3 million (or 27.4%), from 1997. IMPSAT
Argentina's satellite lease payments totaled $10.6 million, an increase of $1.0
million (or 10.6%), from 1997. We had approximately 792.5 MHz of leased
satellite capacity at December 31, 1998 and approximately 412.6 MHz at December
31, 1997. The expansion of our satellite capacity was primarily attributable to
contractually scheduled increases in satellite capacity to match anticipated
growth in the total number of Dataplus earth stations which, because of their
greater transmission capacity and bandwidth requirements compared to VSAT, use
larger amounts of satellite capacity.
Selling, General and Administrative Expenses. We incurred SG&A expenses of
$45.2 million, an increase of $11.8 million (or 35.5%) compared to 1997. This
increase was principally due to the increase in our provision for doubtful
accounts discussed below and SG&A expenses incurred by our two new subsidiaries,
IMPSAT Brazil and Mandic.
SG&A expenses at IMPSAT Argentina totaled $20.4 million, a decrease of $0.5
million (or 2.6%) compared to 1997. SG&A expenses at IMPSAT Brazil and Mandic
for 1998 totaled $5.6 million and $2.2 million, respectively. We also incurred
SG&A expenses of $1.9 million in 1998 in connection with the Broadband Network.
On a company-wide basis, we recorded a provision for doubtful accounts of
$5.3 million, compared to $3.3 million in 1997, as a result of payment arrears
experienced by certain customers in Argentina, Colombia and Ecuador and our
change in policy for provisioning doubtful accounts. Of this amount, IMPSAT
Argentina recorded a provision for doubtful accounts of $3.5 million, in
comparison to a provision of $2.7 million in 1997. For more information
regarding this change, see "Risk Factors -- Our revenues will deteriorate if we
cannot collect on our customer accounts."
Our provision for doubtful accounts in 1998 included a provision of $0.6
million relating to amounts owed to IMPSAT Argentina by VideoCable
Comunicaciones S.A. (also known as VCC) under a contract pursuant to which VCC
had agreed to market IMPSAT Argentina's Internet access service to VCC's
customers. The VCC agreement was terminated on July 2, 1998. In February 1999,
we entered into an agreement with VCC for the payment by VCC of $1.0 million of
the total $1.6 million amount outstanding under this terminated contract.
Compared to 1997, the increase in our SG&A expenses also reflected a 141%
increase in entertainment, advertising and promotion costs to $7.0 million
compared to $2.9 million in 1997 relating to:
- our expansion of operations into Brazil
- promotion campaigns for our newer services, including Internet, Conexia
(electronic HMO benefit verification) and Telecampus (video conference
distance learning)
36
<PAGE> 38
- consultant fees relating to our exploration of a new public image
- related travel and entertainment expenses
In addition, the increase in our SG&A expenses reflected increased expenses for
legal, tax and consultancy advice ($7.1 million compared to $5.2 million for
1997) with respect to the financing and expansion of our operations, including
the acquisitions of IMPSAT Brazil and Mandic and the development of plans for
the Broadband Network.
Depreciation and Amortization. Our depreciation and amortization expense
totaled $36.9 million, representing an increase of $8.3 million (or 28.9%)
compared to 1997.
Interest Expense, Net. Our net interest expense totaled $44.7 million,
consisting of interest expense of $49.4 million and interest income of $4.7
million. Net interest expense for 1998 increased $20.4 million (or 84.2%) from
1997. The increase in net interest expense was primarily attributable to our
increased indebtedness, which increased from $220.1 million as of December 31,
1997 to $419.7 million as of December 31, 1998. This increased indebtedness
related primarily to our 12 3/8% note offering in June 1998. The average
interest rate on our indebtedness for 1998 was 14.0%, compared to 11.9% for
1997.
Provision for Income Taxes. We recorded a provision for income taxes of
$3.8 million, compared to $5.3 million for 1997. IMPSAT Argentina did not record
a provision for income taxes in 1998, compared to $3.2 million for 1997. This
reduction was attributable to carry-forward losses of Resis S.A., a wholly owned
subsidiary of the company that was merged into IMPSAT Argentina in November
1998, that IMPSAT Argentina used to offset its income tax liability in 1998.
Comprehensive Loss. We incurred a comprehensive loss of $34.5 million, an
increase of $26.9 million, compared to 1997. The principal reasons for the
increase were:
- the increase in our provision for doubtful accounts
- increased interest expense attributable to our increased indebtedness as
a result of our 12 3/8% note offering
- the incurrence of a comprehensive loss of $7.6 million by IMPSAT Brazil
in 1998
- the effect of accrued dividends of $10.0 million on the preferred stock
during 1998
1997 COMPARED TO 1996
Revenues. Revenues for 1997 totaled $161.1 million compared to $128.4
million for 1996, representing an increase of $32.7 million (or 25.4%) from
revenues in 1996. The following table shows our revenues by operating subsidiary
for 1997 and 1996:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
1996 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
IMPSAT Argentina............................................ $85,148 $90,790
IMPSAT Colombia............................................. 35,278 49,513
IMPSAT Venezuela............................................ 4,496 8,607
IMPSAT Ecuador.............................................. 2,802 5,716
IMPSAT Mexico............................................... 198 1,427
IMPSAT USA.................................................. 471 5,018
</TABLE>
As part of its revenues during 1997, IMPSAT Argentina recorded revenues of
$2.2 million from one-time equipment sales. The significant growth in IMPSAT
USA's revenues during 1997 was principally due to short-term, non-recurring
contracts entered into in 1997. Approximately 41% of IMPSAT USA's revenues for
1997 were derived from these short-term contracts.
37
<PAGE> 39
Variable Cost of Services. Our variable cost of services totaled $27.3
million, an increase of $5.8 million (or 27.2%) from 1996. Of our 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
compared to variable cost of services of $14.7 million at IMPSAT Argentina and
$5.6 million at IMPSAT Colombia for 1996.
Our maintenance costs totaled $12.5 million, representing a $4.0 million
increase from 1996. This increase was primarily attributable to the increased
level and amount of our telecommunications infrastructure in service as our
operations grew and expanded over time.
Maintenance costs for IMPSAT USA totaled $1.4 million, compared to $0.5
million in 1996. IMPSAT USA's maintenance costs for 1997 included fees 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. Maintenance costs in 1997 for other subsidiaries included:
- $5.8 million for IMPSAT Argentina, an increase of $1.3 million from 1996
- $4.5 million for IMPSAT Colombia, an increase of $1.2 million from 1996
Installation costs totaled $4.7 million compared to $2.2 million for 1996.
Sales commissions paid to third-party sales representatives totaled $5.9
million, compared to $8.9 million in 1996. The overwhelming amount of these
sales commissions were paid by IMPSAT Argentina, whose sales commissions totaled
$5.2 million compared to $8.3 million in 1996. We incurred lower sales
commissions for 1997 primarily because of the renegotiation of some of the
agreements with third-party sales representatives for lower commissions.
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, in the second quarter of 1997, the
renegotiation and reduction of services provided by IMPSAT Argentina to BNA
resulted in a reduction in the revenues from these services and a concomitant
reduction in related sales commissions to the third-party sales representatives
contracted with respect to these agreements.
In addition, we incurred costs of equipment sold of $2.8 million. We did
not incur any such costs during 1996. The cost of equipment sold during 1997
related to revenues recorded by IMPSAT Argentina and IMPSAT USA during the third
quarter of 1997 of $2.2 million and $0.9 million, respectively, as a result of
one-time equipment sales.
Leased Telecommunications Links Cost. Our satellite lease payments totaled
$19.2 million, an increase of $5.3 million from 1996, primarily attributable to
an increase in the amount of capacity leased. We had approximately 253.0 MHz of
leased satellite capacity as of December 31, 1996 and 412.6 MHz as of December
31, 1997.
Salaries, Wages and Benefits. Salaries, wages and benefits totaled $29.1
million, an increase of $3.5 million (or 13.9%) from 1996. We increased the
salaries, wages and benefits of our personnel to match market rates and
increases in cost of living.
IMPSAT Argentina incurred $15.8 million in salaries, wages and benefits
costs, unchanged from 1996. In Colombia, salaries, wages and benefits costs
totaled $6.3 million, an increase of $1.3 million from 1996. The appreciation of
the Colombian peso against the U.S. dollar during 1997 resulted in an increase
in U.S. dollar terms in salaries, wages and benefits paid to employees of IMPSAT
Colombia during that period. Salaries, wages and benefits for our other
subsidiaries increased by varying amounts totaling $2.4 million from 1996. At
December 31, 1997, we had 683 employees compared to 650 employees at December
31, 1996.
Selling, General and Administrative Expenses. We incurred SG&A expenses of
$33.4 million, an increase of $10.3 million from 1996. This increase was
primarily attributable to an increase in SG&A expenses incurred by IMPSAT
Argentina and IMPSAT Colombia.
SG&A expenses at IMPSAT Argentina totaled $20.9 million, an increase of
$7.7 million from 1996. This increase was attributable in part to the creation
of a $2.5 million provision for doubtful accounts relating to
38
<PAGE> 40
services invoiced to ENCOTESA. In addition, we increased our allowance for
doubtful accounts from $2.8 million at December 31, 1996 to $5.9 million at
December 31, 1997 as a result of payment arrears experienced by a number of
customers in Argentina. Our policy during 1997 was 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. In 1997, we provisioned $1.2 million
with respect to the IBM de Argentina receivable. As a percentage of total
revenues, our provision for doubtful accounts increased from 1.9% of total
revenues in 1996 to 3.5% of total revenues in 1997.
The increase in SG&A expenses in 1997 was also attributable to legal and
tax advice and other fees and expenses of $4.7 million, an increase of $1.1
million from 1996. These 1997 expenses were related to:
- legal fees incurred in connection with the legal proceeding commenced
against ENCOTESA described in "Business -- Legal Matters"
- our ongoing financing activities
- the conduct of preliminary feasibility assessments of the expansion of
our operations into Brazil
Depreciation and Amortization. Our depreciation and amortization expense
totaled $28.6 million, representing an increase of $2.4 million (or 9.0%) from
1996. In 1997, we adopted an improved inventory control system which enhanced
our ability to more accurately track and depreciate our equipment in service.
Interest Expense, Net. Our net interest expense totaled $24.3 million,
consisting of interest expense of $25.5 million and interest income of $1.3
million. Net interest expense increased $1.1 million (or 4.7%), from 1996. This
increase reflected primarily our increased indebtedness, which increased from
$199.1 million at December 31, 1996 to $220.1 million at December 31, 1997. The
average interest rate on our indebtedness was 11.9%, compared to 15.4% for 1996.
Provision for Income Taxes. We recorded a provision for income taxes of
$5.3 million, compared to $3.5 million for 1996.
- IMPSAT Argentina recorded a provision for income taxes for $3.2 million,
compared to $4.0 million in 1996
- IMPSAT Colombia recorded a provision for income taxes of $1.8 million,
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
Comprehensive Loss. We incurred a comprehensive loss of $7.6 million, a
decrease of $0.9 million (or 10.5%), from $8.5 million in 1996. IMPSAT Argentina
recorded a net loss of $3.2 million, compared to a net loss of $0.9 million for
1996. IMPSAT Colombia recorded net income of $8.4 million, an increase of $6.2
million compared to IMPSAT Colombia's net income for 1996.
LIQUIDITY AND CAPITAL RESOURCES
We will continue to make significant capital expenditures in the next
several years in connection with the Broadband Network, the further development
of our operations in Brazil and new customer accounts (for which we install our
equipment on customer premises). We also have substantial interest expense. We
intend to meet our capital requirements during the remainder of 1999 from:
- unused proceeds from our 12 3/8% note offering in 1998
- proceeds of our $125 million equity private placement to British
Telecommunications in April 1999
We anticipate that we will require approximately $115 million for capital
expenditures related to our existing telecommunications business (including
amounts spent to date) during the second half of 1999 through the end of 2000,
and significant amounts thereafter.
39
<PAGE> 41
Our budget further contemplates that we will need approximately $320
million during the period from June 30, 1999 through the end of 2000 for capital
expenditures related to the Broadband Network in Argentina and Brazil. The
timing for this has not been finalized and will depend on the availability of
adequate financing, among other factors. We are negotiating vendor financing
commitments of up to approximately $300 million with Nortel. In addition, we are
negotiating a vendor financing commitment of $16 million with Lucent
Technologies S.A. Argentina as part of our agreement to purchase Lucent fiber
optic cable for the long-haul portions of the Broadband Network in Argentina.
We do not have any other commitments regarding financing for the Broadband
Network. As a result, the further development of the Broadband Network will
depend upon our ability to obtain additional financing. If we are unable to
obtain additional financing, we will not be able to maintain our levels of
growth and market position in any of the countries in which we operate, which
could have a material adverse effect on the price of our common stock.
In the six months ended June 30, 1999, our operating activities used $21.9
million compared with $18.3 million generated by operating activities during the
six months ended June 30, 1998. This change is primarily attributable to an
increase in our net loss and an increase in our other receivables and other non-
current assets. Financing activities, principally our issuance of common stock
to a subsidiary of British Telecommunications in April 1999, provided $126.6
million in net cash flow for the six months ended June 30, 1999, compared with
$236.5 million for the six months ended June 30, 1998, principally related to
our issuance of 12 3/8% notes in 1998. During the six months ended June 30,
1999, we used $40.0 million (net) for investing activities, compared to $64.6
million for the six months ended June 30, 1998. We had a cash balance of $151.5
million as of June 30, 1999.
At June 30, 1999, we had leased satellite capacity with annual rental
commitments of approximately $25 million through the year 2003. In addition, we
had commitments to purchase telecommunications equipment amounting to
approximately $10.6 million.
YEAR 2000
The year 2000 problem refers to the failure of installed computerized
systems and software products to recognize or accept four digit date entries. In
this case, systems that have date-sensitive features might, for example,
recognize a date using "00" as the year 1900 rather than the year 2000. This
problem could cause malfunctions in certain computer systems, software and
databases with respect to dates on or after January 1, 2000, unless corrected.
Our 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 our computer systems and services to continue to
function properly in the year 2000. Where necessary, these plans involve a
combination of software modification, upgrades and replacement. Our year 2000
compliance program includes the following phases:
- establishment of a task force, which includes our senior management, to
address the year 2000 problem
- inventory and review of operating equipment
- circulation of questionnaires to our suppliers about equipment readiness
- gathering of information from customers
- implementation of required upgrades or replacements
- testing of equipment in-house or at supplier site
- development of appropriate contingency plans
We have formed a senior management team consisting of a corporate vice
president and a senior management representative from each of our operating
subsidiaries. This team oversees our efforts to assess and resolve the year 2000
problem. Each operating subsidiary representative supervises a local team
composed
40
<PAGE> 42
of consultants and full-time and temporary employees who are experts in, for
example, engineering and information technology. Each local team is accountable
directly to our senior management team, which in turn is accountable to our
board of directors.
We have completed our inventory and a review of the equipment and software
we use to provide our services. Our inventory and review determined that
although the year 2000 problem might affect certain technical monitoring,
control and reporting functions of our information technology and
non-information technology systems, in most cases the basic functionality of
these systems should not be affected. We then developed plans for remediation
and testing of all equipment found to be non-compliant. We have completed
remediation and testing of approximately 95% of our information technology and
non-information technology systems, including all our critical equipment and
systems, and expect to complete testing and remediation by October 1999.
To develop contingency plans with respect to the year 2000 problem, we are
analyzing potential operational risks that could lead to the interruption of
critical service functions and are formulating and installing preventive and
remedial measures, such as alternative sources of power generation. We have
completed several contingency plans and are in the process of developing further
contingency plans for worst case scenarios dealing with the year 2000 problem.
We expect to finalize all of our contingency plans after completing final
testing of systems and software involved in our operations. Our contingency
plans to date include procedures designed to mitigate the negative effects of
possible failures of our own systems as well as those of our customers and/or
suppliers.
Ensuring that our equipment and operational systems are year 2000 compliant
is expected to increase costs in 1999. To date, we have incurred approximately
$2.1 million of costs related to the year 2000 problem. We estimate that the
cost of remediation will total approximately $2.5 million, including amounts
spent to date. We estimate that most of these costs will be incurred with
respect to IMPSAT Argentina ($1.0 million) and IMPSAT Colombia ($1.0 million),
our largest operating subsidiaries. Of these costs, we expect to spend
approximately $0.4 million on system inventory and review. While these cost
estimates are not definitive, management does not expect final costs to have a
material adverse effect on our financial position, results of operations or cash
flows.
In addition, we face risks to the extent that the business systems or
products of our suppliers, satellite providers, customers and others with whom
we transact business are not year 2000 compliant. According to U.S. government
reports, some countries in Latin America are at risk of potential year
2000-related disruptions, particularly in key sectors such as
telecommunications. In providing our services, our systems are required to
communicate electronically with customer-owned systems with respect to a variety
of functions. Failure of our customers' systems to be year 2000 compliant,
particularly satellite providers, could impair our ability to perform these
functions. Furthermore, if any of our suppliers cannot provide us with products,
services or systems that meet the year 2000 requirements, our operating results
could be materially adversely affected. We have sent questionnaires to third
parties, including suppliers, satellite service providers and customers, to
inquire about their preparedness for the year 2000. To date, we have received
responses to approximately 95% of these inquiries, including responses from all
of our material suppliers, satellite service providers and customers. Each
respondent indicated that its systems are or would be year 2000 compliant. We
plan to follow up on the few third parties that have yet to respond.
We cannot assure you that the systems of our customers and suppliers will
be year 2000 compliant. We could be adversely affected by the year 2000 problem
if our suppliers, customers and other businesses do not address this issue
successfully. We are not yet able to estimate our costs of addressing the
potential impact on our operations of year 2000 failures of our customers and
suppliers. However, based on the review we have conducted, we do not expect that
any of these costs will have a material adverse effect on our results of
operations.
41
<PAGE> 43
INDUSTRY OVERVIEW
GENERAL
The telecommunications industry has recently been undergoing rapid change
due to deregulation, the construction of additional high-bandwidth
infrastructure, the growth of the Internet, the introduction and increasing
adoption of other data intensive applications and the introduction of new
technologies and competition. The worldwide telecommunications industry grew by
14.3% per annum from 1989 to 1997 and is projected to continue to grow at 12% to
18% through the year 2001.
Deregulation and privatization of telecommunication services, and the
associated onset of competition, have resulted in:
- the broadening of telecommunications service offerings, including
advanced and enhanced services (such as global voicemail, faxmail,
electronic mail and Internet applications)
- lower end-user prices
These factors have contributed to the increase in worldwide
telecommunications traffic and, specifically, to an even more rapid growth in
data traffic. With our Broadband Network and existing customer relationships, we
believe that we will be well positioned to take advantage of this rapid growth.
THE LATIN AMERICAN TELECOMMUNICATIONS MARKET OPPORTUNITY
Latin America encompasses some of the largest potential telecommunications
markets in the world. The Latin American markets in which we operate have a
combined:
- estimated population of 368 million people
- average GDP per capita of over $4,700
- estimated compounded annual growth in telephone lines of approximately
11% through 2002
- expected compounded annual growth of telecommunications voice service
minutes of 14% through 2002
The table below sets forth population, GDP per capita, millions of minutes
of outgoing telecommunications traffic (MiTT) and MiTT per capita for 1998 for
the countries indicated:
<TABLE>
<CAPTION>
POPULATION OUTGOING
COUNTRY OF OPERATION (MILLIONS) GDP/CAPITA OUTGOING MITT MITT/CAPITA
- -------------------- --------------- ---------- ------------- -----------
<S> <C> <C> <C> <C>
Argentina..................... 36.1 $9,476 223 6.2
Brazil........................ 160.2 4,746 459 2.9
Colombia...................... 40.9 2,227 136(1) 3.3
Ecuador....................... 12.2 1,615 N/A N/A
Mexico........................ 95.2 4,359 1,200 12.6
Venezuela..................... 23.7 4,401 159 6.7
----- ------ ----- ---
Total/Average....... 368.3 $4,704 2,176 6.1
===== ------ ===== ---
</TABLE>
- ------------
Source: Economist Intelligence Unit, Telegeography 1999.
(1) Traffic data for 1996.
DEREGULATION
Latin American telecommunication markets are undergoing significant
deregulation. The countries in Latin America that have or are beginning to
deregulate have done so as their governments have recognized the need to
introduce market competition. Along with many other countries, Argentina,
Brazil, Chile, Colombia, Ecuador, Mexico, Peru and Venezuela have agreed under
the World Trade Organization Agreement on Basic
42
<PAGE> 44
Telecommunications Services to demonopolize their telecommunications industry
within varying time frames that began in February 1998.
Argentina's telecommunications sector was privatized in 1990 when Empresa
Nacional de Telecomunicaciones, the then state-owned entity, was split into two
regional monopolies. The Argentine government has scheduled demonopolization of
the sector beginning in November 1999 and has granted several new licenses that
will become operative starting at that time. We have been granted one of these
licenses, which will become operative in November 2000. In Colombia, the
government has awarded two long distance operating licenses to local companies,
ending the monopoly of Colombia's PTO. Similarly, Venezuela has announced the
scheduled demonopolization of its public telephone services by January 1, 2000.
In July 1998, Brazil privatized its principal PTO, Telebras, and has since
established an independent regulator to oversee its telecommunications industry.
In Mexico, Telefonos de Mexico, S.A., de C.V., the former PTO known as Telmex,
was privatized in 1990, and competitors have been allowed to enter the market
and render long distance services since 1996. In addition, since January 1997,
Telmex has been required to interconnect with the networks of competitors.
INCREASING AVAILABILITY AND DEMAND FOR BROADBAND SERVICES
In the United States, data service revenues are expected to grow at a
compounded annual rate of approximately 13% through 2002. In Latin America,
growth in revenues derived from these services is expected to accelerate and
achieve compounded annual growth of approximately 24% through 2002, assuming
relative economic stability is maintained, due to the following factors:
- Competition. As competitors enter the Latin American telecommunications
markets, we expect them to provide an expanded range of
telecommunications services at competitive prices. We believe that the
ongoing deregulation of the Latin American telecommunications markets has
led and will continue to lead to an increase in demand for the more
sophisticated telecommunications services and solutions. We believe that
while the incumbent providers in these markets have established customer
bases, they have not traditionally concentrated on customer service, cost
efficient operations, or using the most technologically advanced systems
and equipment.
- The globalization of corporations. As corporations in more developed
markets expand into growth markets such as Latin America, we believe that
the need for private network services and broadband capacity between and
within the major cities in these markets will grow. In addition, as Latin
American corporations develop into more global enterprises, we believe
that their need for broadband connectivity will increase and their
adoption of bandwidth intensive applications is likely to accelerate.
- The ongoing development of technologically advanced telecommunications
infrastructure. Historically, Latin American markets have been dependent
upon the legacy telecommunications infrastructure of the incumbent
operators which is not sufficiently robust to transmit large amounts of
data traffic. Due to the poor transmission quality of regional
telecommunications infrastructure, Latin American customers have been
slower to adopt data intensive applications than similar customers in
more developed markets such as the United States. We believe that the
demand for high bandwidth and broadband services will increase as
infrastructure improves and the use of data intensive applications
becomes feasible and economical in more markets in Latin America.
- Increasing worldwide use of the Internet. Technologies such as
asynchronous digital subscriber line, or ADSL, are driving the adoption
of the Internet and other data intensive applications in the United
States. As Internet use increases, corporations are forced to accelerate
their adoption of additional new technologies and applications thereby
fueling incremental demand for broadband services. The Latin American
Internet market is, according to industry sources, several years behind
the market in the United States in terms of overall penetration of
Internet access and Internet related services.
43
<PAGE> 45
Industry sources estimate that the penetration rate of web users in the
United States was approximately 16% of the U.S. population in 1997 and is
expected to increase to 40% of the population by 2001. The penetration
rate of web users in Latin America varies across the region but was
estimated on average to be 0.8% of the population of the Latin American
markets in which we operate for 1997 and is forecast to reach
approximately 4% by 2002. From 1993 to 1998, available data indicates
that the number of Internet hosts based in the Latin American markets in
which we operate increased from approximately 7,500 to over 340,000,
representing a compounded annual growth rate in excess of 100%.
The Latin American projections that we cite in this prospectus were
published in the last half of 1998 and take into account the recessions in Latin
America at that time. In contrast, the U.S. growth rates referred to occurred
during an economic expansion. However, we believe that the historical trends in
Internet growth in the U.S. market with respect to web users, the number of
Internet host computers through which Internet protocol services are provided
and backbone capabilities are broadly indicative of what can be expected to
occur in Latin America. We further believe that growth rates for Internet use in
Latin America will exceed those rates experienced in the United States over the
last few years.
44
<PAGE> 46
BUSINESS
OVERVIEW
We are a leading provider of private telecommunications network and
Internet services in Latin America. We offer tailor-made, integrated data, voice
and Internet solutions, with an increasing emphasis on broadband transmission,
for national and multinational companies, financial institutions, governmental
agencies and other business customers. We also offer Internet services to
Internet service and content providers.
We have operations in Argentina, Colombia, Venezuela, Ecuador, Mexico,
Brazil and the United States and also provide our services in other countries in
Latin America. We provide telecommunications and Internet services through our
networks, which consist of owned fiber optic and wireless links, teleports,
earth stations and leased fiber optic and satellite links. We own and operate 12
metropolitan area networks in some of the largest cities in Latin America,
including Buenos Aires, Bogota, Caracas and Sao Paulo.
We are building an extensive pan-Latin American broadband fiber optic
network, which will allow us to enhance the services we presently provide and
significantly increase our transmission speed and capacity. Our new network will
consist of long-haul, high capacity fiber optic backbones and metropolitan area
fiber optic and wireless links and will use advanced transmission technologies,
including DWDM, ATM and IP. We already own and operate a long-haul, fiber optic
network connecting the cities of Cali, Medellin and Bogota in Colombia over a
422 mile route. By November 2000, we expect to have built out our Broadband
Network to connect major cities across Argentina and Brazil.
IMPSAT Corporation was organized in 1994 as a Delaware holding company to
combine the IMPSAT businesses in Argentina, Colombia and Venezuela. Our
operations started in Argentina in 1990 under the name IMPSAT S.A. (IMPSAT
Argentina). We own a 95.2% equity interest in IMPSAT Argentina. We 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, in the United States (IMPSAT USA) in 1995 and in Brazil (IMPSAT Brazil)
in 1998.
OUR COMPETITIVE STRENGTHS
We believe that we distinguish ourselves from our competitors through
several competitive strengths, including:
- STRONG PRESENCE IN HIGH GROWTH LATIN AMERICAN TELECOMMUNICATIONS
MARKETS. We began operations in Argentina in 1990 and have since expanded
into Colombia, Venezuela, Ecuador, Mexico and Brazil. These markets are
characterized by emerging economies with less developed
telecommunications infrastructure. We believe that experience and proven
success with operating and growing a competitive telecommunications
business in these deregulating markets allow us to better anticipate
future market trends and the needs of our corporate and government
clients. We also believe that we are well positioned to benefit from the
forecasted growth in telecommunications needs in Latin America and from
forecasted worldwide growth in broadband and broadband-related
telecommunications services. In addition, we are one of the few
competitive telecommunications companies that has successfully competed
against the PTOs in Latin America.
- ESTABLISHED AND GROWING BASE OF "BLUE CHIP" BUSINESS CUSTOMERS. Our early
penetration of our core Latin American markets provides us with key
competitive advantages that include industry knowledge and experience,
name recognition and credibility with customers. As a result, we have
established a blue chip customer base that includes numerous large,
multinational corporations such as YPF, Citibank, Royal Dutch Shell,
SmithKline Beecham, Siemens, American Express and HSBC, as well as large
government entities such as BNA and the Government of the Province of
Buenos Aires. This customer base has grown from 125 in 1992 to 1,467 in
1998. We intend to continue to grow with our customers as they expand
into other Latin American countries and as they increase use of
bandwidth-intensive services.
45
<PAGE> 47
- EARLY DEVELOPMENT OF OUR EXTENSIVE BROADBAND NETWORK. We possess almost
all of the authorizations, rights-of-way, easements and governmental
licenses and permits that we believe are necessary to construct the
long-haul segments of the Broadband Network in Argentina and Brazil. We
expect to be equally successful in obtaining these outstanding
authorizations for our development of the remainder of the local rings
and last mile segments of the Broadband Network. We believe that our
competitors are likely to have difficulties in obtaining the
rights-of-way, permits and licenses and other authorizations necessary to
construct and operate similar networks in a timely and cost effective
manner. We believe that this significant time-to-market advantage will
enable us to quickly establish a leading role in the emerging Latin
American market for bandwidth intensive data, voice and other
transmission solutions.
- ENDURING COMMITMENT TO SUPERIOR CUSTOMER SERVICE. We view our
relationships with customers as long-term partnerships in which customer
satisfaction is of paramount importance. For this reason, we apply an
integrated approach to our sales, marketing and customer service
functions. We provide customer service 24 hours a day, 365 days a year.
We use customer service teams to develop and maintain long-term,
cooperative relationships with our customers. These relationships provide
us with an in-depth understanding of our customers' evolving
telecommunications service requirements and levels of service
satisfaction. As a result of this approach, we achieve high levels of
customer satisfaction and are able to identify new revenue generating
opportunities, customer telecommunications solution enhancements and
product or service improvements previously overlooked or not adequately
addressed by the client. We believe that our client service focus is rare
when compared to many incumbent telecommunications service providers and
that many customers choose us due to this consultative approach.
- STRONG EQUITY SPONSORS, INCLUDING BRITISH TELECOMMUNICATIONS AND MORGAN
STANLEY DEAN WITTER. In March 1998, the Morgan Stanley investors
purchased 100% of our outstanding preferred stock, and, in April 1999,
British Telecommunications invested in our common stock. The Morgan
Stanley investors and British Telecommunications have each appointed two
members to our board of directors. Immediately after this offering, the
Morgan Stanley investors will own approximately % and British
Telecommunications will own approximately % of our common
stock. We believe that the ongoing sponsorship of these investors
provides us with beneficial strategic guidance as we expand our market
presence and become a publicly traded entity.
We also believe that we have distinguished ourselves from our competitors
through our proven historical operating performance. From 1992 to 1998:
- our business customer base grew from 125 customers in two countries to
1,467 customers in seven countries
- property, plant and equipment grew from $47.9 million to $330.7 million
- total consolidated revenues grew from $20.5 million to $208.1 million
- EBITDA grew from $7.9 million to $63.8 million
BUSINESS STRATEGY
We intend to maintain and enhance our market leadership position by:
- EXPANDING AND ENHANCING OUR SERVICE OFFERINGS THROUGH OUR BROADBAND
NETWORK. We are developing and implementing new service offerings that
include high-speed Internet access, intranet and extranet service,
e-commerce and other high-bandwidth broadband telecommunications
services. We also plan to take advantage of other revenue opportunities
that we expect to continue to develop as a result of deregulation,
including domestic long-distance and international switched voice
telecommunications. We are building out the Broadband Network to assist
us in these efforts by augmenting and complementing our facilities,
thereby allowing us to provide our customers with a broader array of data
intensive applications.
46
<PAGE> 48
- FOCUSING ON BUSINESS, GOVERNMENT, ISP AND TELECOMMUNICATIONS CARRIER
CUSTOMERS IN LATIN AMERICA. We focus on large national and multinational
corporate and government end users, for whom reliable data transmission
is vital. We believe that our superior network quality, often unavailable
from the PTOs and our other competitors, is especially attractive to
customers such as these with sophisticated telecommunications needs. We
also believe that our greater broadband capacity and enhanced geographic
coverage following the build-out of our Broadband Network will be highly
attractive to this customer base.
- INCREASING OUR MARKET SHARE BY CAPITALIZING ON OUR PAN-LATIN AMERICAN
PRESENCE, ONE-STOP SHOPPING CAPABILITY, OPERATING EXPERIENCE AND REGIONAL
REPUTATION. We seek to leverage our existing customer base, established
regional presence, advanced infrastructure and market knowledge to expand
our operations and service offerings in Latin America. We believe that
our ability to offer one-stop shopping in Latin America is a key
competitive advantage. In addition, many of the large national and
multinational corporations doing business in Latin America demand
comprehensive telecommunications solutions and increasing amounts of
bandwidth. We believe that their needs will continue to grow and that our
established relationships and reputation with these customers will allow
us to capture an increasing share of their incremental business.
Additionally, we believe that we are one of the few telecommunications
service providers in Latin America that can provide the breadth of
services that we provide on a multinational basis. As an example, we
provide services in multiple countries to several of our multinational
customers such as Royal Dutch Shell (Argentina, Colombia and Brazil) and
Reuters (Argentina, Colombia, Ecuador and Venezuela).
THE BROADBAND NETWORK
General. The Latin American markets in which we operate are expected to
experience compounded annual telecommunications and data services revenue growth
of approximately 14% and 24%, respectively, from 1998 through 2002. We believe
that this forecasted growth, coupled with continued deregulation in Latin
America, will fuel demand for additional broadband capacity. To take advantage
of this demand, we are constructing the Broadband Network, which will enable us
to provide high capacity, high speed telecommunications services across Latin
America. Our Broadband Network will consist of:
- long-haul, high capacity fiber optic backbones linking major cities in
Latin America
- fiber optic local rings and wireless access points within major cities in
Latin America, including Buenos Aires, Sao Paulo, Rio de Janeiro, Bogota
and Caracas
- capacity on undersea cable systems to provide connections between major
Latin American cities, as well as global telecommunications connectivity
and Internet access
We believe that our Broadband Network will enable us to:
- cost-effectively offer more bandwidth-intensive services in the near
future, including intranet and extranet services
- substantially reduce our costs for leased telecommunications links as a
percentage of our net revenues
- create a high capacity, pan-Latin American Internet backbone
- offer Latin American companies more efficient access to the U.S. Internet
backbone
- continue to provide consistent, high quality service by keeping our
customer traffic on our networks
When fully developed and implemented, our Latin American "information
highway" will provide a proprietary fiber optic link among the major cities in
the Latin American countries that we serve, thereby complementing our existing
fiber optic, satellite and wireless networks. Upon completion, we expect that
our Broadband Network will have the capacity to transmit up to 5.7 terabits per
second.
47
<PAGE> 49
Coverage. By November 2000, we expect the Broadband Network will connect
the principal cities in Argentina and Brazil using fiber optic cable links
complemented by our existing satellite-based networks in Argentina and Brazil.
The Broadband Network will include extensive civil infrastructure in Argentina
and Brazil, including:
- six ducts along a 1,050 mile route for the long-haul network in
Argentina, linking the cities of Buenos Aires, Rosario, Santa Fe,
Cordoba, San Luis and Mendoza, with one of these ducts containing a 36
pair, non-zero dispersion fiber, or NZDF, cable (this augments our
existing fiber optic link between the cities of Buenos Aires and La
Plata)
- three ducts along a 1,000 mile route for the long-haul network in Brazil,
linking the cities of Curitiba, Sao Paulo, Belo Horizonte and Rio de
Janeiro, with one of these ducts containing a 36 pair, NZDF cable
- approximately 70 route miles of fiber optic metropolitan area backbone
and local rings, as well as 2,904 square kilometers of wireless coverage,
across Buenos Aires, Rosario, Cordoba, La Plata and Mendoza in Argentina
- approximately 150 route miles of fiber optic metropolitan area backbone
and local rings, as well as 3,294 square kilometers of wireless coverage,
across Sao Paulo, Rio de Janeiro, Belo Horizonte and Curitiba in Brazil
- eight major telehouses (each consisting of infrastructure and equipment
that form a distribution station within the network) in Buenos Aires,
Rosario, Cordoba and Mendoza in Argentina and Sao Paulo, Rio de Janeiro,
Curitiba and Belo Horizonte in Brazil
In addition to the Broadband Network in Argentina and Brazil, we will
acquire the right to use a duct on the Trans-Andean Crossing System between
Mendoza, Argentina and Valparaiso, Chile as part of our agreements with Global
Crossing. We already own and operate a long-haul fiber optic network connecting
the cities of Cali, Medellin and Bogota in Colombia over a 422 mile route.
[GRAPHIC OF THE NETWORK CONFIGURATION]
Nortel Agreements. Nortel has agreed to design and construct the segments
of the Broadband Network in Argentina and Brazil for approximately $265 million.
On September 6, 1999, we executed two turnkey agreements with Nortel to develop:
- long-haul, high capacity fiber optic backbones linking major cities in
Argentina and Brazil
- fiber optic and wireless radio local rings and access points within major
cities in Argentina and Brazil
- connections in Argentina and Brazil that will integrate our networks with
other providers' facilities, including submarine cable systems, and
provide us with access to global telecommunications links
Nortel will provide, as part of the turnkey agreements:
- required equipment and components
- civil infrastructure design and engineering
- civil works supervision
- network infrastructure and configuration planning and engineering
- formulation of network quality and performance specifications
- compilation of network testing procedures and protocols
- preparation of network maintenance and operations plans and procedures
48
<PAGE> 50
We are negotiating agreements with Nortel to finance this project.
Global Crossing Agreements. On July 27, 1999, we entered into an agreement
with Global Crossing that contemplates our entering into a series of definitive
agreements.
As part of these arrangements, we will purchase from Global Crossing
indefeasible rights of use of capacity valued at not less than $46 million on
any of Global Crossing's fiber optic cable networks worldwide. These rights
should enable us to interconnect our networks in Argentina and Brazil and give
us global international access.
On September 22, 1999, we entered into a definitive agreement with Global
Crossing to construct the terrestrial portion of Global Crossing's South
American network between Las Toninas, Argentina on the Atlantic Ocean and
Valparaiso, Chile on the Pacific Ocean (we call this the Trans-Andean Crossing
System). We commenced construction of the Trans-Andean Crossing System in
September 1999. Global Crossing will pay us approximately $64 million for our
turnkey construction of the Trans-Andean Crossing System, which includes our:
- construction of three ducts and related facilities over 230 route miles
between Las Toninas and Buenos Aires, Argentina and over 290 route miles
between Mendoza, Argentina and Valparaiso, Chile
- licensing to Global Crossing of one duct on our Broadband Network between
the cities of Buenos Aires and Mendoza in Argentina
In addition to the Trans-Andean Crossing System, we will:
- construct fiber optic terrestrial backhauls that will connect Global
Crossing's submarine cable landing points in Brazil, Colombia, Peru and
Venezuela to major cities in these countries
- sell co-location space in our telehouses in Rio de Janeiro and Sao Paulo,
Brazil; Bogota, Colombia; Lima, Peru; and Caracas, Venezuela
Our telehouses will contain switching, routing and other network
co-location equipment owned by us or lessees of space in our telehouses. We will
lease space in our telehouses in Buenos Aires, Argentina and Santiago, Chile to
Global Crossing for its network operations. We also expect to enter into
agreements with Global Crossing providing for our maintenance of Global
Crossing's Trans-Andean Crossing System.
Technology. The Broadband Network will employ advanced technology,
including:
- Dense wavelength division multiplexing, which allows a pair of fiber
optic strands to carry simultaneously multiple signals of different
wavelengths. This dramatically increases the capacity of each fiber
strand. For example, this technology will enable the long-haul backbones
of the Broadband Network to carry up to 16 channels at 10 Gbps per pair
of fiber strands.
- High capacity wireless links, which enable point-to-point speeds ranging
from 2 Mbps to 155 Mbps and point-to-multipoint speeds ranging from 64
kbps to 4 Mbps using local multipoint distribution services (LMDS)
technology. These links will connect customers that are outside the fiber
optic rings or in low-density metropolitan areas along the Broadband
Network.
- Internet protocol technologies, which will enable us to offer Internet,
intranet, extranet and voice services and virtual private data networks.
- Asynchronous Transfer Mode technology, which will allow us to provide low
latency switching services and support for multiple telecommunications
protocols, including traditional time division multiplexing (TDM), frame
relay and Internet protocol.
THE IMPSAT SOLUTION
Our comprehensive telecommunications solutions consist of any combination
of our service offerings and will consist of services which we intend to offer
following the completion of the Broadband Network in
49
<PAGE> 51
Argentina and Brazil. We classify these service offerings into five categories:
network services, Internet services, carrier's carrier services, telephony
services and other services.
Network Services. We offer our customers a broad range of end-to-end
network service combinations for their point-to-point and point-to-multipoint
telecommunications needs, ranging from simple connectivity to customized private
network solutions. We will offer our network services over our existing and
planned networks, which are comprised of metropolitan area fiber optic rings and
wireless networks, fiber optic and satellite links.
- Connectivity Services. Our customers can purchase leased lines, frame
relay services, ATM services and Internet protocol digital connection
services to support their specific transmission requirements. Leased
lines are typically purchased by customers that constantly transmit large
amounts of voice, data and video traffic. Frame relay and ATM services
are typically purchased by customers requiring reliable and rapid
transmission of variable amounts of voice, data and video traffic. We
typically offer our leased line connectivity service from 64 Kbps to 2
Mbps, and we intend to expand this offering to 155 Mbps of capacity. Our
frame relay services are typically offered from 64 Kbps to 2 Mbps and we
intend to offer our ATM services from 2 Mbps to 155 Mbps. In addition, we
offer digital connections using Internet protocol with interfaces of 10
Mbps to 100 Mbps as one of our options for local data network solutions.
- Private Network Services. For customers that require significant
bandwidth and reliable data transmission between a number of sites, we
offer customized private networks that consist of various components of
our networks. We also provide them with a variety of other services
including network management services, trouble shooting reports, quality
control and value-added services. Our consultative sales process ensures
that each private network is designed to meet the evolving specific
business and systems requirements of each customer. We also offer
services such as video conferencing and remote learning as part of our
private network services.
Internet Services. We have offered Internet access services to corporate
and ISP customers since 1996. These services are offered through our satellite
connections and U.S.-based point of presence that link us to the U.S. Internet
backbone through MCI WorldCom, Sprint Corporation, Intermedia Corporation and
UUNet. In the year 2000, we intend to link our Latin American Internet backbone,
as part of the Broadband Network, to the U.S. Internet through our fiber optic
links with Global Crossing. We offer both wholesale and corporate Internet
services:
- Wholesale Internet Services. We provide a complete Internet service for
ISPs, including managed line provisioning for domestic and international
backbone connectivity between points of presence, access to our
co-location sites and server services (e-mail and hosting services),
telephone lines associated with the pool of modems, roaming, as well as
the use of our network operation and help desk services.
- Corporate Internet Services. As part of their total telecommunications
solution, we currently provide our corporate customers with Internet
access services including line provisioning, equipment provisioning and
installation, primary and secondary domain registration and maintenance
and technical support.
Carrier's Carrier Services. In the year 2000, we intend to offer dark fiber
capacity, "lit" fiber capacity and duct capacity to ISPs and telecommunications
carriers. Our fiber optic cable will provide customers with reliable, broadband
connectivity between and among our metropolitan area networks at high speeds.
Customers that choose to purchase "lit" capacity will be able to purchase an
initial amount of capacity (typically 45 Mbps) and increase that capacity on
demand. We also plan to offer co-location services including the rental of
secure space, equipment provisioning and operation and maintenance services.
Telephony Services. Following the completion of our Broadband Network in
Argentina and Brazil, we intend to offer domestic and international long
distance services to corporate customers and resellers. We plan to extend our
offering to include private branch exchange (PBX) and centrex connections, toll
free services and calling card services for our corporate customers. We expect
to provide these services over traditional time
50
<PAGE> 52
division multiplexing and Internet protocol platforms. We have a license to
provide these services in Argentina starting in November 2000 and expect to
provide these services in Brazil in 2004.
Other Services. We offer information technology solutions and
transactional services designed to facilitate our customer's e-business and
e-commerce needs and optimize our customers' business processes.
- Information Technology Solutions. As part of our end-to-end solutions, we
also offer a variety of information technology services, including the
design, installation and integration of intranets, extranets and virtual
private data networks, through which our customers can conduct business
in a secure environment as well as integrate these new systems with their
legacy telecommunications systems. In addition, we offer an outsourcing
solution for customers that do not have the technical personnel or choose
not to operate, manage and maintain their telecommunications systems and
networks.
- Transactional Services. Our transactional services are designed to
facilitate the e-commerce and e-business initiatives of our customers.
For example, we provide our Conexia service to customers in the
healthcare sector for HMO membership verification, and we intend to
expand our service to interconnect healthcare service providers (such as
doctors, pharmacies, hospitals) to allow online prescription
authorization for patients. We intend to provide additional
business-to-business e-commerce solutions, primarily to retail businesses
and financial institutions that conduct high volumes of transactions with
their suppliers and business customers and increasingly want to establish
on-line transaction capabilities.
EXISTING NETWORK INFRASTRUCTURE
Our existing networks are comprised of satellite, fiber optic cable and
wireless links. We are building our Broadband Network to augment and complement
these existing networks by expanding and enhancing the services we presently
provide. The following describes the components of our existing networks:
VSAT. We are a pioneer in Latin America in the use of a shared hub. We
operate one of the largest shared hub VSAT networks in Latin America as measured
by the number of microstations installed. The use of a shared hub earth station,
whereby many different customers share a central teleport operated by us, allows
us to reduce the cost of telecommunications services to our customers, which
expands our addressable market to smaller and medium-sized businesses. Typical
VSAT network architecture has 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 uses time division
multiple access technology, which enhances the use of satellite capacity by
enabling multiple VSATs to share a single satellite channel. Our VSAT
architecture is integrated into our customer's network, in part through protocol
emulation technology that provides support for various data network protocols,
including ATM and frame relay. At June 30, 1999, we had 4,052 VSAT microstations
installed in Latin America.
We also provide a lower cost VSAT-based service offering under the Minidat
brand name. Our Minidat services use ultra small aperture terminals, which tend
to be about half the size of VSATs. We established Minidat services to meet the
data transmission requirements of customers operating point of sales systems,
automated teller machines, lottery ticket sales, reservation systems, and
wholesales and inventory control and management systems. At June 30, 1999, we
had a total of 916 Minidat microstations installed.
Single Channel Per Carrier. SCPC uses a multiplexer to transmit either
through several channels bundled into one terminal or through a single channel
that can be used by a number of different terminals (such as data, facsimile or
video). In addition, an SCPC earth station (which has a larger and more powerful
satellite dish than that of the VSAT) can communicate via 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 uses dedicated satellite links. We provide
these services domestically under the Dataplus brand name and internationally
under the Interplus brand name. At June 30, 1999, we had a total of 1,168 earth
stations installed.
51
<PAGE> 53
Our major suppliers of SCPC technology include Prodelin Corp., Codan, SSE
Technologies Inc. and Radyne ComStream. Our other equipment suppliers include
Newbridge Networks, Cisco Systems, Inc. and General DataComm, Inc. for time
division multiplexers; ACT Networks Inc. for frame relay multiplexers; Harris
Corporation and Digital Microwave Corporation for radiolink systems; and Ascend
Communications and Alcatel Data Networks for packet switches. We also employ
local companies in each location where we operate for installation and
groundwork services.
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 command centers for VSAT
networks in the host country and are linked to our SCPC installations and
metropolitan area networks. Each teleport contains a radio microwave tower to
transmit and receive transmissions to and from nearby customer locations which
are not connected to our existing metropolitan area networks. We own and operate
teleports in Buenos Aires, Argentina; Sao Paulo, Brazil; Bogota, Colombia;
Caracas, Venezuela; Quito, Ecuador; Mexico City, Mexico; and Florida, United
States. In addition to the teleport in Fort Lauderdale, Florida, which commenced
operations in January 1999, IMPSAT USA operates leased teleport facilities in
New Jersey.
Regional Teleports. Regional teleports are smaller SCPC-based earth
stations that have antennas ranging from 3.8 to 4.5 meters in diameter. Regional
teleports enable us to extend our 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 our metropolitan
area networks, or by wireless or satellite links. We own and operate regional
teleports in Mendoza, Cordoba, Rosario, Tucuman, Mar del Plata, La Plata and
Neuquen in Argentina; Medellin, Cali and Barranquilla in Colombia; Guayaquil,
Ecuador; and Curitiba, Brazil.
Metropolitan Area Networks. Our fiber optic and/or wireless metropolitan
area networks provide last mile terrestrial fiber optic and wireless links among
and between points in a metropolitan area and also with other points outside the
metropolitan area network by means of satellite and planned fiber optic
connections. Ground-based wireless 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
metropolitan area networks is for interconnection with our teleports and
regional teleports, we have customers that only use the metropolitan area
networks locally and that are not users of the extended satellite and planned
fiber optic telecommunication system. We provide these services under the
Teledatos brand name. The following diagram illustrates the configuration of the
existing and planned metropolitan area network in Buenos Aires, Argentina:
52
<PAGE> 54
Our first metropolitan area network was established in Buenos Aires,
Argentina in 1990. Other metropolitan area networks now exist in Cordoba,
Mendoza, Rosario, Mar del Plata and Tucuman, Argentina; Bogota, Medellin and
Cali, Colombia; Caracas, Venezuela; and Curitiba and Sao Paulo, Brazil. Our
metropolitan area networks may consist of leased capacity on existing fiber
optic networks owned and maintained by a local PTO (as is the case in Bogota) or
we may design, engineer and manage the installation of our own fiber optic and
radio wireless network (as is the case in Buenos Aires). We charge a monthly fee
for each connection to the Teledatos network and for the number of connections
to the teleport. At June 30, 1999, there were a total of 7,283 connections in
service and 51 route fiber miles installed in our owned metropolitan area
networks. In addition, we manage and operate a fiber optic network covering 220
route miles in Bogota, Colombia, pursuant to a joint venture with Empresa de
Telecomunicaciones de Santafe de Bogota, the Colombian PTO that provides local
telephone service in the Bogota region.
In connection with the build-out of the Broadband Network, we will expand
our current metropolitan area networks in Argentina using high speed fiber optic
and wireless links and will construct additional metropolitan area networks in
other major cities in Brazil, which will feature high speed fiber optic and
wireless links.
Unidirectional Teleport-to-VSAT Network. A unidirectional network typically
consists of the teleport and numerous receive-only, remote VSAT terminals. We
market this service under the Difusat brand name. 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. At June 30, 1999, we had installed 378 unidirectional microstations
for use in our Difusat service.
Undersea Fiber Optic Capacity. We are a member of the Americas-1 and
Columbus-II undersea fiber optic cable consortia, and have purchased an initial
total capacity of 2 Mbps on each system for use in our 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. 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.
As part of the Broadband Network, we intend to secure additional submarine
network capacity linking our metropolitan area networks to points
internationally. Our agreement with Global Crossing provides,
53
<PAGE> 55
among other things, for our purchase of indefeasible rights of use of capacity
valued at not less than $46 million on any of Global Crossing's undersea digital
fiber optic cable systems (and associated terrestrial capacity) worldwide,
including Global Crossing's South American network. Global Crossing's South
American network, which is currently under development, is an 18,000 km undersea
and terrestrial fiber optic network that will encircle that continent. We have
agreed to construct the terrestrial portion of the South American network
pursuant to a turnkey construction agreement, the definitive terms of which we
are currently negotiating with Global Crossing.
While undersea capacity to Latin America is scarce at this time, a number
of cables are being developed to satisfy the increasing demand for broadband
capacity. In addition to Global Crossing, we have reserved up to 18 Mbps, 4 Mbps
and 24 Mbps of capacity on the Americas-II, Pan American and Arcos I undersea
fiber optic cable networks, respectively. The Americas-II submarine cable, which
is under development, will connect St. Croix, Puerto Rico, Curacao, Venezuela
and Brazil. Pan American began operations in mid-February 1999 and runs between
the U.S. Virgin Islands, Aruba, Venezuela, Colombia, Panama, Ecuador, Peru and
Chile. Arcos I, an 8,000 km cable system under construction with a planned
second quarter 2000 completion date, is expected to connect the United States
with numerous Caribbean and Latin American nations.
Satellites. Our satellite transmissions use both C-band (4-7 GHz) and
Ku-band (10-18 GHz) frequencies. As of June 30, 1999, we had a total available
leased capacity of 882.1 MHz, 753.7 MHz of which we are using in the following
manner:
- a total of 389.0 MHz of leased capacity on five Intelsat satellites,
various amounts of which are scheduled to expire between August 1999 and
April 2008 (our satellite capacity on the Intelsat satellites is leased
both directly by our operating subsidiaries and through subleases with
Intelsat participants, such as Argentina's Comision Nacional de
Comunicaciones)
- satellite capacity on the New Sky Satellite 806 satellite for 40.0 MHz,
which expires in 2008
- 72.0 MHz of capacity on Brasilsat, which expires in 2002
- 98.2 MHz of capacity on Nahuelsat's Nahuel-1 satellite, which expires in
January 2002
- 76.7 MHz of capacity on PanAmSat's PAS-1 satellite until the end of the
useful life of the satellite (estimated to be December 31, 2001)
- 72.2 MHz of capacity on PanAmSat's PAS-5 satellite, which expires at the
end of 2003
- 5.6 MHz of capacity on Mexico's Solidaridad-II satellite, which expires
in January 2002
Our lease payments for satellite capacity totaled approximately $24.5
million in 1998 and $16.4 million during the first six months of 1999.
We will contract for additional leased satellite capacity as business
requires. A portion of our satellite capacity is leased by our wholly owned
subsidiary, International Satellite Capacity Holding, NG. This subsidiary's
principal function is to lease private satellite capacity from satellite
carriers and then sublease this capacity at market rates to our operating
subsidiaries. We believe that this method of centralizing our leasing of
satellite capacity provides us with better terms.
CUSTOMERS
Overview. We have grown rapidly since the commencement of our operations in
1990. Our customer base has increased from 125 corporate customers in two
countries at December 31, 1992 to 1,579 corporate customers in seven countries
at June 30, 1999. Larger entities, which often have significant needs for
reliable, cost-effective data transmissions and other telecommunications
services, were the first to use our customized telecommunications services. As a
result, a significant portion of our revenues has been derived from our largest
customers. In addition, because of our relatively short operating history
outside of Argentina and
54
<PAGE> 56
Colombia, a significant number of our customers, including our largest
customers, are located in those two countries.
Our 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. Our ten largest customers accounted for
approximately 17.3% of our revenues in 1998 and approximately 18.1% in 1997.
Our ten largest customers as of December 31, 1998 were:
- the Government of the Province of Buenos Aires
- BNA, a state-owned bank and the largest bank in Argentina, with over 500
branches throughout Argentina
- Banco de Galicia y Buenos Aires, a private bank with more than 180
branches in Argentina
- YPF, an integrated oil company that 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
- Integrated Services International, a telecommunications services company
based in the United States
- Perez Companc S.A., an Argentine energy conglomerate
- SECAB, the administrator of government funds for Colombia's National
Learning Service
- The Mercer Management Group, Inc., a management consulting firm based in
the United States
- Concasa, one of Colombia's largest savings and loan corporations
The following table shows our customer concentration by country as of the
dates indicated. Totals presented do not include customers from our Internet and
fax, store and forward services.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30,
----------------------------- -----------------------------
COUNTRY 1997 1998 1998 1999
- ------- ------------- ------------- ------------- -------------
(NUMBER OF CUSTOMERS AND PERCENTAGE OF TOTAL)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Argentina........................ 439 36.8% 490 33.4% 468 35.4% 580 36.7%
Colombia......................... 524 44.0 602 41.0 567 42.9 556 35.2
Venezuela........................ 102 8.5 140 9.5 114 8.6 165 10.5
Ecuador.......................... 96 8.1 134 9.1 109 8.3 142 9.0
Mexico........................... 16 1.3 28 1.9 27 2.0 29 1.8
USA.............................. 15 1.3 25 1.7 15 1.1 35 2.2
Brazil........................... -- -- 48 3.3 21 1.6 72 4.6
----- ----- ----- ----- ----- ----- ----- -----
Total.................. 1,192 100.0% 1,467 100.0% 1,321 100.0% 1,579 100.0%
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
Customer Contracts. Our contracts with our customers typically range in
duration from six months to five years and contracts with our private
telecommunications network customers are generally for three years. Contracts
generally may be terminated by the customer without penalty. The private
telecommunications network customers generally pay a one-time installation fee
and a fixed, monthly fee. We believe that as we commercialize our Broadband
Network, we will develop a more flexible pricing structure, using both a usage-
based billing and fixed fee-based billing model.
Our 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. The revenues of our customers are
generally denominated in local currencies. Although our customers include some
of the largest and most financially sound companies and financial institutions
in their markets, devaluation of such currencies relative to the U.S. dollar
could have a material adverse effect on the ability of our customers to pay
55
<PAGE> 57
us for our services. A currency devaluation could also result in our customers
seeking to renegotiate their contracts with us or, alternatively, defaulting on
their contracts.
SALES, MARKETING AND CUSTOMER SERVICES
We view our relationship with our customers as a long-term partnership in
which customer satisfaction is of paramount importance. For this reason, we
apply an integrated approach to our sales, marketing and customer service
functions. We provide customer service 24 hours a day, 365 days a year. We use
customer service teams to develop and maintain long-term, cooperative
relationships with our customers. These relationships provide us with an
in-depth understanding of our customers' evolving telecommunications service
requirements and levels of service satisfaction. As a result of this approach,
we achieve high levels of customer satisfaction while being able to identify new
revenue generating opportunities, customer telecommunications solution
enhancements and product or service improvements previously overlooked or not
adequately addressed by the client.
Within each segment of our market, the respective service team is
responsible both for sales to new customers as well as for service to 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 for existing
customers. We will use this team-oriented approach to service our private
network, connectivity, Internet and other customer groups.
For our private network customers, we designate a customer service team to
oversee all phases of initial customer contact, service planning, installation
and ongoing service. After we establish initial contact with a potential
customer, the service team conducts a thorough evaluation of the customer's
telecommunications needs. Following the completion of this evaluation, we create
a plan for these customers which describes our proposed tailor-made solution
using the appropriate components of our private telecommunications network
services. When we provide services to governmental agency customers, we often
submit these proposals in response to public bid solicitations and related
governmental bidding procedures that govern the contracting of services by
governmental agencies.
To market our new and enhanced services, we are developing several service
teams, each focusing on a particular type of services. For example, our
telephony services will be marketed to resellers by a team focused only on
telephony service.
In addition to salaried sales and marketing personnel, we often use the
services of third-party sales representatives to assist in generating sales and
managing the contract process between ourselves and our potential customers. We
typically pay these third parties a commission and royalties equal to a
percentage of the revenues we collect from any contract with those customers
obtained as a result of the efforts of the third-party sales representative.
We observe and measure the satisfaction of our customers through our
service teams' frequent customer interaction and, more formally, through a
comprehensive annual survey conducted by an outside consultant hired by us. We
use the results of these surveys to evaluate the performance of our service
teams, to formulate annual customer service plans and to implement improvements
to meet and exceed customer expectations.
COMPETITION
We compete on the basis of our experience, network quality, customer
service, range of services offered and price. Our competitors fall into three
broad categories:
- PTOs in each country where we operate
- other companies that operate competing satellite and terrestrial data
transmission businesses, including newer entrants from more developed
telecommunications markets outside of Latin America
- large international telecommunications carriers
56
<PAGE> 58
With the first group of competitors, our further expansion into the
telecommunications services market along with continued deregulation of the
telecommunications industry in Latin America, will bring us into more direct
competition with the PTOs. A number of PTOs in the countries where we operate
have established and marketed "large customer" or "grand user" business teams in
an attempt to provide dedicated services to the type of customer that represents
our most important target market.
We believe that by maintaining our position as a reliable, high quality
provider of telecommunications services, while strengthening the quality of our
network and the breadth of service offerings through the Broadband Network, we
will be able to maintain our current customers and successfully attract new
customers. We 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.
In the second category, our competitors include international satellite
telecommunications providers such as COMSAT Corp. and local data transmission
providers. Many of these competitors also operate VSAT systems. We believe that
we are able to compete successfully in data transmission services because we
offer a broad array of services and provide high quality, custom-designed
services that are tailored to meet the specific needs of each customer. Among
our competitors in this category are a number of new market entrants, including:
- Diginet, which is an Argentine fixed wireless broadband services provider
that has announced plans to enter the Brazilian telecommunications market
- MetroRED Telecommunications, a data transmission service operator in
Argentina that recently commenced offering local network services in the
cities of Sao Paulo and Rio de Janeiro in Brazil
- NetStream, an established fiber optic network service provider that
earlier this year began providing fiber optic cable local network
services to businesses in Sao Paulo and Rio de Janeiro, Brazil and plans
to build fiber optic networks in Belo Horizonte, Curitiba, Brasilia and
Porto Alegre in 2000
- Engeredes S.A., an infrastructure and data services provider that will
use both fiber optic and wireless links to connect the cities of Belo
Horizonte, Rio de Janeiro and Sao Paulo in Brazil
- NetUno, a local exchange carrier and provider of broadband local access,
Internet and private network services in Venezuela
In the past, the PTOs and international telecommunications carriers have
focused on local and long-distance telephony services. In the future, however,
they may focus on the private telecommunications network systems segment of the
telecommunications market. These entities have significantly greater financial
and other resources than we do, including greater access to financing. These
competitors may also be able to subsidize their private telecommunications
network businesses with revenues from public telephony.
In the third category, global alliances have been formed by major
telecommunications carriers as deregulation in Latin America and elsewhere opens
new market opportunities. For example, Spain's Telefonica and MCI WorldCom have
announced the formation of an alliance to cooperate in Latin America and
elsewhere, through joint ventures and equity holdings in each other's
subsidiaries. We believe that increasing competition will significantly affect
our pricing policies. We cannot assure you that competition from these alliances
will not adversely affect our financial condition or results of operations. See
"Risk Factors -- We face significant competition in Latin America." The
competition we face in each of our countries of operation is described in the
"-- Description of Country Operations" section below.
Furthermore, we cannot assure you that competing technologies will not
become available that will negatively affect our position, although we believe
that we have the flexibility to act quickly to take advantage of any significant
technological development. For example, new technologies such as ADSL can
significantly enhance the speed of traditional copper lines. These technologies
could enable our PTO competitors to offer customers new high speed services
without undergoing the expense of replacing their existing twisted-pair copper
networks. This, in turn, could negate our last mile advantage. Our private
telecommunications services could also face future competition from entities
using or proposing to use new or emerging voice and data
57
<PAGE> 59
transmission services or technologies which 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.
Rates are not regulated in our countries of operation, and the prices for
our services are strongly influenced by market forces. We believe that
increasing competition will result in increased pricing pressures. We have faced
and expect to continue to face declining prices and may experience margin
pressure as the PTOs in the countries where we have operations modernize their
facilities, adapt to a competitive marketplace and place greater emphasis on
data telecommunications and as other companies enter the Latin American
telecommunications market. These price and margin declines may accelerate if new
competitors enter our markets.
The principal barriers to entry for prospective providers of private
telecommunications network services such as ours 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.
REGULATION
Domestic Service. We are subject to regulation by the national
telecommunications authorities of the countries where we operate, and our
operations require us to procure permits and licenses from these authorities.
While we believe that we have received all required authorizations from
regulatory authorities for us to offer our services in the countries in which we
operate, the conditions governing our service offerings may be altered by future
legislation or regulation which could affect our business and operations. The
regulatory regime in each of our countries of operation and our licenses and
permits are separately described in the country-specific business descriptions
under "-- Description of Country Operations" below.
Cross-Border Service. We provide integrated data, voice and video
transmission services under the Interplus name between and among nineteen Latin
American and Caribbean countries and the United States. We are prohibited by law
from providing switched voice services to or from Argentina, but we have
received authorization to provide these services starting 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 our
pan-Latin American presence, we are often able to offer our Interplus service
using our own facilities and personnel at both ends of the private line circuit.
As a result of this end-to-end control, we maintain customer service and quality
assurance at both ends of an Interplus link and realize better margins than when
we use a correspondent carrier.
In countries where we do not maintain customer premises equipment or where
we are not authorized to operate in that fashion, our Interplus service uses our
facilities in the originating country to connect with a correspondent local
carrier in the destination country or vice-versa. To date, we have signed
Interplus correspondent agreements with carriers in seven Latin American and
Caribbean countries. We charge customers a monthly fee for Interplus which is
based on the capacity of the circuit provided.
Deregulation. 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, Brazil, Mexico and Venezuela.
Furthermore, some countries have scheduled the demonopolization of their
dominant telecommunications providers. For example, Argentina and Venezuela have
announced the demonopolization of public telephone services by their PTOs in
2000. We believe that this trend toward deregulation, while likely to increase
competition, will also present significant opportunities for us to expand our
private telecommunications network services to, from and within the region, as
well as to present opportunities for us in areas of telecommunications currently
permitted to be conducted only by the PTOs.
EMPLOYEES
As of June 30, 1999, we employed a total of 1,156 persons, of whom 320 were
employed by IMPSAT Argentina and 217 were employed by IMPSAT Colombia. The
number of our employees has generally increased and is expected to continue to
increase as a result of our expansion in the countries in which we
58
<PAGE> 60
operate and into new countries, including as a result of our development of the
Broadband Network. We do not have any long-term employment contracts with any of
our employees, including management, and none of our employees are members of
any union. We believe that our relations with our employees are good.
LEGAL MATTERS
We are involved in or subject to various litigation and legal proceedings
incidental to the normal conduct of our business, including with respect to
regulatory matters.
Prior to 1998, our fourth largest customer in Argentina was ENCOTESA, the
Argentine official postal service. In September 1997, the official postal
service in Argentina was privatized and its operations were succeeded to by
Correo Argentino S.A., the entity formed by a private consortium to acquire and
operate the Argentine postal system. In accordance with the privatization
structure, neither IMPSAT Argentina's accounts receivable nor the contract with
ENCOTESA were assumed by Correo Argentino, and the obligations under IMPSAT
Argentina's contracts with ENCOTESA were retained by the Argentine Government.
In November 1996, IMPSAT Argentina filed suit against ENCOTESA for amounts due
under IMPSAT Argentina's contracts with ENCOTESA totaling $5.6 million, plus
interest from the date of invoice. On December 27, 1996, ENCOTESA filed its
reply to IMPSAT Argentina's claim. The court has not yet ruled upon IMPSAT
Argentina's claim against ENCOTESA. IMPSAT Argentina has held and continues to
hold discussions and negotiations with the Argentine Government regarding the
settlement and payment of the amounts claimed against ENCOTESA. IMPSAT
Argentina, based on the advice of its Argentine counsel, has reclassified its
trade accounts receivable under the ENCOTESA receivables as noncurrent assets at
their estimated net realizable value. We continue to monitor the ENCOTESA
receivables situation. For further information regarding IMPSAT Argentina's
relationship with ENCOTESA, see "Risk Factors -- Our revenues will deteriorate
if we cannot collect on our customer accounts," and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
IMPSAT Argentina has a past due account receivable relating to IBM de
Argentina totaling $2.2 million. Of this amount, IMPSAT Argentina has recorded
an allowance for doubtful accounts of $1.2 million. The past due receivable was
recorded for services provided under a subcontract between IMPSAT Argentina and
IBM de Argentina relating to BNA. BNA, a state-owned bank and the largest bank
in Argentina, is and has been one of our ten largest customers. IBM de Argentina
filed suit against BNA for amounts due and owing under its direct contract with
BNA. IMPSAT Argentina has a direct contract with BNA to provide private network
telecommunications services on which BNA is generally current. The payment of
the receivable by BNA to IBM de Argentina 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. On December 14, 1998, IMPSAT
Argentina filed suit against IBM de Argentina for amounts due and arising under
IMPSAT Argentina's contract with IBM de Argentina totaling $2.2 million, plus
interest from the date of invoice.
DESCRIPTION OF COUNTRY OPERATIONS
The following are brief descriptions of certain specific matters relating
to the operations of our subsidiaries in Argentina, Venezuela, Colombia,
Ecuador, the United States, Brazil and Mexico.
IMPSAT ARGENTINA
IMPSAT Argentina, our first subsidiary, was established in 1988 and began
commercial operations in 1990. We own a 95.2% equity interest in IMPSAT
Argentina.
In Argentina, we provide our portfolio of services through our fiber optic,
wireless and satellite facilities. Our principal transmission facilities in
Argentina include our 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. Our Teledatos network in Buenos Aires includes
approximately 50 route miles of fiber.
59
<PAGE> 61
In addition, IMPSAT Argentina operates a microwave link that provides
telecommunications services between Buenos Aires and Mendoza. At June 30, 1999,
we had installed approximately 2,596 VSAT microstations and 528 Dataplus earth
stations in Argentina. We operate on both the C-band and Ku-band in Argentina
with access to the Intelsat 706, 709 and 805, PAS-1, PAS-3, PAS-5 and Nahuel-1
satellites. IMPSAT Argentina uses 15 GHz, 18 GHz and 23 GHz frequencies for
point-to-point data and value-added services. In addition, the Comision Nacional
de Comunicaciones recently granted IMPSAT Argentina a license for the use of the
38 GHz frequency nationwide for point-to-point and point-to-multipoint data and
value-added services.
At June 30, 1999, IMPSAT Argentina had 580 customers. Financial institution
customers provided approximately 37.0% of IMPSAT Argentina's revenues during
1998. The second largest sector of IMPSAT Argentina's customer base consists of
governmental agencies, which represented approximately 18.0% of its revenues
during 1998. IMPSAT Argentina's largest customers during 1998 included:
- BNA (5.0% of IMPSAT Argentina's 1998 revenues)
- Banco de Galicia y Buenos Aires (4.7% of IMPSAT Argentina's 1998
revenues)
- YPF (4.3% of IMPSAT Argentina's 1998 revenues)
Revenues from IMPSAT Argentina's top ten customers accounted for
approximately 31.1% of IMPSAT Argentina's revenues during 1998 and approximately
30.4% for the first half of 1999.
IMPSAT Argentina is a leader in data transmission services in Argentina and
estimates that in 1998 it had over 37% market share based on revenues. Our
principal competitors in Argentina include Telecom Soluciones, Advance
Telecomunicaciones and COMSAT Argentina S.A., a wholly owned subsidiary of
COMSAT.
In May 1999, IMPSAT Argentina entered into a distribution agreement and a
supply agreement with CONCERT, a global alliance among British
Telecommunications, AT&T and others, to provide network facilities in Argentina
on a non exclusive basis. In addition, IMPSAT Argentina provides co-location
services to CONCERT in Argentina.
The Argentine telecommunications sector is under the supervision and
control of the Comision Nacional de Comunicaciones and the Secretaria de
Comunicaciones. Prior to 1989, telecommunication services in Argentina were
provided by Empresa Nacional de Telecomunicaciones, 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, domestic fixed switched basic telephone services are supplied
exclusively by Telefonica and Telecom Argentina. In March 1998, the Argentine
Government announced the demonopolization of telephony services of Telecom
Argentina and Telefonica and the commencement of deregulation of local and
long-distance telephony markets starting in November 1999. International voice
services are supplied by Telecom International, a subsidiary of Telecom
Argentina, and Telefonica Larga Distancia, a subsidiary of Telefonica. Other
services, such as those rendered by IMPSAT Argentina, are provided on a
nonexclusive basis upon authorization by the Argentine Comision Nacional de
Comunicaciones.
IMPSAT Argentina has a license with no expiration date to provide data
transmission services with ancillary voice channels within Argentina. IMPSAT
Argentina's license is subject to no material conditions. Under the terms of the
license, IMPSAT Argentina may provide point-to-point voice service in Argentina
only if this 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. In July 1999, IMPSAT Argentina received two
licenses from the Comision Nacional de Comunicaciones, one to operate local
telephony and the second to operate national and international long distance
telecommunications, both starting in November 2000.
IMPSAT Argentina provides value-added services in the domestic and
international market pursuant to a license granted by the Secretaria de
Comunicaciones in September 1995. Value-added services include
60
<PAGE> 62
electronic data, voice and fax mail, fax store and forward and Internet access.
IMPSAT Argentina has also obtained licenses with no expiration date to provide
trunking and paging services within Argentina, although it has no intention of
entering into this business. IMPSAT Argentina also has licenses with no
expiration date to provide domestic and international video conferencing
services.
Although some services are provided on a competitive basis, the Comision
Nacional de Comunicaciones is in charge of the authorization, supervision and
control of the telecommunications services. IMPSAT Argentina is required to pay
the Comision Nacional de Comunicaciones a monthly fee equal to 0.5% of its net
revenues.
IMPSAT COLOMBIA
IMPSAT Colombia began operations in December 1992. We hold a 74.2% equity
interest in IMPSAT Colombia. Other principal stockholders of IMPSAT Colombia are
Suramericana de Seguros and Suramericana de Capitalizacion, the insurance and
finance arms of the Sindicato Antioqueno, which together hold a 24.6% equity
interest in IMPSAT Colombia. Sindicato Antioqueno, 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. We refer to Suramericana de Seguros,
Suramericana de Capitalizacion and all other entities affiliated with the
Sindicato Antioqueno as the Suramericana Group.
We provide our portfolio of services in Colombia through fiber optic,
wireless and satellite networks. Our 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. Our
Teledatos network in Bogota is provided through a joint venture with ETB, the
Colombian PTO that provides local telephone service in the Bogota region. Under
the terms of the joint venture, 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. We also own and
operate a 422 route mile long-haul fiber optic network in Colombia connecting
Bogota, Cali, and Medellin. IMPSAT Colombia currently uses the 23 GHz frequency
for point-to-point data and voice services. In addition, in August 1998, we
received an authorization from the Ministry of Communications to use various
frequencies within the 38 GHz frequency for the provision of point-to-point and
point-to-multipoint value-added services for a term of ten years. At June 30,
1999, IMPSAT Colombia had approximately 722 VSAT microstations and 370 Dataplus
earth stations installed. IMPSAT Colombia operates on the C-band and Ku-Band
with access to PAS-1 and the Intelsat 601, 709 and 801 satellites.
At June 30, 1999, IMPSAT Colombia had 556 customers. Financial institutions
provided approximately 37% of IMPSAT Colombia's revenues for 1998. The second
largest sector of IMPSAT Colombia's customer base is composed of industrial
companies (including oil companies) which provided approximately 23% of IMPSAT
Colombia's revenues for 1998. IMPSAT Colombia's largest customers during 1998
included:
- BanColombia
- SECAB, the administrator of government funds for Colombia's National
Learning Service
- Concasa, a savings and loan corporation
- Corporacion Nacional de Ahorro y Vivienda, one of Colombia's largest
financial institutions and a member of the Suramericana Group
Revenues from IMPSAT Colombia's top ten customers accounted for
approximately 29% of IMPSAT Colombia's revenues for 1998 and approximately 29.9%
for the first half of 1999.
In March 1999, we signed an eight-year agreement with the Ardila Lulle
Organization, the fourth largest conglomerate in Colombia. Ardila Lulle's
businesses are in industries such as bottling, textiles and media. We
61
<PAGE> 63
will initially provide services to 52 of their subsidiaries and affiliates,
although the contract may be expanded to as many as 100 subsidiaries and
affiliates. The contract is valued at $32.5 million. The projected revenues for
1999 are $0.8 million.
At June 30, 1999, we believe that we were a leader in terms of market share
in Colombia in VSAT and data transmission services. Our principal competitors in
Colombia are:
- Telecom Colombia, a state owned PTO
- Colomsat, S.A., a privately owned provider of facsimile, data and voice
transmission services
- Telegan, a provider of VSAT services
- Americatel Colombia, a company owned by Grupo Santo Domingo, Colombia's
largest conglomerate, which provides voice, data and video services
primarily to Grupo Santo Domingo
- EMTELCO, a provider of data transmission and imaging services, which is
owned by Empresas Publicas de Medellin, the largest telecommunications
company in the province of Medellin
- Rey Moreno, which recently agreed to sell 51% of its equity to Spain's
Telefonica S.A., and offers data, internet, videoconferencing, and other
corporate network services in the main cities in Colombia
- Comsatcol, a subsidiary of COMSAT Corporation
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.
Due in part to this policy of liberalization, IMPSAT Colombia has obtained
the following licenses and authorizations:
- in September 1991, a license to operate national and international
digital information transmission services for a term of twenty years
- in November 1997, an authorization to use satellite capacity on Intelsat
satellites
- in August 1998, a license that permits it to operate as a national
telecommunications carrier for a term of ten years
The licenses and authorizations may be renewed so long as IMPSAT Colombia
complies with the terms and conditions of the licenses and authorizations and
any applicable laws and regulations. The licenses and authorizations permit
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 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
licenses and authorizations from connecting to the Colombian public
telecommunications network for purposes of reselling voice communications.
IMPSAT Colombia is required to pay taxes in an amount equal to 3% of its
gross revenues, less payments to terrestrial telecommunications providers, to
the Ministry of Communications.
IMPSAT VENEZUELA
IMPSAT Venezuela began operations in January 1993. We hold a 75% equity
interest in IMPSAT Venezuela and the remaining 25% is held by the Suramericana
Group.
In Venezuela, we provide our portfolio of services through wireless,
satellite networks as well as leased fiber optic links. Our principal
transmission facility in Venezuela is our teleport in Caracas. We also have a
Teledatos network in Caracas. IMPSAT Venezuela uses the 10 GHz, 13 GHz and 23
GHz frequencies for
62
<PAGE> 64
point-to-point data and value-added services. In addition, the Comision Nacional
de Telecomunicaciones (CONATEL) granted IMPSAT Venezuela a license to use the 10
GHz frequency for point-to-multipoint data and value-added services. At June 30,
1999 we had 600 VSAT microstations and 121 Dataplus earth stations in Venezuela.
We operate on the C-band in Venezuela using the PAS-1, PAS-5, New Skies 806 and
the Intelsat 805 satellites. In addition, we operate on the Ku-band using the
Intelsat 805 satellite.
At June 30, 1999, IMPSAT Venezuela had 165 customers. IMPSAT Venezuela's
largest customers are generally large national and multinational corporations.
IMPSAT Venezuela's largest customers during 1998 included:
- Banco Mercantil SAICA, one of Venezuela's largest commercial banks
- Reacciun, a national academic telecommunications network
- Cadenas de Tiendas Venezolanas, S.A., 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.
- Instituto Nacional de Hipodromos, a horse racing track
- Compania Occidental de Hidrocarburos, Inc., a subsidiary of Occidental
Petroleum Corp.
Revenues from IMPSAT Venezuela's top ten customers accounted for
approximately 52% of IMPSAT Venezuela's revenues for 1998 and approximately
39.2% for the first half of 1999.
Banco Mercantil, which has more than 300 agencies throughout the country
and 15 agencies abroad, is one of the largest banks in Venezuela. Banco
Mercantil became IMPSAT Venezuela's customer in 1994 when it contracted for
three Interplus links. Since then, Banco Mercantil has steadily expanded the
quantity and range of private telecommunications network services it contracts
from us. The services we currently provide to Banco Mercantil represent monthly
revenues of approximately $152,000. In May 1999, after a competitive bidding
process, IMPSAT Venezuela was selected to provide the outsourcing of almost all
of the private telecommunications network needs of Banco Mercantil. Participants
in this bidding process included CANTV and Bantel, two of IMPSAT Venezuela's
principal competitors. We expect to complete our implementation of the Banco
Mercantil network during the second quarter of 2000. Our projection of the
monthly revenue of this new contract upon its full implementation is
approximately $440,000.
IMPSAT Venezuela estimates that it had approximately 21% market share in
data transmission services based on revenues during 1998. Our 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; MCI WorldCom, which provides, data transmission and value-added
services; 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.
The Venezuelan telecommunications industry is regulated by CONATEL, which
is under the jurisdiction of the Ministry of Transport and Communications.
In December 1992, IMPSAT Venezuela obtained a license 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 voice services through the public switched
telephone networks operated by CANTV and from interconnecting and sharing
infrastructure with other operators of private telecommunications networks for
the transmission of voice services.
63
<PAGE> 65
In February 1996, IMPSAT Venezuela obtained a ten-year license, with an
option to renew for an additional ten years, to provide value-added services
such as fax store and forward, electronic mail and Internet access. This license
does not prohibit IMPSAT Venezuela from interconnecting with CANTV or other
private networks.
In February 1996, IMPSAT Venezuela obtained a ten-year license which
permits it to interconnect with CANTV for the national and international
transmission of data. The license would not permit it to interconnect 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 in an amount equal to 5.5% of a stipulated
portion of its gross revenues from the services that are provided pursuant to
the license. In 1998 and the first half of 1999, this stipulated portion of its
gross revenues represented approximately 70% of IMPSAT Venezuela's revenues.
IMPSAT ECUADOR
In January 1995, we began operations in Ecuador through our wholly owned
subsidiary IMPSAT Ecuador.
In Ecuador, we provide our portfolio of services through fiber optic,
wireless and satellite links. IMPSAT Ecuador uses the 15 GHz and 23 GHz
frequencies for point-to-point data and value-added services. We operate on the
C-band in Ecuador with access to the PAS-1, PAS-5, Intelsat 809 and Intelsat 805
satellites. Our main teleport is located in Quito, Ecuador and we have a
regional teleport in Guayaquil.
As of June 30, 1999, IMPSAT Ecuador had approximately 142 customers.
Industrial and commercial companies provided approximately 54%, and governmental
entities and banks and financial institutions provided approximately 46% of
IMPSAT Ecuador's revenues for 1998.
At December 31, 1998, IMPSAT Ecuador's largest customers included Banco del
Pichincha, one of the largest Ecuadoran banks; Aduanas, the Ecuadoran customs
agency; Diners Club del Ecuador, a leading credit card company and Banco la
Previsora, another of Ecuador's largest banks. In addition, we provide
international telecommunications services for the regional PTO located in the
city of Cuenca. Revenues from IMPSAT Ecuador's top ten customers accounted for
approximately 41% of its revenues for 1998 and approximately 39.2% for the first
half of 1999.
We believe that we are a leading provider of data transmission services in
Ecuador with a 48% market share based on revenues for 1998. Our principal
competitors in Ecuador include:
- Andinatel and Pacifictel, Ecuadoran state-owned PTOs
- 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
- Ram Telecom Telecomunicaciones S.A., which provides national SCPC
services
The telecommunications industry in Ecuador is regulated by the Consejo
Nacional de Telecomunicaciones and the Secretaria Nacional de Telecomunicaciones
and is under the control and supervision of the Superintendencia de
Telecomunicaciones.
In June 1994, IMPSAT Ecuador obtained a 15-year license to provide data,
voice and video transmission services so long as it does not use the installed
networks owned by the Ecuadoran PTOs 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 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 historically has represented
approximately half of IMPSAT Ecuador's revenues.
64
<PAGE> 66
In March 1998, Secretaria Nacional de Telecomunicaciones granted IMPSAT
Ecuador a ten-year renewable license to provide value-added services. Included
in the value-added services that IMPSAT Ecuador may offer are Internet services.
IMPSAT USA
Our wholly owned subsidiary, IMPSAT USA, began offering international
private line services between Latin America and North America in February 1996.
IMPSAT USA operates an owned teleport in Wilton Manors, Florida and has
leased teleport facilities in New Jersey.
IMPSAT USA targets corporate, ISP and telecommunications carrier customers.
IMPSAT USA's corporate sales efforts focus on providing multinational
corporations with extensive voice and data telecommunications needs, which are
the primary end-users in the U.S./Latin American market for international
private-line services. IMPSAT USA offers Internet services to Latin American
ISPs and its telecommunications carrier services are provided to international
long-distance carriers. As of June 30, 1999, IMPSAT USA was providing services
to 35 customers (excluding intercompany accounts).
IMPSAT USA recently entered into a contract with Citicorp Global
Technology, Inc. to provide private network communications services to 23
locations throughout Latin America. In addition, IMPSAT USA provides Crowley
American Transport, a California based, logistics and maritime transport
provider, with international links for voice, video and data services at 47
sites in Central and South America. IMPSAT USA also provides UBESA, the
Ecuadoran subsidiary of Dole Fresh Fruit International Ltd., with international
data links between Florida and their locations in Ecuador.
IMPSAT USA's Internet services customers include Sony Music, Millicom,
Telcel (Paraguay), Celcaribe (Colombia) and Telemovil. IMPSAT USA also provides
Internet access services to Latin American ISPs that include CMET (Chile),
Metrocall (Panama), T-Net (Venezuela), Netsys (Honduras) and Inter Red
(Colombia).
As part of its telecommunications carrier services, IMPSAT USA provides MCI
Global Resources, Inc. with circuits from Florida to MCI WorldCom customer
locations in Honduras and Colombia.
IMPSAT USA expects intense competition in the market for international
private line services between the United States and Latin America. This
competition is expected to come primarily from the large long-distance carriers
(AT&T, MCI WorldCom and Sprint) and Latin American PTOs, as well as from
alternative regional carriers. We believe IMPSAT USA can 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 exercises exclusive U.S. jurisdiction
over all facilities and services of telecommunications carriers to the extent
they are used for interstate or international communications. In 1995, IMPSAT
USA received authorization from the FCC 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 is also authorized to lease and operate any necessary U.S. connecting
facilities.
In 1997, the FCC authorized IMPSAT USA to resell telecommunications
services of other international carriers between the United States and various
international points and to operate as an international, facilities-based resale
carrier.
IMPSAT BRAZIL
IMPSAT Brazil was established to apply for a value-added telecommunications
license in Brazil and to develop this business in Brazil. We have a 99.9%
ownership interest in IMPSAT Brazil. IMPSAT Brazil is headquartered in Sao Paulo
and has offices in Rio de Janeiro, Curitiba, Belo Horizonte and Brasilia.
65
<PAGE> 67
We provide our portfolio of services using satellite capacity subleased
from Embratel. Last mile solutions in metropolitan areas are anticipated
initially to be delivered through wireless and fiber optic links leased from
local PTOs. IMPSAT Brazil operates its network through two teleports located in
Sao Paulo and Curitiba. A teleport is currently under development in Rio de
Janeiro, and we may construct additional teleports in the other Brazilian
cities. Our operations in Brazil use the C-bands and Ku-bands on Brazilsat,
PanAmSat, Intelsat and Nahuel satellites.
At June 30, 1999, IMPSAT Brazil had a total of 72 customers, including
Shell do Brasil S.A., Ericsson, YPF, Mercedes Benz do Brasil and TV Paranaense.
Brazil is by far the largest telecommunications market in Latin America and
has attracted and is expected to continue to attract numerous providers, many of
whom may be larger and better financed than we are. The presence of large
carriers in Brazil may negatively affect our prospects there. In July 1998, the
Brazilian government split Telebras, the former Brazilian national
telecommunications company, into 17 companies by region and type of provider.
These companies were subsequently privatized. Winning bidders for these
operating companies included Telecom Italia, MCI WorldCom, Spain's Telefonica
and Sprint. In addition, numerous additional concessions to provide telephony
and data transmission services are expected to be granted. Winning bidders and
concessionaires are also likely to focus on parts of the Brazilian market beyond
those in which they initially obtain a concession.
As the Brazilian telecommunications sector is further liberalized and
deregulated, competition is likely to come from current telecommunications
service providers in that country, including:
- Embratel, Brazil's former state-owned, monopoly long-distance carrier in
which MCI WorldCom acquired a 52% interest in July 1998 as part of the
Telebras privatization
- COMSAT do Brazil Ltda.
- MetroRED Telecomunicacoes S.A., a data services company that provides
local network services in Sao Paulo and Rio de Janeiro and plans to build
local networks in other cities as well. In addition, it plans to build a
fiber optic long distance network among Sao Paulo, Rio de Janeiro and
Belo Horizonte.
- NetStream, a fiber optic network service provider, which earlier this
year launched fiber optic cable local network services for businesses in
Sao Paulo and Rio de Janeiro, Brazil and plans to build fiber optic
networks in Belo Horizonte, Curitiba, Brasilia and Porto Alegre in 2000
- Engeredes S.A., an infrastructure and data transmission provider that
will use both fiber optic and wireless links to connect the cities of
Belo Horizonte, Rio de Janeiro and Sao Paulo in Brazil
- Global One, a joint venture of Deutche Telecom, France Telecom and Sprint
that provides international telecommunications services, focusing on
multinational companies
In March 1999, IMPSAT Brazil entered into a distribution agreement and a
supply agreement with CONCERT to provide network facilities on a non-exclusive
basis in Brazil. In addition, IMPSAT Brazil provides co-location services to
CONCERT in Brazil.
The telecommunications and postal services in Brazil are regulated by the
Ministry of Communications pursuant to the Telecommunications Law of 1962, as
amended. Brazil's telecommunications laws were significantly revised in
September 1997 when the Brazilian legislature enacted the General
Telecommunications Law. This law authorized 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.
Under the General Telecommunications Law, value-added services may not be
provided in Brazil without prior governmental authorization. In January 1998,
ANATEL granted IMPSAT Brazil a ten-year license 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.
66
<PAGE> 68
IMPSAT MEXICO
IMPSAT Mexico was incorporated in 1994. We hold a 99.9% equity interest in
IMPSAT Mexico. We provide our portfolio of services in Mexico through a teleport
located in Mexico City. We operate on the C-band in Mexico with access to
Intelsat 709 and 805, which has been approved by the Secretaria de
Comunicaciones y Transportes (SCT), and to Solidaridad-II, a Mexican satellite.
As of June 30, 1999, IMPSAT Mexico had 29 customers including:
- Bimbo, a food industry company
- Becton & Dickinson, a medical equipment company
- Laboratorios Syntex/Roche, a pharmaceutical company
- SmithKline Beecham, a pharmaceutical company
- ATSI de Mexico S.A. de C.V., a private pay phone operator and a
subsidiary of American TeleSource International, Inc.
- Arthur Andersen Consulting, one of the largest multinational consulting
companies
We believe IMPSAT Mexico's market share will continue to be minimal, as it
is not presently a strategic focus of the company.
Our principal competitors in Mexico include:
- Telmex, which besides offering local and long distance telephony,
provides data and video services through its wholly owned subsidiary, Red
Uno
- Alestra S.A., a joint venture of AT&T, Grupo Financiero Bancomer S.A.,
and Grupo Industrial Alfa S.A., provides long-distance telecommunications
and data transmission services using the AT&T brand
- Avantel, which is owned by MCI WorldCom and Banamex Accival, provides
national and international data, voice and long distance telephony
services
Other competitors in Mexico include Global One, COMSAT, Optel
Telecommunications, Red Sat and Intervan.
The Mexican telecommunications industry is regulated primarily by the SCT.
An agency of the SCT, Telecomunicaciones de Mexico, or Telecomm, is charged with
the regulation of non-national satellite and telegraph services. Telecomm
supervises carriers and allocates electronic frequencies for satellite
telecommunications.
IMPSAT Mexico has a permit from the SCT for the installation, operation and
exploitation of a network of earth stations to provide dedicated-link services,
including VSAT services, for the transmission of voice, data and
videoconferencing signals. This permit provides that these services must use
Mexican satellites or those designated or approved by the Mexican government.
IMPSAT Mexico's permit does not restrict its 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 15
years from when it was obtained in May 1994, its terms and conditions may be
revised for a nominal fee after the first five years if the SCT believes 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 along with certain fees for having its signals
transmitted and received by satellite, and nominal fees for the installation of
new earth stations.
Mexican law restricts foreign investment in concession holders to no more
than a 49% interest. We have 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 like ours that were granted prior to the law's
enactment.
67
<PAGE> 69
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
In accordance with its bylaws, we have ten members on our board of
directors. Our directors 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
our preferred stock have had, since the issuance thereof, the right to vote as a
separate class to elect two directors. Mr. Stephen Munger and Mr. Jeronimo Bosch
serve in this capacity. In connection with our $125 million equity offering to
Nunsgate Limited, a wholly owned subsidiary of British Telecommunications,
British Telecommunications has the right to elect two of our directors. Mr.
Geoffrey Almeida and Mr. John McElligott serve in this capacity.
Our president is elected at our annual meeting of stockholders. The other
officers are elected at the annual meetings of our board of directors. All
officers hold office until their successors are elected and qualified, or until
their earlier death, resignation or removal. No family relationship exists among
any of the directors or executive officers, except that Lucas Pescarmona and
Sofia Pescarmona, both directors of our company, are the children of Enrique M.
Pescarmona, the Chairman of our board of directors.
Set forth below are the names, ages and positions of directors and
executive officers as of September 30, 1999. Executive officers of IMPSAT
Corporation are employees of IMPSAT Argentina.
<TABLE>
<CAPTION>
AGE
---
<S> <C> <C>
Enrique M. Pescarmona...................... 57 Chairman of the Board
Ricardo A. Verdaguer....................... 48 Director, President and Chief Executive
Officer
Roberto A. Vivo............................ 46 Director, Deputy Chief Executive Officer
Alexander Rivelis.......................... 58 Director and Vice President, Institutional
Relations
Lucas Pescarmona........................... 29 Director
Sofia Pescarmona........................... 25 Director
Stephen R. Munger.......................... 41 Director
Jeronimo Bosch............................. 27 Director
Geoffrey Almeida........................... 47 Director
John McElligott............................ 48 Director
Hector Alonso.............................. 42 Chief Operating Officer
Guillermo Jofre............................ 43 Chief Financial Officer
Guillermo V. Pardo......................... 48 Vice President, Planning
Jose R. Torres............................. 41 Vice President, Administration, Chief
Accounting Officer
Rafael Carchak Canes....................... 50 Vice President, Organizational Development
Alejandro Suarez del Cerro................. 45 Vice President, Technology
Jaime Vinocur.............................. 53 Vice President, Project Execution
Marcelo Girotti............................ 34 President of IMPSAT Argentina
Mariano Torre Gomez........................ 48 President of IMPSAT Colombia
Mauricio Ceballos.......................... 35 President of IMPSAT Venezuela
Heliodoro Londono.......................... 42 President of IMPSAT Mexico
Rodolfo Arroyo............................. 39 President of IMPSAT Ecuador
Mauricio G. Klau........................... 36 President of IMPSAT USA
Daniel V. Hourquescos...................... 47 President of IMPSAT Brazil
</TABLE>
68
<PAGE> 70
Enrique M. Pescarmona has been Chairman of our board of directors 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. and
Industrias Metalurgicas Pescarmona S.A.I.C. y F. (IMPSA). He is a director of
Lagarde, S.A., Ingenieria y Computacion S.A. and Mercantil Andina S.A., TCA
S.A., and is Vice President of Henri Lagarde S.A.
Ricardo A. Verdaguer has been President, Chief Executive Officer and a
member of our board of directors since September 1994. Mr. Verdaguer 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 is also a Director of El
Sitio, an Internet content provider.
Roberto Vivo has been Deputy Chief Executive Officer, Vice President,
Marketing and a member of our board of directors since September 1994. Mr. Vivo
also served as Marketing Director of IMPSAT Argentina from April 1988 to
December 1994 and has been a member of the board of directors of IMPSAT
Argentina since 1988. Mr. Vivo also serves as Chairman of the board of directors
of El Sitio and of FAICSA, an Argentina company engaged in public construction
projects.
Alexander Rivelis has been Vice President of International Development and
a member of the board of directors since December 1994. Mr. Rivelis also serves
as a member of the board of directors of IMPSAT USA. Mr. Rivelis served as
President of IMPSAT USA from 1995 to March 1996 and President of IMPSAT Colombia
from 1991 to 1993.
Lucas Enrique Pescarmona, a son of Enrique M. Pescarmona, has been a member
of board of directors since February 1996. From 1993 to 1995, he held various
positions in the Buenos Aires, Argentina office of Arthur Andersen & Co. In
1995, he transferred to Tecnologica em Componentes Automotivos S.A., a Brazilian
manufacturer of automotive parts that is part of the Pescarmona group, as the
senior investment analyst in Brazil. Since 1997, Mr. Pescarmona has been
principally engaged in the insurance arm of the Pescarmona group, where he is
Manager of Business Development of La Mercantil Andina.
Sofia Pescarmona, a daughter of Enrique M. Pescarmona, has been a member of
board of directors since February 1996. Ms. Pescarmona is currently assistant to
the Chief Executive Officer of IMPSAT Corporation. From August 1994 to December
1997, Ms. Pescarmona held several positions in IMPSAT, including in the Internet
unit and marketing department of IMPSAT Corporation and the sales department of
IMPSAT Argentina.
Stephen R. Munger has been a member our board of directors since March
1998. Mr. Munger is a Managing Director of Morgan Stanley Dean Witter and
co-head of Morgan Stanley's worldwide mergers, acquisitions and restructuring
department, as well as President of Princes Gate Investors II, L.P. He joined
Morgan Stanley in 1988 as a Vice President in the corporate finance department.
He became a Principal in 1990 and a Managing Director in 1993. Mr. Munger has
been a member of the board of directors of Destia Communications, Inc. since
November 1997, TVN Entertainment Corp. since December 1997 and Wright Medical
Technologies, Inc. since February 1998.
Jeronimo Bosch has been a member of our board of directors since September
1999. Mr. Bosch is an associate at Morgan Stanley Dean Witter Private Equity.
Mr. Bosch joined Morgan Stanley Dean Witter in August 1997. From 1994 to 1997,
he was employed by Salomon Brothers Inc. in its global mergers and acquisitions
and Latin American corporate finance departments.
Geoffrey Almeida has been a member of our board of directors since July
1999. Mr. Almeida is President of BT Worldwide, Latin America. Mr. Almeida
joined British Telecommunications in 1991 as Director of BT Property Ltd. Mr.
Almeida has also served as Director of Business Planning and Director of
Financial Planning and Control for the BT Group. Prior to joining British
Telecommunications, Mr. Almeida was Group Finance Director at Parkdale Holdings
PLC. Mr. Almeida serves on the board of directors of Concert Communications
Company, Bharti Cellular Limited, Maxis Berhad, BT INTERKOM Verwaltungs GmbH, BT
Communications Services KK and Southgate Development Limited.
69
<PAGE> 71
John McElligott has been a member of our board of directors since July
1999. Mr. McElligott is Director of Corporate Finance and Financial Analysis at
British Telecommunications. Since he joined British Telecommunications in 1992,
Mr. McElligott has been head of group financial planning, Chief Financial
Officer of Concert Communications Company and Finance Director of BT Networks.
Mr. McElligott serves on the board of directors of Concert Communications
Company, LG TelecCom Ltd. (Korea), StarHub Pte., Ltd. (Singapore) and Clear
Communications Limited (New Zealand).
Hector Alonso has been our Chief Operating Officer since 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.
Guillermo Jofre has been our Chief Financial Officer since May 1995. Prior
to joining IMPSAT, Mr. Jofre was Executive Vice President of Banque Indosuez in
Argentina from 1993 to 1995 and had over ten years of experience in management
positions with companies in Argentina, Germany and Switzerland. Mr. Jofre also
serves as a member of the board of directors of the investment fund Bemberg
Inversiones S.A.
Guillermo V. Pardo joined our company in 1988 and has been our Vice
President, Planning 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 a member of the board of directors of FAICSA and the Fundacion Torcuato Di
Tella.
Jose R. Torres has been our Vice President, Administration and Chief
Accounting Officer 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.
Rafael Carchak Canes has served as Vice President, Organizational
Development since August 1998 and has been a director of IMPSAT Argentina since
May 1995. He was President of IMPSAT Argentina from May 1995 to August 1998.
Prior to joining IMPSAT, 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 president of Eveready Argentina from 1992 to
199 , in which position Mr. Carchak had responsibility for Eveready's operations
in Argentina, Paraguay and Chile.
Alejandro Suarez del Cerro has been our Vice President, Technology since
March 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 1996. Mr.
Suarez del Cerro was President of IMPSAT Brazil from 1996 to 1997.
Jaime Vinocur has been our Vice President, Project Execution since
September 1998. Previously, Mr. Vinocur held several managerial positions,
including Senior Project Manager, at Techint, a leading Argentine construction
company. During his 26 year tenure at Techint, Mr. Vinocur acquired extensive
experience in the deployment of infrastructure for utility and
telecommunications companies.
Marcelo Girotti has been President of IMPSAT Argentina since August 1998.
Mr. Girotti joined IMPSAT Argentina in 1992 where he has held several managerial
positions, 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.
Mariano Torre Gomez has been President of IMPSAT Colombia since July 1999.
Mr. Torre was President of IMPSAT Venezuela from April 1997 to July 1999. 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 was President of IMPSAT Ecuador for
two years prior to his transfer to IMPSAT Venezuela. Before that, Mr. Torre
served four years at IMPSAT Argentina in the commercial and new licenses
departments.
70
<PAGE> 72
Mauricio Ceballos has been President of IMPSAT Venezuela since July 1999.
Mr. Ceballos was Vice President of administration and finance of IMPSAT
Venezuela from 1997 to July 1999. Before joining IMPSAT in 1997, Mr. Ceballos
worked as Director of Planning and Marketing at Fidubolsa from 1991 to 1993 and
as Vice President of International and Special Business at Sufibic from 1993 to
1997.
Heliodoro Londono has been President of IMPSAT Mexico since November 1998.
Mr. Londono held several managerial positions at IMPSAT Colombia commencing in
1992, including Business Manager of the Financial Sector Unit, and Manager of
Special Accounts.
Rodolfo Arroyo has been President of IMPSAT Ecuador since 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 IMPSAT, Mr. Arroyo was a projects
manager at IMPSA from July 1988 until December 1991.
Mauricio Gabriel Klau has been President of IMPSAT USA since November 1998.
Mr. Klau was president of IMPSAT Mexico from June 1997 to November 1998. Mr.
Klau has also held several positions within IMPSAT Argentina and IMPSAT Mexico
since he first joined the company in 1990.
Daniel V. Hourquescos has been President of IMPSAT Brazil since March 1997.
Since 1990, Mr. Horquescos has held several positions in IMPSAT, including
General Manager of IMPSAT Argentina from March 1993 to April 1995. Prior to
joining IMPSAT Argentina, Mr. Hourquescos served as Director of Information
Services of Direccion General Impositiva, the former Argentine governmental
agency charged with the collection of taxes.
COMMITTEES OF THE BOARD OF DIRECTORS
On December 21, 1998, we established a stock option committee. The stock
option committee is responsible for the granting of stock options, incentives
and other forms of compensation to eligible persons under our 1998 stock option
plan and is constituted by Mr. Stephen Munger and Mr. Jeronimo Bosch. None of
our executive officers serves on the stock option committee of another entity or
any other committee of the board of directors of another entity performing
similar functions.
Our board of directors will establish, effective upon the completion of
this offering, a compensation committee and an audit committee. The compensation
committee, composed of a majority of non-employee directors, will establish
salaries, incentives and other forms of compensation for our directors and
officers and will recommend policies relating to our benefit plans. In this
regard, we expect that the compensation committee will replace and assume the
functions of the stock option committee. The audit committee, composed of a
majority of non-employee directors, will oversee the engagement of our
independent auditors and, together with our independent auditors, will review
our accounting practices, internal accounting controls and financial results.
COMPENSATION OF OUR DIRECTORS
The members of our board of directors do not receive any compensation for
their services on our board, although we have agreed to reimburse the directors
nominated by the Morgan Stanley investors and Nunsgate Limited for any expenses
incurred by them in connection with their services as directors.
EXECUTIVE COMPENSATION
Summary Compensation Table. The following tables set forth the compensation
paid or accrued to our chief executive officer and each of our four other most
highly compensated executive officers receiving compensation in excess of
$100,000 per year during each of the three years presented. No bonuses were paid
71
<PAGE> 73
by us to these executive officers during 1996 and 1997. We do not maintain any
long term incentive plans and have not granted stock appreciation rights or
restricted stock awards.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------------------------
SECURITIES
NAME AND UNDERLYING OTHER ANNUAL
PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION
- ------------------ ---- -------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Enrique M. Pescarmona................. 1998 $355,315 $200,000(1) 100,000 --
Chairman of the Board 1997 310,495 -- -- --
1996 303,077 -- -- --
Ricardo A. Verdaguer.................. 1998 426,603 250,000(1) 100,000 --
President and Chief Executive 1997 240,500 -- -- --
Officer 1996 207,646 -- -- --
Roberto Vivo.......................... 1998 341,110 200,000(1) 80,000 --
Director, Deputy Chief Executive 1997 198,250 -- -- --
Officer and 1996 173,657 -- -- --
Vice President, Marketing
Hector Alonso......................... 1998 250,287 150,000(1) 58,000 --
Chief Operating Officer 1997 134,680 -- -- --
1996 106,949 39,424 -- --
Horacio Sajoux........................ 1998 198,068 63,982(1) 32,000 $44,957(2)
formerly President of IMPSAT 1997 115,127 -- -- 51,582
Colombia 1996 90,245 9,680 -- 42,570
</TABLE>
- ------------
(1) This amount represents bonuses we paid to the executive officers named in
the table above in December 1998. This amount relates to our 1997 operating
results. Bonuses relating to our operating results in 1998 are not expected
to be determined before the second half of 1999.
(2) Annual housing allowance.
STOCK OPTION GRANTS
The following table shows information regarding grants of options to
purchase our common stock made by us in December 1998 to each of the executive
officers named in the summary compensation table above. We granted no stock
appreciation rights during 1998. No stock options were exercised by the
executive officers named in the summary compensation table above during 1998.
<TABLE>
<CAPTION>
PERCENT
OF TOTAL
NUMBER OF OPTIONS POTENTIAL REALIZABLE VALUE AT ASSUMED
SECURITIES GRANTED ANNUAL RATES OF STOCK PRICE APPRECIATION
UNDERLYING TO EXERCISE FOR OPTION TERM(4)
OPTIONS EMPLOYEES PRICE EXPIRATION -----------------------------------------
NAME GRANTED(1) IN 1998(2) ($/SHARE) DATE(3) (0%) (5%) (10%)
- ---- ---------- ---------- --------- ---------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Enrique M.
Pescarmona......... 100,000 13.4% $ 12/31/06 $496,000 $732,840 $1,063,226
Ricardo A.
Verdaguer.......... 100,000 13.4 12/31/06 496,000 732,840 1,063,226
Roberto Vivo......... 80,000 10.7 12/31/06 396,800 586,272 850,580
Hector Alonso........ 58,000 7.8 12/31/06 287,680 425,047 616,671
Horacio Sajoux....... 32,000 4.3 12/31/06 158,720 234,509 340,232
</TABLE>
- ------------
(1) Options granted in 1998 vest as to 10% on the first anniversary of the date
of grant and as to an additional 30% on each anniversary thereafter. All
options expire on December 31, 2006, unless sooner terminated under the
terms of the stock option plan.
(2) We granted options to purchase a total of 746,000 shares of our common stock
in December 1998 and a total of 654,400 shares of our common stock in June
1999. The exercise price for the options granted in 1998 was $ per
share and the exercise price for the options granted in 1999 was $ per
share.
72
<PAGE> 74
(3) Subject to earlier expiration, upon the occurrence of certain events, as
provided in the stock option plan.
(4) Amounts reported in these columns represent amounts that may be realized
upon exercise of options immediately prior to the expiration of their term
assuming the specified compounded rates of appreciation (5% and 10%) on our
common stock over the term of the options. These assumptions are based on
rules promulgated by the Securities and Exchange Commission and do not
reflect our estimate of future stock price appreciation. Actual gains, if
any, on the stock option exercises and common stock holdings are dependent
on the timing of such exercise and the future performance of our common
stock. We can provide no assurance that the rates of appreciation assumed in
this table can be achieved or that the amounts reflected will be received by
the option holder.
1998 STOCK OPTION PLAN
On December 21, 1998, IMPSAT's board of directors and stockholders adopted
the 1998 stock option plan, which provides for the grant to our officers, key
employees, consultants, advisors, directors or affiliates of "incentive stock
options" within the meaning of Section 422 of the U.S. Internal Revenue Code of
1986, as amended, stock options that are non-qualified for U.S. federal income
tax purposes and stock appreciation rights. A copy of the stock option plan is
included as Exhibit 10.1 to our 1998 Annual Report on Form 10-K filed with the
Commission. The total number of shares of our common stock for which options may
be granted pursuant to the stock option plan is 8,067,268, subject to certain
adjustments reflecting changes in our capitalization. The stock option plan is
currently administered by the stock option committee constituted by non-employee
directors. The stock option committee determines, among other things, which of
our officers, employees, consultants, advisors, affiliates and directors will
receive options under the plan, the time when options will be granted, and the
type of option (incentive stock options or non-qualified stock options, or both)
to be granted. Options granted under the stock option plan are on such terms,
including the number of shares subject to each option, the time or times when
the options will become exercisable, and the option price and duration of the
options, as determined by the stock option committee.
The exercise price of incentive and non-qualified stock options is
determined by the stock option committee, but may not be less than the fair
market value of the common stock on the date of grant and the term of any such
option may not exceed ten years from the date of grant.
Payment of the option price must be made by cash or, in the sole discretion
of the stock option committee, by promissory note, tender of shares of the
common stock then owned by the optionee or, subject to certain conditions, the
surrender to us of an exercisable option to purchase shares of common stock
under the stock option plan. Payment of the option price may also be made by
delivery to us, on a form prescribed by the stock option committee, of a
properly executed exercise notice and irrevocable instructions to a registered
securities broker approved by the stock option committee to sell the shares of
common stock held by the optionee and promptly deliver cash to us. Options
granted pursuant to the stock option plan are not transferable, except by will
or the laws of descent and distribution in the event of death. During an
optionee's lifetime, the option is exercisable only by the optionee or, in case
of disability, by the optionee's legal representative.
Pursuant to the terms of our stock options, if a change in control of our
company occurs, all outstanding stock options become vested and fully
exercisable.
Our board of directors has the right at any time and from time to time to
amend or modify the stock option plan, without the consent of our stockholders
(unless otherwise required by law) or optionees; provided, that no such action
may adversely affect options previously granted without the optionee's consent.
The expiration date of the stock option plan, after which no option may be
granted thereunder, is October 1, 2008.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Our board of directors does not have a compensation committee. As a result,
decisions with respect to compensation matters (other than with respect to the
stock option plan) that otherwise would be decided by a compensation committee
are made by our board of directors as a whole. Pursuant to the terms of the
Securityholders Agreement between Nevasa Holdings and the Morgan Stanley
investors dated as of March 19, 1998, for so long as any Morgan Stanley
investors beneficially own a majority of the shares of our preferred stock
outstanding on their date of issuance, any material amendment or change of the
compensation
73
<PAGE> 75
arrangements of our 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 our board of directors.
Mr. Stephen Munger, who is Princes Gate's designee to our board of
directors and a member of the stock option committee, is the president of PG
Investors II, Inc., the general partner of Princes Gate. Mr. Jeronimo Bosch is
the MSGEM Fund's designee to our board of directors and a member of the stock
option committee. Mr. Bosch is an associate of Morgan Stanley Global Emerging
Markets, Inc., the general partner of the MSGEM Fund. Princes Gate and the MSGEM
Fund are affiliates of Morgan Stanley & Co. Incorporated. In 1998, we paid
commissions to Morgan Stanley of $5.9 million in connection with their placement
of our $225 million of 12 3/8% notes. The Morgan Stanley investors have informed
us that they plan to exercise their rights to convert shares of preferred
stock into shares of our common stock upon the closing of this offering.
The shares of common stock that will be held by the Morgan Stanley
investors when their shares of our preferred stock are converted upon completion
of this offering will be entitled to certain registration rights. See
"Underwriters." We plan to use a portion of the proceeds of this offering to
redeem the shares of our preferred stock remaining outstanding after the Morgan
Stanley investors exercise their conversion rights. See "Use of Proceeds."
74
<PAGE> 76
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
OVERVIEW
In the normal course of business, we provide private telecommunications
network services to companies in which the following entities have an interest:
- Corporacion IMPSA S.A. (CORIM), a corporation for which Mr. Enrique
Pescarmona serves as the Chairman of the board of directors
- members of the Pescarmona family (including Mr. Enrique Pescarmona, Mr.
Lucas Pescarmona and Ms. Sofia Pescarmona, members of our board of
directors)
- El Sitio, a corporation in which
-- affiliates of Mr. Roberto Vivo and Mr. Ricardo Verdaguer have equity
interests
-- Mr. Roberto Vivo is Chairman of the board of directors
-- Mr. Ricardo Verdaguer is a director
- affiliates of the Suramericana Group
Total telecommunications services provided by us during 1998 and the first
half of 1999 to:
- companies in which CORIM or members of the Pescarmona family have an
interest totaled approximately $1.7 million
- El Sitio subsidiaries totaled approximately $468,000
- companies affiliated with the Suramericana Group totaled approximately
$13.2 million
We hold 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 our most significant transactions with
entities affiliated with CORIM, the Suramericana Group and El Sitio during 1998
and the first six months of 1999. Although we believe that transactions with our
affiliates are generally conducted on an arm's length basis, conflicts of
interest are inherent in these transactions.
CORIM
IMPSAT Argentina provides telecommunications services to:
- IMPSA, a company controlled by CORIM. IMPSA produces heavy steel capital
goods, including hydromechanical equipment and cranes and engages in
other businesses including auto parts manufacturing and general
environmental services. Telecommunications services provided to IMPSA
during 1998 and the first six months of 1999 totaled approximately
$200,000. During the same period, IMPSA provided services to IMPSAT
Argentina totaling approximately $220,000.
- TCA, a company controlled by CORIM and IMPSA. TCA produces wire harnesses
for automobile electrical systems and coil springs for automobile
suspension systems in Argentina and Brazil. Telecommunications services
provided to TCA during 1998 and the first six months of 1999 totaled
approximately $100,000.
- Buenos Aires al Pacifico San Martin S.A. (BAPSA), a company controlled by
CORIM and IMPSA prior to its sale to an unaffiliated group in May 1999.
BAPSA 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. Telecommunications services
provided to BAPSA during 1998 and the first six months of 1999 totaled
approximately $842,000.
75
<PAGE> 77
- Mercantil Andina S.A., an insurance company owned by CORIM and members of
the Pescarmona family. Telecommunications services provided to Mercantil
Andina S.A. during 1998 and the first six months of 1999 totaled
approximately $494,000. In addition, Mercantil Andina acts from time to
time as an insurance broker and an insurer for IMPSAT Argentina. IMPSAT
Argentina paid premiums to Mercantil Andina totaling approximately
$621,000.
SURAMERICANA GROUP
Representatives of the Suramericana Group serve as directors of IMPSAT
Colombia and IMPSAT Venezuela. During 1998 and the second quarter of 1999, the
total amount of telecommunications services rendered to the Suramericana Group
totaled approximately $13.2 million, the most significant of which were as
follows:
<TABLE>
<CAPTION>
VALUE OF
SERVICES
-----------------
<S> <C>
Suramericana de Seguros (insurance)......................... $1,169,000
Corporacion Financiera Nacional y Suramericana S.A.
(Corfinsura) (finance).................................... 301,000
Susalud (health services)................................... 124,000
Sufinanciamiento (finance).................................. 263,000
Proteccion (pension fund)................................... 399,000
Suleasing (finance)......................................... 162,000
Corporacion Nacional de Ahorro y Vivienda (finance)......... 3,010,000
Suvalor (insurance)......................................... 254,000
Industrias Noel (food products)............................. 711,000
Acerias Paz del Rio (steel works)........................... 151,000
Suratep (insurance)......................................... 137,000
Sodexho Pass (food service)................................. 405,000
Almacenes Exito (food products)............................. 274,000
BanColombia (finance)....................................... 4,704,000
</TABLE>
During 1998 and the first half of 1999, IMPSAT Venezuela provided
telecommunications services to several companies within the Suramericana Group,
including Industrias Alimenticias Noel de Venezuela S.A. and Industrias
Alimenticias Hermo de Venezuela S.A., which totaled approximately $180,000, and
to Cadena de Tiendas Venezolanas S.A., which totaled approximately $1.1 million.
Corfinsura and BanColombia are creditors of IMPSAT Colombia. As of June 30,
1999, IMPSAT Colombia was indebted to Corfinsura in the amount of approximately
$15.6 million and to BanColombia in the amount of approximately $22.9 million.
The total interest paid for 1998 and the first half of 1999 was approximately
$3.0 million.
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 $776,000 in 1998 and the first half of 1999.
Certain other companies within the Suramericana Group, including Suleasing,
provide financial leasing services to IMPSAT Colombia. Our total indebtedness to
Suleasing as of June 30, 1999 was approximately $4.5 million and the total
interest paid in 1998 and the first half of 1999 was approximately $510,000.
Other payments made by IMPSAT Colombia to companies of Suramericana Group
in 1998 and the first half of 1999 included: payments of approximately $485,000
to Proteccion for pension fund services; Susalud, had total payments of
approximately $309,000 for health benefit services and payments of approximately
$408,000 to Sodexho Pass for employee luncheon services.
76
<PAGE> 78
EL SITIO
We provide telecommunications services to El Sitio. During 1998 and the
first half of 1999, the total value of telecommunications services we rendered
to El Sitio was approximately $468,000. During the same period, El Sitio charged
$165,000 for advertising services on their Web pages.
On August 4, 1999, we entered into an agreement with El Sitio for the sale
of our retail Internet businesses in Argentina, Brazil and Colombia for
approximately $21.5 million and our purchase of shares of El Sitio's 8%
convertible redeemable preferred stock for $21.5 million. Those shares will
represent approximately a 19% interest in El Sitio's fully diluted capital
stock. In connection with these transactions, El Sitio will enter into
telecommunications services agreements with IMPSAT Argentina, IMPSAT Brazil and
IMPSAT Colombia under which these entities will provide El Sitio with
telecommunication networks to access the Internet backbone. El Sitio, a British
Virgin islands corporation, is an Internet content and Internet service provider
headquartered in Argentina that has operations in Brazil, Mexico, Uruguay and
the United States.
MORGAN STANLEY INVESTORS
We paid commissions to Morgan Stanley of $5.9 million in 1998 in connection
with the placement of our $225 million of 12 3/8% notes.
Series A Preferred Stock Issuance. Pursuant to a series of transactions, on
March 19, 1998, we issued and sold $125 million of our preferred stock to the
Morgan Stanley investors.
The preferred stock was convertible into 25% of our common stock on the
date of issuance. The following are some of the principal features of the
preferred stock:
- cumulative dividends at the rate of 10% per annum, compounded quarterly
and, with certain exceptions, payable in kind
- mandatorily redeemable in cash by us at maturity (ten years after
issuance), plus accrued and unpaid dividends
- callable by us under certain circumstances, in whole, at 100% of the
principal amount, plus accrued and unpaid dividends
- convertible into our common stock at any time at the option of the
holders (including upon a call by us), at a specified conversion rate,
subject to certain antidilution rights
- the right by Morgan Stanley investors holding a majority of the shares of
preferred stock initially issued to appoint two directors to our board of
directors as well as to immediately appoint half of the members of our
board of directors upon the occurrence of certain specified events
- the right by directors appointed by the Morgan Stanley investors to a
veto over certain major corporate actions
Conversion of Preferred Stock. The Morgan Stanley investors have informed
us that they plan to exercise their rights to convert shares of our
preferred stock into shares of our common stock upon the closing of
this offering. We plan to use a portion of the proceeds of this offering to
redeem the shares of our preferred stock remaining outstanding after the Morgan
Stanley investors exercise their conversion rights. See "Use of Proceeds." Upon
the closing of this offering, the Morgan Stanley investors will be entitled to
certain rights with respect to the shares of common stock issuable upon the
conversion of the preferred stock. Some of the principal rights the Morgan
Stanley investors will retain as holders of our common stock include the right
to:
- request that we sell their shares of our common stock in a public
offering registered under the Securities Act, subject to certain
conditions
77
<PAGE> 79
- include the common stock held by the Morgan Stanley investors in a public
offering by us registered under the Securities Act, subject to certain
conditions
- appoint one member of our board of directors for so long as the Morgan
Stanley investors hold at least 5% of the common stock
BRITISH TELECOMMUNICATIONS
On March 11, 1999, a share purchase agreement and related agreements were
entered into among IMPSAT, Nevasa Holdings and Nunsgate Limited, a wholly owned
subsidiary of British Telecommunications. Pursuant to the share purchase
agreement, we agreed to issue 20,158,528 newly issued shares of our common stock
to Nunsgate Limited for $125 million, and Nevasa Holdings agreed to sell
4,031,706 shares of our common stock to British Telecommunications for $25
million. These transactions were consummated on April 19, 1999.
We are a party to a shareholders agreement with Nevasa Holdings and British
Telecommunications dated as of March 10, 1999, a copy of which has been filed as
an exhibit to the registration statement of which this prospectus is a part.
Pursuant to the terms of this shareholders agreement, as long as British
Telecommunications owns 15% of our outstanding common stock (as determined on a
fully-diluted basis) and subject to certain conditions, British
Telecommunications has the right to appoint two members of our board of
directors.
As long as British Telecommunications owns 10% of our outstanding common
stock (as determined on a fully-diluted basis) and subject to certain
conditions, British Telecommunications has the right to:
- consult with management on matters relating to us
- inspect our books and records
- inspect our properties and operations
As long as British Telecommunications owns 5% of our outstanding common
stock (as determined on a fully-diluted basis), British Telecommunications has
the right to:
- request that we sell shares of common stock in a public offering
registered under the Securities Act, subject to certain conditions
- include common stock held by British Telecommunications in a public
offering of our common stock registered under the Securities Act, subject
to certain conditions
- appoint one member to our board of directors
78
<PAGE> 80
DESCRIPTION OF OUR INDEBTEDNESS
The following is a summary of the material provisions of agreements
governing some of our indebtedness. This summary is subject to, and qualified in
its entirety by reference to, all of the provisions of these 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 these agreements are available from us upon request.
In July 1996, we completed the offering of our $125 million principal
amount of 12 1/8% Senior Notes due 2003, of which an aggregate of $125 million
in principal amount is outstanding as of the date hereof. The 12 1/8% 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 12 1/8% notes have the benefit of a
guarantee issued on a senior unsecured basis by IMPSAT Argentina.
In June 1998, we completed our offering of our $225 million principal
amount of 12 3/8% Senior Notes due 2008, of which an aggregate of $225 million
in principal amount is outstanding as of the date of this prospectus. The
12 3/8% notes bear interest at the rate of 12 3/8% per annum payable
semi-annually in cash on June 15 and December 15 of each year.
The indentures under which our notes were issued contain a number of
covenants which, among other things:
- restrict our ability to consolidate, merge or sell all or substantially
all of our assets
- create restrictions on the ability of our restricted subsidiaries to make
certain payments, issue or sell stock of certain subsidiaries, and enter
into transactions with stockholders or affiliates
These indentures also restrict our and our restricted subsidiaries' ability
to:
- incur additional indebtedness
- create liens
- engage in sale-leaseback transactions
- make restricted payments
- sell assets
79
<PAGE> 81
PRINCIPAL STOCKHOLDERS
The following table and the accompanying notes show certain information
concerning the beneficial ownership of our capital stock as of September 30,
1999 by:
- each person who owned of record, or was known to own beneficially, more
than five percent of any class of our capital stock
- each director
- each executive officer
- all directors and executive officers as a group
Except as otherwise indicated, each person listed in the table has informed
us that they have sole voting and investment power with respect to their shares
of our capital stock and record and beneficial ownership with respect to their
shares of our capital stock. The number of shares beneficially owned is
determined on an as-converted basis, assuming the conversion of all issued and
outstanding shares of our preferred stock into common stock. As of ,
1999, each share of our preferred stock was convertible into shares of
our common stock, or a total of shares of common stock.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
THIS OFFERING THIS OFFERING
------------------- -------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT
- ------------------------------------ -------- -------- -------- --------
<S> <C> <C> <C> <C>
COMMON STOCK
Beneficial Owners of more than 5%
Nevasa Holdings Ltd.(1)............................... 57.2% %
Vanderpool Plaza
Wickham Cay I
Road Town
Tortola, British Virgin Islands
Princes Gate Investors II, L.P.(2).................... 18.8
Morgan Stanley Global Emerging Markets Private
Investment Fund, L.P.(3)............................ 4.7
Nunsgate Limited
Queen Victoria Street
Queen Victoria House
Douglas Im12lS
Isle of Man........................................... 19.3
Directors and Executive Officers(1)................... 0 0 0 0
All Directors and Officers as a Group (24
persons)(1)......................................... 0 0 0 0
PREFERRED STOCK
Beneficial Owners of more than 5%
Princes Gate Investors II, L.P.(4).................... 20,000 80 0 0
Morgan Stanley Global Emerging Markets Private
Investment Fund, L.P.(5)............................ 5,000 20 0 0
Directors and Executive Officers(1)................... 0 0 0 0
All Directors and Officers as a Group (24
persons)(1)......................................... 0 0 0 0
</TABLE>
80
<PAGE> 82
- ---------------
(1) Nevasa Holdings is controlled by CORIM, Militello Ltd. and Rotling
International Corporation.
- CORIM, an Argentine corporation that holds an 82.5% equity interest in
Nevasa Holdings through its wholly owned British Virgin Island subsidiary,
Telecommunication Worldwide Inc., is controlled by Mr. Enrique Pescarmona,
the Chairman of our board of directors, and other members of the
Pescarmona family. CORIM 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 and environmental
services.
- Militello Ltd., a British Virgin Islands corporation, holds an 11.6%
equity interest in Nevasa Holdings and is controlled by Mr. Roberto Vivo,
our Deputy Chief Executive Officer.
- Rotling International Corporation, a British Virgin Islands corporation,
holds a 5.8% equity interest in Nevasa Holdings and is controlled by Mr.
Ricardo Verdaguer, our President and Chief Executive Officer.
(2) Determined on an as-converted basis, assuming the conversion of 20,000
shares of preferred stock, which were convertible into shares of
common stock on , 1999, owned by Princes Gate and affiliates of
Princes Gate over which Princes Gate has sole voting power.
(3) Determined on an as-converted basis, assuming the conversion of 5,000 shares
of preferred stock, which were convertible into shares of common
stock on , 1999, owned by MSGEM and Morgan Stanley Global Emerging
Markets Private Investors, L.P. over which MSGEM has sole voting power.
(4) These shares of preferred stock 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 our board of
directors, disclaims voting or dispositive power over the shares of
preferred stock owned by Princes Gate and its affiliates.
(5) These shares of preferred stock 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 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. Mr.
Jeronimo Bosch who is an associate at Morgan Stanley Dean Witter Private
Equity and MSGEM's designee to our board of directors, disclaims voting or
dispositive power over the shares of preferred stock owned by MSGEM.
81
<PAGE> 83
DESCRIPTION OF CAPITAL STOCK
The following summary information is qualified in its entirety by the
provisions of our certificate of incorporation and bylaws, copies of which have
been filed as exhibits to the Registration Statement of which this prospectus is
a part. See "Where You Can Find More Information."
Upon completion of this offering, our authorized capital stock will consist
of shares of common stock, par value $ per share, of which
shares of common stock will be issued and outstanding. Prior to this
offering, there were shares of common stock outstanding held by three
persons.
Prior to this offering, there has been no public market for our common
stock. See "Risk Factors -- There is no prior public market for our common stock
and our stock price may be volatile."
COMMON STOCK
Voting Rights. Our certificate of incorporation will provide that holders
of our common stock are entitled to one vote per share held of record on all
matters submitted to a vote of stockholders. Our principal stockholders have
entered into a shareholders' agreement that governs the voting of the common
stock held by them.
Dividends. Each holder of common stock on the applicable record date is
entitled to receive dividends if, as and when declared by our board of
directors. Under Delaware law, a corporation may declare and pay dividends out
of surplus, or if there is no surplus, out of net profits for the fiscal year in
which the dividend is declared and/or the preceding year. No dividends may be
declared, however, if the capital of the corporation has been diminished by
depreciation in the value of its property, losses or otherwise to an amount less
than the aggregate amount of capital represented by any issued and outstanding
stock having a preference on the distribution of assets.
Other Rights. Our stockholders have no preemptive or other rights to
subscribe for additional shares. All holders of our common stock are entitled to
share equally on a share-for-share basis in any assets available for
distribution to stockholders on our liquidation, dissolution or winding up. No
shares of our common stock are subject to conversion, redemption or a sinking
fund. All outstanding shares of our common stock are, and the common stock to be
outstanding upon completion of this offering will be, fully paid and
nonassessable.
Transfer Agent and Registrar. The transfer agent and registrar for our
common stock is The Bank of New York.
82
<PAGE> 84
PREFERRED STOCK
Our board of directors has the authority to issue shares of
preferred stock in one or more series and to fix rights, preferences, privileges
and restrictions thereof, including dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares constituting any series or the designation
of such series, without further vote or action by the stockholders. The issuance
of shares of preferred stock (and the board's ability to do so) may have the
effect of delaying, deferring or preventing a change in control of IMPSAT
without further action by the stockholders and may adversely affect the voting
and other rights of the holders of common stock.
OUR CERTIFICATE OF INCORPORATION AND BYLAWS
Some of the provisions of our certificate of incorporation and bylaws
summarized below may be deemed to have an anti-takeover effect and may delay,
defer or prevent a tender offer or takeover attempt that a stockholder might
consider in its best interest, including an attempt that might result in the
receipt of a premium over the market price for the shares held by stockholders.
Upon the closing of the offering, our amended bylaws will contain
provisions requiring that advance notice be delivered to us of any business to
be brought by a stockholder before an annual or special meeting of stockholders
and providing for certain procedures to be followed by stockholders in
nominating persons for election to our board of directors. Generally, these
advance notice provisions require that the stockholder must give written notice
to the secretary of our company in the case of an annual meeting:
- not less than 45 days nor more than 100 days before the first anniversary
of the date on which the company first mailed its proxy materials for the
preceding year's annual meeting of stockholders
- advanced or delayed by more than 30 days from the preceding year's annual
meeting of stockholders, not less than 90 days prior to the scheduled
date of the annual meeting or, if later, 10 days after the first public
announcement of the date of the meeting
- not less than 90 days, or, if later, 10 days after the first public
announcement of the date of the special meeting, nor more than 120 days
prior to the scheduled date of the special meeting
The notice must set forth specific information regarding the stockholder
giving the notice and each director nominee or other business proposed by the
stockholder, as applicable, as provided in our bylaws. Generally, only business
set forth in the notice for a special meeting of stockholders may be conducted
at a special meeting.
Except as provided in a securityholders agreement dated as of March 19,
1998 and a shareholders agreement dated as of March 10, 1999, our bylaws will
provide that special meetings of stockholders may be called only by the Chairman
of the board of directors or pursuant to a resolution adopted by a majority of
the board of directors, but may not be called by stockholders.
In accordance with our restated certificate of incorporation, our amended
bylaws will provide that except as provided in the securityholders agreement
dated as of March 19, 1998 and the shareholders agreement dated as of March 10,
1999, the number of directors shall be fixed from time to time exclusively
pursuant to a resolution adopted by a majority of the board of directors.
Our certificate of incorporation will provide for a classified board of
directors, consisting of three classes. Each class will hold office until the
third annual stockholders meeting for election of directors following the most
recent election of that class, except that the initial terms of the three
classes expire in 2000, 2001 and 2002.
Subject to the rights of the Morgan Stanley investors and British
Telecommunications to elect and remove directors under specified circumstances,
a director of our company may be removed only for cause by an affirmative vote
of the holders of at least a majority of the voting power of all of our
outstanding shares generally entitled to vote in the election of directors,
voting together as a single class. Vacancies on our board may only be filled by
the affirmative vote of a majority of the remaining directors.
83
<PAGE> 85
Our restated certificate of incorporation will provide that stockholders
may not act by written consent in lieu of a meeting.
In general, our restated certificate of incorporation may be altered or
repealed and new certificate of incorporation adopted by the holders of a
majority of the voting stock or by a majority of the board of directors.
However, certain provisions, including those relating to the number of directors
constituting the board of directors, the limitation of actions by stockholders
taken by written consent, the calling of special stockholder meetings, other
stockholder actions and proposals and certain matters related to our board, may
be amended only by the affirmative vote of the holders of at least 80% of the
total voting stock.
We are a Delaware corporation and subject to Section 203 of the Delaware
General Corporate Law, or DGCL. Section 203 of the DGCL prohibits a publicly
held Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the time a
stockholder became an interested stockholder unless, as described below, certain
conditions are satisfied. See "-- Limitations on Changes of Control of Our
Company" below. The prohibitions in Section 203 of the DGCL do not apply if the
following occur:
- prior to the time the stockholder became an interested stockholder, our
board of directors approved either the business combination or the
transaction which resulted in the stockholder becoming an interested
stockholder
- upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of our company outstanding at the time the
transaction commenced
- at or subsequent to the time the stockholder became an interested
stockholder, the business combination is approved by our board of
directors and authorized by the affirmative vote of at least 66 2/3% of
the outstanding voting stock that is not owned by the interested
stockholder
Under Section 203 of the DGCL, a "business combination" includes the
following:
- any merger or consolidation of our company with the interested
stockholder
- any sale, lease, exchange or other disposition, except proportionately as
a stockholder of our company, to or with the interested stockholder of
assets of our company having an aggregate market value equal to 10% or
more of either the aggregate market value of all the assets of our
company or the aggregate market value of all the outstanding stock of our
company
- certain transactions resulting in the issuance or transfer by our company
of our stock to the interested stockholder
- certain transactions involving our company which have the effect of
increasing the proportionate share of the stock of any class or series of
our company which is owned by the interested stockholder
- certain transactions in which the interested stockholder receives
financial benefits provided by us
Under Section 203 of the DGCL, an "interested stockholder" generally is one
of the following:
- any person that owns 15% or more of the outstanding voting stock of our
company
- any person that is an affiliate or associate of our company and was the
owner of 15% or more of the outstanding voting stock of our company at
any time within the three-year period prior to the date on which it is
sought to be determined whether that person is an interested stockholder
- the affiliates or associates of that person
Because Nevasa, the Morgan Stanley investors and British Telecommunications
each will own more than 15% of our voting stock prior to the time that we become
a public company and upon completion of the equity offering, Section 203 of the
DGCL by its terms is currently not applicable to business combinations with
84
<PAGE> 86
Nevasa, the Morgan Stanley investors or British Telecommunications although
Nevasa, the Morgan Stanley investors and British Telecommunications each own 15%
or more of our outstanding stock. If any other person acquires 15% or more of
our outstanding stock, that person will be subject to the provisions of Section
203 of the DGCL.
LIMITATIONS ON CHANGES OF CONTROL OF OUR COMPANY
The provisions of our certificate of incorporation and by-laws described
above, as well as the stockholder rights plan and the provisions of Section 203
of the DGCL, could have the following effects, among others:
- delaying, deferring or preventing a change in control
- delaying, deferring or preventing the removal of existing management
- deterring potential acquirers from making an offer to our stockholders
- limiting any opportunity of our stockholders to realize premiums over
prevailing market prices of our common stock in connection with offers by
potential acquirers
Any of the above could occur, notwithstanding that a majority of our
stockholders might benefit from such a change in control or offer.
85
<PAGE> 87
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering we will have shares of common
stock outstanding. Of this amount, the shares offered hereby will be available
for immediate sale in the public market as of the date hereof. An additional
shares of common stock are issuable upon the exercise of outstanding
options under our stock option plan at exercise prices of and
. Of this amount, no options are presently exercisable.
In addition, after this offering we believe that we will have greater
flexibility in consummating acquisitions and/or strategic alliances and may use
shares of our common stock as an alternative form of consideration in such
transactions.
We, along with our directors and executive officers and our existing
stockholders, have agreed pursuant to the underwriting agreement and other
agreements that we will not sell any common stock without the prior consent of
Morgan Stanley & Co. Incorporated for a period of 180 days from the date of this
prospectus. Approximately additional shares will be available for sale
following the expiration of the 180-day lockup period.
The outstanding shares of common stock not issued in connection with this
offering are available for sale in the public market, subject to the 180-day
lockup period and compliance with the requirements of Rule 144. In general,
under Rule 144 as currently in effect, a person (or persons whose shares are
aggregated) who has beneficially owned shares for at least one year is entitled
to sell, within any three-month period, a number of shares that does not exceed
the greater of:
- 1% of the then outstanding shares of common stock
- the average weekly trading volume during the four calendar weeks
preceding the sale, subject to the filing of a Form 144 with respect to
the sale
A person (or persons whose shares are aggregated) who is not deemed to have
been our affiliate at any time during the 90 days immediately preceding the sale
who has beneficially owned his or her shares for at least two years is entitled
to sell such shares pursuant to Rule 144(k) without regard to the foregoing
volume limitations. Persons deemed to be affiliates must always sell pursuant to
the volume limitations under Rule 144, even after the applicable holding periods
have been satisfied. We are unable to estimate the number of shares that will be
sold under Rule 144 since this will depend on the market price for our common
stock, the personal circumstances of the sellers and other factors.
We intend to file a registration statement on Form S-8 under the Securities
Act to register shares of common stock reserved for issuance under our stock
option plan, thus permitting the resale of these shares by nonaffiliates in the
public market without restriction under the Securities Act. We intend to
register these shares on Form S-8, as of the date of this prospectus.
The shares of our common stock that will be held by the Morgan
Stanley investors after shares of our preferred stock are converted
upon completion of this offering and the and shares of
common stock held by Nevasa Holdings and British Telecommunications,
respectively, will be entitled to certain registration rights. These shares of
common stock that will be entitled to registration rights are referred to by us
as the Registrable Shares. If we propose to register any of our securities under
the Securities Act, the holders of the Registrable Shares will be entitled to
notice thereof, and subject to restrictions, to include their Registrable Shares
in the registration. In addition, immediately following the consummation of this
offering, the Morgan Stanley investors, Nevasa Holdings and British
Telecommunications may make demands that we file a registration statement under
the Securities Act, subject to conditions and limitations.
Sales of a substantial number of shares of common stock after this offering
(or the perception that they might occur) could adversely affect the market
price of our common stock and could impair our ability to raise capital through
the sale of additional equity securities. See "Risks Factors -- Shares of our
common stock becoming available for sale could adversely affect the market price
of our common stock and may impair the ability to raise capital through the sale
of additional stock."
86
<PAGE> 88
CERTAIN U.S. TAX CONSEQUENCES TO NON-U.S. HOLDERS
GENERAL
The following is a general discussion of U.S. federal income and estate tax
consequences of the ownership and disposition of our common stock that may be
relevant to you if you are a non-U.S. holder. For purposes of this summary, a
non-U.S. holder is a beneficial owner of our common stock that is, for U.S.
federal income tax purposes:
- a nonresident alien individual
- a foreign corporation
- a nonresident alien fiduciary of a foreign estate or trust or
- a foreign partnership one or more of the members of which is, for U.S.
federal income tax purposes, a nonresident alien individual, a foreign
corporation or a nonresident alien fiduciary of a foreign estate or trust
This discussion does not address all aspects of U.S. federal income and
estate taxation that may be relevant to you in light of your particular
circumstances and does not address any foreign, state or local tax consequences.
Furthermore, this discussion is based on provisions of the Internal Revenue
Code, Treasury regulations and administrative and judicial interpretations as of
the date of this prospectus. All of these are subject to change, possibly with
retroactive effect, or different interpretations. If you are considering buying
our common stock you should consult your own tax advisor about current and
possible future tax consequences of holding and disposing of our common stock in
your particular situation.
DISTRIBUTIONS
At present, we do not anticipate paying dividends. If we do pay
distributions on our common stock, such distributions generally will constitute
dividends for U.S. federal income tax purposes to the extent paid from our
current or accumulated earnings and profits, as determined under U.S. federal
income tax principles. To the extent our distributions exceed our current or
accumulated earnings and profits, the distributions will constitute a return of
capital that is applied against and will reduce your basis in our common stock
(but not below zero), and then will be treated as gain from the sale of the
stock. Unless we are an 80/20 company, as described below, dividends paid to you
that are not effectively connected with your United States trade or business or,
if a tax treaty applies, are not attributable to a permanent establishment that
you maintain in the United States will (to the extent paid out of earnings and
profits) be subject to U.S. withholding tax at a 30 percent rate or, if a tax
treaty applies, a lower rate specified by the treaty. To receive a reduced
treaty rate, you must furnish to us or our paying agent a duly completed Form
1001 or Form W-8BEN (or substitute form) certifying to your qualification for a
lower rate.
An exception from withholding exists if at least 80 percent of the gross
income derived by a corporation during the applicable testing period qualifies
as "active foreign business income," either directly or through the
corporation's subsidiaries (an 80/20 company). If we are an 80/20 company, the
proportion of our dividends equal to our total gross income from foreign sources
over our total gross income will be exempt from the 30 percent withholding tax.
We believe that we qualify as an 80/20 company. However, the 80 percent test for
active foreign business income is applied on a periodic basis, and our
operations and business plans may change in subsequent taxable years. Therefore,
we cannot assure you that we will remain an 80/20 company and that this
exception from withholding will remain available.
Subject to the discussion regarding 80/20 companies above, withholding is
generally imposed on the gross amount of a distribution, regardless of whether
we have sufficient earnings and profits to cause the distribution to be a
dividend for U.S. federal income tax purposes. However, withholding on
distributions made after December 31, 2000 may be on less than the gross amount
of the distribution if the distribution exceeds a reasonable estimate we make of
our accumulated and current earnings and profits.
87
<PAGE> 89
Dividends that are effectively connected with your conduct of a trade or
business within the United States or, if a tax treaty applies, are attributable
to your U.S. permanent establishment, are exempt from U.S. federal withholding
tax, provided that you furnish to us or our paying agent a duly completed Form
4224 or Form W-8ECI (or substitute form) certifying the exemption. However,
dividends exempt from U.S. withholding because they are effectively connected or
they are attributable to a U.S. permanent establishment are subject to U.S.
federal income tax on a net income basis at the regular graduated U.S. federal
income tax rates. Any such effectively connected dividends received by a foreign
corporation may, under certain circumstances, be subject to an additional
"branch profits tax" at a 30 percent rate or a lower rate specified by an
applicable income tax treaty.
Under current U.S. Treasury regulations, dividends paid before January 1,
2001 to an address outside the United States are presumed to be paid to a
resident of the country of address for purposes of the withholding discussed
above and for purposes of determining the applicability of a tax treaty rate.
However, U.S. Treasury regulations applicable to dividends paid after December
31, 2000 eliminate this presumption, subject to certain transition rules.
For dividends paid after December 31, 2000, you generally will be subject
to U.S. backup withholding tax at a 31 percent rate under the backup withholding
rules described below, rather than at a 30 percent rate or a reduced rate under
an income tax treaty, as described above, unless you comply with certain
Internal Revenue Service certification procedures (in general, by providing a
duly completed Form W-8BEN) or, in the case of payments made outside the United
States with respect to an offshore account, certain IRS documentary evidence
procedures. Further, to claim the benefit of a reduced rate of withholding under
a tax treaty for dividends paid after December 31, 2000, you must comply with
certain modified IRS certification requirements. Special rules also apply to
dividend payments made after December 31, 2000 to foreign intermediaries, U.S.
or foreign wholly owned entities that are disregarded for U.S. federal income
tax purposes and entities that are treated as fiscally transparent in the United
States, the applicable income tax treaty jurisdiction, or both. You should
consult your own tax advisor concerning the effect, if any, of the rules
affecting post-December 31, 2000 dividends on your possible investment in our
common stock.
You may obtain a refund of any excess amounts withheld by filing an
appropriate claim for refund along with the required information with the IRS.
GAIN ON DISPOSITION OF COMMON STOCK
You generally will not be subject to U.S. federal income tax with respect
to gain you recognize on a sale or other disposition of our common stock unless
one of the following applies:
- The gain is effectively connected with your trade or business in the
United States and, if a tax treaty applies, the gain is attributable to
your U.S. permanent establishment. In this case, you will, unless an
applicable treaty provides otherwise, be taxed on your net gain derived
from the sale at regular graduated U.S. federal income tax rates. If you
are a foreign corporation, you may be subject to an additional branch
profits tax equal to 30 percent of your effectively connected earnings
and profits within the meaning of the Internal Revenue Code for the
taxable year, as adjusted for certain items, unless you qualify for a
lower rate under an applicable income tax treaty and duly demonstrate
such qualification.
- You are an individual, you hold our common stock as a capital asset, you
are present in the United States for 183 or more days in the taxable year
of the disposition, and certain other conditions are met. In this case,
you will be subject to a flat 30 percent tax on the gain derived from the
sale, which may be offset by certain U.S. capital losses.
- We are or have been a "U.S. real property holding corporation" for U.S.
federal income tax purposes at any time during the shorter of the
five-year period ending on the date of the disposition or the period
during which you held our common stock. We believe that we never have
been and are not a U.S. real property holding corporation for U.S.
federal income tax purposes. Although we consider it unlikely based on
our current business plans and operations, we may or may not become a
U.S. real property
88
<PAGE> 90
holding corporation. Even if we were to become a U.S. real property
holding corporation, any gain you recognize still would not be subject to
U.S. federal income tax if our common stock were considered to be
"regularly traded on an established securities market" and you did not
own, actually or constructively, at any time during the shorter of the
periods described above, more than five percent of a class of our common
stock.
FEDERAL ESTATE TAX
If you are an individual, common stock you hold at the time of your death
will be included in your gross estate for U.S. federal estate tax purposes,
unless an applicable estate tax treaty provides otherwise.
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
Under U.S. Treasury regulations, we must report annually to the IRS and to
you the amount of dividends paid to you and the tax withheld with respect to
such dividends. These information reporting requirements apply even if
withholding was not required because the dividends were effectively connected
dividends or withholding was reduced by an applicable income tax treaty.
Pursuant to an applicable tax treaty, information may also be made available to
the tax authorities in the country in which you reside.
U.S. federal backup withholding generally is a withholding tax imposed at
the rate of 31 percent on certain payments to persons that fail to furnish
certain required information. Backup withholding generally will not apply to
dividends paid before January 1, 2001 to non-U.S. holders. See the discussion
under "Distribution" above for rules regarding reporting requirements to avoid
backup withholding on dividends paid after December 31, 2000.
As a general matter, information reporting and backup withholding will not
apply to a payment by or through a foreign office of a foreign broker of the
proceeds of a sale of our common stock effected outside the United States.
However, information reporting requirements, but not backup withholding, will
apply to a payment by or through a foreign office of a broker of the proceeds of
a sale of our common stock effected outside the United States if that broker:
- is a U.S. person for U.S. federal income tax purposes
- is a foreign person that derives 50 percent or more of its gross income
for certain periods from the conduct of a trade or business in the United
States
- is a "controlled foreign corporation" as defined in the Internal Revenue
Code or
- is a foreign partnership with certain U.S. connections (for payments made
after December 31, 2000)
Information reporting requirements will not apply in the above cases if the
broker has documentary evidence in its records that the holder is a non-U.S.
holder and certain conditions are met or the holder otherwise establishes an
exemption.
Payment by or through a U.S. office of a broker of the proceeds of a sale
of our common stock is subject to both backup withholding and information
reporting unless you certify to the payor in the manner required as to your
status as a non-U.S. holder under penalties of perjury or otherwise establish an
exemption.
Amounts withheld under the backup withholding rules do not constitute a
separate U.S. federal income tax. Rather, any amounts withheld under the backup
withholding rules will be refunded or allowed as a credit against your U.S.
federal income tax liability, if any, provided the required information or
appropriate claim for refund is filed with the IRS.
THE FOREGOING DISCUSSION IS A SUMMARY OF CERTAIN U.S. FEDERAL INCOME AND
ESTATE TAX CONSEQUENCES TO YOU OF THE OWNERSHIP, SALE OR OTHER DISPOSITION OF
OUR COMMON STOCK. YOU ARE URGED TO CONSULT YOUR OWN TAX ADVISOR WITH RESPECT TO
THE PARTICULAR TAX CONSEQUENCES TO YOU OF OWNERSHIP AND DISPOSITION OF OUR
COMMON STOCK, INCLUDING THE EFFECT OF ANY STATE, LOCAL, FOREIGN OR OTHER TAX
LAWS.
89
<PAGE> 91
UNDERWRITERS
Under the terms and subject to the conditions contained in an underwriting
agreement dated the date hereof, the underwriters named below, for whom Morgan
Stanley & Co. Incorporated, Goldman, Sachs & Co. and Salomon Smith Barney Inc.
are acting as representatives, have severally agreed to purchase, and IMPSAT has
agreed to sell to them, severally, the respective number of shares of common
stock shown opposite the names of the underwriters below:
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
- ---- ----------
<S> <C>
Morgan Stanley & Co. Incorporated...........................
Goldman, Sachs & Co. .......................................
Salomon Smith Barney Inc....................................
----------
Total.....................................................
==========
</TABLE>
The underwriters are offering the shares of common stock subject to their
acceptance of the shares from IMPSAT and subject to prior sale. The underwriting
agreement provides that the obligations of the several underwriters to pay for
and accept delivery of the shares of common stock offered hereby are subject to
the approval of certain legal matters by their counsel and to certain other
conditions. The underwriters are obligated to take and pay for all of the shares
of common stock offered hereby (other than those covered by the underwriters'
over-allotment option described below) if any of these shares are taken.
All shares of common stock to be purchased by the underwriters under the
underwriting agreement are referred to herein as the "shares."
The underwriters initially propose to offer part of the shares of common
stock directly to the public at the public offering price set forth on the cover
page hereof and part to certain dealers at a price that represents a concession
not in excess of $ a share under the public offering price. Any underwriter
may allow, and such dealers may reallow, a concession not in excess of $ a
share to other underwriters or to certain dealers. After the initial offering of
the shares of common stock, the offering price and other selling terms may from
time to time be varied by the representatives.
IMPSAT has granted to the underwriters an option, exercisable for 30 days
from the date of this prospectus, to purchase up to an aggregate of
additional shares of common stock at the public offering price set forth on the
cover page hereof, less underwriting discounts and commissions. The underwriters
may exercise this option solely for the purpose of covering over-allotments, if
any, made in connection with the offering of the shares of common stock offered
hereby. To the extent this option is exercised, each underwriter will become
obligated, subject to certain conditions, to purchase approximately the same
percentage of such additional shares of common stock as the number set forth
next to the underwriter's name in the preceding table bears to the total number
of shares of common stock set forth next to the names of all underwriters in the
preceding table. If the underwriters' option is exercised in full, the total
price to the public would be $ , the total underwriters' discounts and
commissions would be $ and total proceeds to IMPSAT would be $ .
The underwriters have informed IMPSAT that they do not intend sales to
discretionary accounts to exceed five percent of the total number of shares of
common stock offered by them.
90
<PAGE> 92
Each of IMPSAT and the directors, executive officers and certain other
stockholders of IMPSAT has agreed that, without the prior written consent of
Morgan Stanley & Co. Incorporated on behalf of the underwriters, it will not,
during the period ending 180 days after the date of this prospectus:
- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend or otherwise transfer or dispose of,
directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock or
- enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the
common stock
whether any such transaction described above is to be settled by delivery of
common stock or such other securities, in cash or otherwise.
The restrictions described in the previous paragraph do not apply to:
- the sale of shares to the underwriters
- the issuance by IMPSAT of shares of common stock upon the exercise of an
option or a warrant or the conversion of a security outstanding on the
date of this prospectus of which the underwriters have been advised in
writing or
- transactions by any person other than IMPSAT relating to shares of common
stock or other securities acquired in open market transactions after the
completion of this offering
In order to facilitate this offering, the underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
common stock. Specifically, the underwriters may over-allot in connection with
this offering, creating a short position in the common stock for their own
account. In addition, to cover over-allotments or to stabilize the price of the
common stock, the underwriters may bid for, and purchase, shares of common stock
in the open market. Finally, the underwriting syndicate may reclaim selling
concessions allowed to an underwriter or a dealer for distributing shares of
common stock in this offering, if the syndicate repurchases previously
distributed common stock in transactions to cover syndicate short positions, in
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price of the common stock above independent market
levels. The underwriters are not required to engage in these activities, and may
end any of these activities at any time.
IMPSAT and the underwriters have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act. Upon
consummation of this offering, affiliates of Morgan Stanley & Co. Incorporated
will own approximately % of the outstanding shares of common stock of
IMPSAT ( % if the underwriters' over-allotment option is exercised in full).
Affiliates of Morgan Stanley & Co. Incorporated beneficially own more than
10% of the IMPSAT's preferred equity. Under the provisions of Rule 2720 of the
Conduct rules of the National Association of Securities Dealers when an NASD
member such as Morgan Stanley & Co. Incorporated distributes securities of a
company in which it owns more than 10% of the company's preferred equity, the
public offering price of the securities can be no higher than that recommended
by the "qualified independent underwriter," as such term is defined in Rule
2720. In accordance with such requirements, has agreed to serve as a
"qualified independent underwriter" and has conducted due diligence and has
recommended a maximum price for the common stock.
At IMPSAT's request, the underwriters will reserve up to shares
of common stock to be issued by IMPSAT and offered hereby for sale, at the
initial offering price, to directors, officers, employees, business associates
and related persons of IMPSAT, who will agree to hold their shares for at least
days after the date of this prospectus. This directed share program will be
administered by Morgan Stanley & Co. Incorporated. The number of shares of
common stock available for sale to the general public will be reduced to the
extent these persons purchase reserved shares. Any reserved shares that are not
so purchased will be offered by the underwriters to the general public on the
same basis as the other shares offered hereby.
91
<PAGE> 93
From time to time, Morgan Stanley & Co. Incorporated has provided, and
continues to provide, investment banking services to IMPSAT for which they have
received customary fees and commissions.
PRICING OF THIS OFFERING
Prior to this offering, there has been no public market for the common
stock. The initial public offering price will be determined by negotiations
between IMPSAT and the representatives. Among the factors to be considered in
determining the initial public offering price will be the future prospects of
IMPSAT and its industry in general, sales, earnings and certain other financial
and operating information of IMPSAT in recent periods, and the price-earnings
ratios, price-sales ratios, market prices of securities and certain financial
and operating information of companies engaged in activities similar to those of
IMPSAT. The estimated initial public offering price range set forth on the cover
page of this preliminary prospectus is subject to change as a result of market
conditions and other factors.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon by
Arnold & Porter, Washington, D.C., counsel to IMPSAT. Certain legal matters will
be passed upon for the underwriters by Shearman & Sterling, New York, New York.
EXPERTS
The consolidated financial statements as of December 31, 1997 and 1998 and
for each of the three years in the period ended December 31, 1998 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.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Securities Act,
and, in accordance therewith, files reports and other information with the
Commission. These reports and other information can be inspected and copied at
the public reference facilities maintained by the Commission at: Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549; Northwestern
Atrium 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
materials also can be obtained from the Public Reference Section of the
Commission, at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
at prescribed rates. The Commission maintains a web site that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission. The address of such site is
http://www.sec.gov. Our common stock has been approved for quotation on the
Nasdaq National Market, and such reports, proxy and information statements and
other information also can be inspected at the office of Nasdaq Operations, 1735
K Street, N.W., Washington, D.C. 20006.
We have filed with the Commission a Registration Statement on Form S-1
under the Securities Act with respect to the common stock offered hereby. This
prospectus does not contain all of the information set forth in the Registration
Statement and the exhibits and schedules to the Registration Statement. For
further information with respect to IMPSAT and the common stock offered hereby,
reference is made to the Registration Statement and the exhibits and the
schedules filed as part of the Registration Statement. Statements contained in
this prospectus concerning the contents of any contract or any other document to
which this prospectus refers are not necessarily complete. Each such statement
is qualified in all respects to any underlying contract or document filed as an
exhibit to the Registration Statement. The Registration Statement, including
exhibits and schedules thereto, may be inspected without charge at the
Commission's principal office in Washington, D.C., and copies of all or any part
thereof may be obtained from such office after payment of fees prescribed by the
Commission.
92
<PAGE> 94
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets as of December 31, 1997 and 1998
and as of June 30, 1999................................... F-3
Consolidated Statements of Operations for each of the Three
Years in the Period Ended December 31, 1998 and for the
Six Months Ended June 30, 1998 and 1999................... F-4
Consolidated Statements of Comprehensive Loss for each of
the Three Years in the Period Ended December 31, 1998 and
for the Six Months Ended June 30, 1998 and 1999........... F-5
Consolidated Statements of Stockholders' (Deficit) Equity
for each of the Three Years in the Period Ended December
31, 1998 and for the Six Months Ended June 30, 1999....... F-6
Consolidated Statements of Cash Flows for each of the Three
Years in the Period Ended December 31, 1998 and for the
Six Months Ended June 30, 1998 and 1999................... F-7
Notes to Consolidated Financial Statements.................. F-8
</TABLE>
F-1
<PAGE> 95
INDEPENDENT AUDITORS' REPORT
To the Shareholders of IMPSAT Corporation:
We have audited the accompanying consolidated balance sheets of IMPSAT
Corporation and its subsidiaries (the "Company") as of December 31, 1997 and
1998, and the related consolidated statements of operations, comprehensive loss,
stockholders' equity (deficit) and of cash flows for each of the three years in
the period ended December 31, 1998. 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 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 the Company at December 31,
1997 and 1998, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1998 in conformity with
generally accepted accounting principles.
As discussed in Note 3 to the consolidated financial statements, the
Company changed its method of accounting for license and permit costs in 1998.
Deloitte & Touche LLP
Miami, Florida
March 12, 1999
F-2
<PAGE> 96
IMPSAT CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- JUNE 30,
1997 1998 1999
-------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 10,439 $ 90,021 $ 151,501
Trade accounts receivable, net............................ 36,596 46,974 54,094
Other receivables......................................... 15,583 20,110 22,933
Prepaid expenses.......................................... 2,397 1,994 1,989
-------- --------- ---------
Total current assets............................... 65,015 159,099 230,517
-------- --------- ---------
PROPERTY, PLANT AND EQUIPMENT, Net.......................... 255,422 330,726 346,894
-------- --------- ---------
NON-CURRENT ASSETS:
Trade account receivables, net............................ 5,143 5,143 5,143
Investment................................................ 4,178 10,708 10,402
Deferred financing costs, net............................. 4,044 10,329 9,733
Deferred income taxes, net................................ 3,248
Intangible assets, net.................................... 2,003 7,920 21,613
Other non-current assets.................................. 4,111 3,293 4,473
-------- --------- ---------
Total non-current assets........................... 19,479 37,393 54,612
-------- --------- ---------
TOTAL....................................................... $339,916 $ 527,218 $ 632,023
======== ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable -- trade................................. $ 25,289 $ 32,416 $ 33,546
Short-term debt........................................... 50,189 19,262 21,007
Current portion of long-term debt......................... 10,186 21,138 16,957
Accrued liabilities....................................... 8,878 12,628 10,901
Deferred income taxes, net................................ 247 120 --
Other liabilities......................................... 8,649 12,346 14,170
-------- --------- ---------
Total current liabilities.......................... 103,438 97,910 96,581
-------- --------- ---------
LONG-TERM DEBT, Net......................................... 159,677 379,292 388,784
-------- --------- ---------
OTHER LONG-TERM LIABILITIES................................. 3,014 3,446 13,300
-------- --------- ---------
COMMITMENTS AND CONTINGENCIES (Note 13)
MINORITY INTEREST........................................... 10,398 13,071 12,925
-------- --------- ---------
REDEEMABLE PREFERRED STOCK, Convertible, Series A, 10%,
cumulative dividend; 25,000 shares authorized, issued and
outstanding; liquidation preference $5,674 per share...... -- 135,018 141,853
-------- --------- ---------
STOCKHOLDERS' EQUITY (DEFICIT):
Common Stock $1 par value; 155,000,000 shares authorized;
100,792,640 shares issued and outstanding at December
31, 1997 and 1998, and 120,951,168 shares issued and
outstanding at June 30, 1999, and pro forma
shares issued and outstanding........................... 100,793 100,793 120,951
Additional paid in capital................................ 100,778
Accumulated deficit....................................... (37,404) (71,391) (109,339)
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...................................... -- (5,395) (5,111)
Accumulated other comprehensive loss...................... -- (526) (3,699)
-------- --------- ---------
Total stockholders' equity (deficit)............... 63,389 (101,519) (21,420)
-------- --------- ---------
TOTAL....................................................... $339,916 $ 527,218 $ 632,023
======== ========= =========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 97
IMPSAT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(IN THOUSANDS, EXCEPT FOR LOSS PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
-------------------------------- --------------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET REVENUES FROM SERVICES.................... $128,393 $161,065 $208,089 $ 93,651 $111,218
-------- -------- -------- -------- --------
COST AND EXPENSES:
Variable cost of services................... 21,494 27,333 36,369 13,747 20,341
Leased telecommunications links............. 13,925 19,230 24,507 14,382 20,908
Salaries, wages and benefits................ 25,561 29,109 38,198 16,962 22,192
Selling, general and administrative......... 23,030 33,356 45,199 20,798 22,781
Depreciation and amortization............... 26,318 28,673 36,946 16,629 23,329
-------- -------- -------- -------- --------
Total cost and expenses.............. 110,328 137,701 181,219 82,518 109,551
-------- -------- -------- -------- --------
Operating income..................... 18,065 23,364 26,870 11,133 1,667
-------- -------- -------- -------- --------
OTHER INCOME (EXPENSES):
Interest expense, net....................... (23,185) (24,272) (44,698) (17,191) (28,106)
Net gain (loss) on foreign exchange......... 910 (276) 675 (158) (7,986)
Other income (expense), net................. 1,035 (151) 760 498 (564)
-------- -------- -------- -------- --------
Total other expense.................. (21,240) (24,699) (43,263) (16,851) (36,656)
-------- -------- -------- -------- --------
LOSS BEFORE INCOME TAXES, CUMULATIVE EFFECT
AND MINORITY INTEREST....................... (3,175) (1,335) (16,393) (5,718) (34,989)
(PROVISION FOR) BENEFIT FROM INCOME TAXES..... (3,542) (5,263) (3,805) (2,251) 4,017
-------- -------- -------- -------- --------
LOSS BEFORE CUMULATIVE EFFECT AND MINORITY
INTEREST.................................... (6,717) (6,598) (20,198) (7,969) (30,972)
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING
PRINCIPLE, NET OF TAX....................... -- -- (1,269) (1,269) --
INCOME ATTRIBUTABLE TO MINORITY INTEREST...... (1,766) (993) (2,502) (596) (141)
-------- -------- -------- -------- --------
NET LOSS BEFORE DIVIDENDS ON REDEEMABLE
PREFERRED STOCK............................. (8,483) (7,591) (23,969) (9,834) (31,113)
DIVIDENDS ON REDEEMABLE PREFERRED STOCK....... -- -- (10,018) (3,507) (6,835)
-------- -------- -------- -------- --------
NET LOSS ATTRIBUTABLE TO COMMON
SHAREHOLDERS................................ $ (8,483) $ (7,591) $(33,987) $(13,341) $(37,948)
======== ======== ======== ======== ========
LOSS PER COMMON SHARE:
BASIC AND DILUTED........................... $ (0.13) $ (0.09) $ (0.43) $ (0.16) $ (0.44)
======== ======== ======== ======== ========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES:
BASIC AND DILUTED........................... 64,526 89,272 79,794 83,994 85,674
======== ======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 98
IMPSAT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
---------------------------- -------------------
1996 1997 1998 1997 1998
------- ------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET LOSS.................................. $(8,483) $(7,591) $(33,987) $(13,341) $(37,948)
OTHER COMPREHENSIVE LOSS, net of tax:
Foreign currency translation............ -- -- (526) -- (3,173)
------- ------- -------- -------- --------
Adjustment
Comprehensive loss........................ $(8,483) $(7,591) $(34,513) $(13,341) $(41,121)
======= ======= ======== ======== ========
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE> 99
IMPSAT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
AMOUNT PAID
IN EXCESS OF
CARRYING
VALUE
COMMON STOCK ADDITIONAL OF NET ASSETS
---------------------- IMPSAT PAID IN ACCUMULATED TREASURY ACQUIRED FROM
SHARES STOCK ARGENTINA CAPITAL DEFICIT(*) STOCK RELATED PARTY
----------- -------- --------- ---------- ----------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995............ 51,301,000 $ 51,301 $ 13,360 $ (8,240)
IMPSAT Argentina exchange (51%)....... 26,450,000 26,450 (13,360) (13,090)
Net loss for the year................. (8,483)
----------- -------- -------- ---------
BALANCE AT DECEMBER 31, 1996............ 77,751,000 77,751 (29,813)
IMPSAT Argentina exchange (43.5%) 23,041,640 23,042
Additional capitalization IMPSAT
Colombia and IMPSAT Venezuela.......
Net loss for the year................. (7,591)
----------- -------- -------- ---------
BALANCE AT DECEMBER 31, 1997............ 100,792,640 100,793 (37,404)
Acquisition of treasury stock......... (25,198,160) $(125,000)
Acquisition of IMPSAT Brazil (Note
2).................................. $(5,679)
Change in minority interest, primarily
related to the acquisition of Mandic
S.A. (Note 2).......................
Dividends on redeemable preferred
stock................................. (10,018)
Amortization of amount paid in excess of
carrying value of net assets acquired
from related party.................... 284
Foreign currency translation
adjustment............................
Net loss for the year................... (23,969)
----------- -------- -------- -------- --------- --------- -------
BALANCE AT DECEMBER 31, 1998............ 75,594,480 100,793 (71,391) (125,000) (5,395)
Dividends on redeemable preferred
stock............................... (6,835)
Common stock issuance................. 20,158,528 20,158 $100,778
Amortization of amount paid in excess
of Carrying value of net assets
acquired from related party......... 284
Foreign currency translation
adjustment..........................
Net loss for the period............... (31,113)
----------- -------- -------- -------- --------- --------- -------
BALANCE AT JUNE 30, 1999 (unaudited).... 95,753,008 $120,951 $ -- $100,778 $(109,339) $(125,000) $(5,111)
=========== ======== ======== ======== ========= ========= =======
<CAPTION>
ACCUMULATED
OTHER
COMPREHENSIVE MINORITY
LOSS TOTAL INTEREST
------------- --------- --------
<S> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995............ $ 56,421 $ 28,495
IMPSAT Argentina exchange (51%).......
Net loss for the year................. (8,483) 1,766
--------- --------
BALANCE AT DECEMBER 31, 1996............ 47,938 30,261
IMPSAT Argentina exchange (43.5%) 23,042 (22,393)
Additional capitalization IMPSAT
Colombia and IMPSAT Venezuela....... 1,537
Net loss for the year................. (7,591) 993
--------- --------
BALANCE AT DECEMBER 31, 1997............ 63,389 10,398
Acquisition of treasury stock......... (125,000)
Acquisition of IMPSAT Brazil (Note
2).................................. (5,679)
Change in minority interest, primarily
related to the acquisition of Mandic
S.A. (Note 2)....................... 171
Dividends on redeemable preferred
stock................................. (10,018)
Amortization of amount paid in excess of
carrying value of net assets acquired
from related party.................... 284
Foreign currency translation
adjustment............................ $ (526) (526)
Net loss for the year................... (23,969) 2,502
------- --------- --------
BALANCE AT DECEMBER 31, 1998............ (526) (101,519) 13,071
Dividends on redeemable preferred
stock............................... (6,835)
Common stock issuance................. 120,936
Amortization of amount paid in excess
of Carrying value of net assets
acquired from related party......... 284
Foreign currency translation
adjustment.......................... (3,173) (3,173) (287)
Net loss for the period............... (31,113) 141
------- --------- --------
BALANCE AT JUNE 30, 1999 (unaudited).... $(3,699) $ (21,420) $(12,925)
======= ========= ========
</TABLE>
- ------------
(*) Includes an appropriation of retained earnings amounting to $1,254, $1,410
and $1,622 in 1996, 1997 and 1998, respectively, to comply with legal
reserve requirements in Argentina.
F-6
<PAGE> 100
IMPSAT CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
1996 1997 1998 1998 1999
-------- -------- --------- --------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $ (8,483) $ (7,591) $ (23,969) $ (9,834) $(31,113)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities, net of acquisition:
Cumulative effect of a change in accounting principle... 1,269 1,269
Amortization and depreciation........................... 26,318 28,673 36,946 16,629 23,329
Deferred income tax provision (benefit)................. 3,012 4,964 (127) (1,592) (3,368)
Income attributable to minority interest................ 1,766 993 2,502 242 (146)
Changes in assets and liabilities:
Increase in trade accounts receivable, net............ (6,525) (13,627) (10,128) (6,121) (7,120)
Decrease (increase) in prepaid expenses............... (1,406) 1,671 75 (723) 5
Increase in other receivables and other non-current
assets.............................................. (6,647) (4,678) (1,443) (436) (5,231)
Increase (decrease) in accounts payable -- trade...... (41) 4,627 4,204 7,497 3,004
Increase in accrued and other liabilities............. 4,340 1,526 6,979 10,711 97
Increase (decrease) in other long-term liabilities.... (2,491) 581 432 696 (1,392)
-------- -------- --------- --------- --------
Net cash provided by (used in) operating
activities........................................ 9,843 17,139 16,740 18,338 (21,935)
-------- -------- --------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment................ (53,648) (55,028) (107,461) (48,226) (40,338)
Cash paid in Mandic S.A. acquisition, net................. (8,485) (6,307)
Cash paid in IMPSAT Brazil merger......................... (5,679) (5,100)
Increase in investment.................................... (3,052) (6,530) (5,001) 306
Capitalized license and permit costs...................... (33)
-------- -------- --------- --------- --------
Net cash used by investing activities............... (53,681) (58,080) (128,155) (64,634) (40,032)
-------- -------- --------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payments on) borrowings from short-term debt......... (28,483) 18,337 (31,358) 15,036 1,745
Capital contribution from minority interest............... 1,537
Proceeds from long-term debt, net of deferred financing
costs................................................... 132,888 10,483 228,097 228,097 16,681
Repayments of long-term debt.............................. (37,888) (7,872) (5,216) (6,638) (12,742)
Proceeds from issuance of common stock, net............... 120,936
Acquisition of treasury stock............................. (125,000) (125,000)
Proceeds from issuance of redeemable preferred stock...... 125,000 125,000
-------- -------- --------- --------- --------
Net cash provided by financing activities........... 66,517 22,485 191,523 236,495 126,620
-------- -------- --------- --------- --------
EFFECT OF EXCHANGE RATE CHANGE ON CASH AND CASH
EQUIVALENTS............................................... (526) (3,173)
-------- -------- --------- --------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 22,679 (18,456) 79,582 190,199 61,480
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 6,216 28,895 10,439 10,439 90,021
-------- -------- --------- --------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 28,895 $ 10,439 $ 90,021 $ 200,638 $151,501
======== ======== ========= ========= ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid............................................. $ 19,413 $ 23,442 $ 45,967 $ 20,317 $ 32,314
======== ======== ========= ========= ========
Foreign income taxes paid................................. $ 1,015 $ 1,375 $ 1,901 $ 1,225
======== ======== ========= ========
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
(Increase) decrease in equipment in transit................. $ (350) $ (1,412) $ (2,473) $ (113) $ 1,874
======== ======== ========= ========= ========
Common stock issued in exchange for an additional 51% and
44% of IMPSAT Argentina, respectively................... $ 26,450 $ 23,043
======== ========
Accrued dividends on redeemable preferred stock........... $ 10,018 $ 3,507 $ 6,835
========= ========= ========
Fair value of net assets acquired in Mandic S.A.
acquisition............................................. $ 1,794 $ 1,300
========= =========
Capitalized rights-of-way agreements...................... $ 12,618
========
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE> 101
IMPSAT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF U.S. DOLLARS)
1. GENERAL
IMPSAT Corporation, a Delaware holding 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. In addition, the Company is building an extensive pan-Latin American
high capacity fiber optic network (the "Broadband Network"). The Company expects
that the first phase of the Broadband Network, which will connect points across
Argentina and Brazil, will be completed by November 2000.
The Company currently provides telecommunications and data services through
its advanced fiber optic, satellite and microwave telecommunications networks.
These networks consist of owned teleports, earth stations, fiber optic and
microwave links, and leased satellite and fiber optic links. The Company
operates 12 metropolitan area networks in some of the largest cities in Latin
America, including: Buenos Aires, Sao Paulo, Bogota and Caracas.
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),
United States, and Brazil.
The Company's operating subsidiaries are as follows:
<TABLE>
<S> <C> <C>
Argentina Impsat S.A. 95.2%
Argentina Red Alternativa S.A. 67.0
Brazil Impsat Comunicacoes Ltda. 99.9
Brazil Mandic BBS Planejamento e Informatica S.A. 75.1
Colombia Impsat S.A. 74.2
Ecuador Impsatel del Ecuador S.A. 100.0
Venezuela Telecomunicaciones Impsat S.A. 75.0
Mexico Impsat S.A. de C.V. 99.9
USA Impsat USA, Inc. 100.0
</TABLE>
In addition, the Company owns International Satellite Capacity Holdings, NG
(Liechtenstein) which serves an intermediary function to the Company and its
operating subsidiaries.
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
$5,700. 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 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
F-8
<PAGE> 102
IMPSAT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
was in the pre-operating phase. Amounts paid in excess of carrying value of the
underlying net assets acquired were recorded as a reduction of stockholders'
deficit and are being 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 $9,800. 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 29, 1998,
and the remaining 16.6% interest was acquired during November 1998. 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................ $1,794
Goodwill................................................... 7,991
------
Purchase price............................................. $9,785
======
</TABLE>
On July 28, 1999, the Company acquired the remaining 24.9% interest in
Mandic S.A. for $3,700.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation -- The financial statements are presented on a
consolidated basis and include the accounts of the Company and its subsidiaries.
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, 1999 and for the six months ended June 30, 1998 and 1999 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 periods. The operating results
for the six-month period ended June 30, 1999 are not necessarily indicative of
the operating results to be expected for the full fiscal year 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 range from six months to five years but generally
are for three years. The customer generally pays an engineering fee, an
installation charge 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. 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 revenue from services
for the years ended December 31, 1996, 1997 and 1998 and for the six months
ended June 30, 1998 and 1999.
F-9
<PAGE> 103
IMPSAT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
Investment -- Investment represents a less than 1.0% ownership interest (at
December 31, 1997 and 1998, and June 30, 1999, respectively) by the Company in
unaffiliated entities established for the purchase and leasing of satellite
capacity time and are accounted for under the cost method.
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 12 3/8% Senior Notes due
2008 (the "Senior Notes") are being amortized (and charged to interest expense)
over the term of the related notes on a method which approximates the level
yield method.
Intangible Assets -- Intangible assets include license and permit costs (in
1997), goodwill (in 1998 and 1999) and capitalized rights-of-way agreements (in
1999). License and permit costs, such as legal costs, regulatory fees and
application costs incurred to obtain and make functional the operating licenses
in each respective country in the amount of approximately $3,700, were
capitalized and were being amortized on the straight-line basis over periods not
to exceed ten years. In connection with the early adoption of the American
Institute of Certified Public Accountants' Statement of Position 98-5, Reporting
on the Costs of Start-Up Activities, as of January 1, 1998, the unamortized
license and permit costs were expensed as a cumulative effect of a change in
accounting principles. 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 $7,991 and other acquisitions of $900 are being
amortized on a straight-line basis of over a period of 15 years. Capitalized
rights-of-way agreements represent the fees paid and the net present value of
fees to be paid per signed agreements entered into for obtaining rights-of-way
and other permits for the planned Broadband Network. These capitalized
agreements are being amortized over the term of the rights-of-way, which range
from 5 to 20 years. The Company reviews the carrying value of goodwill 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.
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 for the years ended
December 31, 1996, 1997, and 1998 and for the six months ended June 30, 1998 and
1999.
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 Financial Accounting Standards Board ("FASB")
Statement of Financial Accounting Standards No. 109 ("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.
Foreign Currency Translation -- The Company's subsidiaries generally 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 or loss on foreign
exchange, which is included in the stockholders' equity or in net loss on
foreign exchange, respectively. The exceptions to this practice are IMPSAT
Brazil and Mandic S.A. which use the local currency as the functional currency.
F-10
<PAGE> 104
IMPSAT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Fair Value of Financial Instruments -- The Company's financial instruments
include receivables, investment, 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 and 1998.
At December 31, 1998, the fair value of the Senior Guaranteed Notes and
Senior Notes was approximately $299,000 compared to the carrying value of
$350,000. At December 31, 1997, the fair value of the Senior Guaranteed Notes
was approximately $129,000 compared to the carrying value of $125,000. The fair
value of all other financial instruments were not materially different from
their carrying value.
Stock-Based Compensation -- SFAS No. 123, Accounting for Stock-Based
Compensation, encourages, but does not require, companies to record compensation
cost for stock-based employee and non-employee members of the Board of Directors
(the "Board") compensation plans at fair value. The Company has chosen to
continue to account for stock-based compensation to employees and non-employee
members of the Board using the intrinsic value method as prescribed by
Accounting Principles Board Opinion ("APB") No. 25, Accounting for Stock Issued
to Employees, and related interpretations. Accordingly, compensation cost for
stock options issued to employees and non-employee members of the Board are
measured as the excess, if any, of the fair value of the Company's stock at the
date of grant over the amount an employee or non-employee member of the Board
must pay for the stock.
Net Loss Per Common Share -- Basic earnings per share is computed based on
the average number of common shares outstanding and diluted earnings per share
is computed based on the average number of common and potential common shares
(consisting of stock options, see Note 11) outstanding under the treasury stock
method.
Reclassifications -- Certain amounts in the 1996 and 1997 consolidated
financial statements have been reclassified to conform with the 1998
presentation.
New Accounting Pronouncements -- In June 1997, the 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 was adopted as of January 1, 1998.
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 was adopted as of January 1, 1998.
In March 1998, the American Institute of Certified Public Accountants
issues Statement of Position 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use ("SOP 98-1"). SOP 98-1 provides guidance
for capitalizing and expensing the costs of computer software developed or
obtained for internal use. SOP 98-1 is effective for financial statements for
fiscal year beginning after December 15, 1998. Management does not expect the
adoption of SOP 98-1 to have a significant impact on the Company's financial
statements.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments, and Hedging Activities. Among other provisions, SFAS No. 133
establishes accounting and reporting standards for derivative instruments and
for hedging activities. It also requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. SFAS No. 133 is effective
for financial statements for fiscal years beginning after July 1, 2000.
Management
F-11
<PAGE> 105
IMPSAT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
has not determined what effects, if any, the adoption of SFAS No. 133 will have
on the Company's financial statements.
4. TRADE ACCOUNTS RECEIVABLE
Trade accounts receivable, by operating subsidiaries, at December 31 and
June 30 are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ JUNE 30
1997 1998 1999
------- -------- --------
<S> <C> <C> <C>
IMPSAT Argentina............................................ $27,531 $ 36,378 $ 45,673
IMPSAT Colombia............................................. 10,102 8,480 9,062
IMPSAT Venezuela............................................ 2,202 4,293 5,114
IMPSAT Ecuador.............................................. 990 1,559 1,925
IMPSAT USA.................................................. 1,359 2,836 1,571
IMPSAT Brasil and Mandic S.A................................ 2,963 1,769
Others...................................................... 345 574 915
------- -------- --------
Total............................................. 42,529 57,083 66,029
Less: allowance for doubtful accounts....................... (5,933) (10,109) (11,935)
------- -------- --------
Trade accounts receivable, net.............................. $36,596 $ 46,974 $ 54,094
======= ======== ========
</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 for the years ended
December 31, 1996, 1997 and 1998 and for the six months ended June 30, 1999 is
as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- JUNE 30,
1996 1997 1998 1999
------ ------ ------- --------
<S> <C> <C> <C> <C>
Beginning balance....................................... $1,130 $2,803 $ 5,933 $10,109
Provision for doubtful accounts......................... 1,673 3,269 5,312 3,055
Write-offs, net of recoveries........................... (139) (1,136) (1,229)
------ ------ ------- -------
Ending balance.......................................... $2,803 $5,933 $10,109 $11,935
====== ====== ======= =======
</TABLE>
As part of the allowance for doubtful accounts described in the preceding
tables, at June 30, 1999, the Company had reserved approximately 51.8% (or $1.2
million) of the total amount due to IMPSAT Argentina with respect to a
receivable totaling $2.2 million relating to IBM de Argentina S.A. ("IBM"). The
past due receivable (the "IBM Receivable") was recorded for services provided
under a subcontract between IMPSAT Argentina and IBM relating to Banco de la
Nacion Argentina ("BNA"). BNA, a state owned bank and the largest bank in
Argentina, is and has been one of the Company's ten largest customers. IBM has
filed suit against BNA for amounts due and owing under its direct contract with
BNA. IMPSAT Argentina currently has a direct contract with BNA for the provision
of private network telecommunications services as to which BNA is generally
current.
The payment of the receivable by BNA to IBM 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. During 1997, IMPSAT Argentina
conducted negotiations with IBM that resulted in the execution of an
F-12
<PAGE> 106
IMPSAT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
agreement between IMPSAT Argentina and IBM contemplating the possible
cancellation of the amounts due to IMPSAT Argentina in respect of the IBM
receivable in exchange for a payment to IMPSAT Argentina of approximately $1.5
million plus VAT in the event that the judge overseeing IBM's suit against BNA
authorized IBM's settlement of the amount due to IMPSAT Argentina as not
affecting IBM's claims against BNA. The contemplated judicial approval was not
received prior to the date established for such authorization in IMPSAT
Argentina's agreement with IBM (April 30, 1998), and IBM therefore declined to
make the contemplated payment. On December 14, 1998, IMPSAT Argentina filed suit
against IBM for amounts due and arising under the IBM Receivable totaling $2.2
million, plus interest on such amounts.
5. OTHER RECEIVABLES
Other receivables consist primarily of refunds or credits pending from
local governments for taxes other than income, advances to suppliers, and other
miscellaneous amounts due to the Company and its operating subsidiaries as
follows at December 31, and June 30:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- JUNE 30,
1997 1998 1999
------- ------- --------
<S> <C> <C> <C>
IMPSAT Argentina....................................... $ 4,753 $ 6,439 $ 6,540
IMPSAT Colombia........................................ 4,460 5,064 6,631
IMPSAT Venezuela....................................... 2,133 2,527 1,942
IMPSAT Ecuador......................................... 548 835 775
IMPSAT Mexico.......................................... 2,133 1,078 421
IMPSAT Brazil and Mandic S.A........................... 1,124 3,611
Others................................................. 1,556 3,043 3,013
------- ------- -------
Total........................................ $15,583 $20,110 $22,933
======= ======= =======
</TABLE>
F-13
<PAGE> 107
IMPSAT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31, and June 30 consisted of:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30,
1997 1998 1999
-------- --------- ---------
<S> <C> <C> <C>
Land............................................... $ 1,478 $ 1,750 $ 2,686
Building and improvements.......................... 23,312 29,760 27,582
Operating communications equipment................. 301,525 398,577 436,450
Furniture, fixtures and other equipment............ 14,503 20,271 20,052
-------- --------- ---------
Total.................................... 340,818 450,358 486,770
Less: accumulated depreciation..................... (92,255) (126,728) (147,862)
-------- --------- ---------
Total.................................... 248,563 323,630 338,908
Equipment in transit............................... 6,525 4,289 2,415
Projects in process................................ 334 2,807 5,571
-------- --------- ---------
Property, plant and equipment, net................. $255,422 $ 330,726 $ 346,894
======== ========= =========
</TABLE>
The recap of accumulated depreciation for the years ended December 31,
1996, 1997 and 1998 and for the six months ended June 30, 1999 is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------- JUNE 30,
1996 1997 1998 1999
------- ------- -------- --------
<S> <C> <C> <C> <C>
Beginning balance.................................... $47,155 $64,250 $ 92,255 $126,728
Depreciation expense................................. 25,913 29,665 36,027 22,296
Disposals and retirements............................ (8,818) (1,660) (1,554) (1,162)
------- ------- -------- --------
Ending balance....................................... $64,250 $92,255 $126,728 $147,862
======= ======= ======== ========
</TABLE>
F-14
<PAGE> 108
IMPSAT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. SHORT-TERM DEBT
The Company's short-term debt at December 31, and June 30, is detailed as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- JUNE 30,
1997 1998 1999
------- ------- --------
<S> <C> <C> <C>
Commercial paper (7.55% to 8.33%)....................... $25,000 $ $
Short-term credit facilities, denominated in U.S.
dollars; interest rates ranging from 5.72% to 15.00%;
IMPSAT Argentina...................................... 15,850 11,000 11,520
IMPSAT Colombia....................................... 5,414 5,859 2,349
IMPSAT Venezuela...................................... 1,714
IMPSAT Ecuador........................................ 992 738
Others................................................ 203 747
Short-term credit facilities, denominated in local
currencies; local interest rates ranging from 12.0% to
25.0%;
IMPSAT Argentina...................................... 2,000 3,693
IMPSAT Colombia....................................... 1,960
IMPSAT Ecuador........................................ 200
IMPSAT Venezuela...................................... 1,219
------- ------- -------
Total short-term debt......................... $50,189 $19,262 $21,007
======= ======= =======
</TABLE>
The Company has historically refinanced its short term credit facilities on
an annual basis.
F-15
<PAGE> 109
IMPSAT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. LONG-TERM DEBT
The Company's long-term debt at December 31, and June 30, is detailed as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30,
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
12.125% Senior Guaranteed Notes due 2003.................... $125,000 $125,000 $125,000
12.375% Senior Notes due 2008............................... 225,000 225,000
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 totalling approximately $12,000 denominated
in:
U.S. dollars (interest rates 8.50% -- 13.13%).......... 27,111 32,204 26,673
Local currency (interest rates 20% -- 41%)............. 6,380 6,156 14,715
IMPSAT Argentina (6.56% -- 6.75%), maturing semiannually
through 2003, collateralized by investment............. 2,435 4,802 3,538
IMPSAT USA (8.25% -- 8.75%), mortgage and other
collateralized debts................................... 2,066 1,898
IMPSAT Venezuela (9.00% -- 10.75%), maturing during
2001................................................... 5,550 3,508 2,652
IMPSAT Brazil (12.69%), maturing during 2004.............. 2,609
Eximbank notes payable (7.00%), maturing semiannually
through 1999 and 2004..................................... 3,387 1,694 3,656
-------- -------- --------
Total long-term debt.............................. 169,863 400,430 405,741
Less: current portion....................................... (10,186) (21,138) (16,957)
-------- -------- --------
Long-term debt, net......................................... $159,677 $379,292 $388,784
======== ======== ========
</TABLE>
The scheduled maturities of long-term debt at December 31, 1998 are as
follows:
<TABLE>
<CAPTION>
FISCAL YEAR
- -----------
<S> <C>
1999..................................................... $ 21,138
2000..................................................... 19,613
2001..................................................... 5,541
2002..................................................... 3,029
2003 and thereafter...................................... 351,109
--------
Total.......................................... $400,430
========
</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.
F-16
<PAGE> 110
IMPSAT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. INCOME TAXES
The components of the (provision for) benefit from income taxes, all of
which are for foreign taxes, for the years ended December 31, 1996, 1997 and
1998 and for the six months ended June 30, 1998 and 1999 is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
--------------------------- -----------------
1996 1997 1998 1998 1999
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Current.............................. $ (530) $ (299) $(3,932) $ 3,843 $ 788
Deferred............................. (3,012) (4,964) 127 (1,592) (4,805)
------- ------- ------- ------- -------
Total...................... $(3,542) $(5,263) $(3,805) $ 2,251 $(4,017)
======= ======= ======= ======= =======
</TABLE>
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, as
the Company has net operating loss carryforwards in the amount of $24,235, which
begin to expire in the year 2010. Deferred taxes result from temporary
differences in the capitalization policies of preoperating costs and net
operating loss carryforwards. The composition of net deferred tax liability at
December 31 is as follows:
<TABLE>
<CAPTION>
1997 1998
------- --------
<S> <C> <C>
Deferred tax assets:
Preoperating costs:
IMPSAT Colombia........................................ $ 1,698 $ 1,787
IMPSAT Venezuela....................................... 1,380 1,065
IMPSAT Ecuador......................................... 58
Net operating loss carryforwards:
IMPSAT Brazil.......................................... 2,576
IMPSAT Venezuela....................................... 4,048 3,604
IMPSAT Mexico.......................................... 2,487 3,369
IMPSAT Ecuador......................................... 876
Company and IMPSAT USA................................. 2,745 9,249
Other:
IMPSAT Colombia........................................ 139 23
IMPSAT Mexico.......................................... 54 63
------- --------
Gross deferred tax assets................................... 13,485 21,736
------- --------
Deferred tax liabilities:
IMPSAT Argentina.......................................... (4,301) (4,301)
IMPSAT Colombia........................................... (389)
IMPSAT Mexico............................................. (293) (197)
------- --------
Gross deferred tax liabilities.............................. (4,983) (4,498)
------- --------
Less: valuation allowance................................... (8,749) (17,358)
------- --------
Net deferred tax liability.................................. $ (247) $ (120)
======= ========
</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.
F-17
<PAGE> 111
IMPSAT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 Convertible 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, 1999
into 22.9% 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 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 by 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. STOCK OPTION PLAN
In December 1998, the Company adopted the 1998 Stock Option Plan (the "1998
Plan"), pursuant to which 8,067,268 shares of Company's Common Stock were
reserved for issuance upon exercise of options. The 1998 Plan is designed as a
means to retain and motivate key employees and directors. The Company's Stock
Option Committee, or in the absence thereof, the Board, administers and
interprets the 1998 Plan and is authorized to grant options thereunder to all
eligible employees of the Company, including executive officers and directors
(whether or not they are employees) of the Company or affiliated companies.
Options granted under the 1998 Plan are on such terms and at such prices as
determined by the Stock Option Committee, except that the per share exercise
price of incentive stock options cannot be less than the fair market value of
the Common Stock on the date of grant. The 1998 Plan will terminate on December
1, 2008, unless sooner terminated by the Company's Board.
The Company granted options for 746,000 shares at an exercise price of
$4.96 during the year ended December 31,1998 and options for 654,400 at an
exercise price of $6.20 during the six months ended June 30, 1999. These options
vest on each of the first, second and third anniversaries of the date of grant,
as to 10%, 30%, and 30%, respectively, of the granted shares. On the fourth
anniversary of the date of grant, the option vests as to the remainder of the
granted shares.
The Company applies APB No. 25 and related interpretations in accounting
for its stock options plan to employees and non-employee members of the Board as
described in Note 1. Accordingly, no compensation expense has been recognized in
the year ended December 31, 1998 and the six months ended June 30, 1999 related
to this plan.
For purposes of the following pro forma disclosures, the fair value of the
options granted in 1998 and 1999 was estimated using the minimum value method
prescribed by SFAS No. 123 for nonpublic entities with the following
assumptions: no dividend yields; no volatility; risk-free interest rate of 7.0%;
and an expected term of four years. Had compensation cost been determined based
on the fair value at the date of grant consistent with
F-18
<PAGE> 112
IMPSAT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the requirement of SFAS 123, the Company's net loss and comprehensive loss would
have increased by approximately $225 and $100 for the year ended December 31,
1998 and the six months ended June 30, 1999, respectively.
12. OPERATING SEGMENT INFORMATION
The Company's operating segment information, by subsidiary (eliminating
intercompany transactions), is as follows for the years ended December 31, 1996,
1997 and 1998 and for the six months ended June 30, 1999:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------------ -------------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
TOTAL ASSETS
IMPSAT Argentina.............. $177,952 $197,820 $234,844 $247,005 $230,704
IMPSAT Colombia............... 70,501 85,709 105,187 102,064 107,864
IMPSAT Venezuela.............. 23,718 27,478 36,269 32,203 40,822
IMPSAT Mexico................. 7,043 6,199 8,640 9,912 10,217
IMPSAT Ecuador................ 9,795 12,991 21,262 18,142 23,742
IMPSAT USA.................... 997 5,931 15,095 9,355 15,488
IMPSAT Brazil................. 27,348 10,624 49,206
Parent Company and Others..... 25,224 3,788 78,573 163,926 153,980
-------- -------- -------- -------- --------
CONSOLIDATED TOTAL.... $315,230 $339,916 $527,218 $593,231 $632,023
======== ======== ======== ======== ========
NET REVENUES FROM SERVICES
SATELLITE BASED VSAT TECHNOLOGY
IMPSAT Argentina.............. $ 37,473 $ 33,022 $ 37,653 $ 18,839 $ 20,724
IMPSAT Colombia............... 15,950 17,458 13,491 7,410 5,996
IMPSAT Venezuela.............. 1,514 2,623 4,318 2,146 2,800
IMPSAT Mexico................. 16 65 184 52 136
IMPSAT Ecuador................ 1,159 1,467 1,624 791 897
IMPSAT USA.................... 0
IMPSAT Brazil................. 469 0 799
Parent Company and Others..... 0
-------- -------- -------- -------- --------
CONSOLIDATED TOTAL.... $ 56,112 $ 54,635 $ 57,739 $ 29,238 $ 31,352
======== ======== ======== ======== ========
SCPC TECHNOLOGY
IMPSAT Argentina.............. $ 31,232 $ 31,638 $ 26,078 $ 12,674 $ 12,858
IMPSAT Colombia............... 11,416 15,336 22,058 9,842 13,369
IMPSAT Venezuela.............. 2,694 5,041 6,938 2,816 5,546
IMPSAT Mexico................. 182 1,321 2,951 1,300 1,240
IMPSAT Ecuador................ 1,511 2,967 5,433 2,198 3,271
IMPSAT USA.................... 471 3,547 6,536 3,458 3,116
IMPSAT Brazil................. 1,019 181 930
Parent Company and Others..... 0
-------- -------- -------- -------- --------
CONSOLIDATED TOTAL.... $ 47,506 $ 59,850 $ 71,013 $ 32,469 $ 40,330
======== ======== ======== ======== ========
</TABLE>
F-19
<PAGE> 113
IMPSAT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------------ -------------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
TERRESTRIAL BASED
IMPSAT Argentina.............. $ 5,432 $ 7,123 $ 16,389 7,639 $ 8,301
IMPSAT Colombia............... 5,416 12,073 15,696 7,287 6,216
IMPSAT Venezuela.............. 212 443 837 314 670
IMPSAT Mexico................. 9 64 27 73
IMPSAT Ecuador................ 17 209 604 257 486
IMPSAT USA.................... 0
IMPSAT Brazil................. 46 11 64
Parent Company and Others..... 0
-------- -------- -------- -------- --------
CONSOLIDATED TOTAL.... $ 11,077 $ 19,857 $ 33,636 $ 15,535 $ 15,810
======== ======== ======== ======== ========
VALUE ADDED
IMPSAT Argentina.............. $ 11,011 $ 19,007 $ 18,025 $ 8,382 $ 10,044
IMPSAT Colombia............... 2,496 4,646 8,658 3,556 4,525
IMPSAT Venezuela.............. 76 500 2,772 1,111 1,158
IMPSAT Mexico................. 32 1,145 266 123
IMPSAT Ecuador................ 115 871 2,156 893 1,552
IMPSAT USA.................... 1,471 2,587 890 1,333
IMPSAT Brazil................. 2,112 312 669
Parent Company and Others..... 196 8,246 999 4,322
-------- -------- -------- -------- --------
CONSOLIDATED TOTAL.... $ 13,698 $ 26,723 $ 45,701 $ 16,409 $ 23,726
======== ======== ======== ======== ========
TOTAL
IMPSAT Argentina.............. $ 85,148 $ 90,790 $ 98,145 $ 47,534 $ 51,927
IMPSAT Colombia............... 35,278 49,513 59,903 28,095 30,106
IMPSAT Venezuela.............. 4,496 8,607 14,865 6,387 10,174
IMPSAT Mexico................. 198 1,427 4,344 1,645 1,572
IMPSAT Ecuador................ 2,802 5,514 9,817 4,139 6,206
IMPSAT USA.................... 471 5,018 9,123 4,348 4,449
IMPSAT Brazil................. 3,646 504 2,462
Parent Company and Others..... 196 8,246 999 4,322
-------- -------- -------- -------- --------
CONSOLIDATED TOTAL.... $128,393 $161,065 $208,089 $ 93,651 $111,218
======== ======== ======== ======== ========
OPERATING INCOME (LOSS)
IMPSAT Argentina.............. $ 14,459 13,299 $ 14,779 $ 4,817 $ 5,703
IMPSAT Colombia............... 14,256 20,213 21,458 11,319 7,784
IMPSAT Venezuela.............. (731) (811) 366 693 957
IMPSAT Mexico................. (1,759) (1,809) (2,333) (1,055) (1,780)
IMPSAT Ecuador................ 82 1,651 1,535 1,208 1,318
IMPSAT USA.................... (325) 297 1,057 953 (291)
IMPSAT Brazil................. -- -- (7,611) (5,175) (5,865)
Parent Company and Others..... (7,917) (9,476) (2,381) (1,627) (6,159)
-------- -------- -------- -------- --------
CONSOLIDATED TOTAL.... $ 18,065 $ 23,364 $ 26,870 $ 11,133 $ 1,667
======== ======== ======== ======== ========
</TABLE>
F-20
<PAGE> 114
IMPSAT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. RELATED PARTY TRANSACTIONS
The Company in the normal course of its business provides
telecommunications network services to affiliates of its majority stockholder
and to affiliates of the minority stockholders of certain of its subsidiaries.
During the years ended December 31, 1996, 1997 and 1998, such services totaled
approximately $1,800, $6,700 and $10,080, respectively. In addition, the Company
also enters into transactions with such affiliates, which primarily include
financial (borrowings), insurance, and employee benefits services. During the
years ended December 31, 1996, 1997 and 1998, such transactions totaled
approximately $856, $3,755 and $4,256, respectively.
Investment banking fees amounting to $5,900 were paid to representative
affiliates of the redeemable preferred stock shareholders during 1998.
14. COMMITMENTS AND CONTINGENCIES
The Company leases satellite capacity with average annual rental
commitments of approximately $25,000, through the year 2003. In addition, the
Company has commitments to purchase communications equipment amounting to
approximately $6,833 and $10,600 at December 31, 1998 and June 30, 1999,
respectively, and was obligated under letter of credits amounting to
approximately $69 at December 31, 1998.
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, 1998 and June 30, 1999, the balance outstanding on the credit
facility amounted to approximately $3,500 and $2,700, respectively.
IMPSAT Brazil has entered into a $3,300 term note with El Camino Resources,
which is guaranteed by the Company and IMPSAT Argentina.
During May 1997, the Company and IMPSAT Argentina 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 statement presentation. The arrangements expire in
September 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 contracts with
ENCOTESA, the Argentine national postal service. 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. The Company will continue
to assess the effect that the ENCOTESA receivables situation will have on its
results of operations, liquidity or capital resources.
15. SUBSEQUENT EVENTS
Devaluation -- The Brazilian Central Bank introduced changes in the
exchange policies by the end of the second week of January 1999. These changes
eliminated the exchange range whereby the fluctuation margin of the Brazilian
real in relation to the United States dollar was managed, allowing the market to
freely negotiate the rate of exchange. The Brazilian real has experienced a
significant decline in value in relation to the United States dollar, if
compared with the prevailing exchange rates of December 31, 1998. As a result of
this devaluation, the Company has recorded approximately $8,300 in foreign
exchange losses during the six-month period ended June 30, 1999, which are
reflected in net gain (loss) on foreign exchange in the
F-21
<PAGE> 115
IMPSAT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
accompanying statement of operations. The Company continues to operate in Brazil
and therefore has exposure to further currency exchange risk.
Common Stock -- In connection with the Share Purchase Agreement described
below, the Board amended and restated the articles of incorporation of the
Company, increasing the authorized shares of common stock from 150,000,000 to
155,000,000.
Share Purchase Agreement -- On March 11, 1999, a Share Purchase Agreement
was entered into among the Company, Nevassa and Nunsgate Limited, a wholly owned
subsidiary of British Telecommunications plc ("BT"), in which the Company agreed
to issue, sell and deliver 20,158,528 newly issued shares of common stock to BT
and Nevasa agreed to sell 4,031,706 currently owned shares of common stock to BT
for $125,000 and $25,000, respectively. These transactions were consummated on
April 19, 1999.
Nortel Letter of Intent -- Pursuant to a letter of intent dated May 17,
1999 between the Company and Nortel Inc., Nortel has agreed to design and
construct the first phase of the Company's Broadband Network for what is
currently estimated to be up to approximately $250 million. The letter of intent
contemplates the Company's negotiation and execution of a turnkey agreement with
Nortel to develop the first phase of the Broadband Network.
The letter of intent with Nortel also contemplates the Company's entering
into a vendor financing agreement with Nortel. Under this vendor financing
agreement, Nortel is expected to provide the Company with loans in an aggregate
amount of up to approximately $250 million, which will be used by the Company to
finance the purchase of certain telecommunications equipment, software and
services pursuant to the definitive turnkey agreement contemplated by the letter
of intent and to provide the Company with working capital.
The obligation of Nortel to enter into the turnkey agreement and to provide
the vendor financing is subject to numerous conditions, including the
negotiation, execution and delivery of definitive documentation relating to
these matters. There can be no assurance that the Company will be able to reach
agreement with Nortel on the terms of such definitive documentation.
Framework Agreement with Global Crossing -- On July 27, 1999, the Company
entered into a framework agreement with Global Crossing Development Co., a
subsidiary of Global Crossing Ltd., that contemplates the Company's entering
into a series of definitive agreements to construct for Global Crossing, on a
turnkey basis before the end of the first quarter of 2001, certain portions of
the network that will connect Global Crossing's South American submarine cable
system's landing points in Argentina, Brazil, Chile, Colombia, Peru and
Venezuela to major cities in these countries.
As part of these arrangements, the Company will construct the terrestrial
portion of Global Crossing's South American network between Las Toninas,
Argentina and Valparaiso, Chile (which portion is called the Trans-Andean
Crossing System) through the Company's: (i) construction of three ducts and
related facilities between Las Toninas and Buenos Aires, Argentina; (ii)
licensing to Global Crossing of a duct on the Company's Broadband Network
between the cities of Buenos Aires and Mendoza in Argentina; (iii) construction
of three ducts and related facilities between Mendoza, Argentina and Santiago,
Chile; and (iv) construction of telehouses in Buenos Aires, Argentina and
Santiago, Chile.
The Company will also construct telehouses in major South American cities,
including: Rio de Janeiro and Sao Paulo, Brazil; Bogota, Colombia; Lima, Peru;
and Caracas, Venezuela. The Company will lease space in the telehouses to Global
Crossing for its network operations.
As contemplated by the framework agreement, it is also expected that the
Company will enter into definitive agreements with Global Crossing providing for
the Company's: (i) construction of fiber optic terrestrial backhauls that will
connect Global Crossing's submarine cable landing points in Brazil, Colombia,
Peru and Venezuela to major cities in these countries; (ii) purchase from Global
Crossing of indefeasible
F-22
<PAGE> 116
IMPSAT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
rights to use ("IRU") capacity valued at not less than $46 million on any of
Global Crossing's fiber optic networks worldwide; and (iii) maintenance of
Global Crossing's Trans-Andean Crossing System and the terrestrial backhauls in
Brazil, Colombia, Peru and Venezuela.
The Company commenced construction of the Trans-Andean Crossing System in
September 1999. It is anticipated that Global Crossing will pay the Company
approximately $64 million for the turnkey construction of the Trans-Andean
Crossing System.
The transactions contemplated by the framework agreement are still subject
to negotiation of definitive documentation and various other conditions,
including any required governmental approvals and, accordingly, there can be no
assurance that these transactions will be completed on favorable terms, if at
all.
Lucent Letter of Intent -- On July 16, 1999, the Company entered into a
letter of intent with Lucent Technologies S.A. Argentina, with respect to the
negotiation and execution of definitive agreement for the Company's purchase
from Lucent of at least 1,840 km of fiber optic cable and related equipment and
for Lucent to provide certain technical assistance in connection with the
installation of this fiber optic cable in Argentina. The Company intends to use
the fiber optic cable for portions of phase one of the Broadband Network.
Assuming the execution of a definitive purchase agreement, it is expected that
the consideration the Company will pay for the Lucent fiber optic cable would be
approximately $16 million. The letter of intent also contemplates Lucent
entering into a definitive agreement to provide the Company with vendor
financing in connection with the Company's purchases of the fiber optic cable
and related equipment. The proposed purchase and vendor financing agreements are
subject to negotiation of definitive documentation, which is expected to be
completed in October 1999.
Agreement with El Sitio -- On August 4, 1999, the Company entered into a
Framework Agreement with El Sitio International Corp. for the sale of the
Company's retail Internet businesses in Argentina, Brazil and Colombia for
approximately $21.5 million and the purchase of shares of El Sitio's 8%
convertible redeemable preferred stock for $21.5 million. Such shares will
represent approximately a 19% interest in El Sitio's fully diluted capital
stock. In connection with these transactions, El Sitio will enter into
telecommunications services agreements with IMPSAT Argentina, IMPSAT Brazil and
IMPSAT Colombia under which these entities will provide El Sitio with
telecommunication networks to access the Internet backbone. El Sitio, a British
Virgin islands corporation, is an Internet content and Internet service provider
headquartered in Argentina that has other offices in Brazil, Mexico, Uruguay and
the United States.
The transactions contemplated by the El Sitio Framework Agreement are
subject to the negotiation of definitive documentation and various other
conditions, including governmental approvals, and accordingly, there can be no
assurance that these transactions will be completed. Subject to the satisfaction
of these conditions, the transactions are expected to be consummated by the end
of 1999.
Initial Public Offering -- The Company's Board has authorized the filing of
a registration statement relating to an initial public offering ("IPO"). In
connection with the IPO, the Company anticipates that a common stock split will
be effected upon the closing of the IPO. The Purchasers of the redeemable
preferred stock have informed the Company that they plan to exercise their
rights to redeem and convert their preferred shares into common stock at the
closing of the IPO.
* * * * * *
F-23
<PAGE> 117
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses (other than underwriting
compensation) expected to be incurred by us in connection with this offering.
All of these amounts (other than the SEC Registration Fee and NASD filing fee)
are estimated.
<TABLE>
<S> <C>
Registration Fee......................................... $ 41,700
NASD Filing Fee.......................................... *
Nasdaq National Market Listing Fee....................... *
Legal Services........................................... *
Printing and Engraving................................... *
Accounting Fees.......................................... *
Blue Sky Fees and Expenses............................... *
Miscellaneous............................................ *
--------
Total.......................................... $ *
========
</TABLE>
- ---------------
* To be provided by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify any persons, including directors and officers, who are
(or are threatened to be made) parties to any threatened, pending or completed
legal action, suit or proceeding (whether civil, criminal, administrative or
investigative) by reason of their being directors or officers of the
corporation. The indemnity may include expenses, attorneys' fees, judgments,
fines and amounts paid in settlement, provided such sums were actually and
reasonably incurred in connection with such action, suit or proceeding and
provided the director or officer acted in good faith and in a manner he
reasonably believed to be in or not opposed to the corporation's best interests
and, in the case of criminal proceedings, provided he had no reasonable cause to
believe that his conduct was unlawful. The corporation may indemnify directors
and officers in a derivative action (in which suit is brought by a stockholder
on behalf of the corporation) under the same conditions, except that no
indemnification is permitted without judicial approval if the director or
officer is adjudged liable to the corporation. If the director or officer is
successful on the merits or otherwise in defense of any actions referred to
above, the corporation must indemnify him against the expenses and attorneys'
fees he actually and reasonably incurred.
Article VII Section 1 of our by-laws provides that we shall indemnify our
officers and directors to the fullest extent permitted by the Delaware General
Corporation Law.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On March 19, 1998, the Morgan Stanley investors purchased 25,000 shares of
our Series A preferred stock. On April 19, 1999, we sold 20,158,528 newly issued
shares of its common stock to Nunsgate Limited. The transactions described in
this Item 15 were effected without the securities sold being registered under
the Securities Act, in reliance upon the exemption provided by Section 4(2) of
the Securities Act and/or Regulation D thereunder for transactions not involving
a public offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits. The exhibits listed on the Exhibit Index of this Registration
Statement (numbered in accordance with Item 601 of Regulation S-K) are filed
herewith, or, as noted, have been previously filed, will be filed by amendment,
or are incorporated herein by reference to other filings.
II-1
<PAGE> 118
(b) Financial Statement Schedules. All schedules for which provision is
made in the applicable accounting regulations of the Commission are omitted
because they are not applicable, or the information is included in the financial
statements included herein.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes as follows:
(1) The undersigned will provide to the underwriters at the closing
specified in the underwriting agreement certificates in such denominations
and registered in such names as required by the underwriters to permit
prompt delivery to each purchaser.
(2) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance on Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it is declared effective.
(3) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities a that time shall be
the initial bona fide offering thereof.
(4) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the provisions described in Item 14,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
II-2
<PAGE> 119
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment to the registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the city of Buenos
Aires in the Republic of Argentina, October 4, 1999.
IMPSAT CORPORATION
By: /s/ RICARDO A. VERDAGUER
----------------------------------
Ricardo A. Verdaguer
President and Chief Executive
Officer of
IMPSAT Corporation
Date: October 4, 1999
II-3
<PAGE> 120
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below (each, a "Signatory") constitutes and appoints Guillermo Jofre and
Jose R. Torres (each, an "Agent," and collectively, "Agents") or either of them,
his true and lawful attorney-in-fact and agent for and in his name, place and
stead, in any and all capacities, to sign this registration statement and any
and all amendments (including post-effective amendments) thereto and to file the
same, with all exhibits thereto, and all other documents in connection
therewith, with the Securities and Exchange Commission. Each Signatory further
grants to the Agents, and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary, in the judgment of
such Agent, to be done in connection with any such signing and filing, as full
to all intents and purposes as he might or could do in person, and hereby
ratifies and confirms all that said Agents, or any of them, may lawfully do or
cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933 THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ ENRIQUE M. PESCARMONA Chairman of the Board of October 4, 1999
- ----------------------------------------------------- Directors of IMPSAT
Enrique M. Pescarmona Corporation
/s/ RICARDO A. VERDAGUER Director, President and October 4, 1999
- ----------------------------------------------------- Chief Executive
Ricardo A. Verdaguer Officer of IMPSAT
Corporation
/s/ GUILLERMO JOFRE Chief Financial Officer October 4, 1999
- ----------------------------------------------------- of IMPSAT Corporation
Guillermo Jofre
/s/ JOSE R. TORRES Vice President, October 4, 1999
- ----------------------------------------------------- Administration and
Jose R. Torres Chief Accounting
Officer of IMPSAT
Corporation
/s/ ROBERTO VIVO Director, Deputy Chief October 4, 1999
- ----------------------------------------------------- Executive Officer and
Roberto Vivo Vice President,
Marketing of IMPSAT
Corporation
/s/ ALEXANDER RIVELIS Director and Vice October 4, 1999
- ----------------------------------------------------- President,
Alexander Rivelis International
Development of IMPSAT
Corporation
/s/ LUCAS PESCARMONA Director of IMPSAT October 4, 1999
- ----------------------------------------------------- Corporation
Lucas Pescarmona
/s/ SOFIA PESCARMONA Director of IMPSAT October 4, 1999
- ----------------------------------------------------- Corporation
Sofia Pescarmona
</TABLE>
II-4
<PAGE> 121
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JERONIMO BOSCH Director of IMPSAT October 4, 1999
- ----------------------------------------------------- Corporation
Jeronimo Bosch
/s/ STEPHEN R. MUNGER Director of IMPSAT October 4, 1999
- ----------------------------------------------------- Corporation
Stephen R. Munger
Director of IMPSAT October 4, 1999
- ----------------------------------------------------- Corporation
Geoffrey Almeida
Director of IMPSAT October 4, 1999
- ----------------------------------------------------- Corporation
John McElligott
</TABLE>
II-5
<PAGE> 122
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NO.
------- ----------- ----
<C> <S> <C>
1.1** -- Underwriting Agreement
3.1** -- Amended and Restated Certificate of Incorporation of the
Company
3.2** -- Amended and Restated Bylaws of the Company
4.1* -- Securityholders Agreement dated as of March 19, 1998,
among Nevasa Holdings, the Morgan Stanley investors and
certain other parties
4.2** -- Shareholders Agreement dated as of March 10, 1999
4.2** -- Specimen Stock Certificate
5.1** -- Form of Opinion of Arnold & Porter as to the legality of
the securities being registered (including consent)
9.1** -- Amended Certificate of Designations dated April 16, 1999
10.1+ -- Global Crossing Framework Agreement
10.2+ -- Turnkey Project Agreement between IMPSAT Argentina and
Nortel
In accordance with Instruction 2 to Item 601 of Regulation
S-K, the following agreement was not filed as an exhibit
because it is substantially identical in all material
respects to Exhibit 10.2: Turnkey Project Agreement
between IMPSAT Brazil and Nortel
10.3+ -- TAC Turnkey Construction and IRU Agreement among IMPSAT
Argentina, IMPSAT Chile and South American Crossing Ltd.
11.1** -- Statement of computation of earnings per share
11.2** -- Statement of computation of pro forma per share earnings
21.1 -- List of subsidiaries of the Company (incorporated by
reference to the "Summary" section of the Prospectus
hereto)
23.1 -- Consent of Deloitte & Touche LLP, Miami, Florida
23.2** -- Consent of Arnold & Porter (contained in its opinion to
be filed as Exhibit 5 hereto)
24.1 -- Power of Attorney (included on the signature page hereto)
27.1 -- Financial Data Schedule
</TABLE>
- ------------
* Previously filed as an exhibit to the Company's Annual Report on Form 10-K
for 1997, filed with the Commission on April 15, 1998, and incorporated
herein by reference.
** To be filed by amendment.
+ Confidential treatment requested as to certain portions, which portions were
omitted and filed separately with the Commission.
<PAGE> 1
EXHIBIT 10.1
AMENDED AND RESTATED
FRAMEWORK AGREEMENT
between
IMPSAT CORPORATION
and
GLOBAL CROSSING DEVELOPMENT CO.
July 27, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 1. THE PROJECT........................................................................................... 2
1.1. Purpose................................................................................... 2
1.2. Term...................................................................................... 2
1.3. Timing of the Project.................................................................... 2
ARTICLE 2. BASIC AGREEMENTS...................................................................................... 3
2.1. Master Agreement.......................................................................... 3
2.2. Turnkey Backhaul Construction Contract.................................................... 4
2.3. Backhaul Operations, Administration, Maintenance and Provisioning
Agreement............................................................................. 5
2.4. Co-Marketing Agreement.................................................................... 5
2.5. Cable Station Lease Agreement............................................................. 5
2.6. Telehouse Lease Agreements................................................................ 5
2.7. Cable Station Operations and Maintenance Agreement........................................ 5
2.8. Global Crossing Capacity Purchase Agreement............................................... 6
2.9. Trans-Andean Crossing Agreements.......................................................... 6
ARTICLE 3. CONDITIONS TO CLOSING................................................................................. 7
3.1. Conditions to Obligations of GCD to Close................................................. 7
3.2. Conditions to Obligations of IMPSAT Corporation to Close.................................. 7
ARTICLE 4. COVENANTS............................................................................................. 7
4.1. Actions Prior to Closing.................................................................. 7
4.2. Information............................................................................... 8
4.3. Public Announcements...................................................................... 8
4.4. Confidentiality........................................................................... 8
4.5. Exclusivity............................................................................... 8
ARTICLE 5. REPRESENTATION AND WARRANTIES......................................................................... 8
5.1. Representations and Warranties of GCD..................................................... 8
5.2. Representations and Warranties of IMPSAT.................................................. 9
ARTICLE 6. TERMINATION AND EXPENSES.............................................................................. 10
6.1. Termination............................................................................... 10
6.2. Liabilities in Event of Termination....................................................... 10
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE 7. MISCELLANEOUS......................................................................................... 11
7.1. Survival................................................................................. 11
7.2. Defined Terms............................................................................ 11
7.3. Successors and Permitted Assigns; Assignment............................................. 11
7.4. Notices.................................................................................. 11
7.5. Amendments and Waivers................................................................... 13
7.6. Governing Law; Severability.............................................................. 13
7.7. Jurisdiction............................................................................. 13
7.8. Expenses................................................................................. 13
7.9. Counterparts; Effectiveness.............................................................. 13
7.10. Headings................................................................................. 13
7.11. Entire Agreement......................................................................... 13
7.12. Interpretation........................................................................... 13
7.13. Further Assurances....................................................................... 14
7.14. No Third Party Beneficiaries............................................................. 14
</TABLE>
EXHIBITS
1. Backhaul Construction RFS Dates and Cost Estimates
2. Telehouse Agreements
3. TAC Agreement
4. Capacity Purchase Agreement
5. June Proposal
ii
<PAGE> 4
AMENDED AND RESTATED
FRAMEWORK AGREEMENT
THIS AMENDED AND RESTATED FRAMEWORK AGREEMENT (the
"Agreement") is made as of this 27th day of July, 1999, by and between IMPSAT
Corporation, a Delaware corporation ("IMPSAT Corporation"), and Global Crossing
Development Co., a Delaware corporation ("GCD"), and amends and restates the
Framework Agreement between GCD and IMPSAT Corporation dated as of May 28, 1999
(the "Original Agreement").
RECITALS
A. GCD and its Affiliates (collectively, "Global Crossing") are
developing an undersea and terrestrial fiber optic cable system to circle the
continent of South America ("South American Crossing" or "SAC") linking SAC to
Global Crossing's worldwide network, and are developing a system linking the
west coast of the United States of America with St. Croix ("Pan American
Crossing" or "PAC") with the goal of offering the highest quality city-to-city
capacity to telecommunications carriers and certain Internet service providers
("ISPs").
B. IMPSAT Corporation and its Affiliates (collectively, "IMPSAT")
provide telecommunications services to business customers, carriers, ISPs and
other telecommunications providers in the Americas and are developing a
terrestrial broadband fiber optic network connecting the major cities of Latin
America and building local distribution networks in the major cities of Latin
America.
C. Global Crossing and IMPSAT desire to enter into a network of related
contractual relationships (the "Project") as set forth in Article 2 of this
Agreement (such agreements, the "Basic Agreements") which are intended to
combine the strengths of IMPSAT's network and Global Crossing's network to offer
customers of Global Crossing and IMPSAT the highest quality city-to-city
capacity integrating major cities in South America with cities served by Global
Crossing's worldwide network.
D. GCD desires to establish one or more companies (the "Holding
Companies") to develop, finance, construct, install, operate, maintain, own and
sell, lease or otherwise dispose of capacity on a terrestrial fiber optic
network (the "Backhaul System") comprising the backhaul from cable landing
stations in Brazil, Colombia, Peru and Venezuela (the "Territories") to selected
points-of-presence telehouses in such countries for the purpose of conducting
international telecommunications traffic to and from such telehouses and to and
from South American Crossing in the case of Brazil, Colombia and Peru, and Pan
American Crossing in the case of Venezuela (the "Holding Company Business").
E. GCD and IMPSAT Corporation desire that IMPSAT will provide for the
construction of the Backhaul System and certain elements of the terrestrial
portion of South American Crossing on a system route connecting Las Toninas,
Argentina, Buenos Aires, Argentina, Santiago, Chile and Algarrobo, Chile (the
"Trans-Andean Crossing" or "TAC") and the operations and maintenance of the
Backhaul System and TAC.
F. GCD and IMPSAT Corporation desire to enter into a Master Agreement
(as defined herein) that will define a framework for the general commercial
relationship between the parties and will provide for IMPSAT's support for the
activities of GCD, its Affiliates and the Holding Companies in South America.
<PAGE> 5
G. GCD and IMPSAT Corporation desire that IMPSAT will provide capacity
to Global Crossing's customers for connectivity to other cities outside the
capital cities of South America through IMPSAT's terrestrial network.
H. GCD and IMPSAT Corporation desire to amend and restate the Original
Agreement to set forth a legally binding framework for the negotiation of the
Basic Agreements, including the material terms and conditions of the Basic
Agreements.
AGREEMENT
NOW THEREFORE, in consideration of the foregoing premises and
the mutual covenants and agreements hereinafter set forth, which the parties
agree is good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto, intending to be legally bound,
hereby agree as follows:
ARTICLE 1.
THE PROJECT
1.1. PURPOSE. This Agreement amends, restates and supersedes in its
entirety the Original Agreement. The purpose of this Agreement is to set forth
the terms and conditions upon which Global Crossing and IMPSAT will negotiate
and enter into the Basic Agreements.
1.2. TERM. This Agreement is a binding agreement between GCD and IMPSAT
Corporation and shall be superseded at the Closing by the Basic Agreements. All
terms and conditions of this Agreement shall expire and terminate at the
Closing. This Agreement shall expire and terminate in accordance with the
provisions of Section 6.1 hereof.
1.3. TIMING OF THE PROJECT.
(a) As soon as practicable following the execution and
delivery of this Agreement by the parties,
(i) IMPSAT shall file (or cause to be filed) all
necessary applications for the IMPSAT
Authorizations, and shall diligently
prosecute such applications and use its best
efforts to obtain such IMPSAT Authorizations
as expeditiously as possible.
(ii) Global Crossing shall file (or cause to be
filed) all necessary applications for the
GCD Authorizations, and shall diligently
prosecute such applications and use its best
efforts to obtain such GCD Authorizations as
expeditiously as possible.
(b) As soon as practicable after the satisfaction of the
conditions set forth in Article 3 (the "Closing Date"), the parties shall
execute all of the Basic Agreements (the "Closing"). The parties shall use their
reasonable best efforts to finalize and enter into the Basic Agreements not
later than December 31, 1999. At the Closing,
(i) Global Crossing shall deliver, or cause to
be delivered, to all counterparties the
executed Basic Agreements.
2
<PAGE> 6
(ii) IMPSAT shall deliver, or cause to be
delivered, to all counterparties the
executed Basic Agreements.
ARTICLE 2.
BASIC AGREEMENTS
Global Crossing, IMPSAT and the Holding Companies, as
applicable, will enter into the Basic Agreements set forth below. The Basic
Agreements shall also contain such usual, customary or appropriate terms and
conditions as the parties may agree.
2.1. MASTER AGREEMENT. On the Closing Date, IMPSAT and Global Crossing
shall enter into a Master Agreement that will define a framework for the general
commercial relationship between the parties and will provide for IMPSAT's
support for the activities of GCD, its Affiliates and the Holding Companies in
South America (the "Master Agreement"). The Master Agreement shall include,
among others, the following understandings of the parties:
(a) Holding Company Telecommunications Licenses and
Concessions.
(i) GCD desires that the Holding Companies
obtain all telecommunications licenses and
concessions required to carry out the
Holding Company Business ("Licenses") in
each Territory ("Holding Company Licenses")
in the name of the Holding Company, and
IMPSAT is fully committed to use its
reasonable best efforts to obtain such
Licenses on behalf of the Holding Companies.
(ii) The reasonable costs, fees and expenses
incurred by IMPSAT to obtain Holding Company
Licenses will be paid to IMPSAT by the
Holding Companies.
(iii) The Holding Companies, IMPSAT and Global
Crossing will negotiate in good faith for
reasonable compensation to IMPSAT for its
role in the process of obtaining Holding
Company Licenses. Such compensation will be
paid by the Holding Companies.
(b) Failure to Obtain or Delay of Holding Company
Telecommunications Licenses and Concessions.
(i) In the event that the Holding Company
Licenses for any Holding Company are
delayed, denied, or otherwise not obtained
by the RFS dates specified in Section 2.2
below, the parties agree to reach commercial
arrangements so that Global Crossing
services can be sold and put into service in
said country. In this case, IMPSAT is fully
committed to use its reasonable best efforts
to support this objective through the use of
the telecommunications licenses and
concessions held by IMPSAT ("IMPSAT
Licenses") until such time as the Holding
Companies obtain the Holding Company
Licenses.
(ii) In the case of subsection (i) above, the
Holding Companies, IMPSAT and Global
Crossing will negotiate in good faith for
reasonable compensation to IMPSAT for the
use of the IMPSAT Licenses.
3
<PAGE> 7
(c) Cable Station Connections. Global Crossing's general
corporate policy is that all customers interconnect at Telehouses (or the
terminal point of the backhaul with respect to a cable system) and not at cable
stations. Global Crossing agrees that [
]
2.2. TURNKEY BACKHAUL CONSTRUCTION CONTRACT. (a) On the Closing Date,
IMPSAT and each of the Holding Companies shall enter into an agreement (the
"Turnkey Backhaul Construction Contract") whereby IMPSAT will construct or
purchase dark fiber for the Backhaul System linking the cable landing stations
in the Territories to IMPSAT Telehouses in Rio de Janeiro, Brazil, Sao Paulo,
Brazil, Lima, Peru and Caracas, Venezuela. The Turnkey Backhaul Construction
Contract will provide for the following Ready-for-Service ("RFS") dates:
<TABLE>
<CAPTION>
CITY RFS DATE
---- --------
<S> <C>
Caracas [ ], 2000*
Sao Paulo [ ], 2000
Rio de Janeiro [ ], 2000
Lima [ ], 2001
</TABLE>
* Construction cost estimates previously provided to GCD for Venezuela and
included in Exhibit 1 contemplate an RFS Date for Caracas of [ ], 2000,
as originally requested by GCD. These estimates may need to be revised to
analyze and determine if additional costs will be incurred because of the
earlier RFS Date set forth above.
At the request of Global Crossing, IMPSAT will analyze the feasibility and cost
of earlier RFS Dates than the RFS Dates set forth above and will inform Global
Crossing of the conclusions of such analysis as soon as they are available.
(b) For Colombia, IMPSAT will construct dark fiber from the
Buenaventura Cable Station to IMPSAT's point-of-presence in Cali, Colombia.
IMPSAT will provide [ ], for an RFS date
of [ ], 2001 to meet market requirements until dark fiber from Cali to
Bogota is built or acquired. IMPSAT commits to use its reasonable best efforts
to acquire or construct dark fiber from Cali to [ ] not later than [
] 2003, for the Colombian Holding Company.
(c) The Turnkey Backhaul Construction Contract will provide
for the construction of the Backhaul System on a cost-plus basis and such other
terms and conditions as mutually agreed between GCD and IMPSAT. IMPSAT's current
cost estimates for construction of the Backhaul System, subject to revision for
the earlier RFS Date for Caracas, are included in Exhibit 1 hereto. Global
Crossing will also consider the purchase of dark fiber as an alternative to
construction of some or all of the Backhaul System. If Global Crossing
determines that the purchase of dark fiber would be a better alternative for
completion of the Backhaul System, then the Turnkey Backhaul Construction
Contract will be modified accordingly.
(d) For Brazil and Venezuela not later than August 30, 1999
and for Colombia and Peru not later than November 30, 1999, IMPSAT will provide
to Global Crossing a proposal for converting the Turnkey Backhaul Construction
Contract to a firm, fixed-price turnkey construction contract. Global
4
<PAGE> 8
Crossing will have two weeks to accept or reject such proposal. If such proposal
is accepted by Global Crossing, then IMPSAT and Global Crossing shall amend and
restate the Turnkey Backhaul Construction Contract to incorporate the terms of
such proposal. If such proposal is rejected by Global Crossing, then the Turnkey
Backhaul Construction Contract shall continue to govern the construction of the
Backhaul System.
(e) IMPSAT and Global Crossing shall negotiate in good faith
regarding the acquisition by IMPSAT of dark fibers on the Backhaul System
linking IMPSAT's Telehouses with Global Crossing's SAC and PAC (in Venezuela)
Cable Stations. These fibers will not terminate in the Global Crossing cable
station,[
]. The price for such
dark fiber shall be determined on a country-by-country basis.
2.3. BACKHAUL OPERATIONS, ADMINISTRATION, MAINTENANCE AND
PROVISIONING AGREEMENT. On the Closing Date, IMPSAT and Global Crossing, on
behalf of the Holding Companies, shall enter into an Operations, Administration,
Maintenance and Provisioning Agreement for the operation and maintenance of the
Backhaul System and the management of traffic on the Backhaul System (the "OAM&P
Agreement"). The OAM&P Agreement will include such terms and conditions as
mutually agreed between Global Crossing and IMPSAT.
2.4. CO-MARKETING AGREEMENT. On the Closing Date, IMPSAT and Global
Crossing shall enter into a non-exclusive co-marketing agreement (the
"Co-Marketing Agreement") providing for the parties to cooperatively market and
sell global city-to-city telecommunication services on Global Crossing's
worldwide network and IMPSAT's Latin American network. The Co-Marketing
Agreement will include such terms and conditions as mutually agreed between
Global Crossing and IMPSAT.
2.5. CABLE STATION LEASE AGREEMENT. In the event Global Crossing
permits customers to interconnect at cable stations as provided in Section
2.1(c), Global Crossing agrees to provide an option for IMPSAT to lease space at
the Cable Stations on terms to be negotiated in good faith by the parties.
2.6. TELEHOUSE LEASE AGREEMENTS. On the Closing Date, Global
Crossing and IMPSAT shall agree to a form of telehouse lease agreement (each, a
"Telehouse Lease Agreement" and, collectively the "Telehouse Lease Agreements").
The Telehouse Lease Agreements will provide for the lease to the Holding
Companies or Global Crossing, as applicable, of space in the telehouses owned by
IMPSAT (the "Telehouses") on the terms and conditions set forth in Exhibit 2. On
the Closing Date, Global Crossing and IMPSAT shall enter into Telehouse Lease
Agreements providing for the lease to Global Crossing of space in the Telehouses
identified in Exhibit 2, effective upon the RFS Date for such Telehouses. The
parties further agree that in the event that Global Crossing deems that
additional Telehouses in South America are necessary or desirable in the future
due to evolution of market conditions, IMPSAT will be offered the opportunity to
present its proposal to Global Crossing for that need. Global Crossing agrees to
give any such proposal(s) serious consideration.
2.7. CABLE STATION OPERATIONS AND MAINTENANCE AGREEMENT. On the
Closing Date, IMPSAT and Global Crossing may enter into an Operations and
Maintenance Agreement for the operation and maintenance of the SAC cable
stations, and the PAC cable station(s) located in Venezuela (the "Cable Station
O&M Agreement"). If Global Crossing desires that IMPSAT provide a proposal for
the operation and maintenance of the SAC cable stations, IMPSAT will provide
such proposal within sixty (60) days of the day of request in writing. If the
parties do not agree to the terms of the Cable Station O&M Agreement by November
30, 1999, (i) such document shall not be deemed to be a Basic
5
<PAGE> 9
Agreement, and (ii) the failure of the parties to agree on terms for the Cable
Station O&M Agreement shall not be a cause for the termination of this
Agreement. The Cable Station O&M Agreement, if any, will include such terms and
conditions as mutually agreed between Global Crossing and IMPSAT. The provisions
of Section 4.5 shall not apply to this Section 2.7.
2.8. GLOBAL CROSSING CAPACITY PURCHASE AGREEMENT. On the Closing
Date, IMPSAT and Global Crossing shall enter into a capacity purchase agreement
for capacity on the Global Crossing worldwide system (the "Capacity Purchase
Agreement"). The Capacity Purchase Agreement will provide for the purchase of
capacity on the Global Crossing system on the terms and conditions set forth in
Exhibit 4. The parties agree that IMPSAT will be allowed to resell its capacity
in units of up to [ ].
2.9. TRANS-ANDEAN CROSSING AGREEMENTS. On the Closing Date, IMPSAT
and Global Crossing shall enter into one or more agreements for the construction
or purchase of duct and operations and maintenance services with respect to TAC
(the "TAC Agreements"). The TAC Agreements will provide for:
(a) the purchase by Global Crossing of one duct from IMPSAT on
a route between Buenos Aires and Mendoza and the turnkey construction by IMPSAT
of duct on the routes between Las Toninas and Buenos Aires, and Mendoza and
Santiago and Santiago and Algarrobo. The terms and conditions for some of the
above included transactions have already been agreed and are shown in Exhibit 3,
(b) rental of telehouse space from IMPSAT in Buenos Aires and
Santiago as stipulated in Section 2.6 and the option for rental of Telehouse
space in Rosario, Cordoba and Mendoza at rates the parties will negotiate in
good faith, and
(c) operations and maintenance services on the terms set forth
in the IMPSAT proposal of June 9, 1999, a copy of which is attached as Exhibit 5
(the "June Proposal").
IMPSAT agrees to coordinate and work in good faith with Global Crossing and/or
any other SAC construction contractor to coordinate the construction, completion
and connection of TAC with the construction, completion and connection with SAC.
The TAC Agreements will provide for the RFS Dates specified in Exhibit 3, except
that the RFS Dates for the Mendoza - Santiago and Santiago - Algarrobo segments
will be reviewed between the parties to confirm an RFS date of [ ], 2000.
The TAC Agreements will include such other terms and conditions as mutually
agreed between Global Crossing and IMPSAT.
(d) IMPSAT and Global Crossing shall negotiate in good faith
regarding the acquisition by IMPSAT of dark fibers on TAC between Las Toninas
and Buenos Aires and Mendoza and Algarrobo linking IMPSAT's Telehouses with
Global Crossing's SAC Cable Stations. These fibers will not terminate in the
Cable Stations, [
]
(e) Global Crossing desires, and IMPSAT agrees to provide
Global Crossing with, the option of connecting Rosario, Cordoba and Mendoza
directly to SAC in the future for international circuits. Although it is not
currently envisioned that Global Crossing will need to directly connect these
cities to SAC, the parties agree to allow for this option upon the request of
Global Crossing.
6
<PAGE> 10
ARTICLE 3.
CONDITIONS TO CLOSING
3.1. CONDITIONS TO OBLIGATIONS OF GCD TO CLOSE. The obligations of
GCD under Section 1.3(c) of this Agreement are subject to the fulfillment and
satisfaction, on or prior to the Closing Date, of each of the following
conditions, any one or more of which may only be waived in writing, in whole or
in part, by GCD:
(a) Representations, Warranties and Covenants True at the
Closing Date. (i) All representations and warranties of IMPSAT Corporation
contained in this Agreement shall be true and correct in all material respects
at and as of the Closing Date as though such representations and warranties had
been made or given on such date (except to the extent such representations and
warranties speak as of an earlier date), except (x) for changes contemplated by
this Agreement and (y) where the failure to be true and correct does not and can
not have a material adverse effect on the business, financial condition, results
of operations or prospects of IMPSAT Corporation and its Affiliates, taken as a
whole, or a material adverse effect on the Project; (ii) IMPSAT Corporation
shall have performed and complied with, in all material respects, its
obligations under this Agreement that are to be performed or complied with by it
prior to or on the Closing Date; and (iii) IMPSAT Corporation shall deliver a
certificate signed by one of its duly authorized officers certifying as to the
fulfillment of the conditions set forth in the foregoing clauses (i) and (ii).
(b) Basic Agreements. Each of IMPSAT Corporation and its
Affiliates and the Holding Companies shall have executed and delivered all of
the Basic Agreements to which each is required to be a party.
3.2. CONDITIONS TO OBLIGATIONS OF IMPSAT CORPORATION TO CLOSE. The
obligations of IMPSAT Corporation under Section 1.3(c) of this Agreement are
subject to the fulfillment and satisfaction, on or prior to the Closing Date, of
each of the following conditions, any one or more of which may only be waived in
writing, in whole or in part, by IMPSAT Corporation:
(a) Representations, Warranties and Covenants True at the
Closing Date. (i) All representations and warranties of GCD contained in this
Agreement shall be true and correct in all material respects at and as of the
Closing Date as though such representations and warranties had been made or
given on such date (except to the extent such representations and warranties
speak as of an earlier date), except (x) for changes contemplated by this
Agreement and (y) where the failure to be true and correct does not and can not
have a material adverse effect on the business, financial condition, results of
operations or prospects of GCD and its Affiliates, taken as a whole, or a
material adverse effect on the Project; (ii) GCD shall have performed and
complied with, in all material respects, its obligations under this Agreement
that are to be performed or complied with by it prior to or on the Closing Date;
and (iii) GCD shall deliver a certificate signed by one of its duly authorized
officers certifying as to the fulfillment of the conditions set forth in the
foregoing clauses (i) and (ii).
(b) Basic Agreements. Each of GCD and its Affiliates and the
Holding Companies shall have executed and delivered all of the Basic Agreements
to which each is required to be a party.
ARTICLE 4.
COVENANTS
4.1. ACTIONS PRIOR TO CLOSING. Upon the terms and subject to the
conditions of this Agreement and the other agreements, documents and instruments
pursuant to which the transactions
7
<PAGE> 11
contemplated hereby are to be consummated, GCD and IMPSAT Corporation will take
all other actions, and do, or cause to be done, all other things necessary,
proper or advisable to carry out its obligations under this Agreement and to
consummate and make effective the transactions contemplated hereby and by the
Basic Agreements, including, without limitation, the following:
(a) as soon as practicable following the execution of this
Agreement, to make all applications and filings and to use its best efforts to
obtain all other authorizations and consents required to be obtained by such
party or its Affiliates in connection with the consummation of the transactions
contemplated by this Agreement and by the Basic Agreements; and
(b) in the event any claim, action, suit, investigation or
other proceeding by any governmental authority or other person is commenced
which questions the validity or legality of any of the transactions contemplated
hereby or by any of the Basic Agreements or any injunction or other order is
issued in any such proceeding, to cooperate with the other party hereto
regarding the defense of such proceedings and the removal of any such impediment
to the consummation of such transactions and to use its reasonable best efforts
to have such injunction or other order dissolved.
4.2. INFORMATION. Each of the parties hereto agrees to keep the
other informed as to all material developments and communications relating to
the transactions contemplated by this Agreement.
4.3. PUBLIC ANNOUNCEMENTS. Either party may publicly announce that
it has entered into this Agreement, provided that the other party is given a
reasonable opportunity to review the form and content of the proposed
announcement.
4.4. CONFIDENTIALITY. GCD and IMPSAT Corporation agree that any
written information with respect to the Project delivered to it by the other
party that is confidential and proprietary and is marked "confidential and
proprietary" ("Confidential Information") will be kept confidential by GCD and
IMPSAT Corporation and shall not be disclosed, in whole or in part to any person
other than Affiliates, officers, directors, employees, agents consultants or
representatives of GCD, and IMPSAT Corporation (collectively "Representatives")
who need to know such Confidential Information. Each of the parties agrees to
inform each of its Representatives of the non-public nature of the Confidential
Information and to direct such persons to treat such Confidential Information in
accordance with the terms of this Section 4.4. Nothing herein shall prevent
either party from disclosing Confidential Information (a) upon the order of any
court or administrative agency, (b) upon the request or demand of, or pursuant
to any rule or regulation of any regulatory agency or authority, and (c) to its
legal counsel or independent auditors.
4.5. EXCLUSIVITY. During the term of this Agreement, neither party
shall solicit or encourage proposals from other parties or discuss arrangements
with other parties with respect to any activities covered by this Agreement or
the Basic Agreements; provided, however, that this Section 4.5 shall not apply
to Section 2.7 or Section 2.4.
ARTICLE 5.
REPRESENTATION AND WARRANTIES
5.1. REPRESENTATIONS AND WARRANTIES OF GCD. GCD represents and
warrants, as of the date hereof, and, as of the Closing Date, as follows:
(a) Organization and Standing. GCD is a corporation duly
incorporated, validly existing and in corporate good standing under the laws of
Delaware.
8
<PAGE> 12
(b) Authority; Enforceability. GCD has the corporate power and
authority to execute and deliver this Agreement and to perform its obligations
hereunder. Such execution, delivery and performance have been duly authorized by
all necessary corporate action on the part of GCD. This Agreement has been duly
executed and delivered by GCD and constitutes a valid and legally binding
obligation of GCD, enforceable against GCD in accordance with its terms except
as such enforceability may be limited by applicable bankruptcy, insolvency,
moratorium, reorganization, or other laws affecting creditors' rights generally
or by the availability of equitable remedies.
(c) No Conflict. The execution, delivery and performance by
GCD of this Agreement (i) does not contravene any provision of GCD's charter or
by-laws; and (ii) does not violate or conflict with any material law, regulation
or contractual restriction to which GCD is subject.
(d) Consents and Governmental Authorizations. Except for the
GCD Authorizations, no material consent, order, approval or authorization or
other action by, and no notice to or filing with, any governmental authority or
regulatory body is required for the due execution, delivery and performance by
GCD of any of the Basic Agreements and the consummation of the transactions
contemplated thereby.
(e) Litigation. There is no action, suit, proceeding, or
investigation pending or, to the best knowledge of GCD, threatened, against or
affecting GCD, or its properties, assets or business, in any court or before or
by any governmental department, board, agency or instrumentality, or any
arbitrator, that materially affects or impairs GCD's or the Holding Companies'
ability to enter into this Agreement or any Basic Agreement, or to consummate
the transactions contemplated hereby or thereby.
5.2. REPRESENTATIONS AND WARRANTIES OF IMPSAT. IMPSAT Corporation
represents and warrants, as of the date hereof, and, as of the Closing Date, as
follows:
(a) Organization and Standing. IMPSAT Corporation is a
corporation duly incorporated, validly existing and in corporate good standing
under the laws of the State of Delaware.
(b) Authority; Enforceability. IMPSAT Corporation has the
corporate power and authority to execute and deliver this Agreement and to
perform its obligations hereunder. Such execution, delivery and performance have
been duly authorized by all necessary corporate action on the part of IMPSAT
Corporation. This Agreement has been duly executed and delivered by IMPSAT
Corporation and constitute the valid and legally binding obligation of IMPSAT
Corporation, enforceable against IMPSAT Corporation in accordance with its
terms, except as such enforceability may be limited by applicable bankruptcy,
insolvency, moratorium, reorganization, or other laws affecting creditors'
rights generally or by the availability of equitable remedies.
(c) No Conflict. The execution, delivery and performance by
IMPSAT Corporation of this Agreement (i) does not contravene any provision of
IMPSAT Corporation's charter or by-laws; and (ii) does not violate or conflict
with any material law, regulation or contractual restriction to which IMPSAT
Corporation is subject.
(d) Consents and Governmental Authorizations. Except for the
IMPSAT Authorizations, no material consent, order, approval or authorization or
other action by, and no notice to or filing with, any governmental authority or
regulatory body is required for the due execution, delivery and performance by
IMPSAT of any of the Basic Agreements and the consummation of the transactions
contemplated thereby.
9
<PAGE> 13
(e) Litigation. There is no action, suit, proceeding or
investigation pending or, to the best knowledge of IMPSAT, threatened, against
or affecting IMPSAT or its properties, assets or business, in any court or
before or by any governmental department, board, agency or instrumentality, or
any arbitrator, that materially affects or impairs IMPSAT's or the Holding
Companies' ability to enter into this Agreement or any Basic Agreement, or to
consummate the transactions contemplated hereby or thereby.
ARTICLE 6.
TERMINATION AND EXPENSES
6.1. TERMINATION. Notwithstanding anything herein, this Agreement may
be terminated and the Project abandoned at any time prior to the Closing Date:
(a) by mutual consent of GCD and IMPSAT Corporation;
(b) by either GCD or IMPSAT Corporation, if either GCD or
IMPSAT Corporation receives a final non-appealable order from any regulatory
authority denying an authorization necessary in order for any party to execute
and deliver any of the Basic Agreements;
(c) by either GCD or IMPSAT Corporation, if the Closing shall
not have occurred on or before December 31, 1999, unless such failure so to
consummate shall be due to the failure of the party seeking to terminate this
Agreement to perform in all material respects each of its obligations under this
Agreement required to be performed by it on or prior to the Closing Date
pursuant to the terms hereof (unless such failure to consummate is due to the
failure to obtain required authorizations in which case such date shall be
extended for an additional three months);
(d) by GCD, if there has been a material breach of a
representation or warranty in this Agreement by IMPSAT Corporation, and IMPSAT
Corporation fails to cure such breach within 60 days after notice thereof from
GCD, or a material breach by IMPSAT Corporation of any covenant set forth in
this Agreement or a failure of any condition to which the obligations of GCD are
subject, and such breach or failure has not been waived expressly in writing;
(e) by IMPSAT Corporation, if there has been a material breach
of a representation or warranty in this Agreement by GCD and GCD fails to cure
such breach within 60 days after notice thereof from IMPSAT Corporation or a
material breach by GCD of any covenant set forth in this Agreement or a failure
of any condition to which the obligations of IMPSAT Corporation are subject, and
such breach or failure has not been waived expressly in writing.
6.2. LIABILITIES IN EVENT OF TERMINATION. In the event of the
termination and abandonment of this Agreement and the transactions contemplated
hereby, this Agreement shall become void and have no effect, and GCD, IMPSAT
Corporation and their respective directors, officers, employees and shareholders
shall have no obligation or liability to each other hereunder, except (a) for
those obligations set forth in Sections 4.3, 4.4 and 4.5, (b) for any
obligations of GCD and IMPSAT Corporation arising from the activities of the
Project prior to such termination and (c) that nothing herein shall relieve any
party from liability for any breach of this Agreement.
10
<PAGE> 14
ARTICLE 7.
MISCELLANEOUS
7.1. SURVIVAL. The representations and warranties and covenants of
each of the parties contained in this Agreement shall survive until the Closing.
7.2. DEFINED TERMS. As used herein, the following terms have the
following meanings:
"Affiliate" means (i) as to any Person, any other Person (other than a
Holding Company) which, directly or indirectly, is controlled by such Person,
and (ii) as to GCD, Global Crossing Ltd., a Bermuda corporation, and any other
Person (other than a Holding Company) controlled by Global Crossing Ltd. For
purposes of this definition, "control" of a Person means the power, directly or
indirectly, either to (a) vote 50% or more of the securities having ordinary
voting power for the election of directors of such Person, or (b) direct or
cause the direction of the management and policies of such Person whether by
contract or otherwise
"GCD Authorizations" means all regulatory consents, authorizations and
approvals with respect to Global Crossing that may be necessary for Global
Crossing to enter into and perform its obligations under the Basic Agreements,
but excluding any telecommunications licenses relating to the Backhaul System in
any Territory.
"IMPSAT Authorizations" means all regulatory consents, authorizations
and approvals in each Territory with respect to IMPSAT and its Affiliates that
may be necessary for IMPSAT and its Affiliates to enter into and perform their
obligations under the Basic Agreements.
"Person" means any natural person or corporation, limited liability
company, general partnership, limited partnership, venture, trust, business
trust, estate or other entity.
7.3. SUCCESSORS AND PERMITTED ASSIGNS; ASSIGNMENT.
(a) Subject to Section 7.3(b), the provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, and to the extent applicable heirs,
executors, administrators and legal representatives.
(b) Neither party may assign, delegate or otherwise transfer
any of its rights or obligations under this Agreement without the prior written
consent of each of the parties hereto. Notwithstanding the foregoing and except
as set forth in Exhibit 4, a party may assign its rights and obligations under
this Agreement to an Affiliate provided that the assigning party will continue
to be responsible for its liabilities and obligations hereunder.
7.4. NOTICES. All notices, requests and other communications
hereunder shall be deemed to have been duly delivered, given or made to or upon
any party hereto if in writing and delivered by hand against receipt, or by
certified or registered mail, postage prepaid, return receipt requested, or to a
courier who guarantees next business day delivery or sent by telecopy (with
confirmation), to such party at its address set forth below or to such other
address as such party may at any time, or from time to time, direct by notice
given in accordance with this Section 7.4.
11
<PAGE> 15
if to GCD:
Global Crossing, Ltd.
c/o Global Crossing Development Co.
2655 Le Jeune Road
Suite 400
Coral Gables, FL 33134
Fax: (305) 529-6650
Attention: Joseph A. Guzman
with a copy to:
Global Crossing Development Co.
12 Headquarters Plaza
4th Floor
Morristown, NJ 07960
Fax: (973) 889-5930
Attention: Deidre Holmes
and to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
Fax: (212) 455-2502
Attention: William Brentani
if to IMPSAT:
IMPSAT Corporation
Alferez Pareja 256 (1107)
Buenos Aires, Argentina
Fax: 54-11-4328-0140
Attention: Alexander F. Rivelis
with a copy to:
Latham & Watkins
1001 Pennsylvania Avenue
Washington, DC 20004
Fax: (202) 637-2201
Attention: Gary M. Epstein
James R. Hanna
The date of delivery of any such notice, request or other communication shall be
the earlier of (i) the date of actual receipt or (ii) three business days after
such notice, request or other communication is sent if sent by certified or
registered mail, (iii) if sent by courier who guarantees next business day
delivery the business day next following the day such notice, request or other
communication is actually delivered to the courier or (iv) the day actually
telecopied.
12
<PAGE> 16
7.5. AMENDMENTS AND WAIVERS. (a) Any provision of this Agreement
may be amended or waived if, but only if, such amendment or waiver is in writing
and is signed, in the case of an amendment, by each party to this Agreement, or
in the case of a waiver, by the party against whom the waiver is to be
effective.
(b) No failure or delay by any party in exercising any right,
power or privilege hereunder shall operate as waiver thereof nor shall any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein provided shall be cumulative and not exclusive of any rights or
remedies provided by law.
7.6. GOVERNING LAW; SEVERABILITY. THIS AGREEMENT IS GOVERNED BY AND
SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK,
EXCLUDING ANY CONFLICT-OF-LAWS RULE OR PRINCIPLE THAT MIGHT REFER THE GOVERNANCE
OR THE CONSTRUCTION OF THIS AGREEMENT TO THE LAW OF ANOTHER JURISDICTION. If any
provision of this Agreement or its application to any Person or circumstance is
held invalid or unenforceable to any extent, the remainder of this Agreement and
the application of such provision to other Persons or circumstances is not
affected and such provision shall be enforced to the greatest extent permitted
by law.
7.7. JURISDICTION. Each of the parties hereby (a) submits to the
jurisdiction of any state or federal court sitting in the State and County of
New York, Borough of Manhattan, in any action arising out of or relating to this
Agreement, and (b) agrees that it will not initiate any action arising out of or
relating to this Agreement in any court other than any state or federal court
sitting in the State and County of New York, Borough of Manhattan.
7.8. EXPENSES. All expenses incurred by any party hereto in
connection with the negotiation, preparation and consummation of this Agreement
and the transactions contemplated hereby shall be borne by such party except as
otherwise expressly provided in any provision of this Agreement.
7.9. COUNTERPARTS; EFFECTIVENESS. This Agreement may be signed in
any number of counterparts, each of which shall be an original, with the same
effect as if the signature thereto and hereto were upon the same instrument.
This Agreement shall become effective when each party hereto shall have received
counterparts hereof signed by all of the other parties hereto.
7.10. HEADINGS. The headings contained in this Agreement are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
7.11. ENTIRE AGREEMENT. This Agreement, the Exhibits attached (or to be
attached) hereto and the agreements, documents and instruments contemplated
hereby, constitute the entire agreement between the parties with respect to the
subject matter hereof, and supersede all prior agreements and understandings,
whether oral or written, between or among any of the parties hereto with respect
to the subject matter hereof. To the extent of any inconsistency between this
Agreement and the June Proposal, the terms of this Agreement shall prevail.
7.12. INTERPRETATION. In any dispute concerning the construction or
interpretation of any provision of this Agreement or any ambiguity thereof,
there shall be no presumption that the Agreement or any provision hereof be
construed against the party who drafted this Agreement.
13
<PAGE> 17
7.13. FURTHER ASSURANCES. In connection with this Agreement and the
transactions contemplated hereby, each party shall execute and deliver any
additional documents and instruments and perform any additional acts that may be
necessary or appropriate to effectuate and perform the provisions of this
Agreement and such transactions.
7.14. NO THIRD PARTY BENEFICIARIES. This Agreement does not provide and
is not intended to provide any third party (including but not limited to
customers of IMPSAT or Global Crossing) with any remedy, claim, liability,
reimbursement, cause of action, or any other right.
IN WITNESS WHEREOF, each of the undersigned has executed this
Agreement as of the date first set forth above.
GLOBAL CROSSING DEVELOPMENT CO.
By
------------------------------------------
Name:
Title:
IMPSAT CORPORATION
By
------------------------------------------
Name:
Title:
14
<PAGE> 18
EXHIBIT 1
BACKHAUL CONSTRUCTION RFS DATES AND COST ESTIMATES
<TABLE>
<CAPTION>
CITY RFS DATE COST ESTIMATES**
---- -------- ----------------
<S> <C> <C>
Caracas [ ], 2000 US $[ ] million
Sao Paulo [ ], 2000 US $[ ] million
Rio de Janeiro [ ], 2000 US $[ ] million
Bogota* [ ], 2001 US $[ ] million
Lima [ ], 2001 US $[ ] million
</TABLE>
* For Colombia, IMPSAT will construct dark fiber from the Buenaventura
Cable Station to IMPSAT's point-of-presence in Cali, Colombia. IMPSAT
will provide [
], for an RFS date of [ ] 2001 to meet market
requirements until dark fiber from Cali to Bogota is built or acquired.
IMPSAT commits to use its reasonable best efforts to acquire or
construct dark fiber from Cali [ ] not later than [ ]
2003, for the Colombian Holding Company. These cost estimates are only
for the construction of dark fiber between the Cable Station in
Buenaventura and the IMPSAT point-of-presence in Cali, Colombia.
** These preliminary cost estimates were developed for purposes of a
feasibility study and are subject to revision. The estimates for
Venezuela, Colombia and Peru were provided to GCD on January 19, 1999,
and the estimates for Brazil were provided on April 26, 1999. These
estimates include the costs for fiber optic cable installation, fiber
optic cable, transmission equipment and rights of way for the first two
years of operation. These estimates have been prepared based on the
assumptions contained in the feasibility study.
15
<PAGE> 19
EXHIBIT 2
TELEHOUSE AGREEMENTS
<TABLE>
<S> <C> <C>
Telehouse Lease Commitment Global Crossing agrees to lease space in the
IMPSAT Telehouses identified below (the
"Telehouses") for the term of twenty five
(25) years on the terms and conditions set
forth below. The lease will cover the rent of
space with the basic services set forth below
(the "Basic Services").
Telehouses location and space Caracas, Venezuela: [ ] square meters
requirements Buenos Aires, Argentina: [ ] square meters
Sao Paulo, Brazil: [ ] square meters
Rio de Janeiro, Brazil: [ ] square meters
Santiago, Chile: [ ] square meters
Bogota, Colombia: [ ] square meters
Lima, Peru: [ ] square meters
Ready for Service Dates Caracas, Venezuela: [ ] 2000
Buenos Aires, Argentina: [ ] 2000
Sao Paulo, Brazil: [ ] 2000
Rio de Janeiro, Brazil: [ ] 2000
Santiago, Chile: [ ] 2000
Bogota, Colombia: [ ] 2000
Lima, Peru: [ ] 2000
Telehouse Annual Rental Fee Caracas, Venezuela: US$ [ ]
Buenos Aires, Argentina: US$ [ ]
Sao Paulo, Brazil: US$ [ ]
Rio de Janeiro, Brazil: US$ [ ]
Santiago, Chile: US$ [ ]
Bogota, Colombia: US$ [ ]
Lima, Peru: US$ [ ]
These prices do not include Value Added Tax.
Term 25 years from the Ready for Service Date of
each Telehouse.
Payment Schedule: Quarterly, in advance.
Payment adjustment: According to inflation rate in USA and for
increases in the actual costs of Basic
Services.
Telehouse Basic Services Telehouse Basic Services includes: Protected
and unprotected AC power supply, Protected DC
power supply, Environmental conditions
control: Temperature and humidity control,
Fire detection & suppression system,
Artificial Lighting system, Access Control,
Restrooms & Janitorial Services.
Basic services (included in the annual rental
fee):
</TABLE>
16
<PAGE> 20
<TABLE>
<S> <C> <C>
Electric power supply: All the electric power
supplied to the Telehouse, including that
necessary for powering the telecommunications
equipment, HVAC (within the environmental
conditions already established), fire
protection, lighting, etc. up to a limit of
200 KVA for [ ] sq.m. and 400 KVA for [ ]
sq.m. Artificial Lighting system: 500 lux.
Final lease prices will be adjusted from
above to reflect increased power requirements
from those set forth above to 300 KVA for [ ]
sq.m. and 600 KVA for [ ] sq.m.
Access Control: The surveillance service will
be limited to controlled access at the
entrance of Telehouse. It does not include a
permanent supervision of activities in the
Telehouse of any personnel that has
permission to access the Telehouse. Cleaning
and Infrastructure Maintenance Services:
General cleaning and basic maintenance of the
infrastructure of all common areas and of the
electric system. Taxes and impositions: All
property taxes and similar impositions
pertaining to the Telehouse building and/or
to the services provided by IMPSAT as part of
this agreement, at the rates applicable at
the date of signature of this agreement, are
included in the rental price, subject to
increase in the rental for increases in such
impositions.
Operating Charges In addition to the rent set forth above,
Global Crossing shall pay to IMPSAT as
additional rent (i) the amount by which all
charges for electricity, gas, water, sewer
and other utility charges of every type and
nature attributable to the Global Crossing
area in the Telehouse (such charges,
"Operating Charges") for each calendar year
falling entirely or partly within the Term
exceed the Operating Charges for the first
full calendar year of the lease (the "Base
Year"), and (ii) Global Crossing's pro rata
share of the amount by which property taxes
and other similar impositions for each
calendar year falling entirely or partly
within the Term exceed Global Crossing's pro
rata share of such impositions for the Base
Year. Global Crossing's pro rata share shall
be determined by dividing the number of
rentable square meters contained in the
Global Crossing area in the Telehouse, by the
total number of square meters contained in
the Telehouse building.
</TABLE>
17
<PAGE> 21
EXHIBIT 3
TAC AGREEMENT
1. Agreements.
GCD and IMPSAT agree that the firm fixed price for the construction of
TAC as described in the June Proposal as modified by this Agreement,
including one duct between Buenos Aires and Mendoza on the IMPSAT 2000
route, is US$ 64,000,000 (sixty four million United States Dollars).
This agreement includes the following understanding:
a) RFS dates are maintained as described in 2 below.
b) No fiber will be provided by IMPSAT for TAC.
c) Dedicated and exclusive manholes and handholes for the duct
between Buenos Aires and Santiago are included.
d) System design and engineering remain as agreed between parties
and described in the June Proposal.
e) RoW costs for the first 10 years period, only, in Chile.
Subsequent RoW costs in Chile are at GCD expense.
f) The facilities and services (shelter, land, power,
surveillance, security, etc.) remain the same as in the June
Proposal.
g) IMPSAT's project management fees of US$ [
] dollars United States Dollars) are included
in the $64 million price stated above.
h) Terms and conditions included in the June Proposal except for
those modified herein remain unchanged and valid.
2. TAC RFS Dates.
<TABLE>
<CAPTION>
CITY PAIR RFS DATE
--------- --------
<S> <C>
Las Toninas - Buenos Aires [ ] 2000
Buenos Aires - Mendoza (Dark Fiber) [ ] 2000
Mendoza - Santiago [ ] 2000
Santiago - Algarrobo [ ] 2000
</TABLE>
3. GCD agrees to compensate IMPSAT US$ [ ]
United States Dollars) for its increased costs resulting from the
changeout from Corning to Lucent fiber. This amount represents full and
final settlement for all costs incurred by IMPSAT arising out of such
18
<PAGE> 22
changeout. This compensation will be paid in dark fiber on the Mendoza
- Santiago route or in backhaul credits or in some other form agreed to
by the parties. For the dark fiber in the Mendoza - Santiago route, the
25 year IRU unit price is US$ [ ] per fiber pair per kilometer, and
annual maintenance services of $[ ] per fiber pair per route
kilometer with price reviews every two years. These prices include
facilities and services (dedicated shelter, land, power, surveillance,
security, etc.) as included in the IMPSAT proposal to GCD.
19
<PAGE> 23
EXHIBIT 4
CAPACITY PURCHASE AGREEMENT
Capacity Purchase Commitment: IMPSAT agrees to purchase not less than $46M
of capacity on the Global Crossing Network,
with special Anchor Tenant pricing on the
South American Crossing (SAC), Mid-Atlantic
Crossing (MAC) and Pan American Crossing
(PAC) systems. Capacity purchases can be
accomplished by buying at least [ ] STM-1s on
SAC, MAC and PAC in any combination on these
systems.
South American Crossing (SAC) Global Crossing will offer twenty five (25)
Anchor Tenant Pricing: year IRUs to IMPSAT for significant blocks of
capacity on SAC as follows:
- First [ ] STM-1s (between any 2
landing points on SAC: Las Toninas,
Argentina; Algarrobo, Chile; Lurin,
Peru; Buenaventura, Colombia; Ft.
Amador, Panama; Puerto Viejo, Venezuela;
St. Croix, USVI; Fortaleza, Brazil; Rio
de Janeiro, Brazil; and Santos, Brazil)
at $[ ] per STM-1.
- The price per STM-1 from Puerto Viejo to
St. Croix is the only exception to the
price noted above - capacity on this
route is priced at $[ ] per STM-1.
- OPTIONAL - After IMPSAT purchases [ ]
STM-1s on SAC, MAC and PAC, the second
group of [ ] STM-1s on SAC will be
priced at $[ ] per STM-1.
Mid-Atlantic Crossing (MAC) Global Crossing will offer twenty five (25)
Anchor Tenant Pricing: year IRUs to IMPSAT for significant blocks of
capacity on MAC, as follows:
- STM-1s on MAC from St. Croix to either
Hollywood, Florida or Brookhaven, NY for
$[ ] per STM-1.
- OPTIONAL - IMPSAT may elect to purchase
clear channel STM[ ]s on MAC for $[ ]
each.
Pan American Crossing (PAC) Global Crossing will offer twenty five (25)
Anchor Tenant Pricing: year IRUs to IMPSAT for significant blocks of
capacity on PAC, as follows:
- STM-1s on PAC from Panama to either
Mazatlan or Tijuana, Mexico for $[ ]
per STM-1.
- OPTIONAL - After IMPSAT purchases [ ]
STM-1s on PAC from Panama to Mexico (as
noted above), each subsequent STM-1 will
be priced at $[ ].
- STM-1s on PAC from Panama to either
Grover Beach, California, or Harbour
Pointe, Washington for $[ ] per STM-1.
- OPTIONAL - After IMPSAT purchases [ ]
STM-1s on PAC from Panama to the United
States (as noted above), each subsequent
STM-1 will be priced at $[ ].
20
<PAGE> 24
Backhaul Capacity: IMPSAT will purchase backhaul capacity on
demand at a [ ]% discount from our standard
rates. However, IMPSAT will not be required
to pay for backhaul capacity in Buenos Aires
and Santiago.
D[ ] Option IMPSAT may purchase D[ ] for [ ]% of the
STM-1 prices noted above as part of the $46M
commitment. If within 12 months of activation
of any D[ ], IMPSAT elects to upgrade such
circuit to an STM-1 they will only pay the
remaining [ ]% of the STM-1 price.
Payment Tranches: [ ] percent ([ ]%) upon execution of the
definitive documentation in connection with
the capacity purchase. The remaining [
] percent ([ ]%), due in four tranches,
as follows -
1) [ ] percent ([ ]%) due prior to
activation of capacity, but in no event
later than the first anniversary of the
full system RFS date.
2) [ ] percent ([ ]%) due prior to
activation of capacity, but in no event
later than the second anniversary of the
full system RFS date.
3) [ ] percent ([ ]%) due prior to
activation of capacity, but in no event
later than the third anniversary of the
full system RFS date.
4) [ ] percent ([ ]%) due prior to
activation of capacity, but in no event
later than the fourth anniversary of the
full system RFS date.
Please note that IMPSAT may accelerate this
take down of capacity at any time, with the
payment for such capacity preceding
activation.
Financing Option:
At IMPSAT's option, IMPSAT may pay for the
activation of individual STM-1s within the 4
Payment Tranches, in the following manner:
[ ]% of the STM-1 purchase price due
immediately following customer acceptance (of
the particular circuit) with the remaining
[ ]% financed over [ ] months at an
annual interest rate of [ ]%, payable in
equal quarterly installments.
Operations, Administration & A flat rate annual OA&M fee is charged per
Maintenance (OA&M): STM-1 that has been activated. Payments are
made quarterly, in advance.
Global Crossing is in the process of
reviewing OA&M fees, but we guarantee that
the annual OA&M fee will not exceed [ ]% of
the purchase price of the activated capacity.
Reassignment/Reallocation of Global Crossing recognizes that IMPSAT will
be purchasing capacity on behalf of its
affiliated companies, as such, there are
21
<PAGE> 25
Capacity: no restrictions on transferring ownership
among companies in which IMPSAT maintains ten
percent (10%) or greater ownership.
Global Crossing Network Offer: In recognition of the significant investment
in capacity this "Anchor Tenant" offer
represents for IMPSAT, Global Crossing will
provide capacity, on demand, across the
entire Global Crossing Network at [ ]% of our
lowest Published Prices (i.e., a [ ]%
discount). Please note that published annual
OA&M fees shall apply to any such purchases.
Anchor Tenant Price Guarantee: IMPSAT agrees to spend not less than $46M for
capacity on the Global Crossing Network in
the manner set forth above. The purchase
price for any capacity that IMPSAT activates
pursuant to this agreement shall equal the
lower of (i) the Anchor Tenant prices set
forth above and (ii) [ ]% of Global
Crossing's then-current lowest Published
Prices for such capacity (i.e., a [ ]%
discount off of Global Crossing's Published
Prices at the time such capacity is
activated).
This price guarantee extends to backhaul as
well as SAC, MAC and PAC capacity as noted
above.
Published Prices The current lowest Published Prices are
attached to this agreement, they include:
City to City Pricing, Cable Station to Cable
Station Prices and Backhaul. Global Crossing
will furnish revised pricing information when
amendments are made.
Collocation in St. Croix Global Crossing agrees to provide collocation
space in the St. Croix cable station to
IMPSAT for bandwidth management equipment on
terms to be mutually agreed, consistent with
industry standards.
Ready for Service Dates The full system RFS date for SAC is expected
to be [ ], 2001. IMPSAT may elect
to activate capacity once it is made
commercially available by Global Crossing. At
present, we estimate that capacity will be
made available from Venezuela in [ ]
2000, and from the other Atlantic Ocean
landing sites on SAC in [ ] 2000.
22
<PAGE> 1
EXHIBIT 10.2
TURNKEY PROJECT AGREEMENT
BETWEEN
IMPSAT S.A.
AND
NORTEL NETWORKS CORPORATION
AND
NORTEL NETWORKS DE ARGENTINA S.A.
DATED AS OF SEPTEMBER 6, 1999
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE
<S> <C>
ARTICLE I. DOCUMENTS FORMING THE ENTIRE AGREEMENT.................................................................2
ARTICLE II. DEFINITIONS...........................................................................................3
2.1 Certain Definitional Provisions...................................................3
2.2 Definitions.......................................................................3
ARTICLE III. SCOPE OF WORK AND RESPONSIBILITIES..................................................................14
3.1 Scope of Work....................................................................14
3.2 Network Overview.................................................................14
3.3 Design, Engineering and Maintenance Services.....................................15
3.4 Equipment, Structures and Network Software.......................................16
3.5 Installation and Commissioning...................................................16
3.6 Responsibilities of Vendor -- General............................................17
3.7 Responsibilities of Impsat -- General............................................19
3.8 Responsibilities - Applicable Permits............................................20
3.9 Engineering Certification........................................................21
3.10 Interoperability.................................................................21
3.11 Safety and Security..............................................................21
3.12 Inspection Right.................................................................22
3.13 Operating Manuals................................................................23
3.14 Maintenance Manuals..............................................................23
3.15 Standards for Operating and Maintenance Manuals..................................24
3.16 RF Engineering...................................................................25
3.17 Site Acquisition and Rights of Way...............................................25
ARTICLE IV. PROJECT IMPLEMENTATION...............................................................................26
4.1 Impsat Project Manager...........................................................26
4.2 Vendor Project Manager...........................................................26
4.3 Network Implementation Project; Project Implementation Plan......................26
4.4 Impsat Requested Delays in Shipment of Equipment.................................26
4.5 Change Orders and Directed Changes...............................................27
4.6 Project Progress Reporting.......................................................28
4.7 Work Staffing....................................................................28
4.8 Force Majeure and Delay Attributable to Impsat...................................29
4.9 Records and Communications.......................................................30
4.10 Impsat Review, Comment and Approval..............................................30
4.11 Quality Assurance................................................................30
4.12 Training.........................................................................31
4.13 Performance Bond.................................................................31
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
ARTICLE V. ACCEPTANCE TESTING....................................................................................31
5.1 Acceptance Testing - General.....................................................31
5.2 Notification; Presence at Acceptance Tests.......................................31
5.3 Acceptance Test Reports and Acceptance Certificates..............................31
5.4 Punch Lists, Correction of Defects; Costs and Expenses...........................32
5.5 In Revenue Service...............................................................33
5.6 Provisional Acceptance...........................................................33
5.7 Final Acceptance.................................................................34
ARTICLE VI. SPARE PARTS; POST-COMMISSIONING SUPPORT..............................................................35
6.1 Spare Parts......................................................................35
6.2 Product Support Services; Emergency Technical Assistance Services................35
ARTICLE VII. INTELLECTUAL PROPERTY RIGHTS........................................................................36
7.1 Background IPR and Foreground IPR................................................36
7.2 Vendor License...................................................................36
7.3 Impsat's Obligations Regarding Software Elements.................................37
7.4 Assignment.......................................................................38
7.5 Sublicensing.....................................................................39
7.6 Software Element Maintenance and Support.........................................39
ARTICLE VIII. NOTIFICATION OF DEVELOPMENTS.......................................................................40
8.1 Industry Developments............................................................40
8.2 Vendor Developments..............................................................40
ARTICLE IX. PRICING AND PAYMENT PROVISIONS.......................................................................41
9.1 Product List and Pricing Schedule................................................41
9.2 Invoicing and Payments...........................................................41
9.3 Vendor Financing.................................................................43
9.4 Disputed Invoices................................................................45
9.5 Late Payments....................................................................45
9.6 Right of Offset..................................................................45
9.7 Taxes............................................................................46
ARTICLE X. SHIPPING, LOGISTICS, IMPORTATION; TITLE AND RISK OF LOSS..............................................48
10.1 Title and Risk of Loss - General.................................................48
10.2 Shipping.........................................................................49
10.3 Importation and Inland Transportation............................................49
10.4 Export and Import Licenses and Work Permits......................................49
ARTICLE XI. INSURANCE 50
11.1 Maintenance of Insurance.........................................................50
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
<S> <C>
11.2 Additional Requirements..........................................................51
11.3 Subcontractors' Insurance Requirements...........................................52
11.4 Evidence of Insurance............................................................52
ARTICLE XII. PRODUCT WARRANTIES..................................................................................52
12.1 Equipment and Services Warranty..................................................52
12.2 Software Warranty................................................................53
12.3 Civil Work Warranty..............................................................54
12.4 Warranty Limitations.............................................................55
ARTICLE XIII. INDEMNITIES AND LIMITATIONS ON LIABILITY...........................................................56
13.1 Vendor Indemnity.................................................................56
13.2 Impsat Indemnity.................................................................57
13.3 No Limitation on Other Rights....................................................58
13.4 Limitation.......................................................................58
13.5 Cooperation......................................................................58
13.6 Defense of Claims................................................................58
ARTICLE XIV. FAILURE TO DELIVER AND EARLY COMPLETION.............................................................59
14.1 Vendor's Failure to Deliver on Time..............................................59
14.2 Vendor's Early Completion........................................................60
14.3 Performance Related Damages......................................................60
ARTICLE XV. REPRESENTATIONS AND WARRANTIES.......................................................................61
15.1 Representations and Warranties of the Vendor.....................................61
15.2 Representations and Warranties of Impsat.........................................61
ARTICLE XVI. TERM AND TERMINATION................................................................................62
16.1 Term.............................................................................62
16.2 Termination......................................................................62
16.3 Impsat's Option Upon Termination.................................................63
ARTICLE XVII. USE OF SUBCONTRACTORS..............................................................................64
17.1 Consent Required for Vendor to Subcontract.......................................64
17.2 Use of Subcontractors............................................................64
17.3 Vendor Warranties................................................................65
17.4 Payments to Subcontractors.......................................................65
17.5 Removal of Subcontractor or Subcontractor's Personnel............................65
17.6 Subcontractor Insurance; Compliance with Local Laws..............................66
17.7 No Effect of Inconsistent Terms in Subcontracts..................................66
17.8 Additional Restrictions..........................................................66
ARTICLE XVIII. GOVERNING LAW; DISPUTE RESOLUTION.................................................................66
</TABLE>
iii
<PAGE> 5
<TABLE>
<CAPTION>
<S> <C>
18.1 Governing Law....................................................................66
18.2 Informal Dispute Resolution......................................................66
18.3 Agreement to Resolve Disputes by Arbitration.....................................67
18.4 Arbitration Awards...............................................................68
ARTICLE XIX. MISCELLANEOUS.......................................................................................68
19.1 Expenses.........................................................................68
19.2 Relationship of the Parties......................................................69
19.3 Notices..........................................................................69
19.4 Headings.........................................................................70
19.5 Severability.....................................................................70
19.6 Waiver...........................................................................70
19.7 Entirety of Agreement; No Oral Change............................................70
19.8 The Parties' Right to Assign.....................................................71
19.9 Confidentiality..................................................................71
19.10 Binding Effect...................................................................73
19.11 Counterparts.....................................................................73
</TABLE>
Exhibits
<TABLE>
<CAPTION>
<S> <C>
Exhibit A Network Design Plan
Exhibit B Description of Network Management System
Exhibit C Description of Functional Units and Coefficients for Liquidated Damages and
Bonuses
Exhibit D Project Implementation Plan
Exhibit E On-Going ECC Services
Exhibit F Acceptance Test Procedures
Exhibit G Accommodation Plan and Description of Civil Engineering Services
Exhibit H Special Considerations Related with Telecommunications Products
Exhibit I Technical Support Provisions
Exhibit J Operations and Maintenance
Exhibit K Training Strategy and Plans
Exhibit L Technical Specifications of Equipment, Optic Fiber and Civil Work
Exhibit M Product List and Pricing Schedule
Exhibit N Standby Letter of Credit
</TABLE>
iv
<PAGE> 6
TURNKEY PROJECT AGREEMENT
This Turnkey Project Agreement (this "Agreement") is entered
into as of the 3rd day of September, 1999 by and among IMPSAT S.A., a company
organized under the laws of Argentina ("Impsat"), Nortel Networks Corporation, a
corporation organized under the laws of Canada ("NNC"), and Nortel Networks de
Argentina S.A., a corporation organized under the laws of Argentina
("Nortel-Argentina") and, together with NNC, the "Vendor") (the Vendor, together
with Impsat, collectively referred to as the "Parties").
RECITALS:
WHEREAS, IMPSAT Corporation ("Impsat Corp."), the parent
company of Impsat, desires for its subsidiaries to construct and operate a
telecommunications network in several countries throughout Latin America (the
"Project"), with Phase I of the Project encompassing Argentina and Brazil, as
specified in the Network Design Plan attached hereto as Exhibit A (the
"Network," as more fully defined herein); and
Whereas, Impsat Corp. issued a request for proposal ("RFP") on
August 14, 1998 with respect to the potential issuance of a contract for
engineering consulting services with respect to the Project (the "ECC"),
including the design, deployment and development of the Project, which RFP
included Impsat Corp.'s minimum requirements with respect to the ECC; and
Whereas, NNC responded to the RFP for the ECC on October 22,
1998 with a written proposal, and Impsat Corp. and NNC subsequently exchanged
additional information with respect to Impsat Corp.'s requirements and NNC's
willingness to meet such requirements; and
Whereas, Impsat Corp. subsequently determined that the best
interests of the Project would be served by having the Project constructed on a
turnkey basis, rather than having separate companies perform engineering
services and equipment procurement services; and
Whereas, Impsat Corp. issued a second RFP with respect to the
provision of Phase 1 of the Project on a turnkey basis, and Vendor received from
Impsat on or about December 23, 1998 a series of documents detailing the scope
of and performance requirements for the Network, including a project master
plan, price sheets, basic descriptions of the Project, drawings and
specifications and a negotiations framework; and
WHEREAS, in response to these documents, Vendor submitted a
series of offers to Impsat on or about March 22, 1999 detailing Vendor's plans
for designing and building the Network in accordance with Impsat's requirements,
including a technical proposal, a commercial proposal and other additional
proposals; and
WHEREAS, Impsat Corp. and NNC have entered into that certain
Letter of Intent dated May 17, 1999, as subsequently extended on July 26, 1999
and August 17, 1999 (the "LOI"), in which the parties thereto agreed to
preliminary terms and conditions regarding the Network; to negotiate further in
order to finalize definitive documentation for the
<PAGE> 7
implementation of the Network; and for the Vendor to commence work on certain
aspects of the Network; and
WHEREAS, the Parties desire to provide for the Vendor to
undertake all work and supply all goods and services necessary for the design,
planning, manufacturing, procurement, supply, delivery, integration and
installation of equipment, construction of facilities, and testing and
commissioning of the Network, on a "turnkey" basis, all on the terms and
conditions set forth herein; and
WHEREAS, the Parties have agreed to enter into this Agreement
to govern their relationship with respect to the design and construction of the
portion of the Network located in Argentina (the "Subnetwork"), and IMPSAT
Comunicacoes Ltda., a Subsidiary of Impsat Corp., NNC and Northern Telecom do
Brasil Comercio e Servicos Ltda., a Subsidiary of NNC ("Nortel-Brazil"), are
simultaneously entering into a similar agreement to govern their relationship
with respect to the design and construction of the portion of the Network
located in Brazil (the "Companion Subnetwork");
NOW, THEREFORE, in consideration of the mutual promises and
covenants set forth in this Agreement, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Impsat and the Vendor hereby agree as follows:
ARTICLE I.
DOCUMENTS FORMING THE ENTIRE AGREEMENT
This Agreement consists of the commercial terms and conditions
contained in the body of this Agreement, and the following Exhibits, which shall
be read and construed as part of this Agreement:
<TABLE>
<CAPTION>
<S> <C>
Exhibit A Network Design Plan
Exhibit B Description of Network Management System
Exhibit C Description of Functional Units and Coefficients
for Liquidated Damages and Bonuses
Exhibit D Project Implementation Plan
Exhibit E On-Going ECC Services
Exhibit F Acceptance Test Procedures
Exhibit G Accommodation Plan and Description of Civil
Engineering Services
Exhibit H Special Considerations Related with Telecommunications
Products
Exhibit I Technical Support Provisions
Exhibit J Operations and Maintenance
Exhibit K Training Strategy and Plans
Exhibit L Technical Specifications of Equipment, Optic
Fiber and Civil Work
Exhibit M Product List and Pricing Schedule
Exhibit N Letter of Credit
</TABLE>
2
<PAGE> 8
The Exhibits listed above have no order of precedence. In the
event of any conflict or inconsistency between the terms and conditions
contained in this Agreement and the above Exhibits, the terms and conditions
contained in the Agreement shall prevail, except with respect to Exhibits A, E,
G, H, I, J and L, provided, however, that in no event shall any Exhibits prevail
over Articles VII, IX, XII and XIII, except as otherwise specifically provided
for in Section 9.1. In the event of any conflict or inconsistency between the
terms and conditions in the NNCPs and any other documents provided by Vendor,
the terms and conditions contained in this Agreement and the terms and
conditions contained in the Exhibits shall prevail.
ARTICLE II.
DEFINITIONS
2.1 Certain Definitional Provisions.
(a) When used without definition in any Contract Document, a
capitalized term that is defined in this Agreement shall have the meaning
provided herein.
(b) The words "hereof," "herein," "hereunder" and words of
similar import when used in this Agreement refer to this Agreement as a whole
and not to any particular provision of this Agreement, and Section, subsection
and Exhibit references are to this Agreement unless otherwise specified.
(c) The meanings given to terms defined in this Agreement are
equally applicable to both the singular and plural forms and derivative forms of
such terms.
(d) When used in this Agreement, the terms "include,"
"includes" and "including" are not limiting.
2.2 Definitions.
As used in this Agreement, the following capitalized terms
have the following meanings:
"Acceptance Testing for Provisional Acceptance" has the
meaning specified in Section 5.6.
"Acceptance Tests" means, collectively, the performance and
reliability demonstrations, if applicable, and the tests to be performed in
accordance with the applicable Acceptance Test Procedures, or other such
demonstrations and tests as agreed to by the Parties.
"Acceptance Test Procedures" means, collectively, the test
procedures described in Exhibit F specifying the purposes, testing principles,
test specifications, test procedures and success criteria for each of the
Acceptance Tests.
"Accommodation Plan" means the Accommodation Plan and
Description of Civil Engineering Services attached hereto as Exhibit G.
3
<PAGE> 9
"Affiliate" when used with respect to any Person, means any
other Person that controls, is controlled by or is under common Control with
such Person, whether through ownership of voting securities or otherwise.
Notwithstanding the foregoing, no Governmental Entity shall be considered an
Affiliate of any Person.
"Aggregate Price" has the meaning specified in Section 9.1.
"Agreement" has the meaning specified in the prefatory
paragraph hereto.
"Applicable Laws" means, as to any Person, all laws, statutes,
rules, regulations, codes, treaties, ordinances, judgments, decrees,
injunctions, writs, orders, directives and stipulations of any Governmental
Entity, and interpretations thereof, in any jurisdiction or country (i)
applicable to or binding upon such Person or any of its property or to which
such Person or any of its property is subject or (ii) having jurisdiction over
all or any part of the Subnetwork or the Work to be performed pursuant to the
terms of this Agreement.
"Applicable Permits" means any franchise, permit,
authorization, concession, approval, license (including export/import licenses),
order, waiver or similar instrument (including any of the foregoing relating to
land use, building and occupancy permits and "roofrights") of or from any
Governmental Entity having jurisdiction over all or any part of the Subnetwork
or the Work to be performed pursuant to the terms of this Agreement or of or
from any other Person to the extent necessary to perform and complete the Work.
"Background IPR" of NNC and its Subsidiaries or of Impsat and
its Subsidiaries means any IPR of such party, or any IPR licensed from a
third-party by such party, that is conceived, created, or developed prior to, or
independent of, any Work or Service performed under this Agreement.
"Building Infrastructure" means, with respect to any Network
Element Facility, the grounding , the air-conditioning systems (both general and
special), the fire alarm and extinguisher systems, elevators, water and sewer
systems, the uninterruptible power supply ("UPS"), the main power boards, the
power distribution boards, the towers, the transformers, the power generators,
the electrical rectifiers and batteries, the cable and equipment ladders, trays
and racks, the technical floors, the security systems, the environmental
telesupervision systems, the auxiliary lighting systems and all other
infrastructure subsystems required for a Network Element Facility to function
properly.
"Business Day" means any day other than Saturday or Sunday or
a day that is a public holiday in Argentina.
"Cable Trench" means a facility that holds a portion of fiber
optic cable and associated conduit and splicing chambers and that, in the case
of subterranean construction is buried, and in the case of aerial construction
is attached to a structure such as a bridge.
"Change Order" has the meaning specified in Section 4.5.
"Change Proposal" has the meaning specified in Section 4.5.
"Change Request" has the meaning specified in Section 4.5.
4
<PAGE> 10
"Civil Work" means the performance of labor and furnishing of
materials necessary for the construction of a Network Element Facility,
including the Installation of all Building Infrastructure elements related to
such Network Element Facility, the demolition and renovation of existing
structures, and the laying of conduit and fiber optic cable and the splicing and
testing of such fiber optic cable, all in accordance with the Contract
Documents.
"Claim" has the meaning specified in Section 13.6.
"Claim Notice" has the meaning specified in Section 13.6.
"Completion Report" means, with respect to each Network
Element Facility, each Network Subsystem and each Functional Unit, a project
completion report prepared by Vendor and containing the following information:
(i) a summary of the results of Acceptance Tests with respect to such Network
Element Facility, Network Subsystem or Functional Unit, (ii) specifications,
data sheets, plans and drawing plans, (iii) customary documentation with respect
to the Subnetwork and such Functional Unit, Network Subsystem or Network Element
Facility, including, without limitation, "As Builts," (v) a Punch List and (vi)
all other information related to the Work hereunder reasonably requested by
Impsat.
"Configuration Engineering" means the engineering required to
establish configuration of a Network Element, including preparing component
inventory and layout drawings, Equipment labels, cable tray layout drawings,
drawings and specifications required by any Governmental Entity, "as-built"
drawings and Documentation, and the design, power distribution and supply for
each of the Network Elements.
"Contract Documents" means this Agreement, including all of
the Exhibits listed in Article I, as amended or supplemented from time to time.
"Control" means the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of a
Person, whether through the ability to exercise voting power, by contract or
otherwise. "Controlling" and "controlled" have meanings correlative thereto.
"Damages" has the meaning specified in Section 13.1(b)(i).
"Defects and Deficiencies," "Defects or Deficiencies" or
"Defective" means any one or a combination of the following or items of a
similar nature:
(a) when used with respect to the performance of Services,
such Services that are not provided in a workmanlike manner and in accordance
with applicable provisions of the Contract Documents;
(b) when used with respect to Work other than Services
(including without limitation Structures, materials, Equipment and Network
Software), such items that are not (i) new, of good quality and free from
improper workmanship and defects in accordance with the Contract Documents, good
procurement, manufacturing and construction standards and Applicable Laws, or
(ii) free from errors and omissions in design or engineering services in light
of such standards or Applicable Laws; or
5
<PAGE> 11
(c) in general, (i) Work that does not conform to the Contract
Documents, (ii) Work that is not free from corrosion, erosion, foundation
defects, subsidence or other degradation due to moisture, or (iii) any design,
engineering, start-up activities, materials, Structures, Equipment, or any
portion thereof, Network Software, tools, supplies, Installation or Training
that (1) does not conform to the Contract Documents, (2) has improper or
inferior workmanship, (3) would materially and adversely affect the ability of
the Network, the Subnetwork and/or any Functional Unit and/or any material part
thereof to meet any applicable provisions of the Contract Documents on a
consistent and reliable basis, or (4) would materially and adversely affect the
continuous operation of any Functional Unit, the Subnetwork as a whole, the
Network as a whole, or any material portion thereof.
"Directed Change" has the meaning specified in Section 4.5(c).
"Documentation" means (i) collectively, all applicable
documentation for the Network, the Subnetwork, any Functional Unit, any Network
Subsystem, any Network Element Facility, any Product and any material component
of any of the foregoing (including all Operating Manuals and Maintenance
Manuals), and (ii) any individual item(s) comprised in such documentation.
"Emergency Technical Assistance Services" or "ETAS" means the
provision of emergency technical assistance services to Impsat pursuant to
Exhibit I for the purpose of diagnosing and resolving a problem which adversely
affects the Network, the Subnetwork and/or any Functional Unit and/or a material
part, portion or component thereof, its operation and/or its service.
"Engineering" means all of the engineering and design work
required to be done by the Vendor in connection with the Network to ensure that
the operation of the Network conforms to the requirements of the Contract
Documents, including the Specifications and Standards, and includes without
limitation RF Engineering, Configuration Engineering, Network Interconnection
Engineering and Facilities Engineering.
"Equipment" means all equipment, hardware, materials and other
items of property which are required to construct the Subnetwork, each
Functional Unit and/or any portion thereof, and the NMS, together with all
embedded firmware and hardwired logic and all ancillary systems, in accordance
with the Specifications and Standards and the other provisions of the Contract
Documents, including, (i) as the context may require, additional equipment
required as a result of any Expansion(s) or enhancements or upgrades to any of
the foregoing, (ii) all equipment, hardware and other materials that are part of
the Building Infrastructure and (iii) all Telecommunications Equipment. For the
avoidance of doubt, the term "Equipment" does not include the Software Elements,
nor any Network Software other than embedded and non-downloadable firmware
stored in a semiconductor device or other hardwired logic that constitute an
integral part of any Item of Equipment.
"Event of Bankruptcy" means the commencement by or against
either Party of a voluntary or involuntary case or other proceeding seeking
liquidation, reorganization, concordata or other relief under any bankruptcy,
insolvency or other similar law now or hereafter in effect or seeking the
appointment of a trustee, receiver, liquidator, custodian or other similar
official of it or any substantial part or its property, or if either Party shall
consent
6
<PAGE> 12
to any such relief or to the appointment of or taking possession by any such
official in an involuntary case or other proceeding commenced against it, or if
either party shall make a general assignment for the benefit of creditors, or
shall fail generally to pay its debts as they become due, or shall take any
corporate action to authorize any of the foregoing; provided, however, that with
respect to an involuntary case or proceeding brought against any Party, an Event
of Bankruptcy shall only occur if such case or proceeding is not dismissed
within sixty (60) days of being filed.
"Expansions" means any additional Products incorporated into
the Network, or Services related thereto arising from any modification by Impsat
after the date of this Agreement to the Specifications and Standards, the
Performance Criteria set forth in the Network Design Plan, or the Project
Milestones set forth in the Project Implementation Plan, that result in a change
to the Subnetwork and/or any Functional Unit and/or any material portion
thereof, including the extension or expansion of the Subnetwork and/or any
Functional Unit (i) into geographic areas outside of those covered by the
Functional Units identified in the Network Design Plan, or (ii) to increase
capacity, coverage, performance, service features or capabilities of the
Subnetwork and/or any Functional Unit or portion thereof beyond that specified
in the Contract Documents. Expansions shall not include any additional Products
or Services required to meet the Specifications and Standards.
"Facilities Engineering" means the engineering required to
design each Network Element Facility, including performing building layout and
preparing drawings and relevant specifications for the construction of the
buildings, towers, generators, Building Infrastructure, fiber optic cable,
conduit and splicing chambers, and antennae support, and all other items
required to make the Network Element Facility functional in accordance with the
Network Design Plan and the Accommodation Plan and the other provisions of the
Contract Documents. Facilities Engineering does not include Configuration
Engineering.
"Facilities Preparation Services" means all Facilities
Engineering, Civil Work, Site Plan Architectural Work, Structural Architectural
Work and Utilities Work, in accordance with the requirements of the
Accommodation Plan and the other provisions of the Contract Documents.
Facilities Preparation Services does not include Site Acquisition.
"Final Acceptance" has the meanings specified in Section 5.7.
"Final Overall Network Acceptance" has the meaning specified
in Section 5.7(c).
"Final RF Engineering Plan" has the meaning specified in
Section 3.16.
"Final RF Review Period" has the meaning specified in Section
3.16.
"Force Majeure" means, with respect to any Party, any cause
which is beyond the reasonable control of such Party, including, but not limited
to, the elements; fires; explosions and other accidental events; acts of God
such as floods, earthquakes or tempests; riots; civil disturbances; wars; states
of belligerency or acts of the public enemy; general strikes; or the actions or
failure to act of any Governmental Entity.
7
<PAGE> 13
"Foreground IPR" means any IPR that is conceived, created or
developed or contracted to be developed by NNC and its Subsidiaries or
Subcontractors, or by Impsat and its Subsidiaries, in the course of performing
any Work or Services pursuant to this Agreement and the LOI.
"Functional Specifications" has the meaning specified in
Section 3.2.
"Functional Unit" shall mean any segment of the Subnetwork
described on Exhibit C or so labeled by the Parties, each of which shall be
capable upon the completion thereof of achieving In Revenue Service
independently from the rest of the Subnetwork.
"Governmental Entity" means any nation or government, any
state, province or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Headend" means a certain type of Network Element Facility
described and identified on Exhibit G.
"ICC" means the International Chamber of Commerce.
"Impsat" has the meaning specified in the prefatory paragraph
to this Agreement.
"Impsat Direct Competitors" means business entities that
provide telecommunications services similar to and in competition with the
services provided by Impsat.
"Impsat License" has the meaning specified in Section 7.1(c).
"Impsat Project Manager" has the meaning specified in Section
4.1.
"Impsat-Provided Equipment" means the Equipment listed in
Exhibit D which Impsat has the responsibility to provide to Vendor pursuant to
Section 3.7 for integration into the Subnetwork, and all necessary equipment and
services to link (via satellite or some other means) the Subnetwork to the
Companion Subnetwork.
"In Revenue Service" means the commercial operation of the
Network, the Subnetwork or a Functional Unit thereof, exclusive of operation for
purposes of conducting Acceptance Tests.
"Inspector" means any qualified Person designated as an
authorized representative of Impsat assigned to make inspections of the Work, or
of the labor, materials, Services and Products furnished or being furnished by
the Vendor or by any of its Subcontractors at any Sites where the Vendor or any
such Subcontractor is delivering the Work.
"Installation" means the performance and supervision by the
Vendor of the installation of Products within the Subnetwork and/or any
Functional Unit.
8
<PAGE> 14
"Intellectual Property Rights" or "IPR" means any and all
rights in any invention, discovery, improvement, utility model, copyright,
industrial design or mask work right, and any and all rights of whatever nature
in computer software and data, trade secrets, know-how, drawings,
specifications, documents, plans, reports, diagrams and other data that has been
reduced to writing (whether in physical or electronic form), and any and all
intangible rights and privileges of a nature similar to any of the foregoing, in
every case in any part of the world and whether or not registered, and shall
include all rights in any applications and granted applications for any of the
foregoing.
"Interoperability" means (i) the ability of the Network, the
Subnetwork and/or any Functional Unit and/or any material portion or component
thereof to fully interconnect and successfully operate with the equipment and
software of the PSTN, public data networks and the internet (and/or any material
portion or component thereof), provided that the interfaces of such networks
comply with international telecommunications standards and (ii) the ability of
each of the Products to operate with one another and to operate with and within
the Network, all in conformance with the requirements of the Contract Documents.
"Item" means any item listed in the Product List and Pricing
Schedule, any item at any time listed in any of the Vendor's price lists, any
other item of Equipment or element of the Network Software (including any such
item procured from a third-party supplier), and any modifications, enhancements,
updates or other revisions of any kind in any such item, or spare parts with
respect to any of the foregoing.
"Key Persons" has the meaning specified in Section 4.7(a).
"Losses" means any liability, damages, judgment, settlement
and expenses (including reasonable attorneys' fees and disbursements and the
costs of investigations and appeals).
"Maintenance Manuals" means the manuals prepared by or to be
prepared by the Vendor and the Subcontractors and to be delivered to Impsat
pursuant to Section 3.14 containing detailed procedures and specifications for
the ongoing maintenance of the Network and/or any part thereof.
"Monthly Progress Report" means a progress report of the type
described in Exhibit D.
"Network" means the telecommunications network referred to in
the Recitals hereto together with the Network Management System and the other
components and features specified herein and in the other Contract Documents.
"Network Design Plan" has the meaning specified in Section
3.1.
"Network Element" means one or more Items of Equipment or
Network Software that is part of the Subnetwork and/or any Functional Unit
thereof.
"Network Element Facility" means the Structures, improvements,
foundations, roads, grading, fencing, Building Infrastructure and other
facilities necessary to house or hold any Network Element and any related
Equipment to be located at a particular Site, and all
9
<PAGE> 15
such Network Elements and related Equipment located therein, including without
limitation each Headend, Shelter, Node and Cable Trench.
"Network Interconnection Engineering" means all the
engineering required to connect all Network Elements within the Subnetwork among
themselves and to other telecommunications networks, including the Companion
Subnetwork.
"Network Management System" or "NMS" means all Equipment and
Software required to provide functionality including, but not limited to, all
network fault management, network management, performance management,
configuration management, trouble ticket management, control, and monitoring
functions for one or more Functional Units, the Subnetwork as a whole, and the
Network as a whole.
"Network Software" means all computer software and firmware
furnished to Impsat hereunder for use with the Network, the Subnetwork or any
Equipment, including computer programs contained on a magnetic or optical
storage medium, in a semiconductor device, or in another memory device or system
memory or supplied on any other storage medium.
"Network Subsystem" shall mean any segment of a Functional
Unit described on Exhibit C, each of which may be comprised of various Network
Element Facilities.
"NNCPs" means Nortel Networks Corporation Practices, which are
the Vendor's standard documentation containing descriptive, operating,
installation, engineering and maintenance information for Equipment manufactured
by the Vendor and the services provided by such Equipment, as amended from time
to time by Vendor with respect to all of Vendor's customers.
"Node" means a certain type of Network Element Facility
described and identified on Exhibit G.
"Operating Manuals" means the manuals prepared or to be
prepared by the Vendor and the Subcontractors and to be delivered to Impsat
pursuant to Section 3.13 containing detailed procedures and specifications for
the ongoing operation of the Network and/or any part thereof.
"Operator" means Impsat or any Person with whom Impsat
contracts to operate the Network, the Subnetwork or any Functional Unit thereof.
"Outside Date" means thirty (30) calendar days subsequent to
the execution of the Vendor Financing Agreement.
"Parties" has the meaning specified in the prefatory paragraph
to this Agreement.
"Performance Bond" has the meaning specified in Section 4.13.
"Performance Criteria" has the meaning specified in Section
3.1.
"Permitted IPR Uses" has the meaning specified in Section
7.2(a).
10
<PAGE> 16
"Person" means an individual, partnership, limited
partnership, corporation, business trust, joint stock company, trust,
unincorporated association, joint venture, Governmental Entity or other entity
of whatever nature.
"Preliminary Site Acquisition" means the services to be
performed by or on behalf of Vendor necessary for identifying and presenting
Site alternatives to Impsat as set forth in Section 3.17.
"Proceeding" means any third-party claim, demand, action, suit
or proceeding of any nature.
"Product List and Pricing Schedule" has the meaning specified
in Section 9.1.
"Products" means, collectively, the Equipment, the NMS, and
the Network Software provided or to be provided by the Vendor and/or any
Subcontractor pursuant to and in accordance with the terms of this Agreement.
"Product Support Services" has the meaning specified in
Section 6.3.
"Professional Services" has the meaning specified in Section
3.3(a).
"Project" has the meaning specified in the prefatory paragraph
to this Agreement.
"Project Countries" means Argentina, Brazil, Colombia,
Ecuador, Mexico, the United States, Venezuela, Chile, Peru, Uruguay, Paraguay,
Bolivia, Panama, and such other countries in the Americas as Impsat may add to
the Project, but excluding countries (other than Argentina and Brazil) where
either Party is prohibited from transacting business or importing/exporting
products or services.
"Project Implementation Plan" has the meaning specified in
Section 3.1.
"Project Milestones" means the collective reference to the
principal project milestone dates and intervals set forth in the Project
Implementation Plan.
"Provisional Acceptance" has the meanings specified in Section
5.6.
"Public Switched Telephone Network" or "PSTN" has the meaning
specified in Section 3.3(b)(ii).
"Punch List" has the meaning specified in Section 5.4.
"Punch List Work" means the items of Work set forth in any
Punch List.
"QAO" has the meaning specified in Section 4.11.
"Reviewers" has the meaning specified in Section 3.12(a).
"RF" means radio frequency.
11
<PAGE> 17
"RF Engineering" means radio frequency engineering required in
connection with the design of any wireless communication element of the
Subnetwork, any Functional Unit or any Network Element.
"Rights of Way" means any conditional use arrangement,
easement, rights of way or similar rights for railroads, roadways, airways,
rivers or other locations over or through which a portion of the Subnetwork will
pass.
"Services" means, collectively, all of the services to be
provided by the Vendor, directly or indirectly through a third party contractor,
as part of the Work pursuant to the terms of this Agreement, including
Professional Services, Civil Work, Facilities Preparation Services, Preliminary
Site Acquisition, Site Plan Architectural Work, Configuration Engineering, RF
Engineering, Network Interconnection Engineering, Product Maintenance Services,
Product Support Services, OA&M Services, System Support Services, the Site
Acquisition tasks to be performed by Vendor, and other repair services as
provided in the Contract Documents, performed in accordance with the terms of
the Contract Documents, including the Specifications and Standards.
"Services and Support Plan" has the meaning specified in
Section 6.2(b).
"Shelter" means a certain type of Network Element Facility
described and identified on Exhibit G.
"Shipment Delay Request" has the meaning specified in Section
4.4.
"Site" means any physical location where a Network Element is
to be or is located.
"Site Acquisition" means the services to be performed by or on
behalf of Impsat necessary for acquiring sufficient rights to each Site as set
forth in Section 3.17.
"Site Acquisition Substantial Completion" means, with respect
to any Functional Unit, the point at which Impsat will have acquired, by
purchase, lease or otherwise through Site Acquisition, rights to a sufficient
number of Sites within the geographic area to be covered by such Functional Unit
such that the Performance Criteria specified in the Specifications and Standards
applicable to such Functional Unit would be substantially satisfied in the
reasonable opinion of Impsat, subject to the reasonable concurrence of the
Vendor.
"Site Plan Architectural Work" means the preparation by Vendor
of architectural and/or engineering drawings, plans and/or specifications
necessary to obtain land use permits and/or approvals, building permits and/or
approvals and/or conditional use permits, and any other Applicable Permits for
any given Network Element Facility.
"Software Element" has the meaning specified in Section 7.2.
"Spares" has the meaning specified in Section 6.1.
12
<PAGE> 18
"Specifications and Standards" means the collective reference
to all specifications, performance criteria and requirements governing the
design, Engineering, Products, Facilities Preparation Services, Installation and
Services to be performed or supplied by the Vendor in connection with the
Subnetwork, the Network and any Expansions, amendments, modifications and/or
other revisions thereto made in accordance with the terms of the Contract
Documents, including the specifications, performance criteria and requirements
set forth in the Functional Specifications, the Technical Specifications, the
Performance Criteria and the requirements of Applicable Laws, and in the case of
Products manufactured by the Vendor, the NNCPs.
"Structural Architectural Work" means the preparation of all
architectural drawings and blueprints relating to the structural specifications
for a Network Element Facility.
"Structure" means any building, tower, supporting structure
and any other improvement to real property.
"Subcontractor" means a contractor, vendor, supplier, licensor
or other Person hired by Vendor or any other Subcontractor of the Vendor who has
been hired to assist in certain specified areas of Vendor's performance of its
obligations under this Agreement, including performance of any part of the Work.
"Subnetwork" has the meaning specified in the prefatory
paragraph to this Agreement.
"Subsidiary" of a Party means any corporation or other legal
entity in which that Party directly or indirectly owns or otherwise Controls
more than fifty percent (50%) of the voting stock or shares.
"System Support Services" means those Services offered by the
Vendor relating to System design, enhancement and optimization.
"Tax" means any tax, duty, levy, charge, assessment or custom
(including, without limitation, any sales, use, excise, wage and employment tax,
VAT, octroi duty, recording, document and fiscal stamps and fees) that is
imposed or collected by any taxing authority or agency (domestic or foreign).
"Technical Specifications" has the meaning specified in
Section 3.2.
"Technical Support Provisions" means the provisions relating
to technical assistance to be provided by the Vendor as set forth in Exhibit I
attached hereto.
"Telecommunications Equipment" means Equipment and associated
Software Elements to be used to provide telecommunications services, but
specifically excluding all Building Infrastructure.
"Term" has the meaning specified in Section 16.1.
13
<PAGE> 19
"Training" means the processes of training and knowledge
transfer described in the Training Provisions and the other applicable
provisions of the Contract Documents.
"Training Provisions" means the procedures and courses
described in Exhibit K attached hereto.
"Utilities Work" means the installation of electric, water,
gas and other utilities and telephone facilities for voice communications in the
construction and operation of Network Element Facilities at the Sites.
"VAT" means the Argentine Impuesto al Valor Agregado.
"Vendor" has the meaning specified in the prefatory paragraph
to this Agreement.
"Vendor-Controlled Location" has the meaning specified in
Section 3.11(a).
"Vendor Direct Competitors" means business entities that
design, manufacture, sell and service telecommunications products similar to and
in competition with products and services manufactured or provided by Vendor.
"Vendor Financing Agreement" shall mean the financing
agreement to be entered into between Vendor, as administrative agent and
collateral agent, the other lenders party thereto from time to time, and Impsat,
as borrower, in connection with the financing by the Vendor of the transactions
contemplated hereby.
"Vendor IPR" has the meaning specified in Section 7.2(a).
"Vendor License" has the meaning specified in Section 7.2(a).
"Vendor Project Manager" has the meaning specified in Section
4.2.
"Warranty Period" has the meaning specified in Article XII.
"Work" means all Products and Services to be provided,
procured or performed by the Vendor pursuant to the terms and conditions of the
Contract Documents, as necessary to design, establish and operate the Subnetwork
(and/or any Expansions) on behalf of Impsat, on a "turnkey" basis and on the
terms and conditions set forth herein, including any and all Products and
Services which are not expressly included by the terms of this Agreement and
which are reasonably required for such turnkey provision of the Subnetwork
(and/or any Expansions).
"Year 2000 Compliant" means that a product shall properly
perform any type of operation with respect to date data before, on or after
January 1, 2000.
14
<PAGE> 20
ARTICLE III.
SCOPE OF WORK AND RESPONSIBILITIES
3.1 Scope of Work.
On the terms and subject to the conditions set forth herein,
Impsat agrees to purchase from the Vendor, and the Vendor agrees to sell, supply
and deliver to Impsat, all Work necessary for: (i) providing to Impsat the
Subnetwork and all related ancillary systems and supporting services, on a
"turnkey" basis, in accordance with the network design plan prepared by the
Vendor and attached hereto as Exhibit A (the "Network Design Plan"), the project
plan and schedule attached hereto as Exhibit D (the "Project Implementation
Plan") and the Specifications and Standards and the other provisions of the
Contract Documents; and (ii) achieving the final milestone as set forth in the
Master Plan contained in the Project Implementation Plan. In particular, the
Vendor shall manage and complete the Work in accordance with the Project
Milestones set forth in the Project Implementation Plan, and the Subnetwork's
operation shall consistently satisfy or exceed the performance criteria set
forth in the Network Design Plan during the Term of this Agreement (the
"Performance Criteria"). The Vendor's responsibility for the design,
construction and operation of the Subnetwork and the adequacy thereof shall not
in any way be diminished by Impsat's acceptance of Vendor's guidance or
recommendations as to engineering standards and design specifications, or by
Impsat's suggestions or recommendations on any aspect of the design. All
Services, including but not limited to the Installation and the supervision of
the Installation and integration processes, to be provided within Argentina
shall be performed by Nortel-Argentina or its subcontractors.
3.2 Network Overview.
A description of the Subnetwork's functional specifications,
principal features and services to be provided is set forth in the Network
Design Plan. The Subnetwork shall include all such functions, features and
services set forth in the Network Design Plan and in the other Contract
Documents, together with all necessary ancillary systems and supporting services
necessary therefor (excluding the features that are expressly and conspicuously
labeled as optional). All of such functional specifications, features and
services, together with the technical specifications for each Item of Product
that are set forth in any Documentation supplied by the Vendor relating to such
Item (collectively, "Technical Specifications"), are collectively referred to
herein as the "Functional Specifications."
3.3 Design, Engineering and Maintenance Services.
(a) Until Final Acceptance of the Subnetwork has been achieved, the Vendor shall
provide, as an integral part of the Work to be performed by the Vendor
hereunder, all Engineering and other design Services necessary to update,
adjust, modify and maintain the Network Design Plan in order to complete the
Subnetwork (before any Expansions or Change Orders) as described in Exhibit A
("Professional Services") in conformity with the Specifications and Standards
and the other provisions of the Contract Documents, including the Engineering
and design necessary to describe and detail the Subnetwork. Vendor shall be
compensated for any additional engineering and maintenance services agreed to
pursuant to Section 4.5 in an amount agreed to pursuant to Section 4.5.
15
<PAGE> 21
(b) As part of the Work, the Engineering to be performed by
the Vendor to establish the Subnetwork in accordance with the Contract Documents
shall include without limitation the following elements:
(i) RF Engineering and electrical engineering
and design services;
(ii) Network Interconnection Engineering for
network interconnection design with the
public switched telephone network ("Public
Switched Telephone Network" or "PSTN")
(including interconnection through the PSTN
with other service providers) at each
designated interconnection point or as
otherwise provided in the Network Design
Plan;
(iii) civil engineering, architectural services,
Preliminary Site Acquisition, Vendor's Site
Acquisition duties, Facilities Engineering,
Facilities Preparation Services,
Configuration Engineering and Civil Work
required to design, construct and install
all Structures required for the Subnetwork
infrastructure, including co-location
facilities, as more particularly set forth
in the Accommodation Plan; and
(iv) all other engineering required to achieve
integration and Interoperability at the
Equipment level, the Network Element
Facility Level, the Functional Unit level,
the Subnetwork level and the Network level.
(c) As part of the Work, the Vendor shall perform all
Engineering which may be required to meet all interface requirements among all
Equipment contained in the Subnetwork (including the Impsat-Provided Equipment)
and between the Subnetwork and the Companion Subnetwork.
(d) In carrying out the engineering and design services
required hereunder, the Vendor shall be solely responsible for identifying any
functions or services required to be provided or obtained by Impsat from third
parties in connection with the operation of the Subnetwork after Final
Acceptance thereof, defining all points of interface between the Subnetwork and
such functions or services, and identifying and providing appropriate means and
methodologies to remedy any Defects or Deficiencies in the Network Design Plan.
(e) The metric system of measurement shall be used in
connection with all Work provided by Vendor hereunder and all Impsat-Provided
Equipment.
3.4 Equipment, Structures and Network Software.
(a) The Vendor shall design, manufacture, procure, deliver and
install all Equipment and perform all Civil Work necessary for the establishment
and operation of the Subnetwork in accordance with the Network Design Plan, all
other applicable Contract Documents and all Applicable Laws. All Equipment
supplied by the Vendor shall be newly manufactured and of Vendor's latest
vintage as set forth in Exhibit L, all Structures shall be constructed of new
materials, and both the Equipment and Services shall be warranted as set
16
<PAGE> 22
forth in Article XII. In addition, all Products obtained from third-party
suppliers shall be obtained in compliance with Section 4.11(b). The principal
Subnetwork components and the applicable unit prices therefor shall be as
described in the Product List and Pricing Schedule.
(b) The Vendor shall furnish all drawings, specifications,
design data, preliminary arrangements, outline drawings and "as built" drawings
of all Equipment, Structures and fabricated materials to be supplied under this
Agreement and all other information as required and in sufficient detail to
indicate that such Equipment, Structures and fabricated materials comply with
the Specifications and Standards and the other provisions of the Contract
Documents. Vendor shall deliver a detailed description of each Software Element
contained in the Subnetwork, including its location in the Subnetwork as built,
and a history of all Software Element versions used in each such location. In
addition, Vendor shall furnish such other information as required and in
sufficient detail to indicate that the Network Software complies with the
Specifications and Standards and the other provisions of the Contract Documents.
(c) All Equipment delivered and installed as part of the
Subnetwork shall include all required Network Software and Software Elements,
and all other necessary components to enable such Items of Equipment to perform
in accordance with the applicable provisions of the Contract Documents and to
enable the full Installation, testing, maintenance, interconnection, operation
and administration of the Subnetwork and the entire Network (including, without
limitation, the NMS). All Network Software and Software Elements supplied by the
Vendor shall be the then-current release, and Vendor shall update the delivered
Network Software as needed to ensure that all portions of the Subnetwork are
using the same release versions at the time of Final Overall Network Acceptance.
All such Network Software and Software Elements shall be warranted as provided
in Article XII and shall be listed in reasonable detail in the shipping
documents, invoices or other documentation therefor.
3.5 Installation and Commissioning.
The Vendor shall be fully responsible for performing all RF
Engineering, Facilities Engineering, Preliminary Site Acquisition, Configuration
Engineering and Civil Work required for the design, construction and integration
of all required Network Element Facilities at each Site in accordance with the
Network Design Plan and the Final RF Engineering Plan for each Functional Unit,
the Installation of all Products and the placing into service of all such
Network Element Facilities and Products comprising the Subnetwork upon
completion of construction and Installation as aforesaid and testing as
described below. The Vendor shall carry out Installation, testing, integration,
optimization, commissioning and in service activation of the Subnetwork and the
entire Network (together with all related ancillary hardware and software
elements), in accordance with the Project Implementation Plan, the Network
Design Plan and the Final RF Engineering Plan. The Vendor shall provide all
materials, labor and tools required for construction, Installation, testing,
commissioning and optimization of the Subnetwork and Network as a whole.
3.6 Responsibilities of Vendor -- General.
17
<PAGE> 23
Without limiting the generality of Vendor's obligation to sell, supply
and deliver to Impsat all Work necessary for providing to Impsat the Subnetwork
and all related ancillary systems and supporting services, on a "turnkey" basis,
Vendor's responsibilities shall include those listed in this Section 3.6. All
Work, including but not limited to the Installation and the supervision of the
Installation process, to be provided within Argentina shall be performed by
Nortel-Argentina or its subcontractors, and shall be performed in accordance
with all Applicable Laws.
(a) Vendor shall have the following responsibilities related to the
construction of required facilities at each Site:
(i) creating, supervising and maintaining safety precautions and
programs for all Sites, in compliance with relevant
regulations regarding safety of persons or property and
protection against injury, damage or loss;
(ii) taking reasonable action to prevent, avoid and mitigate
injury, damage and loss in the event of any emergency
endangering life or property;
(iii) performing all security services necessary to ensure the
safety and security of all Products, all Impsat-Provided
Equipment and all facilities at each Site prior to the earlier
of the date of In Revenue Service of the Functional Unit in
which such Site is included and Final Acceptance of the
Subnetwork; and
(iv) providing, at all reasonable times, on reasonable prior notice
and subject to the provisions of Section 3.12, access to
representatives of Impsat (x) to the Vendor's plants,
premises, storage and deposit areas, already assembled or in
operation and to any other places or areas occupied by the
Vendor (or its Subcontractors, as far as reasonably
practicable) in connection with the Installation and
commissioning of the Subnetwork and (y) to documentation
related to compliance with applicable labor laws by Vendor and
its Subcontractors;
(v) with respect to any Site which also houses other operations of
Impsat or any of its Subsidiaries (unrelated to the
Subnetwork), ensuring that the Vendor's work in connection
with the Subnetwork does not create unreasonable levels of
noise, dust or other disruptions to such other operations;
(vi) obtaining basic electrical current hook-up to the Sites;
(vii) obtaining all Applicable Permits with the relevant entities
for the construction of the Sites and obtaining the necessary
permits to provide electrical current, water, gas and other
utilities to the Sites; and
18
<PAGE> 24
(viii) Complying with all Applicable Laws relating to chemical
substances, including the presence, storage, use, release and
other handling of toxic and hazardous substances during the
construction at each Site, provided, however, that Vendor, its
Subsidiaries and Affiliates shall not be liable for any
pre-existing violations of Applicable Laws by third parties,
whether now known or not yet discovered.
(b) Vendor shall have the following responsibilities arising out of, or
in the course of, or caused by, its performance of this Agreement:
(i) Preliminary Site Acquisition and acquiring those Sites that
Impsat has selected pursuant to the terms contained herein;
(ii) keeping the Subnetwork free from any and all claims, liens,
charges or encumbrances arising out of or in connection with
performance by any agent, employee, Subcontractor or other
Person for whom the Vendor is responsible;
(iii) obtaining at Vendor's sole cost and expense all Applicable
Permits;
(iv) obtaining all necessary Rights of Way and paying all
administrative costs associated therewith;
(v) complying with all Applicable Laws during the construction of
Network Element Facilities and the Installation and
commissioning of the Subnetwork, and obtaining and complying
with all Applicable Permits (it being agreed that Impsat shall
cooperate as may be reasonably requested in obtaining all such
Applicable Permits as provided in Section 10.4);
(vi) ensuring that the Vendor and its Subcontractors are and remain
eligible under all Applicable Laws and Applicable Permits to
perform the Work under this Agreement in the various
jurisdictions involved;
(vii) obtaining any export and import authorizations that are needed
to allow Impsat to use and enjoy in Argentina the products,
information, services and training to be provided hereunder;
and
(viii) providing Impsat with at least ninety (90) days prior written
notice of the date on which Impsat is required to provide the
link between the Subnetwork and the Companion Subnetwork
pursuant to Section 3.7(n).
19
<PAGE> 25
(c) The Vendor shall execute and deliver all further instruments and
documents, and take all further actions that may be necessary, in order to
enable the Vendor to complete performance of the Work or to effectuate the
purposes and intent of this Agreement.
3.7 Responsibilities of Impsat -- General.
Impsat shall have the following responsibilities arising out of, or in
the course of, or caused by, the performance of this Agreement:
(a) Impsat's Site Acquisition tasks referred to in Section 3.17;
(b) paying all costs and expenses, including all Taxes and fees,
associated with the purchase of Rights of Way, but excluding any of Vendor's
administrative costs and expenses associated with obtaining such Rights of Way;
(c) providing Vendor with the Impsat-Provided Equipment listed in
Exhibit D in the quantities, to the specifications and within the timeframe
stipulated in the Project Implementation Plan;
(d) with respect to any Site owned or leased by Impsat, performing
required site preparations as set forth in the Accommodation Plan not later than
the dates specified therein or in the Project Implementation Plan;
(e) with respect to Sites that are located at premises owned or leased
by Impsat, taking such steps as shall be reasonable under the circumstances to
limit access by unauthorized personnel to the areas of such Sites housing
Equipment; provided, however, that this responsibility on the part of Impsat
shall not limit or reduce the safety and security obligations of Vendor pursuant
to section 3.11;
(f) if required for any changes to day one of the Network, upon the
reasonable request of Vendor, providing Vendor with specific data and
information related to the proposed operation of the Network necessary for
Vendor to design the Network and complete the Work, including data and
information related to customer traffic, distribution, services, business plans,
marketing and sales plans, legacy systems, Site Acquisition and Rights of Way;
(g) informing Vendor in a timely manner of any changes or updates to
the information Impsat is required to provide under this Section 3.7;
(h) providing Vendor within a reasonable time with necessary responses
and, when appropriate, approvals of, Documentation, Acceptance Test Procedures
and Acceptance Test results, and all other required approvals as set forth in
Exhibit D to enable Vendor to design, engineer, implement, operate and maintain
the Network;
(i) satisfying Impsat's payment obligations pursuant to Article IX;
(j) taking reasonable action to prevent, avoid and mitigate injury,
damage and loss in the event of any emergency endangering life and/or property;
20
<PAGE> 26
(k) obtaining all licenses and consents required for the conduct of
Impsat's business and complying with all Applicable Laws, except to the extent
that such compliance is Vendor's responsibility as provided in this Agreement or
the other Contract Documents;
(l) providing Vendor and its Subcontractors with timely access to
appropriate Impsat personnel and to facilities or areas that are not Sites for
purposes of facilitating the Work; provided, however, that Subcontractors who
are also Impsat Direct Competitors shall not have such access without the prior
written consent of Impsat, which consent shall not be unreasonably withheld or
delayed; provided, further, that an Impsat authorized representative must be
present whenever an Impsat Direct Competitor visits one of Impsat's facilities
or areas that are not otherwise Sites;
(m) during the Term of this Agreement, providing Vendor and its
Subcontractors with access to the Sites that are located at premises owned or
leased by Impsat; provided, however, that following In Revenue Service of a
Functional Unit, Subcontractors who are also Impsat Direct Competitors shall not
have such access to such Functional Unit without the prior written consent of
Impsat, which consent shall not be unreasonably withheld or delayed; provided,
further, that an Impsat authorized representative must be present whenever an
Impsat Direct Competitor visits such Functional Unit; and
(n) upon ninety (90) days prior written notice by Vendor, providing at
Impsat's sole cost and expense the equipment and services necessary to link (via
satellite or some other means) the Subnetwork to the Companion Subnetwork, and
integrating both the Subnetwork and the Companion Subnetwork with such link.
3.8 Responsibilities - Applicable Permits.
(a) Vendor shall have the responsibility for obtaining at Vendor's sole
cost and expense all Applicable Permits on Impsat's behalf. Upon written request
of Vendor, Impsat shall reasonably cooperate with and assist Vendor in its
obligations to obtain all Applicable Permits, to the extent that Impsat's
cooperation and assistance are necessary for Vendor to expeditiously and
cost-efficiently obtain such Applicable Permits. Impsat agrees to respond
reasonably promptly to any such request from Vendor. Vendor will inform Impsat
as to any such conditions or responsibilities that will be contained in any
Applicable Permit that are not ordinary and routine (based on industry standards
and local law) and obtain Impsat's consent thereto prior to arranging for any
such Applicable Permit. Impsat (and its representatives and counsel) may, at its
sole option, participate in the process of Vendor's obtaining any Applicable
Permits to the extent Impsat deems reasonably necessary; provided, that any such
participation shall not relieve or alter any of Vendor's obligations under this
Agreement with respect to obtaining all Applicable Permits.
(b) Vendor will cause all Applicable Permits ultimately required to be
held by Impsat and not issued in the name of Impsat to be assignable to Impsat
and to be assigned to Impsat at the time title to the Subnetwork (or any
Functional Unit) is transferred to Impsat pursuant to this Agreement.
(c) Any delay in obtaining or failure to obtain any Applicable Permit
shall not constitute a Force Majeure; provided, however, that a Governmental
Entity's refusal or failure to grant an Applicable Permit shall constitute a
Force Majeure only if such refusal or
21
<PAGE> 27
failure occurs after Vendor has made all reasonable efforts to obtain such
Applicable Permit, including diligently pursuing all available appeals of any
denial thereof, and such refusal or denial is not otherwise attributable to
Vendor.
(d) Except for unforeseen changes in Applicable Laws following the
commencement of Work on a specific Network Element Facility, Vendor shall be
responsible for the payment of any and all costs incurred as a result of the
need to vary design, drawings, plans or procedures with respect to such Network
Element Facility to comply with any of the circumstances set forth in this
Section 3.8; provided, however, that Vendor is not responsible for any such
additional costs generated by Change Orders or Directed Changes requested by
Impsat pursuant to Section 4.5.
(e) Within 30 days after the date of execution of this Agreement,
Vendor will deliver to Impsat a detailed list of Applicable Permits that to its
knowledge are required to be obtained under current law in order to complete the
Work and shall update such list from time to time if it becomes aware of changes
in Applicable Permit requirements. Such list, as updated from time to time,
shall set forth the projected dates of filing for such Applicable Permits and an
estimate of when such Applicable Permits are expected to be obtained.
3.9 Engineering Certification.
Vendor shall ensure that all Engineering for which certification is
required under Applicable Laws is performed and certified by Vendor or
Subcontractor personnel who are professional engineers licensed or otherwise
properly qualified to perform such Engineering in all appropriate jurisdictions.
3.10 Interoperability.
The Vendor shall achieve Interoperability for all Network Elements,
including Impsat-Provided Equipment, and all Functional Units upon the
applicable Project Milestones specified in the Project Implementation Plan.
3.11 Safety and Security.
(a) To the extent that, and for as long as, the Vendor is in control of
any Site within the Subnetwork or any Functional Unit (such a Site, a
"Vendor-Controlled Location"), the Vendor shall be solely responsible for
initiating, maintaining, and supervising all safety precautions and programs in
connection with all such Vendor-Controlled Locations. The Vendor shall comply
with all Applicable Laws and Applicable Permits, as well as the Specifications
and Standards and other provisions of the Contract Documents bearing on safety
of persons or property or protection against injury, damages or loss. The
Parties acknowledge and agree: (i) until Final Acceptance of the Subnetwork or
In Revenue Service of a given Functional Unit is achieved the Vendor shall be
deemed to be in control of all Products, all Impsat-Provided Equipment, tools,
designs, Structures (or applicable portions thereof) housing Equipment, and/or
Engineering at, in or upon all Sites within such Functional Unit; and (ii) upon
the earlier of Final Acceptance of the Subnetwork or In Revenue Service of such
Functional Unit, all Sites relating to such Functional Unit shall be deemed to
be under the control of Impsat or the Operator of such Functional Unit for
22
<PAGE> 28
purposes of safety and security, without prejudice to the Parties' rights and
responsibilities as set forth in Exhibit J.
(b) During the course of the Work, the Vendor shall perform the
security services necessary to ensure the safety and security of all
Vendor-Controlled Locations and the Equipment and/or other materials or designs
relevant to the Work located thereon.
3.12 Inspection Right.
(a) Subject to subsections (c) and (d) of this Section 3.12, Impsat and its
agents and representatives, including Inspectors (collectively "Reviewers"),
shall at all reasonable times with prior notice to Vendor or Subcontractors, and
without unreasonably interfering with the Work, have access to the Sites where
the Vendor (or any of its Subcontractors, as far as reasonably practicable) is
carrying out the Work, in order to, at the Reviewers' expense:
(i) inspect all Items of Products and any materials,
components (whether finished or otherwise) or
manufacturing and quality control processes used
during and/or after their manufacturing, in order to
determine whether materials, components or processes
are in compliance with the applicable provisions of
the Contract Documents; and
(ii) inspect the Civil Work and the Installation of
Products and Impsat-Provided Equipment being
performed by the Vendor at any Site in order to
determine whether the Vendor's Facilities Preparation
Services and construction and Installation work at
such Site conform to the applicable provisions of the
Contract Documents.
No such inspection by the Reviewers shall affect in any way the warranties or
other obligations of the Vendor under this Agreement.
(b) Whenever any Reviewer chooses to exercise these rights, the Vendor
shall:
(i) with respect to the inspection of the manufacturing
of Products, provide all such rights of access,
during normal business hours, to the Vendor's plants,
premises, storage and deposit areas, facilities and
offices, sources of materials, Equipment being
assembled, already assembled or in operation,
Equipment being performance-tested or tested to the
Vendor's specifications and to any other places or
areas occupied by the Vendor in connection with the
Work, and afford such cooperation as may be
reasonably required by the Reviewers to conduct such
inspection (providing the Reviewers with temporary
office space and services to the extent necessary);
and
23
<PAGE> 29
(ii) with respect to the inspection of the Vendor's or its
Subcontractors' construction and Installation work,
ensure that the Vendor's or its Subcontractors'
personnel at the applicable Site provides to the
Reviewers all reasonable access and cooperation.
(c) The provisions of subsection (a) of this Section 3.12 shall not
give Vendor Direct Competitors the right to access the Vendor's or its
Subcontractors' facilities or areas that are not otherwise Sites, without the
prior written consent of the Vendor, such consent not to be unreasonably
withheld or delayed. A Vendor authorized representative must be present whenever
a Vendor Direct Competitor visits one of Vendor's or its Subcontractors'
facilities or areas that are not otherwise Sites. In addition, the provisions of
subsection (a) of this Section 3.12 shall not give an Inspector the right to
assemble, disassemble, rectify, modify or undertake any task unrelated to
inspection with respect to any Equipment or Civil Work so long as such Equipment
or Civil Work remains under the responsibility of Vendor pursuant to the terms
of this Agreement, without the prior written consent of the Vendor.
(d) Notwithstanding anything herein to the contrary, the right of
access of the Reviewers pursuant to this Section shall be subject to: (i) the
reasonable confidentiality, safety and security requirements relating to each
site subject to such right of access; and (ii) such Reviewers' non-interference
with the Work and other work being performed at such sites and not materially
affecting the Vendor's productivity.
(e) Any exercise of or failure to exercise any right to Impsat to
inspect, audit, visit or to observe any part of the Work shall not be construed
as limiting any obligation of Vendor hereunder.
3.13 Operating Manuals.
The Vendor shall provide Impsat with Operating Manuals in accordance
with this Section as soon as they are reasonably available but in no event later
than the earlier to occur of (i) the date agreed to by the Parties or (ii)
thirty (30) days prior to Provisional Acceptance of any Functional Unit. The
Vendor shall provide Impsat with four (4) printed sets and two (2) electronic
versions on CD-ROM of the Operating Manuals for each Functional Unit and for the
entire Subnetwork, and Impsat shall be permitted to make additional copies of
such Operating Manuals as reasonably needed for use by Impsat or an Operator to
operate each Functional Unit and the entire Subnetwork. The Operating Manuals
shall be prepared in accordance with the requirements of Section 3.15 and the
other provisions of the Contract Documents, and in sufficient detail to
accurately represent the Subnetwork and all of its component Network Elements as
constructed and shall specify clear procedures for operation and management of
the Network. Operating Manuals with up to date drawings, specifications and
design sheets shall be available for the Training as set forth in the Training
Provisions. As of the time of Final Overall Network Acceptance, Vendor shall
provide updates, if applicable, to all Operating Manuals to address the
operation of the Network overall, including providing "as built" drawings.
3.14 Maintenance Manuals.
24
<PAGE> 30
The Vendor shall provide Impsat Maintenance Manuals in accordance with
this Section as soon as they are reasonably available but in no event later than
the earlier to occur of (i) the date agreed to by the Parties or (ii) thirty
(30) days prior to Provisional Acceptance of any Functional Unit. The Vendor
shall provide Impsat with four (4) printed sets and two (2) electronic versions
on CD-ROM of the Maintenance Manuals for each Functional Unit and for the entire
Subnetwork, and Impsat shall be permitted to make additional copies of such
Maintenance Manuals as reasonably needed for use by Impsat or an Operator to
properly maintain each Functional Unit and the entire Subnetwork. The
Maintenance Manuals shall be prepared in accordance with the requirements of
Section 3.15 and the other provisions of the Contract Documents, and in
sufficient detail to accurately represent the Network and all of its component
Network Elements as constructed and will set forth procedures for inspection and
maintenance of the Subnetwork and any part thereof. Maintenance Manuals with up
to date drawings, specifications and design sheets shall be available for the
Training set forth in the Training Provisions. The Maintenance Manuals shall
include the volumes compiled by the Vendor containing all
Subcontractor-furnished product maintenance data. As of the time of Final
Overall Network Acceptance, Vendor shall provide updates, if applicable, to all
Maintenance Manuals to address the operation and maintenance of the Network
overall, including providing "as built" drawings.
3.15 Standards for Operating and Maintenance Manuals.
(a) All Operating Manuals and Maintenance Manuals and other documentary
material required to be provided by the Vendor pursuant to this Agreement shall
be written in English or Spanish if available and shall be:
(i) detailed and comprehensive and prepared with
generally accepted industry standards of professional
care, skill, diligence and competence applicable to
documentation relating to the design, engineering,
implementation, operation, administration and
maintenance practices for telecommunications
facilities similar to the Network;
(ii) sufficient to enable Impsat to operate and maintain
each of the Network Elements, Functional Units, the
Subnetwork and the Network as a whole on a continuous
basis, including setting forth all of the procedures
for operation; and
(iii) prepared subject to the foregoing standards with the
goal of achieving operation of the Network at the
capacity, efficiency, reliability, safety and
maintainability levels contemplated by the Contract
Documents and required by all Applicable Laws and
Applicable Permits.
(b) Operating Manuals, Maintenance Manuals and all other documentary
material supplied by the Vendor to Impsat hereunder, including all documentation
provided in CD-ROM format, shall be updated during the Term of this Agreement to
take into account all Equipment upgrades, enhancements, Expansions and other
technology upgrades applicable to the Network and/or any part thereof pursuant
to the Contract Documents.
25
<PAGE> 31
Impsat shall have the right to make copies of the foregoing Documentation as may
be reasonably necessary or desirable, it being understood that the Vendor has no
obligation to update any copies made by Impsat.
(c) In addition, without limiting the requirements set forth in
subsections (a) and (b) of this Section, Operating Manuals, Maintenance Manuals
and all other documentary material (but not "as-built" drawings) shall be
submitted to Impsat on CD-ROM (in PDF format if available).
3.16 RF Engineering.
(a) Impsat and the Vendor agree to cooperate with each other to
complete the RF Engineering to be performed by the Vendor. The Vendor shall
perform the RF Engineering for each Functional Unit and, in connection
therewith, shall use the information on desired coverage areas, RF Engineering
parameters and other information or restrictions Impsat wishes to be included in
the Final RF Engineering Plan for each Functional Unit, as set forth in the
Network Design Plan or as otherwise communicated to Impsat by the Vendor. In
conformance with the Project Milestones set forth in the Project Implementation
Plan, the Vendor shall deliver to Impsat a detailed preliminary RF design for
each of the Functional Units in accordance with the requirements and criteria
set forth in the Network Design Plan, which shall include "search rings" for
each such Functional Unit that shall specify geographical areas in which Vendor
may proceed with Preliminary Site Acquisition.
(b) Within five (5) Business Days after Site Acquisition Substantial
Completion with respect to any Functional Unit (the "Final RF Review Period"),
Impsat and the Vendor shall use their best efforts to agree on a final RF
Engineering plan (the "Final RF Engineering Plan") for such Functional Unit upon
which the Functional Unit shall be built by the Vendor. Failure of Impsat and
the Vendor to reach satisfactory agreement on a Final RF Engineering Plan for
any given Functional Unit within the Final RF Review Period shall automatically
result in the referral of any such disagreement to the most senior RF engineers
of both Impsat and the Vendor for their review and resolution within five (5)
Business Days after the end of any such Final RF Review Period. If the senior RF
engineers fail to resolve any such disagreement within the extended five (5)
Business Day resolution period, the disagreement shall be subject to resolution
in accordance with Article XVIII. It is understood by the Parties that during
the period of any such disagreement and the resolution thereof in accordance
herewith, the Work on such Functional Unit, to the extent possible, will be
ongoing and that Provisional Acceptance of such Functional Unit cannot be
achieved without agreement by the Parties on a Final RF Engineering Plan for
such Functional Unit.
3.17 Site Acquisition and Rights of Way.
The Network Design Plan includes procedures for determining the Sites.
The location of Sites shall be subject to modifications to the extent required
in light of the RF Engineering and other engineering and design services
hereinafter described, and the Vendor shall update the Network Design Plan to
reflect such modifications while retaining all features and services described
in the Functional Specifications. As part of the Site acquisition process,
Vendor shall identify at least three (3) commercially feasible alternatives for
each Site in accordance with the requirements and reference prices attached as
Exhibit M,
26
<PAGE> 32
and shall certify that each alternative satisfies the applicable Specifications
and Standards and the other provisions of the Contract Documents; provided,
however, that if after diligent effort Vendor is unable to identify three (3)
commercially feasible alternatives for each Site in accordance with the above
requirements, Vendor may propose the number of Site alternatives that Vendor has
identified, but in no event less than one (1) such commercially feasible Site.
After Vendor has identified Site alternatives, Impsat shall in its sole and
absolute discretion choose a Site from among those alternatives. Once Impsat has
chosen a particular Site, the Vendor shall be responsible for obtaining all
Applicable Permits and Rights of Way and completing all other documentation
required for the acquisition of sufficient rights in such Site to meet the
requirements of the Contract Documents; provided, however, that Impsat shall
have the right to participate along with Vendor in any negotiations with third
parties relating to the acquisition of such rights (including Rights of Ways),
and that all such documentation shall be in form and substance reasonably
acceptable to Impsat and its counsel. Once finalized, Impsat shall execute all
required documentation prepared by Vendor in connection with the acquisition of
rights to own, lease or use each Site in connection with the Subnetwork and the
Network and shall pay the purchase price and/or make any lease or use payments
required under such documentation.
ARTICLE IV.
PROJECT IMPLEMENTATION
4.1 Impsat Project Manager.
Impsat shall appoint a senior executive (the "Impsat Project Manager")
with overall authority and responsibility for representing Impsat in overseeing
the Vendor's Work hereunder. With respect to all matters related to the Work,
the Impsat Project Manager shall be authorized to act as the primary point of
contact for the Vendor in dealing with Impsat on all aspects of the Work and to
issue all consents or approvals and make all requests related thereto on behalf
of Impsat. Impsat may change the designated Impsat Project Manager from time to
time.
4.2 Vendor Project Manager.
The Vendor shall appoint a senior executive of Nortel-Argentina (the
"Vendor Project Manager") to coordinate the Vendor's overall delivery of the
Work and liaise with the Impsat Project Manager. With respect to all matters
related to the Work, the Vendor Project Manager shall be authorized to act as
the primary point of contact for Impsat in dealing with the Vendor on all
aspects of the Work and to issue all consents or approvals and make all requests
on behalf of the Vendor. The Vendor's appointment of the Vendor Project Manager
shall be subject to Impsat's consent. Vendor may change the designated Vendor
Project Manager from time to time with Impsat's consent, such consent not to be
unreasonably withheld.
4.3 Network Implementation Project; Project Implementation Plan.
The Vendor shall retain sole and complete responsibility over the
Engineering, design, planning, manufacturing, procurement, supply delivery and
Installation of Equipment, construction of facilities, and testing,
commissioning, optimization and operation of the Subnetwork hereunder, including
all aspects of project management, in order to establish the
27
<PAGE> 33
Subnetwork in accordance with all Applicable Laws and in conformance with the
Specifications and Standards and the other provisions of the Contract Documents,
and successfully complete each Project Milestone by or before its scheduled date
as specified in the Project Implementation Plan (subject to modifications of the
various scheduled completion dates to reflect Change Orders, Directed Changes or
the effect of Force Majeure, if any), except as otherwise directed by Impsat
and/or mutually agreed upon by Vendor and Impsat.
4.4 Impsat Requested Delays in Shipment of Equipment.
The Vendor's manufacturing schedules for Telecommunications Equipment
shall be based on the Master Plan, unless otherwise agreed to by the Vendor and
Impsat. Impsat may request a delay in the shipment of Telecommunications
Equipment by submitting such request in writing to Vendor (a "Shipment Delay
Request"). If Impsat submits a Shipment Delay Request to Vendor (i) before the
scheduled date for the manufacturing of such Telecommunications Equipment to
commence or (ii) in accordance with the provisions of Section 9.2(a), the
Shipment Delay Request shall be granted. If Impsat otherwise submits a Shipment
Delay Request, such Shipment Delay Request shall be granted only if the Vendor
has not actually begun manufacturing such Telecommunications Equipment.
4.5 Change Orders and Directed Changes.
(a) At any time during the construction of the Subnetwork, Impsat shall
have the right to request changes in any aspect of the Specifications and
Standards and/or the Work by delivering to Vendor a written request therefor (a
"Change Request") pursuant to the procedures and forms stipulated in Exhibit D
("Change Order Procedures and Forms"), describing in reasonable detail the
desired changes. The Vendor shall evaluate (i) the effect that the Change
Request will have on the resources required by the Vendor to implement the
desired changes, (ii) the resultant effect, if any, to the project schedule and
costs and (iii) the increase or decrease, if any, in the amounts payable by
Impsat to the Vendor as a result of such proposed chances. The Vendor shall
deliver to Impsat a notice specifying the results of such evaluation (the
"Change Proposal") as soon as reasonably feasible following receipt of a Change
Request.
(b) A Change Proposal shall not become effective unless and until the
price adjustments, the terms and schedule of payments and the extension of time
and all other terms as may be affected have been mutually agreed upon by the
Parties (and the Parties shall act reasonably and in good faith in negotiating
all such terms) and such terms are reduced to writing and signed by an
authorized representative of each Party (a "Change Order") using the Change
Order Form included in Exhibit D, and any Change Order shall be automatically
incorporated as an amendment to this Agreement.
(c) Notwithstanding the foregoing provisions of this Section 4.5,
Impsat shall have the right, in its sole discretion, to make one or more
directed changes to the scope of the Work (a "Directed Change"), subject to the
following provisions:
(i) Any Directed Change (a) must be in a writing from
Impsat to Vendor, (b) may reduce or increase the
quantity or amount of
28
<PAGE> 34
any Products or Services to be provided by Vendor,
and (c) may not change the Specifications or
Standards;
(ii) The Aggregate Price shall be increased or decreased,
as appropriate, to take into account the effect of
the Directed Changes, by reference to the prices set
forth on the Product List and Pricing Schedule
attached hereto as Exhibit M and the provisions of
this Section 4.5;
(iii) The aggregate of all Directed Changes may not result
in a net increase or decrease of more than [ ]
percent ([ ]%) of the Aggregate Price set forth in
Section 9.1;
(iv) The Parties shall negotiate an equitable adjustment
to the delivery date, schedule and such other terms
of this Agreement as may be directly affected by such
Directed Change, and in the absence of an agreement
as to such adjustments, or as to the price
adjustment, either party may refer the matter to
arbitration for dispute resolution pursuant to
Article XVIII; provided, however, that any adjustment
to the Aggregate Price shall be subject to
arbitration only if the price for such Service or
Item of Product is not included on the Product List
and Pricing Schedule (Exhibit M); and
(v) The Directed Change and any adjustments to this
Agreement under clauses (i) through (iv) shall
automatically be incorporated as an amendment to this
Agreement.
(d) Recovery Costs. If a Change Order or Directed Change results in the
cancellation of Equipment that has already been manufactured in accordance with
the schedule set forth in the Master Plan or the manufacturing of which has
commenced in accordance with such schedule, Impsat agrees to reimburse Vendor
for any cancellation charges or other related out-of-pocket expenses reasonably
incurred by Vendor as a result of such cancellation of Equipment. If a Change
Order or Directed Change results in the cancellation of Services, Impsat shall
pay Vendor for the Services actually performed by the Vendor in accordance with
the Standards and Specifications and the provisions of the other Contract
Documents through the date of cancellation and shall reimburse Vendor for the
reasonable demobilization costs incurred by Vendor as a result of such
cancellation of Services.
4.6 Project Progress Reporting.
(a) Monthly Project Report. During the course of Work, the Vendor
Project Manager shall prepare and deliver to the Impsat Project Manager a
Monthly Progress Report, by the 10th day of each month, in the form and covering
the matters specified in Exhibit D.
(b) Weekly Project Review Meeting. Each week, the Vendor Project
Manager shall present a detailed weekly project status report of the Work at a
weekly project
29
<PAGE> 35
review meeting attended by the Impsat Project Manager and other Impsat and
Vendor managerial and technical staff as appropriate. Such weekly project status
report shall cover the matters set forth in Exhibit D.
(c) Completion Report. Not later than the date of Provisional
Acceptance of each Network Element Facility, each Network Subsystem and each
Functional Unit, Vendor shall furnish to Impsat a Completion Report with respect
to such Network Element Facility, Network Subsystem or Functional Unit. Each
Completion Report shall cover the areas described on Exhibit D.
4.7 Work Staffing.
(a) Assignment by the Vendor of the Vendor Project Manager and other
key project team members identified as key members in the Project Implementation
Plan ("Key Persons") to perform the Work shall be subject to Impsat's approval
in its sole discretion. At its discretion, Impsat shall have the right to reject
at any time any Key Person (including the Vendor Project Manager) deemed in good
faith by Impsat to be unqualified, unsuitable, lacking requisite skills or
experience, or otherwise unsatisfactory in light of Impsat's reasonable business
needs, without any liability or penalty owed to the Vendor, by delivering a
notice to the Vendor. The Vendor shall use all commercially reasonable efforts
to promptly replace such rejected Key Person with another appropriate person
with the requisite skills and experience.
(b) Without thirty (30) days prior written notification to Impsat, the
Vendor shall not re-assign a Key Person to any other project on a full-time
basis, or terminate the employment of such Key Person (other than termination
for cause or other reasonable business purposes) within 12 months after such Key
Person is assigned to perform Services hereunder.
4.8 Force Majeure and Delay Attributable to Impsat.
(a) Except with respect to any obligation to make payments when due,
each Party may be excused for failure or delay with respect to any obligation of
such Party under this Agreement to the extent that such failure or delay results
from an event of Force Majeure. Notwithstanding the foregoing, the Vendor shall
not be entitled to relief under this Section 4.8(a) to the extent that any event
otherwise constituting an event of Force Majeure results from the negligence or
fault of the Vendor, any of its Subcontractors, its third party contractors, or
its Affiliates or agents, and Impsat shall not be entitled to relief under this
Section 4.8(a) to the extent any event otherwise constituting an event of Force
Majeure results from the negligence or fault of Impsat or any of its Affiliates
or agents.
(b) The Party claiming the benefit of an excusable failure or delay
under Section 4.8(a) shall: (i) promptly notify the other Party of the Force
Majeure circumstances creating the failure or delay and provide a statement of
the impact of the Force Majeure circumstances upon such Party's failure or
delay, including the actual or estimated extent of the delay caused or likely to
be caused thereby; and (ii) use all reasonable efforts to avoid, remove or
mitigate such causes of nonperformance, excusable failure or delay. If an event
of Force Majeure prevents the Vendor from performing any of its obligations
under this
30
<PAGE> 36
Agreement for a period [ ], Impsat shall have the right to terminate this
Agreement in accordance with Section 16.2.
(c) Except with respect to any obligation to make payments when due
hereunder, the Party not claiming the benefit of excusable failure or delay
hereunder will likewise be excused from performance of its obligations hereunder
to the extent that such performance is directly affected by the other Party's
delayed performance or failure to perform.
(d) If the Vendor's performance of the Work is delayed by reason of
Force Majeure or delays directly and primarily attributable to Impsat, or
Impsat's Affiliates, agents or third-party subcontractors (excluding Vendor),
Impsat shall (subject to the provisions of subsection (e) below) grant an
extension of time equal to that of the delay of performance of such Work, but
without any adjustment in the amounts payable by Impsat hereunder; provided that
Impsat shall bear any additional costs reasonably incurred by the Vendor that
can be shown to result directly from delays primarily attributable to Impsat. It
shall be the Vendor's duty at all times to exercise its best efforts to minimize
any delay and additional costs that may be caused by any of the causes described
above.
(e) Impsat recognizes that time is of the essence in providing Vendor
all required approvals and documentation and in performing all of Impsat's
obligations under this Agreement. If a delay in the Vendor's performance of the
Work is directly attributable to Impsat or Impsat's Affiliates, agents or
third-party subcontractors (excluding Vendor), the Vendor shall promptly
estimate the length of the delay and notify the Impsat Project Manager in
writing thereof on becoming aware that a delay has been or will be caused by any
one or more of the reasons mentioned in subsection (d) above.
(f) Any disputes with respect to whether or not an event constitutes a
Force Majeure or the application of this Section 4.8 shall be resolved in
accordance with the provisions of Article XVIII.
4.9 Records and Communications.
The Parties shall follow procedures established for keeping and
distributing orderly and complete records of the Work and its progress and for
communications between Impsat and the Vendor as described in Exhibit D.
4.10 Impsat Review, Comment and Approval.
To the extent that various provisions of this Agreement provide for
Impsat's review, comment, inspection, evaluation, recommendation or approval,
Impsat may do so (i) autonomously or (ii) in conjunction and/or consultation
with the Vendor. To the extent that this Agreement requires Impsat to submit,
furnish, provide or deliver to the Vendor any report, notice, Change Order,
request or other items, Impsat may in its sole discretion and upon written
notice to the Vendor designate any engineers or engineering firm engaged by it
to submit, furnish, provide or deliver such items on Impsat's behalf; provided,
however, that Impsat shall not designate any Vendor Direct Competitor without
Vendor's prior consent, which consent shall not be unreasonably withheld or
delayed. To the extent that various provisions of this Agreement provide that
Impsat may order, direct or make requests with
31
<PAGE> 37
respect to performance of the Work or is provided access to any Sites or any
other location, Impsat may at its option and upon written notice to the Vendor
authorize such engineers or engineering firm to act as Impsat's agent therefor,
provided that such engineers or engineering firms agree in writing to comply
with the confidentiality requirements under this Agreement. Upon receipt of such
notice, the Vendor shall be entitled to rely upon such authorization until a
superseding written notice from Impsat is received by the Vendor.
4.11 Quality Assurance.
(a) Vendor shall establish a quality assurance organization (the "QAO")
which shall be responsible for inspecting and testing all Products and Services
provided under this Agreement to ensure that the quality of such Products and
Services is sufficient to realize the Specifications and Standards and the other
provisions of the Contract Documents. The inspection and test program
established for such Products and Services shall be consistent with commercial
practices normally employed by Vendor in the construction of communications
networks. Copies of all test results and any reports prepared by the QAO shall
be provided to Impsat. The manager of the QAO shall report to the Vendor Project
Manager. The foregoing shall not be construed as limiting any of Vendor's
obligations under this Agreement.
(b) Prior to placing an order for a Product with a third party that exceeds
[ ] U.S. Dollars (US$[ ]), Vendor shall submit the name of such supplier and
a description of the Product to Impsat for Impsat's approval. Impsat shall have
the right, in its sole and absolute discretion, to approve or disapprove of such
supplier within seven (7) calendar days of receiving the name of such supplier.
The Vendor's responsibility for the design and construction of the Subnetwork
and the adequacy thereof shall not in any way be diminished by Impsat's approval
of a particular supplier.
4.12 Training.
As further described in Exhibit K hereto, Vendor shall provide to
Impsat a practical and participatory and, where feasible, on-site training
program, which program will include technical education (collectively, the
"Training"), at the price set forth in the Product List and Pricing Schedule.
Such Training must be kept current to encompass the latest Products directed by
Impsat pursuant to the terms of this Agreement.
4.13 Performance Bond.
Within ten (10) days of the date hereof, Vendor shall provide to Impsat
a performance bond equal to [ ] percent ([ ]%) of the Aggregate Price (the
"Performance Bond") to guaranty the completion of the Work, such Performance
Bond to be in a form acceptable to Impsat. At the end of each month, Vendor may
reduce the Performance Bond by an amount equal to the amount of money "retained"
for later payment pursuant to Sections 9.2(a)(iv) and (v) and 9.2(b)(iii) and
(iv) out of the payments made during such month. The Performance Bond shall be
(i) returned to Vendor upon Provisional Acceptance of the Subnetwork or (ii)
handled pursuant to Section 16.3(f).
32
<PAGE> 38
ARTICLE V.
ACCEPTANCE TESTING
5.1 Acceptance Testing - General.
(a) Acceptance Tests for each of the Network Element Facilities, each
of the Network Subsystems, each of the Functional Units, the Subnetwork and the
Network as a whole shall be conducted by the Vendor in conjunction with Impsat's
personnel. Such detailed test specifications for each Acceptance Test shall
substantially conform to the applicable provisions of the Acceptance Test
Procedures. The detailed test specifications for each Acceptance Test shall be
delivered by the Vendor to Impsat for review and approval at least thirty (30)
days prior to the date on which such Acceptance Test is planned to be performed.
The Parties shall meet to discuss in good faith the detailed test specifications
for such Acceptance Test with a view to agree upon such specifications by or
before the date that is fifteen (15) days prior to the date on which such
Acceptance Test is planned to be performed. In the event the Parties are unable
to agree upon such test specifications by such date, the dispute shall be
resolved in accordance with the dispute resolution mechanisms set forth in
Article XVIII.
5.2 Notification; Presence at Acceptance Tests.
The Vendor shall confirm testing activity with Impsat, in writing, at
least fifteen (15) days prior to the performance of each Acceptance Test. Impsat
and its representatives, at their sole cost and expense, shall have the right to
witness and have unrestricted access to the Vendor's and its Subcontractors'
Acceptance Tests.
5.3 Acceptance Test Reports and Acceptance Certificates.
Upon successful completion of the Acceptance Test for any Civil Work,
Item of Product, Network Element Facility, Network Subsystem, Functional Unit,
the Subnetwork and the Network as a whole conducted by the Vendor, the Vendor
shall submit to Impsat an Acceptance Test report comprising: (i) a certification
by the Vendor that such Acceptance Tests have been successfully completed, (ii)
a certification by the Vendor that the Work so tested has been completed in
accordance with the terms of this Agreement (other than proposed Vendor Punch
List items in the case of Acceptance Testing for Provisional Acceptance), (iii)
in the case of Acceptance Testing for Provisional Acceptance, a proposed Punch
List with respect to such Civil Work, Item of Product, Network Element Facility,
Network Subsystem or Functional Unit, (iv) if applicable, a confirmation that
the remainder of the Work is continuing in accordance with the Project
Milestones set forth in the Project Implementation Plan and (v) copies of all
test results as recorded during the execution of such Acceptance Test. Impsat
will acknowledge receipt of such certification in writing and deliver to the
Vendor either: (i) the appropriate acceptance certificate with respect to such
Civil Work, Item of Product, Network Element Facility, Network Subsystem,
Functional Unit, the Subnetwork or the Network as a whole or (ii) a notice
indicating a dispute with such certification or Punch List. In the event of any
dispute as to the results of any Acceptance Tests, such dispute shall be
resolved pursuant to the dispute resolution mechanisms set forth in Article
XVIII.
5.4 Punch Lists, Correction of Defects; Costs and Expenses.
33
<PAGE> 39
(a) For purposes of this Agreement, a "Punch List" means each list
prepared in conjunction with one or more Acceptance Tests for any Civil Work,
Item of Product, Network Element Facility, Network Subsystem or Functional Unit
and included in the related Acceptance Test certificate, which sets forth one or
more non-service-affecting items that have not been fully completed or performed
by the Vendor as of the satisfactory completion (but for such items) of the
related Acceptance Tests; provided, however, that a Punch List (i) shall include
only those items that can be completed or corrected within thirty (30) days of
Provisional Acceptance, and (ii) in the case of Acceptance Testing for
Provisional Acceptance of a Functional Unit, shall include only those items that
do not affect functionality and the repair of which will not require or likely
result in a breakdown in In Revenue Service of such Functional Unit. If the
Acceptance Tests performed in connection with Provisional Acceptance reveal
items that cannot be completed or corrected within thirty (30) days, then the
Network Element Facility, the Network Subsystem or the Functional Unit, as
applicable, being tested shall not have achieved Provisional Acceptance as of
that time.
(b) The costs and expenses of all Acceptance Tests and of performing
all Punch List Work shall be borne by the Vendor, and Impsat shall not be
charged or billed for any such costs and expenses. If any Acceptance Test is not
completed satisfactorily in accordance with the Acceptance Test Procedures or,
in the reasonable judgment of Impsat, is inconclusive, the Vendor shall, at its
sole cost and expense: (i) in writing, notify Impsat of such failure,
documenting in reasonable specificity and detail such failure; and (ii) promptly
correct whatever Defects or Deficiencies caused such Acceptance Test not to be
completed satisfactorily. After such correction, the Vendor shall (i) repeat at
its sole cost and expense the failed Acceptance Tests and as many other
Acceptance Tests as are necessary to ensure that such correction made by the
Vendor would not have affected the outcome of such other Acceptance Tests, and
(ii) in writing, notify Impsat as to what correction was made and what
Acceptance Tests were repeated.
5.5 In Revenue Service.
Impsat reserves the right at any time following Provisional Acceptance
to commence In Revenue Service of any Functional Unit, the Subnetwork or the
Network as a whole, and Vendor agrees to cooperate in all reasonable respects
with Impsat in connection therewith. Impsat's decision to commence In Revenue
Service of a Functional Unit or the Subnetwork or Network as a whole shall in no
way limit or diminish Vendor's obligations and responsibilities with respect to
such Functional Unit or the Subnetwork or Network as a whole, except as
specifically provided for in the Contract Documents.
5.6 Provisional Acceptance.
(a) Acceptance Testing for Provisional Acceptance. "Acceptance Testing
for Provisional Acceptance" means testing, in accordance with the Acceptance
Test Procedures set forth in Exhibit F, to determine that each Network Element
Facility, each Network Subsystem, each Functional Unit, the Subnetwork as a
whole or the Network as a whole fully functions and complies with the applicable
provisions of the Contract Documents. Acceptance Testing for Provisional
Acceptance with respect to each Network Element Facility, Network Subsystem and
Functional Unit shall occur in two parts: (i) the Civil Work related to such
Network Element Facility or Functional Unit shall be tested and
34
<PAGE> 40
approved in accordance with the provisions of Section 5.6(b) and Exhibit F, and
(ii) the Products and Impsat-Provided Equipment, if any, that are related to or
are part of such Network Element Facility, Network Subsystem or Functional Unit
shall be tested and approved in accordance with the provisions of this Section
5.6 and Exhibit F.
(b) Acceptance Testing for Provisional Acceptance of Civil Work. Vendor
shall provide notice to Impsat in writing when all Civil Work for a particular
Network Element Facility, Network Subsystem or Functional Unit has been
completed in accordance with the Specifications and Standards and the other
provisions of the Contract Documents. Within five (5) Business Days of Impsat's
receipt of such notification, Vendor and Impsat shall agree to a date to perform
a walk-through inspection of such Network Element Facility, Network Subsystem or
Functional Unit (a "Walk-Through"). At such Walk-Through, the Civil Work shall
be inspected and approved in accordance with the provisions of Exhibit F, and
Vendor and Impsat shall compile a Punch List with respect to the Civil Work at
such Network Element Facility, Network Subsystem or Functional Unit. If Impsat
agrees by executing an acceptance certificate pursuant to Section 5.3 that the
Civil Work is complete except for the Punch List items identified, then the
Civil Work at such Network Element Facility, Network Subsystem or Functional
Unit shall be deemed to have satisfied Acceptance Testing for Provisional
Acceptance. Prior to the Installation of a specific Item of Telecommunications
Equipment or Impsat-Provided Equipment, all of the Civil Work associated with
the portion of the Network Element Facility that will house such item of
Telecommunications Equipment or Impsat-Provided Equipment shall be completed in
accordance with the Specifications and Standards and the provisions contained in
the other Contract Documents.
(c) Provisional Acceptance of Network Element Facility or Network
Subsystem. The occurrence of both of the following events shall constitute
"Provisional Acceptance" of a Network Element Facility or Network Subsystem:
(i) Impsat's execution pursuant to Section 5.3 of an
acceptance certificate with respect to the Civil Work
that was performed in connection with such Network
Element Facility or Network Subsystem, subject to any
Punch List that may be jointly prepared by Vendor and
Impsat; and
(ii) Impsat's execution pursuant to Section 5.3 of an
acceptance certificate with respect to the Products
that are part of or related to such Network Element
Facility or Network Subsystem, subject to any Punch
List that may be jointly prepared by Vendor and
Impsat.
(d) Provisional Acceptance of Functional Unit. Impsat's execution
pursuant to Section 5.3 of an acceptance certificate with respect to both the
Civil Work that was performed in connection with a Functional Unit and the
Products that are part of or related to such Functional Unit, in each case
subject to any Punch List as jointly prepared by Vendor and Impsat, shall
constitute Provisional Acceptance of a Functional Unit. Provisional Acceptance
of the Functional Units shall occur in the order set forth in the Project
35
<PAGE> 41
Implementation Schedule contained in Exhibit D, unless otherwise agreed to by
Impsat in its sole discretion.
(e) Provisional Acceptance of Subnetwork or Network. Impsat's execution
pursuant to Section 5.3 of an acceptance certificate with respect to the
Subnetwork or Network shall constitute Provisional Acceptance of the Subnetwork
or Network. If Provisional Acceptance of the Subnetwork does not occur within
[ ] after all the Functional Units in the
Subnetwork achieving Final Acceptance, unless such delay is the result of a
failure of Impsat-Provided Equipment, Impsat shall be permitted to terminate
this Agreement pursuant to Section 16.2.
5.7 Final Acceptance.
(a) Final Acceptance of Network Element Facility, Network Subsystem or
Functional Unit. Final Acceptance of each Network Element Facility, Network
Subsystem or Functional Unit shall mean the completion or correction of all
Punch List items identified in connection with the Acceptance Testing for
Provisional Acceptance of such Network Element Facility, Network Subsystem or
Functional Unit. Nortel shall complete or correct all Punch List items within
[ ] of Provisional Acceptance. Impsat's execution of an acceptance
certificate pursuant to Section 5.3 for a Network Element Facility, Network
Subsystem or Functional Unit certifying that all Punch List items with respect
thereto have been corrected shall constitute "Final Acceptance" of such Network
Element Facility, Network Subsystem or Functional Unit.
(b) Final Acceptance of Subnetwork. Final Acceptance of the Subnetwork
shall mean the successful operation, in accordance with all provisions of the
Contract Documents, of the Subnetwork operating as a whole while in commercial
use, as determined in accordance with the Acceptance Test Procedures set forth
in Exhibit F; provided, however, that Final Acceptance of the Subnetwork shall
occur [ ] from the date of Provisional Acceptance of the Subnetwork if
the above condition of this subsection (b) is satisfied on such date, or at such
later date as the above condition of this subsection (b) is satisfied. Impsat's
execution of a final acceptance certificate with respect to the Subnetwork shall
constitute "Final Acceptance" of the Subnetwork.
(c) Final Overall Network Acceptance. Final Overall Network Acceptance
shall mean (i) Final Acceptance of each separate Subnetwork and (ii) the
successful operation, in accordance with all provisions of the Contract
Documents, of each of the Subnetworks when linked together using Impsat-Provided
Equipment. Impsat's execution of an acceptance certificate pursuant to Section
5.3 with respect to the Network shall constitute Final Overall Network
Acceptance. If Final Overall Network Acceptance does not occur within
[ ] of Provisional Acceptance of the Network, unless such delay is the
result of a failure of Impsat-Provided Equipment, (i) Impsat shall be permitted
to terminate this Agreement pursuant to Section 16.2, and (ii) the warranties
provided by Vendor pursuant to Article XII shall terminate.
ARTICLE VI.
SPARE PARTS; POST-COMMISSIONING SUPPORT
36
<PAGE> 42
6.1 Spare Parts.
Spare parts shall be provided under this Agreement in accordance with
the terms of Exhibit I.
6.2 Product Support Services; Emergency Technical Assistance Services.
(a) The Vendor shall provide the support services for all Products
supplied by the Vendor hereunder, including Emergency Technical Assistance
Services ("Product Support Services"), to the extent and in the manner set forth
in this Article VI and in the Technical Support Provisions, until Final Overall
Network Acceptance. Prior to Final Overall Network Acceptance, Vendor shall
present a Service Support Plan to provide such Product Support Services after
Final Overall Network Acceptance for a period of at least five (5) years,
including the yearly pricing for those Product Support Services. Such prices
shall be no higher than those set forth in the Product List and Pricing
Schedule.
(b) Until Final Overall Network Acceptance, whenever Impsat or the
Operator's personnel have identified and isolated any malfunction and the fault
continues to affect normal operations of any element of the Subnetwork or the
Network, such personnel may contact the Vendor's technical assistance group
according to the procedures outlined in the Technical Support Provisions. No
later than three (3) months prior to Final Overall Network Acceptance, Vendor
shall present a "Service Support Plan" to provide such technical support after
Final Overall Network Acceptance for a period of at least five (5) years,
including the yearly pricing for those technical support services. Such prices
shall be no higher than those set forth in the Product List and Pricing
Schedule.
(c) During the Warranty Period, the Vendor shall provide emergency
technical support to Impsat on a twenty-four (24) hours a day, three hundred
sixty five (365) day per year basis as described in the Technical Support
Provisions.
ARTICLE VII.
INTELLECTUAL PROPERTY RIGHTS
7.1 Background IPR and Foreground IPR.
(a) The Services performed by NNC, its Subsidiaries or Subcontractors
pursuant to this Agreement (and any deliverables provided to Impsat in
connection therewith) are not "works for hire."
(b) Background IPR of NNC and its Subsidiaries, and of Impsat and its
Subsidiaries, including any Background IPR incorporated in the Work and
Services, shall remain the exclusive property of such party.
(c) Impsat and its Subsidiaries hereby grant to NNC and its
Subsidiaries a non-exclusive, fully paid-up, worldwide, perpetual,
non-transferable, indivisible, personal license to use Impsat Background IPR
(the "Impsat License"). Such license shall be limited to and solely for the
purposes of allowing NNC and its Subsidiaries to perform their obligations under
this Agreement and the Work and Services to be performed hereunder.
37
<PAGE> 43
(d) All Foreground IPR, including Foreground IPR incorporated in the Work
and Services, shall be owned by NNC and its Subsidiaries without any
restriction.
(e) Impsat agrees to cooperate with and assist in all reasonable respects
NNC and its Subsidiaries in applying for and executing any applications and/or
assignments relating to any statutory Foreground IPR of NNC or its Subsidiaries.
Each such application shall be made at NNC's expense and NNC shall pay for
Impsat's assistance on a reasonable time and expense basis.
7.2 Vendor License.
(a) For all Vendor Background IPR and Foreground IPR, including each and
every program and element of the Network Software (each a "Software Element")
furnished to Impsat under this Agreement or incorporated in the Work ("Vendor
IPR"), Vendor hereby grants to Impsat a non-exclusive, fully-paid, worldwide,
perpetual license (the "Vendor License") to:
(i) use each Software Element and other Vendor IPR embedded or
included as an integral part of any Item of Equipment;
(ii) install and use each Software Element on one or more pieces of
Equipment used in the Project, if such Software Element is not
embedded as an integral part of any Item of Equipment;
(iii) use the Vendor IPR to use, operate and/or maintain the Network
(and/or any element thereof), including without limitation: (x)
to integrate customers of Impsat into the Network, provide
services thereon to such customers, and allow all such customers
to use the Network, and (y) to engage contractors to provide
goods and/or services for the use, operation and/or maintenance
of the Network and/or the Project;
(iv) install and use each Software Element on one or more pieces of
Equipment used in any segment of the Project in a Project
Country, if such Software Element is not embedded as an integral
part of any Item of Equipment;
(v) use the Vendor IPR to use, operate and/or maintain any other
segment of the Project in any Project Country, including without
limitation: (a) to integrate customers of Impsat into such
segments, provide services thereon to such customers, and allow
such customers to use such segments, and (b) to engage
contractors to provide goods and/or services for the use,
operation and/or maintenance of such segments; and
(vi) in order to develop and implement a segment of the Project in
Project Countries, use the Vendor IPR subject to the provisions
of this Agreement.
38
<PAGE> 44
The uses described in clauses (i) - (vi) above are the "Permitted IPR
Uses".
(b) Vendor does not grant Impsat or its Subsidiaries title or ownership
rights in or to any Software Element (in whole or in part), and such rights
shall remain with the Vendor, its Subsidiaries or third party suppliers (as the
case may be).
(c) The Vendor and its Subsidiaries consider each Software Element to
contain trade secrets of the Vendor, its Subsidiaries or third party suppliers
(as the case may be). Such trade secrets include the specific design, structure
and logic of the Software Element, its interactions with other portions of the
Network Software (both internally and externally) and the programming techniques
employed therein. In order to maintain the trade secret status of the
information contained within each Software Element, all Software Elements shall
be delivered to Impsat or its Subsidiaries in object code form only.
7.3 Impsat's Obligations Regarding Software Elements.
(a) For each Item of Network Software delivered to Impsat on a magnetic or
optical storage medium, Impsat shall:
(i) use each copy of the Network Software only on those Network
Elements for which it is intended, while remaining within the
limitations associated with such use hereunder, except as may be
provided otherwise in the Contract Documents;
(ii) affix to the magnetic or optical storage medium onto which a copy
is made by Impsat or its Subsidiaries of the Network Software in
the same form and location a reproduction of the copyright
notices, trademarks and all other proprietary legends or logos of
NNC, its Subsidiaries or a third party supplier (as the case may
be), appearing on the original copy of such Network Software
delivered to Impsat or its Subsidiaries, and retain the same
without alteration on all original copies thereof; and
(iii) destroy or return to NNC, as requested by NNC, the Network
Software (and all copies thereof) at such time as Impsat chooses
to permanently cease using such Network Software.
(b) Impsat and its Subsidiaries shall not:
(i) use any Software Element for any purpose other than the business
purposes of Impsat or its Subsidiaries pursuant to the provisions
of this Agreement;
(ii) allow anyone other than NNC, its Subsidiaries, and their
respective agents and employees, and Impsat, its Subsidiaries,
their respective employees, directors, officers and agents, and
Impsat's sub-licensees to have physical access to any Software
Element;
39
<PAGE> 45
(iii) make copies of a Software Element, except such limited number of
object code copies in machine readable form as may be reasonably
necessary for execution or archival purposes;
(iv) make any modification, enhancements, adaptations or translations
to or of any Software Element, except for those resulting from
Impsat interactions with a Software Element associated with
normal use as authorized hereunder and as explained in the
documentation related thereto;
(v) attempt to reverse engineer, disassemble, reverse translate,
decompile, or in any other manner decode any Software Element, in
order to derive the source code form or for any other reason;
(vi) make full or partial copies of any documentation or other similar
printed or machine-readable matter provided with any Software
Element (x) unless the same has been supplied in a form by NNC or
its Subsidiaries intended for periodic reproduction of such
partial copies, or (y) except for limited partial copies of
documentation for Impsat's internal use only; or
(vii) export or re-export the Network Software or the Documentation
related thereto unless (w) the exportation is from or to a
Project Country, (x) the exportation is in connection with an
expansion of the Project into other Project Countries, (y) Impsat
complies with the requirements of this Agreement and (z) Impsat
complies with all Applicable Laws.
(c) Impsat hereby warrants to Vendor that Impsat is not purchasing the
rights granted by the Vendor License in anticipation of reselling those rights,
except pursuant to sublicensing under Section 7.5 and/or permitted assignments
under Section 19.8.
7.4 Assignment.
In connection with any permitted assignment of all or part of its rights
under the Vendor License pursuant to Section 19.8, Impsat shall obtain a prior
written (i) undertaking to restrict use of the Vendor IPR to the Permitted IPR
Uses, (ii) undertaking to maintain as confidential except for the Permitted IPR
Uses any Software Elements contained on tapes, disks or other readable media,
(iii) acknowledgment that title to the Vendor IPR shall remain with Vendor and
its Subsidiaries, and (iv) acknowledgment that NNC, its Subsidiaries and
Affiliates are not liable for consequential damages arising from use of the
Vendor IPR. In the event Impsat desires to assign all or part of its rights to
any Network Element under the Vendor License to any Person, Impsat shall
terminate Impsat's rights under this Article VII with respect to and only with
respect to such assigned Network Element by providing prior written notice of
such assignment to NNC. Impsat's pledge of its interest in the Vendor License as
security for loans or any other form of financing shall not be deemed an
assignment for purposes of this Section 7.4.
40
<PAGE> 46
7.5 Sublicensing.
Impsat may sublicense its rights under the Vendor License for Permitted IPR
Uses, provided that any such sublicense shall be made through a written
sublicense agreement which shall: (i) restrict the use of the Vendor IPR to
Permitted IPR Uses; (ii) prohibit causing or permitting the reverse engineering
of Vendor IPR; (iii) require that all Software Elements in any form be
maintained as confidential pursuant to this Agreement, (iv) state that title to
the Vendor IPR shall remain with NNC and its Subsidiaries; (v) indicate that
title to Vendor IPR is not passing to another party by virtue of such
sublicense, (vi) state that NNC, its Subsidiaries and Affiliates are not liable
for consequential damages; and (vii) require the sublicensee, at the termination
of the sublicense, to discontinue use and destroy or return to NNC the Vendor
IPR.
7.6 Software Element Maintenance and Support.
(a) NNC and its Subsidiaries shall cause the related software documentation
with respect to any Software Element supplied by NNC and its Subsidiaries
hereunder to be provided to Impsat or its Subsidiaries in accordance with the
provisions of Sections 3.15;
(b) In the event of any failure or any Defect or Deficiency in a Software
Element or a breach of the representations and warranties of NNC or its
Subsidiaries in Section 15.1(d), NNC and its Subsidiaries shall cause such
faults to be corrected (if necessary by temporary repairs), and thereafter, such
corrections and/or patches shall be deemed as system functions that NNC and its
Subsidiaries are obliged to support as stipulated herein and in the Contract
Documents and shall be incorporated into the next Software upgrade of the
Software Element;
(c) Until Final Overall Network Acceptance, NNC and its Subsidiaries shall
provide first line support for all Software Elements comprised within each
Functional Unit, so that during this period:
(i) Impsat or its Subsidiaries shall have the right to contact the
NNC or its Subsidiaries, as specified in Exhibit I, to report any
malfunction of the Network and request that such malfunction be
remedied; and
(ii) in the event that the malfunction is caused by any Software
Element, NNC or its Subsidiaries shall, in the case of software
supplied by NNC or its Subsidiaries, promptly repair such
Software Element in accordance with support quality and response
delay standards specified in the Technical Support Provisions,
and in the case of third-party software, cause the relevant
third-party supplier to repair such Software Element in
accordance with support quality and response delay standards
specified in the Technical Support Provisions.
(d) No later than three (3) months prior to Final Overall Network
Acceptance, the Vendor shall present a Service and Support Plan to provide
maintenance and
41
<PAGE> 47
support of all Software Elements constituting the Network Software for a period
of five (5) years following Final Overall Network Acceptance at a single charge
per year.
(e) Under the terms of the Vendor License, Vendor shall make available to
Impsat (i) fully licensed versions of any software tools used in the development
of the Network Software, and (ii) any memory information description, that
Impsat may request in order to develop software for use in connection with the
Network and/or the Project. To the extent that such software tools and/or memory
information are sufficient to support such software development, Vendor shall
provide technical support in accordance with the Technical Support Provisions.
To the extent such technical support is insufficient, Vendor and Impsat shall
jointly review, and if necessary, Vendor shall make available, under the Vendor
License, appropriate portions of program source code to facilitate such software
development.
ARTICLE VIII.
NOTIFICATION OF DEVELOPMENTS
8.1 Industry Developments.
During the Term of this Agreement, the Vendor shall periodically inform
Impsat at reasonably frequent intervals (including in each of the Monthly
Progress Reports required pursuant to Section 4.6(a) during the build-out of the
Subnetwork) of relevant industry developments, participation opportunities in
applicable user groups and, in particular, any technical developments applicable
to the Network Design Plan and improvements that might be made thereto in order
to enhance service levels, increase functionality, and the like, in each case
without additional charge therefor. In addition, Vendor shall promptly inform
Impsat of any "bugs" in the Network Software of which Vendor becomes aware.
8.2 Vendor Developments.
The Vendor shall provide Impsat, through Impsat's Chief Technical Officer
or Marketing Director, with reasonable prior notice of any product developments,
innovations and/or technological advances that had been made by the Vendor and
may be relevant to the Subnetwork; provided, that any such notice pursuant to
this Section 8.2 need not include any information originated by another customer
of the Vendor which is proprietary to such other customer. For the purposes of
this Section 8.2, the term "Vendor" includes the Vendor and its Affiliates and
Subsidiaries.
ARTICLE IX.
PRICING AND PAYMENT PROVISIONS
9.1 Product List and Pricing Schedule.
The product list and pricing schedule attached to this
Agreement as Exhibit M (the "Product List and Pricing Schedule") sets forth: (i)
with respect to each category of Products, the price of each individual Item of
Equipment, Network Software, and other components of the Subnetwork, and (ii)
with respect to each category of Services, the price thereof. The Parties agree
that the aggregate price of the Work equals the sum of One
42
<PAGE> 48
Hundred Thirty Three Million Ninety Five Thousand Three Hundred Forty Dollars
and Eighty Eight Cents Amount (US$133,095,340.88) (such sum being hereinafter
referred to as the "Aggregate Price"). In the event of a conflict between the
Aggregate Price and the amounts listed in Exhibit M, the amounts listed in
Exhibit M shall prevail. Except as otherwise provided for in the Contract
Documents, the Aggregate Price is a firm fixed price and includes all costs,
fees and charges related to the Work and all applicable Taxes and Applicable
Permits related to the Work and the Contract Documents (except for VAT on
Services, VAT on the Equipment from the date of shipment by Vendor, the
withholding Taxes described in Section 9.7(d) and Impsat's portion of the
applicable stamp Taxes). The Aggregate Price may not be varied except pursuant
to a Change Order or Directed Change.
9.2 Invoicing and Payments.
(a) Telecommunications Equipment. Prior to shipping any Item of
Telecommunications Equipment, Vendor shall provide Impsat with at least three
(3) days written notice. If there are delays in the construction and completion
of the Functional Unit, Network Subsystem or Network Element Facility which will
contain such Item of Telecommunications Equipment, and such delays are
substantially attributable to Vendor, Vendor shall, at the request of Impsat,
delay the shipment of the Telecommunications Equipment contained in such
Functional Unit, Network Subsystem or Network Element Facility for a period of
time equal to the length of the delay. If Impsat does not request a delay in the
shipment of such Item of Telecommunications Equipment, then Vendor shall ship
such Item of Telecommunications Equipment and invoice Impsat for the price
thereof. The total Price for each Item of Telecommunications Equipment shipped
pursuant to this Agreement shall be paid in United States Dollars by Impsat to
Vendor as follows:
(i) [ ] percent ([ ]%) of the total Price for such Item of
Telecommunications Equipment, as a down payment, as stipulated in
Section 9.3(a);
(ii) [ ] percent ([ ]%) of the total Price for such Item of
Telecommunications Equipment, upon shipment of such Item of
Telecommunications Equipment and presentation of Vendor's
commercial invoice, accompanied by documentary evidence of
shipment;
(iii) [ ] percent ([ ]%) of the total Price for such Item of
Telecommunications Equipment, within thirty (30) calendar days
the Installation thereof;
(iv) [ ] percent ([ ]%) of the total Price for such Item of
Telecommunications Equipment, no later than thirty (30) calendar
days after Provisional Acceptance of the Subnetwork; and
(v) the remaining [ ] percent ([ ]%) of the total Price for each Item
of Telecommunications Equipment shall be paid out in four equal
payments of [ ] percent ([ ]%) of the total Price for such Item
of Telecommunications Equipment. The first
43
<PAGE> 49
three payments under this subsection (v) shall be made three (3)
months, six (6) months and nine (9) months, respectively, from
the date of Provisional Acceptance of the Subnetwork, if and only
if the following conditions are satisfied on each such date: (x)
the Subnetwork is operating in accordance with the Specifications
and Standards and the other provisions of the Contract Documents,
and (y) the Subnetwork continues to so operate when linked with
the Companion Subnetwork; provided, however, that the requirement
in (y) above shall not apply if the "link" provided by Impsat
pursuant to Section 3.7 does not properly function on such
payment date. Any amount which is not paid on a date specified
above as a result of a failure to satisfy the above conditions as
of such date shall be carried over to and paid on the next
payment date under this subsection (v) when the above conditions
are satisfied. The final payment under this subsection (v) shall
be made on the date of Final Overall Network Acceptance.
(b) All Other Products and Services. On the first Business Day of each
month, Vendor shall present Impsat as part of the Monthly Progress Report with a
certification that contains an itemized listing of all Products (other than
Telecommunications Equipment which is separately addressed in subsection (a)
above) shipped and a separate itemized listing of all Services performed during
the preceding month in accordance with the provisions of Section 4.6(a). Within
five (5) days of receiving such Monthly Progress Report, the Impsat Project
Manager and the Vendor Project Manager shall meet to review the information
contained therein. Within five (5) days of such meeting, Impsat shall notify
Vendor in writing of any objections Impsat has to the information contained in
the Monthly Progress Report. If Impsat does not object to any of the charges in
the Monthly Progress Report or does not respond within five (5) days of such
meeting, then Vendor shall be permitted to prepare and send to Impsat an invoice
based on the Product and Pricing Schedule with respect to all the Work (other
than Telecommunications Equipment) included in the Monthly Progress Report. If
Impsat does object to certain Work listed in the Monthly Progress Report, then
Vendor shall be permitted to prepare and send to Impsat an invoice for only that
portion of the Work (other than Telecommunications Equipment) from the Monthly
Progress Report that is not in dispute. Those charges that are contested by
Impsat shall be addressed pursuant to the provisions of Section 18.2 and 18.3.
All such invoices shall be paid in United States Dollars by Impsat to Vendor as
follows:
(i) [ ] percent ([ ]%) of the total Price for such Services and
Products, as a down payment, as stipulated in Section 9.3(a);
(ii) [ ] percent ([ ]%) of the total Price for such Services and
Products within thirty (30) calendar days of invoicing;
(iii) [ ] percent ([ ]%) of the total Price for such Services and
Products, no later than thirty (30) calendar days after
Provisional Acceptance of the Subnetwork; and
44
<PAGE> 50
(iv) the remaining [ ] percent ([ ]%) of the total Price for such
Services and Products shall be paid out in four equal payments of
[ ] percent ([ ]%) of the total Price for such Services and
Products. The first three payments under this subsection (iv)
shall be made three (3) months, six (6) months and nine (9),
respectively months from the date of Provisional Acceptance of
the Subnetwork, if and only if the following conditions are
satisfied on each such date: (x) the Subnetwork is operating in
accordance with the Specifications and Standards and the other
provisions of the Contract Documents, and (y) the Subnetwork
continues to so operate when linked with the Companion
Subnetwork; provided, however, that the requirement in (y) above
shall not apply if the "link" provided by Impsat pursuant to
Section 3.7 does not properly function on such payment date. Any
amount which is not paid on a date specified above as a result of
a failure to satisfy the above conditions as of such date shall
be carried over to and paid on the next payment date under this
subsection (iv) when the above conditions are satisfied. The
final payment under this subsection (iv) shall be made on the
date of Final Overall Network Acceptance.
The provisions of this Section 9.2(b) shall not apply to services associated
with operating the Network or any unit thereof ("Operating Services") or to
services associated with maintaining the Network or any unit thereof
("Maintenance Services"). Impsat and Vendor agree to negotiate for up to four
months following the date hereof, or such longer period of time as agreed to by
the Parties, to agree on the terms of and to execute both a mutually agreeable
Operating Services Agreement and a mutually agreeable Maintenance Service
Agreement, which shall separately address the provisioning of Operating Services
and Maintenance Services, respectively. The Operating Services Agreement and the
Maintenance Services Agreement shall contain the payment terms for such
Operating Services and Maintenance Services, respectively. If the Parties are
unable to agree on the terms of an Operating Services Agreement and/or a
Maintenance Service Agreement within such time period, the Aggregate Price set
forth in Section 9.1 shall automatically be reduced by an amount equal to the
amount incorporated into the Aggregate Price to cover such Operating Services
and/or Maintenance Services.
9.3 Vendor Financing.
(a) Impsat shall make the payments required under Sections 9.2(a)(i) and
9.2(b)(i) within five (5) calendar days of funds becoming available to Impsat
under the Vendor Financing Agreement.
(b) In the event that (i) the Vendor Financing Agreement is not executed
within thirty (30) days of the execution of this Agreement, or (ii) if any of
the conditions precedent for the Initial Draw under the Vendor Financing
Agreement shall not have been satisfied on or prior to the Outside Date, this
Agreement shall automatically terminate and, except as provided in subsection
(c) of this Section 9.3 and in Sections 16.1 and 16.3(b), neither Party shall
thereafter have any further right over or any further liability to the other
45
<PAGE> 51
Party whatsoever in respect of the transactions contemplated hereby, whether
hereunder or in law or in equity.
(c) In the event this Agreement is terminated pursuant to subsection (b) of
this Section, Impsat shall pay to Vendor as liquidated damages an amount equal
to the cost of the Products ordered or delivered, and the Services performed by
Vendor hereunder and under the LOI, and the reasonable costs and expenses of
Vendor related thereto (with reference to the unit prices set forth in the
Product List and Pricing Schedule, where applicable). Vendor shall provide
Impsat with an invoice therefor in reasonable detail and specificity. Impsat
shall pay (i) the first [ ] Dollars ($[ ]) of such invoice
within [ ] after receipt thereof (which payment obligation shall be
secured by the letter of credit specified in subsection (d) below) and (ii) the
remaining amounts invoiced within [ ] after receipt thereof. In no
event shall the amounts due within [ ] under clause (i) of the
preceding sentence and the corresponding provision in the agreement for the
Companion Subnetwork exceed [ ] Dollars ($[ ]) in the
aggregate. Vendor shall provide Impsat with reasonable supporting documentation
with respect to such costs and expenses. Vendor shall make commercially
reasonable efforts to mitigate its expenses by canceling commitments for the
purchase of Products and/or Services or assigning, at Impsat's option, any such
commitments to Impsat.
(d) In furtherance of Impsat's obligations under subsection (c) of this
Section and of subsection (c) of the Section in the similar turnkey project
agreement for the Companion Subnetwork, Impsat shall issue to NNC, for the
benefit of NNC, Nortel-Argentina and Nortel-Brazil, upon execution of this
Agreement, an irrevocable standby letter of credit in favor of Vendor, confirmed
by a United States bank acceptable to Vendor, substantially in the form attached
hereto as Exhibit N and received by Vendor within ten (10) calendar days after
execution of this Agreement. The standby letter of credit shall be in the amount
of [ ] Dollars (US$[ ]) and shall be valid until [
] The Parties agree that only one standby letter of credit in the amount
indicated in the previous sentence shall be issued by Impsat to NNC in order to
comply with the obligations of this Agreement and the turnkey project agreement
for the Companion Subnetwork. Vendor agrees to pay the cost associated with the
issuance of the standby letter of credit. NNC, for its own benefit and for the
benefit of Nortel-Argentina and Nortel-Brazil, shall have a right to draw down
on the standby letter of credit in the event (i) the Vendor Financing Agreement
is not executed within thirty (30) days of the execution of this Agreement, or
(ii) any of the conditions precedent for the Initial Draw under the Vendor
Financing Agreement have not been satisfied on or prior to the Outside Date and
upon presentation of an invoice pursuant to subsection (c) of this Section 9.3.
The Parties agree that the value of the standby letter of credit is only an
approximation of the costs Vendor expects to incur by the Outside Date and is in
no way a limitation on the costs which Impsat shall be required to pay Vendor as
provided in subsection (c) of this Section 9.3.
(e) The Vendor, in addition to its other rights, shall have the right to
terminate this Agreement by written notice to Impsat, effective immediately upon
delivery of such notice, without any penalty or prejudice to its rights or
remedies hereunder or at law or in equity, if for any reason: (i) an Event of
Default exists under the Vendor Financing Agreement (as such term is defined in
the Vendor Financing Agreement), except if there are Available Funds, as defined
in subsection (f) of this Section 9.3; or (ii) the Vendor has
46
<PAGE> 52
properly suspended the performance of the Work in whole or in part in accordance
with subsection (f) of this Section and such suspension continues for longer
than one hundred and eighty (180) days; provided that such Event of Default or
the reasons authorizing such suspension are continuing at the time of delivery
of such termination notice.
(f) The Parties further agree that the Vendor's obligation to sell, supply
or deliver the Work shall at all times be subject to Impsat having available
under the Vendor Financing Agreement or from any other source adequately
demonstrated by Impsat ("Available Funds") funds to pay for Work the Vendor is
required to perform hereunder. The Vendor shall have the right to suspend the
performance of Work hereunder, in whole or in part, upon written notice to
Impsat effective immediately, if at any time: (y) an Event of Default (as
defined in the Vendor Financing Agreement) exists and is continuing under the
Vendor Financing Agreement and (z) Impsat fails to provide the Vendor with
adequate assurance relating to the existence of Available Funds within ten (10)
days after receiving a written request by the Vendor to provide such assurance.
Any delay directly resulting from a suspension of Work permissible under this
Section 9.3 shall not be deemed to be a delay by the Vendor for any reason
hereunder, and the Vendor shall not be obligated to pay any penalty or other
amount as a result thereof.
(g) For the avoidance of doubt, and notwithstanding any other provision in
this Agreement to the contrary, all Work performed hereunder by Vendor shall be
subject to payment by Impsat, and payment by Impsat for such Work shall not be
subject to any limitation or delay based on availability of funds to Impsat
under the Vendor Financing Agreement or otherwise.
9.4 Disputed Invoices.
If Impsat, within ten (10) days of receipt of an invoice from Vendor,
notifies the Vendor that Impsat disputes any amount invoiced by the Vendor to
Impsat, then each Party shall provide to the other Party all information
reasonably requested by such other Party which it has to support its position
regarding the disputed portion of the invoice and shall proceed in good faith
and in a timely manner to resolve such disputed portion. Impsat's obligation to
pay the disputed portion of any invoice shall be suspended for such period of
time as is reasonably required to resolve any such dispute; provided, that any
disputed amount that is subsequently determined to be payable by Impsat to the
Vendor as of the invoice date shall bear interest at the rate of one percent
(1.0%) per month from the original due date until the date of actual full
payment.
9.5 Late Payments.
Any amount owed by Impsat to the Vendor hereunder that is not paid when due
shall bear interest at a rate of one percent (1.0%) per month from the original
due date until the date of actual full payment.
9.6 Right of Offset.
One Party making payment to another Party pursuant to this Agreement may
reduce the amount of such payment by the amount of money owed pursuant to this
Agreement to the Party making payment by the Party receiving payment; provided,
however,
47
<PAGE> 53
that Impsat shall have no right of offset under the Vendor Financing Agreement
or against third-party lenders.
9.7 Taxes.
(a) Vendor agrees to ensure that it is in good standing and is
appropriately registered, including without limitation with respect to Taxes, in
any country, state or other jurisdiction where legally required. In addition,
Vendor agrees to cooperate and assist Impsat in Impsat's efforts (i) to have
Products which are the subject of this Agreement made exempt from VAT, whether
in the manufacture of the Products or related to the importation or location or
Installation of the Products, (ii) to request revisions, drawbacks, remissions,
reclassifications or the like in the jurisdictions identified by Impsat; or
(iii) to reduce or eliminate VAT (including the provision of applicable
certifications and forms) and to obtain any available refunds of VAT, provided
that Vendor shall not be required to act other than in accordance with the
relevant Applicable Laws then in force. Impsat shall reimburse Vendor, in
accordance with Section 9.2, for any reasonable costs (including the reasonable
fees and expenses of legal counsel, accountants and other advisors) incurred by
Vendor under this Section 9.7(a), provided that Impsat was notified and has
consented to the incurrence of such costs, fees and expenses. In addition, if
any taxing authority determines that Vendor followed a certain course of action
pursuant to subsections (i) through (iii) above for which it was ineligible
under Applicable Law which Impsat has requested or to which Impsat has
consented, Impsat agrees to indemnify, defend and hold Vendor harmless pursuant
to the procedures set forth in Section 13.6 for all taxes, penalties, interest
payments, fines and any other out-of-pocket costs Vendor incurs in connection
with such matters.
(b) Prior to the date of Final Acceptance of the Subnetwork or any
Functional Unit thereof, Vendor shall provide evidence of having made all
payments for Taxes included in the Aggregate Price which Vendor is required to
pay on Impsat's behalf where Impsat is listed as the payor, or the portion
thereof attributable to a particular Functional Unit, which evidence shall be
provided within sixty (60) days after the date of each such payment.
(c) As part of the Work, Vendor shall obtain at its own expense any import
license or other official authorization and carry out all customs formalities
necessary for the importation or exportation of goods in connection with such
Work and pay any applicable duties or other Taxes or charges.
(d) Withholding Tax.
(i) If withholding of any Tax is required in respect of any payment
by Impsat to Vendor hereunder, Impsat shall (i) withhold the
appropriate amount from such payment, (ii) pay such amount to the
relevant authorities in accordance with the Applicable Laws, and
(iii) pay Vendor an additional amount such that the net amount
received by Vendor is the amount Vendor would have received in
the absence of such withholding, except no additional amount
shall be paid to Vendor if and to the extent any such withholding
would not have been required if Vendor
48
<PAGE> 54
had satisfied its other Tax payment obligations. If Impsat is
required to withhold any Tax in respect of any payment to Vendor
by Impsat hereunder, Impsat shall provide to Vendor, within
fifteen (15) calendar days of the relevant Tax payment, a
certified copy of an official tax receipt for any Tax which is
retained from any payment due to Vendor or for any Tax which is
paid on behalf of Vendor. All such receipts shall be in the name
of Vendor. Vendor agrees to complete and provide to Impsat within
a reasonable period of time, or if required, to the applicable
taxing authority, such forms, certifications or other documents
as may be reasonably requested by Impsat, in order to allow it to
make payments to Vendor without any deduction or withholding on
account of withholding Taxes (or at a reduced rate thereof) or to
receive a refund of any amounts deducted or withheld on account
of withholding Taxes.
(ii) If Vendor shall become aware that it is entitled to receive a
refund or benefit from a credit from a relevant taxing or
governmental authority in respect of a Tax as to which Impsat has
paid an additional amount pursuant to subsection 9.7(d)(i) above,
Vendor shall promptly notify Impsat of the availability of such
refund or the benefit of such credit and shall, within a
reasonable period of time after receipt of a request by Impsat
(whether as a result of notification that it has made to Impsat
or otherwise), make a claim to such taxing or governmental
authority for such refund or the benefit of the applicable tax
credit at Impsat's expense. If Vendor receives a refund or the
benefit of such applicable tax credit in respect of a Tax as to
which Impsat has paid an additional amount pursuant to subsection
9.7(d)(i), or if, as a result of Impsat's payment of such
additional amounts, Vendor or any other member of an affiliated
group of which Vendor is a member, receives a credit against
Taxes imposed on its income or franchise taxes imposed on it by
the country under the laws of which it is organized or any
political subdivision thereof, Vendor shall promptly notify
Impsat of such refund or the benefit of the applicable tax credit
and shall within 30 days from the date of receipt of such refund
or the benefit of such tax credit pay over the amount of such
refund or benefit of such applicable tax credit (including any
interest paid or credited by the relevant taxing or governmental
authority with respect to such refund or the benefit of the
applicable tax credit) to Impsat (but only to the extent of the
additional payments made by Impsat under subsection 9.7(d)(i)
above with respect to the Tax giving rise to such refund or the
benefit of the applicable tax credit), net of all out-of-pocket
expenses of Vendor which it would not have incurred but for the
application of this paragraph; provided, however, that Impsat,
upon the request of Vendor, agrees to
49
<PAGE> 55
repay the amount paid over to Impsat (plus penalties, interest or
other charges due to the appropriate authorities in connection
therewith) to Vendor in the event Vendor is required to repay
such refund or credit to such relevant authority.
(iii) In the event that Vendor must engage service providers from
outside Argentina and/or place service providers from outside
Argentina onto the Nortel-Argentina payroll, Impsat shall be
required to pay the additional withholding taxes and/or the
additional tax burden with respect to such service providers;
provided, however, that any such additional payments shall not
exceed [ ] Dollars (US$[ ]) in the aggregate.
(e) Where Vendor cannot act on behalf of Impsat in making any payment,
Impsat shall directly pay all applicable customs fees, import duties and similar
charges to the appropriate customs or taxing authority out of funds provided by
Vendor.
ARTICLE X.
SHIPPING, LOGISTICS, IMPORTATION; TITLE AND RISK OF LOSS
10.1 Title and Risk of Loss - General.
The Vendor shall retain title with respect to each Item of
Telecommunications Equipment delivered hereunder until shipment of such Item of
Telecommunications Equipment, whereupon title to such Item of Telecommunications
Equipment shall pass to Impsat (with the exception of Software Elements
contained therein). The Vendor shall retain title with respect to each Network
Element Facility and each Item of Product contained therein (excluding each Item
of Telecommunications Equipment for which title has already passed to Impsat
pursuant to the previous sentence of this Section 10.1) until the earlier to
occur of (i) the earlier of (x) Provisional Acceptance of the Network or (y) In
Revenue Service of the Functional Unit that includes such Network Element
Facility, or (ii) if different from (i), as otherwise required by Applicable
Law, whereupon title to such Network Element Facility as a whole shall pass to
Impsat (with the exception of Software Elements). Risk of loss with respect to
such Network Element Facility and each Item of Product (including
Telecommunications Equipment) contained therein shall pass to Impsat upon the
earlier to occur of (i) In Revenue Service of the Functional Unit that contains
such Network Element Facility and Equipment and (ii) Provisional Acceptance of
the Network. Until such time as risk of loss for each Item of Product and each
Network Element Facility passes to Impsat, Vendor shall either (i) maintain
insurance coverage at its sole cost and expense for each Item of Product and
each Network Element Facility in accordance with the provisions of Article XI,
or (ii) reimburse Impsat for all costs and expenses incurred by Impsat to insure
each Item of Product and each Network Element Facility, including all premiums
and deductibles related thereto, if Vendor is unable to or does not obtain such
insurance coverage. If Vendor chooses to carry the insurance coverage in its own
name, Vendor agrees to prosecute diligently any and all claims and, if title has
passed to Impsat, to turn the proceeds of any recovery over to Impsat plus the
amount of any deductible deducted therefrom. The Parties shall execute all
appropriate documents to evidence the conveyance of title pursuant to this
Section 10.1, including without limitation any bills of sale or deeds of title.
Title to Software
50
<PAGE> 56
Elements shall not pass to Impsat at any time but shall instead by licensed
under Section 7.2. The foregoing shall in no way restrict Impsat's inspection
rights pursuant to Section 3.12 nor modify any warranties of NNC and its
Subsidiaries as provided in Article XII.
10.2 Shipping.
The Vendor shall pack and secure each Item of Products in an appropriate
manner so as to ensure the protection of such Item during transportation to and
within Argentina, as applicable. The Vendor shall replace any Item of Product
that is found to have been damaged due to inadequate packing or as a result of
transportation.
10.3 Importation and Inland Transportation.
The Vendor shall be responsible (i) for the importation of all Products
(including tangible embodiments of Network Software as aforesaid) sourced
outside of Argentina or Brazil, as applicable, into Argentina or Brazil, and the
transportation of all Items of Products from the port of entry in Argentina or
Brazil, as the case may be, to the Sites where such Items are to be installed;
and (ii) for the transportation of all Items sourced in Argentina or Brazil, as
the case may be, from the source to the Sites where such Items are to be
installed. Prior to the importation of any Product into Argentina, Vendor shall
provide Impsat in writing with Vendor's formal position on the harmonized code
and the amount of the import duty payable with respect to such Product. If
Impsat agrees with the position taken by Vendor, then Impsat shall be the
importer of record. If Impsat, on a reasonable basis, does not agree on a case
by case basis with the Vendor's proposed harmonized codes, the Vendor shall
choose either (x) to accept Impsat's proposed harmonized code, in which case
Impsat shall be the importer of record or (y) to reject Impsat's proposed
harmonized code, in which case Vendor shall be the importer of record. If the
cost of the import duties using the proposed harmonized codes offered by Impsat
are lower than the proposed harmonized codes offered by Vendor, then such
savings shall be credited to Impsat on the date of importation; provided,
however, that in order for Impsat to receive such credit, Impsat must provide
for Vendor's review a calculation detailing the achieved savings claimed by
Impsat. Notwithstanding anything above to the contrary, in all cases the prices
quoted on the Product List and Pricing Schedule shall be the maximum amounts
paid by Impsat. The Vendor shall pay when due, before any liens can attach to
the items in question, all costs of importation and transportation.
10.4 Export and Import Licenses and Work Permits.
(a) The Vendor shall be responsible for obtaining all export licenses
and/or complying with other Applicable Laws applicable to the exportation from
the country of origin, transshipment if required and importation into Argentina
of all Products related to the Subnetwork. The Vendor shall also be responsible
for obtaining any import licenses and/or other Applicable Permits for the
importation of the Products into Argentina and the performance of Services
therein, including all entry or work permits, visas or authorizations for
personnel engaged by the Vendor in connection with the Subnetwork, all as
required by the Argentine government, as the case may be, or any agency or
political subdivision thereof. The Vendor shall pay all applicable license fees
and other costs related to the foregoing.
51
<PAGE> 57
Impsat shall assist the Vendor as Vendor may reasonably request in obtaining any
such required approvals but shall not be required to incur any out-of-pocket
costs in doing so.
(b) The Parties acknowledge that certain Products and Services provided
hereunder may be subject to laws and regulations regarding their export and
import, and that the use, distribution, transfer or transmission of certain
Products and Services may be required to be authorized under such laws and
regulations. Vendor shall use reasonable efforts to obtain all required export
licenses in such a manner that such licenses will permit Impsat to use, transfer
or move such Products and Services as needed throughout the Project Countries.
In addition, unless otherwise agreed to by the Parties in this Agreement or in
any other agreement executed by the Parties, Impsat shall be permitted to import
and export Products and the tangible results of the Services provided hereunder
to and from any Project Country for use in the Project so long as the
importation and/or exportation of such Products and the tangible results of such
Services comply with all Applicable Laws.
ARTICLE XI.
INSURANCE
11.1 Maintenance of Insurance. At all times during the Term of this
Agreement, the Vendor shall maintain the following insurance policies:
(a) Workers' Compensation or similar insurance coverage and Employers'
Liability Insurance sufficient to satisfy all applicable statutory requirements.
(b) Comprehensive General Public Liability Insurance, covering personal
injury and/or tangible property damage, with combined single limits of not less
than [ ] U.S. Dollars (US$ [ ]) for claims of injury or death of any persons or
loss of or damage to property resulting from any one accident. Such
Comprehensive General Liability shall also include Contractual Liability
Coverage which shall specifically apply to the obligations assumed by Vendor
under the terms and conditions of this Agreement.
(c) Comprehensive Automobile Liability insurance covering all vehicles and
vehicular equipment owned, hired or in the custody and control of Vendor and
complying with all Applicable Laws with limits not less than the statutorily
required limits in Argentina.
(d) Excess Comprehensive General Liability and Auto Liability insurance for
the difference in the amounts insured under Sections 11.1(b) and 11.1(c) and [ ]
U.S. Dollars (US$[ ]).
(e) All Risk Insurance in respect of all property of Vendor, its respective
officers, agents and employees connected with the performance of the Work
against all loss or damage from whatever cause, including but not limited to
fire, flood, earthquake and testing perils. Such All Risk Insurance shall also
provide, with not less than the statutorily required limits in Argentina, (i)
coverage for removal of debris and insuring the Products, Structures and Network
Element Facilities, and all fixtures, materials and other property that are part
thereof, (ii) off-site coverage with sublimits sufficient to insure the full
replacement value of any Products or materials not stored on a Site, and (iii)
permission for Impsat to occupy and operate Functional Units that have been
placed into In Revenue Service.
52
<PAGE> 58
Insurance under such policy shall remain in full force and effect until risk of
loss is transferred to Impsat in accordance with Section 10.1.
(f) Transit Insurance including inland, air, waterways and Marine Cargo
coverage including War (other than on land) in an amount sufficient to cover the
expected highest value of any one shipment. Coverage to include Institute Cargo
Clauses, all risks 1.1.63, Institute War Clauses, London Malicious Damage
Clause, and Institute Strikes Riots and Civil Commotion Clauses or their
equivalent.
11.2 Additional Requirements.
(a) All the insurance listed in Sections 10.1 and 11.1 above shall be
effected with a creditworthy insurer, and shall be endorsed to provide Impsat
with at least thirty (30) days prior written notice of cancellation or material
change.
(b) With the exception of Workmen's Compensation Insurance (or similar
insurance coverage) and All Risk Insurance, all insurance listed in Section 11.1
shall name Impsat as an additional insured as to operations hereunder, in which
event Vendor's insurance shall be primary to any insurance carried by Impsat.
(c) All Risk Insurance required pursuant to Section 11.1 above shall
contain a waiver of subrogation as against Impsat, and its Affiliates, officers
and directors.
(d) The limits specified herein are minimum requirements and shall not be
construed in any way as limits of liability or as constituting acceptance by
Impsat of such responsibility for financial liabilities in excess of such
limits. Vendor shall bear all deductibles applicable to any insurance.
(e) If it is judicially determined that the monetary limits of insurance
required hereunder or of any indemnity voluntarily assumed under the terms and
conditions of this Agreement which Vendor agrees will be supported either by
available liability insurance or voluntarily self-insured, in part or whole,
exceeds the maximum limits permitted under Applicable Law, it is agreed that
said insurance requirements or indemnity shall automatically be amended to
conform to such monetary limits as may be specified by Applicable Law.
(f) If Vendor fails to effect or keep in force any of the insurance
required under this Agreement, Impsat may effect and keep in force any such
insurance and pay such premiums as may be necessary for that purpose and from
time to time deduct the amount so paid by Impsat from any money due or which may
become due to Vendor hereunder or recover the same as a debt due from Vendor,
provided that Impsat is not in default hereunder.
(g) Each Party shall give the other prompt notification of any claim with
respect to any of the insurance to be provided hereunder, accompanied by full
details giving rise to such claim. Each Party shall afford the other all such
assistance as may be required for the preparation and negotiation of insurance
claims.
(h) Vendor shall report to Impsat as soon as practicable all accidents or
occurrences resulting in injuries to Vendor's employees or third parties, or
damage to
53
<PAGE> 59
property of third parties, arising out of our during the course of services for
Impsat by Vendor.
(i) Vendor may organize such levels of deductibles, excesses and
self-insurance as it considers appropriate and which are within prudent industry
standards.
(j) The insurance requirements of this Article XI will remain in place with
respect to each Functional Unit or the Subnetwork, as the case may be, and will
not in any way be diminished or reduced until the transfer of title and risk of
loss shall have passed to Impsat, even in the event of the sale of substantially
all the assets of Vendor by way of a merger, consolidation or sale of assets.
(k) If the Vendor fails to satisfy the requirements of any Applicable Law
related to safety measures and as a result insurance coverage is denied, the
Vendor shall still be liable for any claims, damages or liabilities resulting
from such failure.
11.3 Subcontractors' Insurance Requirements.
The Vendor shall obtain and maintain, or require each of its Subcontractors
to obtain and maintain, during the time any such Subcontractors are engaged in
providing Products and Services hereunder, adequate insurance coverage
consistent with the requirements of Section 11.1.
11.4 Evidence of Insurance.
The Vendor shall furnish Impsat with certificates of insurance
required hereunder in form and substance reasonably satisfactory to Impsat.
ARTICLE XII.
PRODUCT WARRANTIES
12.1 Equipment and Services Warranty.
(a) Vendor warrants that the Equipment (other than Network Software, the
warranty for which is separately covered in Section 12.2 hereof) provided,
furnished and performed under this Agreement shall be free from Defects and
Deficiencies, shall comply with all Applicable Laws and shall conform to the
applicable portions of the Specifications and Standards and the other provisions
of the Contract Documents, for a period of [ ] from the date of Provisional
Acceptance of the Subnetwork (the "Warranty Period"). In addition, all Services
furnished by Vendor hereunder shall be free of Defects and Deficiencies. Any and
all claims for breach of either warranty are conclusively deemed waived unless
made during the Warranty Period. Performance of Vendor's obligations hereunder
shall not extend the Warranty Period, except that any Equipment and/or Services
repaired, replaced or corrected during the Warranty Period shall continue to be
warranted for the longer of (i) the remainder of the Warranty Period or (ii)
[ ].
(b) Vendor agrees to obtain warranties from its Subcontractors and third
party contractors on the best possible terms (both in terms of scope and length
of coverage), but in no event for less than the Warranty Period, and to provide
contractually that Impsat
54
<PAGE> 60
may, in its sole discretion, enforce such third party warranties after the
expiration of the Warranty Period; provided, however, that Vendor shall obtain
fiber optic cable with a design life of at least [ ], and the manufacturer(s) of
such fiber optic cable shall provide a warranty for no less than [ ] on all such
fiber optic cable.
(c) Vendor's sole obligation and Impsat's exclusive remedy under the
warranty in Section 12.1(a) is limited to the replacement or repair, at Vendor's
cost, of the defective Equipment component, or the correction of the faulty
Services. Such replacement Equipment may be new or reconditioned to perform as
new, at Vendor's option. Vendor shall be responsible for transportation costs,
duties, insurance and Taxes for replacement or repaired Equipment shipped to and
from Impsat. Title to defective or replacement Equipment shall pass to Vendor or
Impsat, as appropriate, upon receipt thereof. Vendor shall use reasonable
efforts to minimize the period of time that the Network, the Subnetwork, any
Functional Unit, any Network Subsystem, any Network Element Facility or any
Network Element is out of service for testing and repair. Impsat agrees to
cooperate with Vendor to facilitate Vendor's repair activity.
(d) The warranties set forth in this Section 12.1 shall not apply to any
Equipment or Services where the non-conformance is due to (i) accident, fire or
explosion, any or all of which were not the result of the performance of Work by
Vendor; (ii) direct lightning strikes; (iii) alteration, abuse, misuse or repair
not performed by Vendor; (iv) improper storage; (v) failure by Impsat to comply
with all environmental requirements for Products as specified by Vendor or any
other applicable Subcontractor, such as but not limited to temperature and
humidity ranges; (vi) any error, act or omission by anyone other than Vendor;
(vii) use of a Product provided by Vendor in conjunction with another product
not provided to Impsat pursuant to this Agreement that does not satisfy the
Specifications and Standards and the other provisions of the Contract Documents;
(viii) if applicable, where written notice of the non-conformance (once Impsat
becomes aware of such non-conformance) has not been given to Vendor within the
applicable notice period; (ix) a defect in the Impsat-Provided Equipment; or (x)
improper performance of installation, maintenance, operation or other service in
connection with Products, provided that such service was not performed by
Vendor, on Vendor's behalf or at Vendor's direction; provided, however, that if
Impsat contacts Vendor regarding a non-conformance issue, and Vendor fails to
attempt to remedy or correct such non-conformance within the time periods
provided for in the Contract Documents, Impsat may take reasonable steps to
mitigate and prevent further damage from such non-conformance without affecting
or diminishing the warranties provided for in this Section 12.1, provided that
any Person engaged by Impsat with regard to such mitigation efforts shall be a
Vendor certified technician or, if not available, a similarly qualified
technician.
(e) During the Warranty Period, Impsat may employ a Person other than
Vendor to provide or may on its own provide on-going, routine maintenance
services on the Subnetwork; provided, however, that such Person or Impsat must
be a Vendor certified technician; provided, further, that the warranties
provided in this Section 12.1 shall not apply to any Network Element on which a
non-certified Vendor technician performs services.
(f) Vendor shall bear the Costs of each repair, replacement or improvement
required during the Warranty Period. As used herein, "Costs" means the costs
55
<PAGE> 61
of making a repair, including the cost of components, equipment or materials
requiring replacement, the cost of any additional equipment necessary to effect
the repair, the cost of reburying any previously buried portion, the cost of
labor and engineering assistance or development required to make the repair and
all necessary associated costs, such as, but not limited to, Taxes, shipping and
customs and services that may be required to make the repair.
(g) Vendor and Vendor's suppliers, as appropriate, shall not have any
responsibility to Impsat's customers for warranties offered by Impsat to such
customers and Impsat hereby indemnifies, defends and holds harmless pursuant to
the procedures set forth in Section 13.6 the Vendor, the Vendor's Subsidiaries
and the Vendor's suppliers, as appropriate, from (i) any claims, damages or
liabilities arising out of, or relating to, any warranties offered by Impsat to
Impsat's customers, or (ii) any claims by a third party in respect of any
malfunction, defect or error in any product or service offered by Impsat that is
ultimately derived from the Equipment and Services provided pursuant to this
Agreement.
12.2 Software Warranty.
(a) Each Software Element comprised in the Network Software supplied by the
Vendor hereunder (whether developed by the Vendor or procured from a third-party
supplier), including all updates and revisions thereof, when delivered to Impsat
and installed by the Vendor and operated in accordance with the Contract
Documents, shall (i) be free from Defects and Deficiencies which result in
malfunctions which materially affect the use of such Software Element in
accordance with the Specifications and Standards and the other provisions of the
Contract Documents, (ii) shall function in accordance with all applicable
provisions of the Contract Documents, (iii) shall comply with all Applicable
Laws and (iv) are and shall remain Year 2000 Compliant. The warranties described
in this Section 12.2 shall apply for a period of [ ] extending from the date of
Provisional Acceptance of the Subnetwork. During such period the Vendor shall
provide Impsat with software support and maintenance for such Software Element
in accordance with support quality standards specified in Article VI and as
otherwise provided in the Contract Documents; provided, however, that with
regard to the Year 2000 Compliant warranty, if a Software Element is not Year
2000 Compliant, Impsat's sole remedy and Vendor's sole obligation under this
Section 12.2(a) is for Vendor to correct such failure through, at Vendor's
option, the repair, replacement or modification of the relevant Software
Element, all in the time, manner and upon the conditions set out in Exhibit I.
The foregoing does not constitute a commitment by Vendor (i) to extend the
Warranty Period or (ii) that the date format used by a Software Element complies
with any particular standard. The foregoing warranties shall only apply to
Software Elements in the form provided and/or modified and enhanced by the
Vendor. Modifications of any Software Element by any party other than the
Vendor, any of its Affiliates or a third party authorized by the Vendor shall
void the obligations of the Vendor under this Section with respect to such
modified Software Element.
(b) Vendor warrants that the Network Software will not contain a lockup or
backdoor program which is designed by Vendor to deliberately lock-up the Network
Software or which provides an unauthorized third-party with access to the
Network Software. Vendor further warrants that (i) during the Installation of
the Network Software it will take reasonable steps to protect the Network
Software against viruses, Trojan horses, trap doors, backdoors and similar
devices that could disrupt or disable a computer system or any of its
56
<PAGE> 62
components, and (ii) it will not, under any circumstances, including enforcement
of a valid contract right, install or trigger a lockup program or device which
in any manner interferes with Impsat's use of the Network Software or operation
of the Network, the Subnetwork or any part thereof. Impsat's sole remedy and
Vendor's sole obligation under this Section 12.2(b) is for Vendor to correct
such failure or eliminate such program or device through, at Vendor's option,
the repair, replacement or modification of the relevant Software Element, all in
the time, manner and upon the conditions set out in Exhibit I.
(c) Impsat warrants that all Impsat-Provided Equipment shall be Year 2000
Complaint. If an Item of Impsat-Provided Equipment is not Year 2000 Compliant,
Vendor's sole remedy and Impsat's sole obligation under this Section 12.2(c) is
for Impsat to correct such failure at its sole cost and expense through, at
Impsat's option, the repair, replacement or modification of the relevant
Impsat-Provided Equipment. In addition, the completion milestones set forth in
the Project Implementation Plan shall be extended by the length of any delay in
completing a particular portion of the Subnetwork if such delay is the direct
result of a failure of the Impsat-Provided Equipment to be Year 2000 Compliant.
12.3 Civil Work Warranty.
(a) Vendor warrants that the Civil Work and the Structures shall be free
from Defects and Deficiencies, shall comply with all Applicable Laws and shall
conform to the applicable portions of the Specifications and Standards and the
other provisions of the Contract Documents, for a period of [ ] from the date of
Provisional Acceptance of the Subnetwork or such longer period of time as
provided by Applicable Law. Performance of Vendor's obligations hereunder shall
not extend the Warranty Period, except that any Civil Work repaired or corrected
during the Warranty Period shall continue to be warranted for the balance of the
Warranty Period.
(b) When applicable, Vendor agrees to obtain warranties from its
Subcontractors and third party contractors on the best possible terms (both in
terms of scope and length of coverage), but in no event for less than the
Warranty Period, and to provide contractually that Impsat may, in its sole
discretion, enforce such third party warranties.
(c) Vendor's sole obligation and Impsat's exclusive remedy under the
warranty in Section 12.3(a) is limited to the repair, at Vendor's cost, of the
defective Civil Work and Structures. If Vendor is in material breach in
performing the Civil Work and completing the Structures, Impsat shall be
entitled to engage its own subcontractor to complete or repair the defective
Civil Work and Structures, provided that (i) Vendor has not commenced to cure
the defects within [ ] of receiving written notice thereof from Impsat
or has not continued diligently to attempt to cure after so commencing and (ii)
Vendor personnel, or, in Vendor's absence, Impsat personnel shall supervise any
such work.
(d) Vendor shall use reasonable efforts to minimize the period of time that
the Network, the Subnetwork, any Functional Unit, any Network Subsystem, any
Network Element Facility or any Network Element is out of service for testing
and repair. Impsat agrees to cooperate with Vendor to facilitate Vendor's repair
activity.
(e) During the Warranty Period, Impsat may employ a Person other than
Vendor to provide or may on its own provide on-going, routine maintenance
services on the
57
<PAGE> 63
Subnetwork; provided, however, that such Person or Impsat must be a Vendor
certified technician; provided, further, that the warranties provided in this
Section 12.3 shall not apply to any Network Element on which a non-certified
Vendor technician performs services.
(f) Vendor shall bear the Costs of each repair or improvement required
during the Civil Work Warranty Period.
(g) Vendor and Vendor's suppliers, as appropriate, shall not have any
responsibility to Impsat's customers for warranties offered by Impsat to such
customers and Impsat hereby indemnifies, defends and holds harmless, pursuant to
the procedures set forth in Section 13.6, the Vendor, the Vendor's Subsidiaries
and the Vendor's suppliers, as appropriate, from (i) any claims, damages or
liabilities arising out of, or relating to, any warranties offered by Impsat to
Impsat's customers, or (ii) any claims by a third party in respect of any
malfunction, defect or error in any product or service offered by Impsat that is
ultimately derived from the Civil Work provided pursuant to this Agreement.
12.4 Warranty Limitations.
(a) THE WARRANTIES SET FORTH HEREIN WILL CONSTITUTE THE ONLY WARRANTIES
WITH RESPECT TO THE EQUIPMENT, SERVICES AND SOFTWARE ELEMENTS PROVIDED, AND THE
REMEDIES SET FORTH HEREIN ARE THE SOLE AND EXCLUSIVE REMEDIES OF IMPSAT, ITS
SUBSIDIARIES AND AFFILIATES UNDER SUCH WARRANTIES. THEY ARE IN LIEU OF ALL OTHER
WARRANTIES WRITTEN OR ORAL, STATUTORY, EXPRESS OR IMPLIED, INCLUDING BUT NOT
LIMITED TO THE IMPLIED WARRANTY OF MERCHANTABILITY AND THE WARRANTY OF FITNESS
FOR A PARTICULAR PURPOSE. NNC, ITS SUBSIDIARIES AND AFFILIATES SHALL NOT BE
LIABLE FOR ANY INDIRECT, CONSEQUENTIAL, INCIDENTAL, SPECIAL OR PUNITIVE DAMAGES.
THIS LIMITATION OF WARRANTIES WAS A MATERIAL FACTOR IN THE ESTABLISHMENT OF THE
LICENSE FEE CHARGED FOR THE SOFTWARE LICENSE.
(b) Vendor's obligations under this Article shall not apply to (i)
Equipment or components thereof such as fuses and bulbs that are normally
consumed in operation before the expiration of the Warranty Period; (ii) Defects
or Deficiencies that are the result of storage, installation, use, maintenance
or repair by Impsat that is inconsistent with industry standards or outside the
environmental parameters defined in the Specifications and Standards; (iii)
Defects and Deficiencies that are the direct result of the operation of
Equipment with hardware not provided by Vendor that does not comply with the
Specifications and Standards and the other provisions of the Contract Documents
related thereto or with applicable international standards; and (iv) Equipment
or components thereof that have been involved in an accident, fire, explosion,
Act of God or any other cause not attributable to Vendor, or (v) Defects or
Deficiencies that result from the alteration, repair, installation or relocation
of Equipment by any party other than Vendor or Vendor's agents. For purposes of
clause (v), "install" shall not mean the routine connection or plug-in of the
components done in accordance with the NNCP guidelines.
58
<PAGE> 64
ARTICLE XIII.
INDEMNITIES AND LIMITATIONS ON LIABILITY
13.1 Vendor Indemnity.
(a) General. The Vendor shall be liable for and shall indemnify, defend and
hold harmless Impsat, its Affiliates and its Subsidiaries, and their officers,
directors, employees, agents and representatives, to the fullest extent
permitted by law, against any Losses arising from or relating to any Proceeding
in respect of: (i) bodily injuries to or the death of any person whomsoever
caused by the Vendor or Vendor's employees, officers, directors, agents,
representatives or Subcontractors in its performance of this Agreement; (ii)
damage to any tangible property, in either case due to acts, negligence or
omissions of the Vendor or the Vendor's employees, officers, directors, agents,
representatives or Subcontractors; (iii) any breach of any of the Vendor's
representations or warranties set forth in Section 15.1; (iv) any violation or
failure to comply with any Applicable Laws or Applicable Permits by Vendor or
any Subcontractor, including payment of wages and employee benefits and
withholding of employment related Taxes; (v) any claims of Vendor's
Subcontractors with respect to their relationship with Vendor; or (vi) any
willful misconduct or grossly negligent act or failure to act by the Vendor
related to this Agreement. Notwithstanding the foregoing, the Vendor shall not
be liable for any Losses to the extent that such Losses arise out of the
negligence or willful misconduct of Impsat, its Affiliates or Subsidiaries, or
their respective officers, directors, employees, agents or representatives.
(b) IPR Indemnity.
(i) NNC agrees to indemnify, defend and hold harmless Impsat and its
Affiliates with respect to any suit, claim, or proceeding brought
against Impsat or its Affiliates alleging that use of the Products by
Impsat or its Affiliates constitutes an infringement of any patent,
copyright or any other intellectual property right in the U.S.,
Canada, or Argentina, or any costs, losses, damages or expenses of
Impsat resulting from the same (collectively, "Damages"). The term
"Damages" as used in this Section 13.1(b) is not limited to matters
asserted by third parties against Impsat, but includes Damages
incurred or sustained by Impsat in the absence of third party claims.
NNC agrees to indemnify, defend and hold harmless Impsat and its
Affiliates against any such claims and to pay all litigation costs
(including the costs of investigation), reasonable attorney's fees,
settlement payments and any damages awarded in any judgment arising
from such suit, claim or proceeding in accordance with the provisions
of this Article XIII.
(ii) In the event that an injunction is obtained against the use by Impsat
or its Affiliates of Products arising from such patent or copyright
suit, claim or proceeding, in whole or in part, NNC shall, at its
option, either: (i) procure for Impsat and its Affiliates the right to
continue using the portion of a System
59
<PAGE> 65
enjoined from use; or (ii) replace or modify the same in a manner that
is consistent with the Specifications and Standards and the other
requirements of the Contract Documents.
(iii) NNC's indemnity obligations under Section 13.1(b)(i) shall not apply
to infringement claims based on the use of the Products in combination
with any other apparatus or material not supplied by NNC (other than
the Impsat-Provided Equipment) to the extent that the claims arise
from such combination usage.
13.2 Impsat Indemnity.
Impsat shall be liable for and shall indemnify, defend and hold
harmless the Vendor, its Affiliates and Subsidiaries, and their officers,
directors, employees, agents and representatives, to the fullest extent
permitted by law, against any Losses arising from or relating to any Proceeding,
in respect of: (i) bodily injuries to or the death of any person whomsoever
caused by Impsat or Impsat's employees, officers, directors, agents,
representatives or subcontractors in its performance of this Agreement; (ii)
damage to any tangible property, in either case due to acts, negligence or
omissions of Impsat or Impsat's employees, officers, directors, agents,
representatives or subcontractors; (iii) any breach of any of Impsat's
representations and warranties set forth in Section 15.2; (iv) any violation by
or failure to comply with any Applicable Laws or Applicable Permits by Impsat or
any of its subcontractors, the compliance with which Vendor is not responsible
for under this Agreement; (v) any claims of a subcontractor of Impsat with
respect to its relationship with Impsat; or (vi) any willful misconduct or
grossly negligent act by Impsat related to this Agreement. Notwithstanding the
foregoing, Impsat shall not be liable for any Losses to the extent that such
Losses arise out of the negligence or willful misconduct of the Vendor, the
Vendor's Affiliates or subsidiaries, or their respective officers, directors,
employees, agents or representatives.
13.3 No Limitation on Other Rights.
Vendor's obligation to indemnify Impsat, and Impsat's obligation to
indemnify Vendor, shall not limit any other rights, including without limitation
rights of contribution which either party may have under statute or common law.
13.4 Limitation.
(a)General. IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY
FOR ANY INDIRECT, CONSEQUENTIAL, INCIDENTAL, SPECIAL OR PUNITIVE DAMAGES of any
kind or nature. IN NO EVENT SHALL THE CUMULATIVE LIABILITY OF either party to
the other FOR ANY AND ALL CLAIMS, DAMAGES, LIABILITIES, LOSSES, EXPENSES OR
OBLIGATIONS, WHETHER ARISING IN CONTRACT, TORT (INCLUDING NEGLIGENCE REGARDLESS
OF DEGREE OF FAULT), STRICT LIABILITY, OR OTHERWISE, NOTWITHSTANDING THAT ANY OF
SUCH CLAIMS MAY BE OCCASIONED BY A BREACH OF THIS AGREEMENT, ARISING OUT OF,
CONNECTED WITH, OR RESULTING FROM THIS AGREEMENT OR THE MANUFACTURE, SALE,
LICENSE, DELIVERY, RESALE, REPAIR, REPLACEMENT,
60
<PAGE> 66
OR USE OF ANY EQUIPMENT OR THE RENDERING OF ANY SERVICES, EXCEED [ ]
PERCENT ([ ]%) of the AGGREGATE price.
(b)Software License. EXCEPT AS PROVIDED OTHERWISE IN THE CONTRACT
DOCUMENTS, IN NO EVENT SHALL NNC OR ANY OF ITS SUBSIDIARIES OR AFFILIATES BE
LIABLE TO IMPSAT, ITS SUBSIDIARIES OR AFFILIATES FOR: (i) ANY DAMAGES SUFFERED
BY IMPSAT, ITS SUBSIDIARIES OR AFFILIATES TO THE EXTENT THAT SUCH DAMAGES RESULT
FROM THE FAILURE OF IMPSAT, ITS SUBSIDIARIES OR AFFILIATES TO MEET OBLIGATIONS
PURSUANT TO THE VENDOR LICENSE, AND (ii) ANY CLAIM AGAINST IMPSAT OR ITS
SUBSIDIARIES OR AFFILIATES BY ANY THIRD PARTY FOR DAMAGES OF ANY KIND, ANY OR
ALL OF WHICH ARISE FROM OR IN CONNECTION WITH THE DELIVERY, USE, OR PERFORMANCE
OF THE SOFTWARE ELEMENT GOVERNED BY THE SOFTWARE LICENSE, EVEN IF NNC AND/OR ANY
OF ITS SUBSIDIARIES HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH LOSS.
13.5 Cooperation. The indemnified party shall cooperate in all
reasonable respects with the indemnifying party and such attorneys in the
investigation, trial and defense of such lawsuit or action and any appeal
arising therefrom; provided, however, that the indemnified party may, at its own
cost, participate in the investigation, trial and defense of such lawsuit or
action and any appeal arising therefrom. The parties shall cooperate with each
other in any notifications of insurers.
13.6 Defense of Claims. If a claim for damages (a "Claim") is to be
made by a party entitled to indemnification hereunder against the indemnifying
party, the party claiming such indemnification shall give written notice (a
"Claim Notice") to the indemnifying party as soon as practicable after the party
entitled to indemnification becomes aware of any fact, condition or event which
may give rise to damages for which indemnification may be sought under this
Article XIII. If any lawsuit or enforcement action is filed against any party
entitled to the benefit of indemnity hereunder, written notice thereof shall be
given to the indemnifying party as promptly as practicable (and in any event
within ten (10) calendar days after the service of the citation or summons). The
failure of any indemnified party to give timely notice hereunder shall not
affect rights to indemnification hereunder, except to the extent that the
indemnifying party demonstrates actual damage caused by such failure. After such
notice, if the indemnifying party shall acknowledge in writing to the
indemnified party that the indemnifying party shall be obligated under the terms
of its indemnity hereunder in connection with such lawsuit or action, then the
indemnifying party shall be entitled, if it so elects, (i) to take control of
the defense and investigation of such lawsuit or action, (ii) to employ and
engage attorneys of its own choice to handle and defend the same, at the
indemnifying party's cost, risk and expense unless the named parties to such
action or proceeding include both the indemnifying party and the indemnified
party and the indemnified party has been advised in writing by counsel that
there may be one or more legal defenses available to such indemnified party that
are different from or additional to those available to the indemnifying party,
and (iii) to compromise or settle such Claim, which compromise or settle such
Claim, which compromise or settlement shall be made only with the written
consent of the indemnified party, such consent not to be unreasonably withheld
or delayed. If the indemnifying party fails to assume the defense of such Claim
within ten (10)
61
<PAGE> 67
calendar days after receipt of the Claim Notice, the indemnified
party against which such Claim has been asserted will (upon delivering notice to
such effect to the indemnifying party) have the right to undertake, at the
indemnifying party's cost and expense, the defense, compromise or settlement of
such claim on behalf of and for the account and risk of the indemnifying party;
provided, however, that such Claim shall not be compromised or settled without
the written consent of the indemnifying party, which consent shall not be
unreasonably withheld. In the event the indemnified party assumes the defense of
the Claim, the indemnified party will keep the indemnifying party reasonably
informed of the progress of any such defense, compromise or settlement. The
indemnifying party shall be liable for any settlement of any action effected
pursuant to and in accordance with this Article XIII and for any final judgment
(subject to any right of appeal), and the indemnifying party agrees to
indemnify, defend and hold harmless an indemnified party from and against any
damages by reason of such settlement or judgment.
ARTICLE XIV.
FAILURE TO DELIVER AND EARLY COMPLETION
14.1 Vendor's Failure to Deliver on Time.
Vendor understands that if Provisional Acceptance of each Network
Subsystem is not achieved by the deadlines set forth on Exhibit C, Impsat will
suffer substantial damages that are impossible to determine as of this date.
Therefore, in the event that the Vendor fails to achieve Provisional Acceptance
of a Network Subsystem in accordance with the deadlines set forth on Exhibit C
(as adjusted to reflect Force Majeure, delays agreed to in connection with
Change Orders and Directed Changes and delays attributable to Impsat, and
subject to any Punch List items that may be agreed in connection with the
conduct of the applicable Acceptance Test), the Vendor shall pay to Impsat, as
liquidated damages and not as a penalty, an amount equal to: the Aggregate Price
(minus the portion of the Aggregate Price allocable to Maintenance Services and
Operating Services and as further adjusted to reflect Change Orders and Directed
Changes) multiplied by the "Coefficient" for such Network Subsystem listed on
Exhibit C multiplied by the number of weeks that elapsed between the Provisional
Acceptance deadline set forth on Exhibit C for such Network Subsystem and the
actual date of Provisional Acceptance of such Network Subsystem multiplied by [
]. The amount of liquidated damages, if any, with respect to a particular
Network Subsystem shall appear as a credit to Impsat on the invoice for the
month in which such Network Subsystem achieved Provisional Acceptance, or if
there is no invoice for a given month against which to credit such liquidated
damages, Impsat shall invoice Vendor for any such liquidated damages, and Vendor
shall pay Impsat such amount within thirty (30) days of such invoice; provided,
however, that the aggregate amount of liquidated damages payable with respect to
all delays under this Section 14.1 plus the liquidated damages payable with
respect to all delays under Section 14.3 shall in no event exceed [ ] percent ([
]%) of the Aggregate Price (minus the portion of the Aggregate Price allocable
to Maintenance Services and Operating Services and as further adjusted to
reflect Change Orders and Directed Changes). For purposes of this Article XIV, a
"week" shall mean a period of seven days or, in the event of a partial week,
five or more days.
14.2 Vendor's Early Completion.
62
<PAGE> 68
In the event that the Vendor achieves Provisional Acceptance of a
Network Subsystem in advance of the deadlines set forth on Exhibit C (as
adjusted to reflect Force Majeure, delays agreed to in connection with Change
Orders and Directed Changes and delays attributable to Impsat, and subject to
any Punch List items that may be agreed in connection with the conduct of the
applicable Acceptance Test), Impsat shall pay to Vendor a bonus worth an amount
equal to: the Aggregate Price (minus the portion of the Aggregate Price
allocable to Maintenance Services and Operating Services and as further adjusted
to reflect Change Orders and Directed Changes) multiplied by the "Coefficient"
for such Network Subsystem listed on Exhibit C multiplied by the number of weeks
that the actual date of Provisional Acceptance of the Network Subsystem occurred
in advance of the deadline set forth on Exhibit C for such Network Subsystem
multiplied by [ ]. The amount of bonus, if any, with respect to a particular
Network Subsystem shall appear as an additional charge to Impsat on the invoice
for the month in which such Network Subsystem achieved Provisional Acceptance;
provided, however, that the aggregate amount of bonuses payable with respect to
all early completions hereunder shall in no event exceed [ ] percent ([ ]%) of
the Aggregate Price (minus the portion of the Aggregate Price allocable to
Maintenance Services and Operating Services and as further adjusted to reflect
Change Orders and Directed Changes).
14.3 Performance Related Damages.
Vendor understands that if Provisional Acceptance of the Subnetwork is
not achieved within sixty (60) days after all Functional Units in the Subnetwork
achieve Final Acceptance, Impsat will suffer substantial damages that are
impossible to determine as of this date. Therefore, if Provisional Acceptance of
the Subnetwork does not occur within such period of time, Impsat shall be
entitled to liquidated damages in the amount of $ [ ] per week for each week, up
to [ ] weeks, that the actual date of Provisional Acceptance of the Subnetwork
exceeds [ ] days; provided, however, that the aggregate amount of liquidated
damages payable with respect to all delays under this Section 14.3 plus the
liquidated damages payable with respect to all delays under Section 14.1 shall
in no event exceed [ ] percent ([ ]%) of the Aggregate Price (minus the portion
of the Aggregate Price allocable to Maintenance Services and Operating Services
and as further adjusted to reflect Change Orders and Directed Changes). The
amount of liquidated damages, if any, under this Section 14.3 shall appear as a
credit to Impsat on the invoice for the month in which such liquidated damages
are assessed, or if there is no invoice for a given month against which to
credit such liquidated damages, Impsat shall invoice Vendor for any such
liquidated damages, and Vendor shall pay Impsat such amount within thirty (30)
days of such invoice
ARTICLE XV.
REPRESENTATIONS AND WARRANTIES
15.1 Representations and Warranties of the Vendor.
The Vendor hereby represents and warrants to Impsat as follows:
(a) Due Organization of the Vendor. NNC is a corporation duly
incorporated, validly existing and in good standing under the laws of Canada,
Nortel-
63
<PAGE> 69
Argentina is a corporation duly incorporated, validly existing and in
good standing under the laws of Argentina, and NNC and Nortel-Argentina each has
full corporate power and authority to own and operate its respective business
and properties and to carry on its respective business as such business is now
being conducted and each is duly qualified to do business in all jurisdictions
in which the transaction of its business makes such qualification necessary.
(b) Due Authorization of the Vendor; Binding Obligation. NNC and
Nortel-Argentina each has full power and authority to execute and deliver this
Agreement and to perform its obligations hereunder. This Agreement has been duly
executed and delivered by NNC and Nortel-Argentina and is the valid and binding
obligation of NNC and Nortel-Argentina, enforceable in accordance with its
terms.
(c) Non-Contravention. The execution, delivery and performance of this
Agreement by NNC and Nortel-Argentina do not and will not, presently or by the
lapse of time, the giving of notice or otherwise, constitute a violation of any
Applicable Laws, of its certificate of incorporation, by laws or similar
organizational document or in any material agreement, instrument or document to
which either NNC or Nortel-Argentina is a party or by which NNC or
Nortel-Argentina is bound.
(d) Vendor License. The Vendor License granted to Impsat pursuant to
Section 7.2(a) and the Vendor IPR licensed hereunder do not infringe upon or
otherwise breach, violate or constitute misappropriation of the rights of any
third party, and no claims have been asserted by any Person against Vendor or
its Subsidiaries with respect to the use of such Vendor IPR which challenge or
call into question the validity or effectiveness of the Vendor License.
15.2 Representations and Warranties of Impsat.
Impsat hereby represents and warrants to the Vendor as follows:
(a) Due Organization of Impsat. Impsat is a corporation duly
incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has full corporate power and authority to
enter into this Agreement and perform its obligations hereunder.
(b) Due Authorization of Impsat: Binding Obligation. Impsat has full
power and authority to execute and deliver this Agreement and to perform its
obligations hereunder, and the execution, delivery and performance of this
Agreement by Impsat has been duly authorized by all necessary corporate action
on the part of Impsat. This Agreement has been duly executed and delivered by
Impsat and is the valid and binding obligation of Impsat enforceable in
accordance with its terms.
(c) Non-Contravention. The execution, delivery and performance of this
Agreement by Impsat does not and will not, presently or by the lapse of time,
the giving of notice or otherwise, constitute a violation of any Applicable Laws
or any applicable provision contained in any of its certificate of
incorporation, by-laws or similar organizational document or in any material
agreement, instrument or document to which Impsat is a party or by which Impsat
is bound.
64
<PAGE> 70
(d) Impsat License. The Impsat License granted to Vendor pursuant to
Section 7.1(c) and the Impsat IPR licensed hereunder do not infringe upon or
otherwise breach, violate or constitute misappropriation of the rights of any
third party, and no claims have been asserted by any Person against Impsat with
respect to the use of such Impsat IPR which challenge or call into question the
validity or effectiveness of the Impsat License.
ARTICLE XVI.
TERM AND TERMINATION
16.1 Term.
This Agreement shall be effective and be in full force and effect for a
term (the "Term") commencing on the date hereof and ending on the later of (i)
the date of Final Overall Network Acceptance or (ii) the date that all
warranties under Article XII hereof have terminated, unless otherwise extended
by the mutual written consent of the Parties, or unless terminated earlier in
accordance with the terms herein. The Parties' rights and obligations, which, by
their nature would continue beyond the termination of this Agreement, including,
but are not limited to, those contained in Articles II, VII, IX, XIII, XVI,
XVIII and XIX and Sections 17.2, 17.3 and 17.7, shall survive any termination of
this Agreement. Article VI (Spare Parts; Post-Commissioning Support) and Article
XII (Product Warranties) shall survive termination, cancellation or expiration
hereof, if and only if, this Agreement is terminated by Impsat pursuant to
Section 16.2.
16.2 Termination.
Either Impsat or the Vendor shall have the right to terminate this
Agreement (i) in the event of a material breach of the Agreement by the other,
after informal dispute resolution efforts as provided in Section 18.2 shall have
been attempted with respect to such breach and the breach remains uncured for
thirty (30) days after notice thereof to the breaching Party, (ii) without
notice in the Event of Bankruptcy of the other Party, or (iii) as otherwise
provided in this Agreement, including but not limited to Sections 4.8(b), 5.6(e)
and 5.7(c). Any termination shall be without prejudice to the rights and
remedies of the terminating Party as described herein.
16.3 Impsat's Option Upon Termination.
(a) In the event of a termination of this Agreement by Impsat pursuant
to Section 16.2, Impsat shall have the right to elect, by written notice to the
Vendor within thirty (30) days after the date of delivery of the termination
notice, to retain as its own property all or any Products and Civil Work and to
enjoy the Vendor License related to such retained Products and Civil Work, and
return the remaining Items of Product to the Vendor, in which case Impsat shall
pay the allocable balance of the purchase price for the retained Items of
Product and Civil Work, based on the unit prices for such Items of Product and
Civil Work set forth in the Product List and Pricing Schedule; provided,
however, that if the value of the Products and Civil Work already paid for by
Impsat is greater than the value of the Products and Civil Work retained by
Impsat following termination, with such values being based on the unit prices
for such Items of Product and Civil Work set forth in the Product List and
Pricing Schedule, then Impsat shall be entitled to a refund of the difference
within thirty (30)
65
<PAGE> 71
days of termination. In addition, Impsat shall have the right
to avail itself of any and all remedies available at law and/or equity.
(b) In the event of a termination of this Agreement by Vendor pursuant
to Section 9.3(e) or 16.2 or automatic termination under Section 9.3(b):
(i) with respect to all Items of Products and all Structures that
already have been installed or completed, and all Services and
Civil Work fully or partially performed by Vendor, Impsat shall
retain or obtain, as the case may be, the ownership of, and title
to, such Items of Products and Structures, and shall enjoy the
Vendor License related to such Items of Products, and shall pay
the Vendor the price of such Items of Products, such Structures,
and such Services and Civil Work related thereto, in each case at
the unit price set forth therefor in the Product List and Pricing
Schedule;
(ii) with respect to all Items of Product that have not yet been
shipped to Impsat, the Vendor shall retain the ownership of, and
title to, such Items of Product and Impsat shall not be obligated
to make any payment to the Vendor relating to such Items of
Product; and
(iii) with respect to all Items of Product that have been shipped to
Impsat but have not yet been installed, Impsat shall retain
ownership of, and title to, such Items of Product and Impsat
shall be obligated to pay Vendor for such Items of Product at the
price of such Items of Product set forth in the Product List and
Pricing Schedule.
(c) Upon (i) the purchase or return of the Items of Products and Civil
Work by Impsat as described above, and (ii) the payment by Impsat or the refund
by Vendor of the applicable amounts as set forth above, then, except for
penalties, late fees and any other charges and liabilities previously incurred
hereunder, including the obligations of the Parties pursuant to Article XIV,
neither Party shall have any further right over or any further liability to the
other Party whatsoever in respect of the transactions contemplated hereby,
except as otherwise provided in the Contract Documents.
(d) Notwithstanding anything else in this Agreement to the contrary,
upon termination of this Agreement pursuant to this Article XVI or Section 9.3,
Impsat shall retain the Vendor License with respect to all design and
engineering work performed by Vendor in connection with this Agreement and paid
for in full by Impsat in accordance with the terms of this Agreement.
(e) Notwithstanding anything else in this Agreement to the contrary,
upon termination of this Agreement pursuant to this Article XVI or Section 9.3,
Impsat shall have the option of having any or all of Vendor's contracts with
Subcontractors, except for contracts with Subcontractors related to Vendor IPR,
assigned to Impsat, provided there is also a delegation of all existing duties
under such contracts to Impsat.
66
<PAGE> 72
(f) If this Agreement is terminated by Impsat pursuant to Section 16.2,
Impsat shall receive the entire amount of the Performance Bond than outstanding,
and in addition, Impsat shall have no further obligation to pay Vendor any
amounts owed pursuant to Sections 9.2(a)(iv) and (v) and 9.2(b)(iii) and (iv).
If this Agreement is terminated by Vendor pursuant to Section 16.2, the
Performance Bond shall be returned to Vendor, and in addition, Vendor shall
receive from Impsat all amounts owed pursuant to Sections 9.2(a)(iv) and (v) and
9.2(b)(iii) and (iv).
ARTICLE XVII.
USE OF SUBCONTRACTORS
17.1 Consent Required for Vendor to Subcontract.
The Vendor shall not, without the prior written consent of Impsat,
which consent shall not be unreasonably withheld or delayed, subcontract all or
any portion of its obligations under this Agreement where the value of the
subcontract exceeds [ ] U.S. Dollars (US $[ ]); provided, however, that until
financing is available under the Vendor Financing Agreement, Vendor shall not,
without the prior written consent of Impsat, which consent shall not be
unreasonably withheld or delayed, subcontract all or any portion of its
obligation under this Agreement where the value of the subcontract exceeds [ ]
Dollars (US$[ ]); provided, further, that within thirty (30) days of the date
hereof, Vendor shall provide to Impsat for Impsat's approval a list of all
Subcontractors for Civil Work, and Vendor agrees not to use Subcontractors for
Civil Work who are not contained on such list without Impsat's prior written
consent.
17.2 Use of Subcontractors.
(a) Vendor's Obligations Not Affected. In the event any portion of the
Vendor's obligations are subcontracted, the Vendor shall be solely and
personally responsible, as between Impsat and the Vendor, for the due
performance by, and the liabilities to Impsat of, such authorized Subcontractors
of all the applicable terms and conditions of this Agreement. Regardless of
whether the Vendor obtains approval from Impsat of a Subcontractor or whether
the Vendor uses a Subcontractor recommended by Impsat, such approval, use or
recommendation will in no way increase the Vendor's rights or diminish the
Vendor's liabilities to Impsat with respect to this Agreement, including the
Vendor's liability for delays whether or not caused by a Subcontractor, and
shall not, under any circumstances: (i) give rise to any claim by the Vendor
against Impsat if such Subcontractor breaches its subcontracting agreement with
the Vendor; (ii) create any contractual obligation by Impsat to the
Subcontractor; (iii) give rise to a waiver by Impsat of its rights to reject any
Defects or Deficiencies or Defective Work; or (iv) in any way release the Vendor
from being solely and personally responsible to Impsat for the due performance
by the Vendor, whether directly or through such Subcontractor, of all the
applicable terms and conditions, including the Work, of this Agreement.
(b) Selection of Subcontractors. In selecting Subcontractors as
permitted hereunder in connection with the performance of the Work, the Vendor
shall ensure that all Products and Services provided by any such Subcontractors
meet the Specifications and Standards and the other provisions of the Contract
Documents.
67
<PAGE> 73
(c) Review and Approval not Relief of Vendor Liability. Any inspection,
review or approval by Impsat permitted under this Agreement of any portion of
the Work by the Vendor or any Subcontractor shall not relieve the Vendor of any
duties, liabilities or obligations under this Agreement; provided, however, that
any such inspections, reviews or approvals by Impsat not conducted within the
prescribed periods which cause any delays in Vendor meeting its milestones under
the Project Implementation Plan will result in an equitable extension of such
milestone deadlines.
(d) Subcontractor's Use of IPR. All subcontract work that relates to
this Agreement shall be pursuant to written agreements which shall include a
limitation on the use of the Background IPR of Impsat solely for the purpose of
developing the Project and the operation and use of the Network
17.3 Vendor Warranties.
The warranties of the Vendor pursuant to Article XII shall be deemed to
apply to all Work performed by any Subcontractor as though the Vendor had itself
performed such Work. When entering into an agreement with a Subcontractor,
Vendor shall ensure that the benefits of all warranties provided to Vendor by
such Subcontractor pass through to Impsat. Impsat shall be entitled to, but
shall not be obligated to, directly enforce any warranties of any Subcontractor;
provided that no such election by Impsat shall relieve the Vendor from any
obligations or liability with respect to any such warranty.
17.4 Payments to Subcontractors.
The Vendor shall make all payments to all Subcontractors (except in the
case of legitimate disputes between the Vendor and any such Subcontractor
arising out of the agreement between the Vendor and such Subcontractor) in
accordance with the respective agreements between the Vendor and its
Subcontractors such that Subcontractors will not be in a position to enforce
liens and/or other rights against Impsat, the Network or any part thereof.
17.5 Removal of Subcontractor or Subcontractor's Personnel.
Impsat shall have the right at any time to require removal of any
Subcontractor and/or any of a Subcontractor's personnel from Work on the
Subnetwork upon reasonable grounds and reasonable prior written notice to the
Vendor; provided, however, that no such removal will (i) cause the Vendor to
incur additional costs, (ii) cause delays in the Project Implementation Plan, or
(iii) negatively impact the Specifications and Standards or the other provisions
of the Contract Documents. The exercise of such right by Impsat shall have no
effect on the provisions of Sections 17.1 and 17.2.
17.6 Subcontractor Insurance; Compliance with Local Laws.
The Vendor shall require all Subcontractors to obtain, maintain and
keep in full force and effect during the time they are engaged in providing Work
hereunder adequate insurance coverage consistent with Article XI (provided that
the maintenance of any such Subcontractor insurance shall not relieve the Vendor
of its other obligations pursuant to Article XI). The Vendor shall, upon
Impsat's request, provide Impsat with copies of
68
<PAGE> 74
certificates of such insurance. In addition, Vendor shall require all
Subcontractors to comply with all Applicable Laws.
17.7 No Effect of Inconsistent Terms in Subcontracts.
The terms of this Agreement shall in all events be binding upon the
Vendor regardless of and without regard to the existence of any inconsistent
terms in any agreement between the Vendor and any Subcontractor whether or not
and without regard to the fact that Impsat may have had notice, directly or
indirectly, of any such inconsistent term.
17.8 Additional Restrictions.
The Work (excluding Work containing Vendor IPR) performed pursuant to
this Agreement by Vendor and its Subcontractors shall be utilized exclusively in
the fulfillment of this Agreement.
ARTICLE XVIII.
GOVERNING LAW; DISPUTE RESOLUTION
18.1 Governing Law.
This Agreement shall be governed by and construed according to the laws
of the State of New York, United States of America, without regard to its
conflicts of law provision. The United Nations Convention on Contracts for the
International Sale of Goods shall not apply to the transactions contemplated
hereby. For the avoidance of doubt, it is hereby understood by the Parties that
the performance of the obligations assumed by each Party shall comply with all
Applicable Laws.
18.2 Informal Dispute Resolution.
(a) Prior to the initiation of any arbitration proceeding pursuant to
Section 18.3, but without prejudice to the immediate application of the
provisions of Sections 16.2 and 16.3, in the event any controversy, claim,
dispute, difference or misunderstanding arises out of or relates to this
Agreement, any term or condition hereof, any of the Work to be performed
hereunder or in connection herewith, the Impsat Project Manager and the Vendor
Project Manager shall meet and negotiate in good faith in an attempt to amicably
resolve such controversy, claim, dispute, difference or misunderstanding in
writing.
(b) The Project Managers shall meet for this purpose within ten (10)
Business Days, or such other time period mutually agreed to by the Parties,
after such controversy, claim, dispute, difference or misunderstanding arises.
If the Parties are unable to resolve the controversy, claim, dispute, difference
or misunderstanding through good faith negotiations within such ten (10)
Business Day period (or such other agreed-to time period), each Party shall,
within five (5) Business Days after the expiration of such period, prepare a
written position statement which summarizes the unresolved issues and such
Party's proposed resolution. Such position statement shall be delivered by the
Vendor to Impsat's Chief Technical Officer and by Impsat to the Vendor's
corresponding officer or representative for resolution within (5) Business Days,
or such other time period mutually agreed to by the Parties.
69
<PAGE> 75
18.3 Agreement to Resolve Disputes by Arbitration.
(a) Any dispute, controversy or claim arising out of or relating to
this Agreement, or the breach, termination, interpretation, performance or
validity thereof, shall be settled by arbitration, to be initiated by either
Party by notifying the other Party in writing, and conducted in the English
language (provided, however, that documents originally prepared in the Spanish
language may be admitted in evidence without the need for translation) and in
accordance with the International Arbitration Rules of ICC. At the request of
either Party, a stenographic transcript of the testimony and proceedings will be
taken and the arbitrators will base their decision upon the record and briefs
(including, at the option of the Parties, post-hearing briefs) of the Parties.
(b) The arbitration shall be conducted by a panel composed of three (3)
arbitrators, each with at least ten (10) years of experience in the field of
terrestrial communication networks. One arbitrator shall be appointed by the
Vendor, and one arbitrator shall be appointed by Impsat, in each case within
thirty (30) Business Days after the date of delivery of the notice requesting
arbitration by the Party initiating the arbitration to the other Party. The
third arbitrator shall be appointed by the first two arbitrators within fifteen
(15) Business Days after the later of the dates of appointment of the first two
arbitrators. If any Party fails to appoint an arbitrator within the thirty
Business Day period, or if the first two arbitrators fail to agree on the
appointment of a third arbitrator within the fifteen Business Day period, then
the arbitrator to be appointed shall be appointed by the ICC. The third
arbitrator shall not be a citizen or resident of Argentina or Canada but may be
a citizen or resident of the United States of America. Each arbitrator shall be
fluent in English and Spanish.
(c) The arbitration proceeding, including the making of the award,
shall take place in the city of [ ], and the award or the arbitrator shall be
final and binding upon the parties and may be entered in any court of competent
jurisdiction.
(d) All aspects relating to the Parties' agreement to resolve disputes
by arbitration set forth in this Article, including without limitation the
validity and enforceability of such agreement to arbitrate, the conduct of the
arbitration proceeding and the recognition and enforcement of any arbitral award
in the United States of America, shall be governed by the United States Federal
Arbitration Act, Title 9, U.S. Code Sections 1 et seq., as amended from time to
time, to the exclusion of any state or municipal laws. The Parties hereby
consent to the non-exclusive jurisdiction of the United States District Court
for the Southern District of New York and any appellate court therefrom for
purposes of the foregoing sentence; provided, however, that if for any reason
said court shall lack subject matter jurisdiction, the Parties hereby consent to
the non-exclusive jurisdiction of the Supreme Court of the State of New York,
County of New York, for such purposes. The Federal Rules of Evidence shall be
used as non-binding guidelines for the admission of evidence, and reasonable
discovery, including depositions, shall be permitted. Discovery and evidentiary
issues shall be decided by the arbitrators.
(e) Unless otherwise specifically provided in this Agreement, during
the pendency of any arbitration proceedings, the Parties agree to continue to
perform their
70
<PAGE> 76
obligations hereunder in the same manner as prior to the institution of such
arbitration proceedings.
(f) Notwithstanding anything above to the contrary, during the course
of arbitration proceeding brought under this Section 18.3 , either Party may
seek a court ordered injunction in order to maintain the status quo ante pending
final dispute resolution.
(g) Each Party shall pay for the services and expenses of the
arbitrator appointed by it, its witnesses and attorneys. All other fees and
expenses incurred in connection with the arbitration (including the fees and
expenses of the ICC and the cost of the services and expenses of the arbitrator
appointed by the two arbitrators appointed by the Parties or by the ICC) shall
be paid in equal part by the Parties, unless the award shall specify a different
division of said fees and expenses.
18.4 Arbitration Awards.
Without limiting its power to award monetary damages for damages
sustained or such other relief as a Party may demand in its arbitral pleadings
or as it may see fit, but subject to Section 13.4, the arbitral tribunal may
include one or more of the following elements in any arbitration award:
(i) an order awarding Impsat the right to require the Vendor to
remove from Impsat's premises, in whole or in part and at
Vendor's sole cost and expense, any Products and Structures
that have been delivered or installed, together with a full
refund to Impsat of the purchase price thereof;
(ii) an order directing the Vendor to assign designated
Subcontractor agreements to Impsat without any change in
price or conditions therein or any penalty or payment
therefor, to the fullest extent permitted by such
agreements; and
(iii) an order directing the Vendor to pay to Impsat an amount
equal to the difference between the Aggregate Price and the
total cost incurred by Impsat in completing the construction
and Installation of the Subnetwork by whatever reasonable
means Impsat shall deem expedient.
ARTICLE XIX.
MISCELLANEOUS
19.1 Expenses.
Each Party shall bear its own expenses incurred in connection with the
preparation and negotiation of this Agreement and any other documents required
to effect the transactions contemplated hereby.
19.2 Relationship of the Parties.
71
<PAGE> 77
All performance by either Party under this Agreement shall be performed
as an independent vendor or client (as the case may be) and not as an agent of
the other Party, and neither Party shall be, nor represent itself to be, the
employee, agent, representative, partner or joint venturer of the other. Neither
Party shall have the right or authority to incur or assume an obligation on
behalf of or in the name of the other Party or to otherwise act on behalf of the
other. The performing Party shall be responsible for its employees',
Subsidiaries', Affiliates' and third-party compliance with all Applicable Laws
while performing under this Agreement. This Agreement shall not be construed to
create any relationship, contractual or otherwise, between Impsat and any of the
Vendor's Subcontractors.
19.3 Notices.
All notices under this Agreement shall be in writing (except where
otherwise stated herein) and shall be given by overnight courier service, in
each case to the address of the intended recipient as set forth below. A notice
shall be deemed to have been given, if by courier service, on the third (3rd)
Business Day after the date it is dispatched with proof of delivery to such
courier service.
For notices to Impsat:
IMPSAT S.A.
c/o Impsat Corporation
Alferez Pareja 256
Buenos Aires, Argentina 1107
Attention: Jaime Vinocur
with a copy to:
Latham & Watkins
1001 Pennsylvania Avenue, N.W.
Suite 1300
Washington, D.C. 20004
Attn: John P. Janka, Esq.
For notice to the Vendor:
Nortel Networks Corporation
c/o Nortel Networks (CALA) Inc.
1500 Concord Terrace
Sunrise, FL 33323
Attention: Vice-President and General Counsel
with a copy to:
Nortel Networks de Argentina S.A.
72
<PAGE> 78
Larrea 1079
(1117) Buenos Aires
Argentina
Attention: Colm Murray
Any change to the name and/or address listed above may be made at any
time by giving written notice to the other Party.
19.4 Headings.
The headings given to the Articles, Sections and Exhibits herein are
inserted only for convenience and are in no way to be construed as part of this
Agreement or as a limitation of the scope of the particular Article, Section or
Exhibit to which the title refers.
19.5 Severability.
Whenever possible, each provision of this Agreement shall be
interpreted in such a manner as to be effective and valid under Applicable Law,
but, if any provision of this Agreement will be held to be prohibited or invalid
in any jurisdiction, the remaining provisions of this Agreement shall remain in
full force and effect and such prohibited or invalid provision shall remain in
effect in any jurisdiction in which it is not prohibited or invalid. In the
event that an invalid or unenforceable provision is an essential and material
element of this Agreement, the Parties shall promptly negotiate a replacement
provision.
19.6 Waiver.
Unless otherwise specifically provided by the terms of this Agreement,
no delay or failure to exercise a right resulting from any breach of this
Agreement or arising under any terms or conditions shall impair such right or
shall be construed to be a waiver thereof, but such right may be exercised from
time to time as may be deemed expedient. If any representation, warranty or
covenant contained in this Agreement is breached by either Party and thereafter
waived by the other Party, such waiver shall be limited to the particular breach
so waived and not be deemed to waive any other breach under this Agreement.
19.7 Entirety of Agreement; No Oral Change.
Except as expressly provided otherwise herein, this Agreement, together
with the Exhibits hereto, which are hereby incorporated herein as an integral
part hereof, constitute the entire agreement between the Parties with respect to
the subject matter hereof, and supersede all proposals, oral or written, all
prior and contemporaneous negotiations and other communications between the
Parties with respect to the subject matter hereof, including but not limited to
the LOI; provided, however, that notwithstanding anything above to the contrary,
this Agreement shall not supersede (i) the Confidentiality Agreement dated April
29, 1998, and amended on January 21, 1999, between Impsat Corp. and Vendor and
(ii) that certain side letter agreement executed concurrently with the execution
of this Agreement between Impsat Corp. and NNC regarding Impsat Corp.'s
commitment to purchase additional Vendor provided Equipment and Services;
provided, further, that all official documentation exchanged between the Parties
pursuant to the Communication Plan included in Exhibit D
73
<PAGE> 79
from the time of the execution of the LOI through the date hereof in connection
with the implementing the LOI shall remain in effect, and all rights and
obligations thereunder shall continue in effect. No modifications, alterations
or waivers of any provisions contained herein or in any of the Exhibits hereto
shall be binding on the Parties unless evidenced in writing signed by duly
authorized representatives of both Parties.
19.8 The Parties' Right to Assign.
Except as otherwise provided herein, a Party's rights and obligations
hereunder shall neither be assigned nor delegated without the prior written
consent of the other Parties. If and only if there is no adverse tax effect on
Impsat or its Subsidiaries, Impsat agrees not to withhold its consent for the
substitution of a Subsidiary or Affiliate of NNC in its place as a contracting
party to perform any work required in Impsat's country and to receive any
payments pertaining to such work. Impsat shall have the right to assign all or
part of its rights and delegate all or part of its duties hereunder to any of
its Affiliates and to any purchaser of all or part of the Subnetwork. Any
assignment by Impsat of all or part of its rights under the Vendor License must
comply with the requirements of Section 7.4. No assignment or substitution
pursuant to this Section 19.8 shall relieve the assigning Party of its
obligations under this Agreement. Notwithstanding anything in this Agreement to
the contrary, Impsat may pledge all or any part of its interest in the
Subnetwork, this Agreement and/or the Vendor License as security for loans or
other forms of financing.
19.9 Confidentiality.
(a) The Parties acknowledge that in the course of the RFP process
described in the recitals hereto, and in the course of negotiating and executing
the LOI and this Agreement, each of the Parties has provided to the other
certain information that it considers confidential and/or proprietary, and that
additional such information will be provided to the other during the Term of
this Agreement. The Parties further acknowledge that it is not feasible at this
time to identify each category of information that each Party considers, or may
consider, to be confidential and/or proprietary, and that each Party has certain
legitimate business needs to use the confidential and/or proprietary information
of the other Party in the course of implementing this Agreement, and
implementing and operating the Network and the Project. The Parties therefore
agree to cooperate with each other in all reasonable respects in order to
maintain the confidential and/or proprietary nature of the
confidential/proprietary information provided by the other Party. The Parties
agree to use commercially reasonable business judgment in determining what
information of the other Party is confidential and/or proprietary. The Parties
further agree to do the following with respect to such information:
(i) to use such information only for purposes of (x) fulfilling
such Party's obligations, or enforcing such Party's rights,
under this Agreement; (y) using, operating and maintaining
the Network, including providing service thereon to
customers and engaging contractors to provide goods and/or
services with respect thereto, and (z) developing,
implementing, using, operating and/or maintaining aspects of
the Project other than the Subnetwork;
74
<PAGE> 80
(ii) to limit the disclosure of such information to that which is
reasonably necessary to achieve the purposes described in
clause (i) above;
(iii) to obtain prior written confidentiality undertakings from
any contractors whom a Party engages to provide goods and/or
services to such Party and to whom such Party discloses such
information; and
(iv) in cases where it is commercially and legally feasible to do
so, to obtain written confidentiality undertakings from
other Persons and entities to whom a Party discloses such
information, recognizing that it may not be feasible to
obtain such undertakings from Governmental Entities or from
Impsat's customers.
(b) All confidential and/or proprietary information, unless otherwise
specified in writing, shall remain the property of the Party who provided such
information, and such written confidential and/or proprietary information,
including all copies thereof, shall be returned to the Party who provided such
information or destroyed upon termination of this Agreement, except for
confidential and/or proprietary information that is needed by Impsat for the
continued use, operation and maintenance of the Network. Confidential and/or
proprietary information shall not be reproduced except to the extent necessary
to accomplish the purpose and intent of this Agreement, or as otherwise
permitted in writing by the Party who originally provided such confidential
and/or proprietary information.
(c) The foregoing provisions of this Section 19.9 shall not apply to
any confidential and/or proprietary information which (i) becomes publicly
available other than through the disclosing Party; (ii) is required to be
disclosed by a governmental or judicial law, order, rule or regulation, provided
that the disclosing Party has used commercially reasonable efforts to avoid or
limit such disclosure; (iii) is independently developed by the disclosing Party;
(iv) becomes available to the disclosing Party without restriction from a third
party without an obligation to keep confidential such information; or (v)
becomes relevant to the settlement of any dispute or enforcement of either
Party's rights under this Agreement in accordance with the provisions of this
Agreement, in which case appropriate protective measures shall be taken to
preserve the confidentiality of such information as fully as possible within the
confines of such settlement or enforcement process. If any confidential and/or
proprietary information is required by law, regulation or court order to be
disclosed, the disclosing Party shall promptly inform the other Party in writing
of the requirements of such disclosure so that such Party may seek a protective
order or other remedy. In addition, the disclosing Party further agrees that if
the other Party is not successful in precluding the requesting body from
requiring the disclosure of the confidential and/or proprietary information, the
disclosing Party will furnish only that portion of the confidential and/or
proprietary information which the disclosing Party is legally required to
disclose and the disclosing Party will make all reasonable efforts to obtain
reliable assurances that confidential treatment will be accorded the
confidential and/or proprietary information.
75
<PAGE> 81
(d) All media releases, public announcements, and public disclosures
relating to this Agreement or the subject matter of this Agreement, including
promotional or marketing material, but not including announcements intended
solely for internal distribution or disclosures to the extent required to meet
legal or regulatory requirements, shall be coordinated with and shall be subject
to approval by both Parties prior to release.
(e) The provisions of this Section 19.9 shall survive for seven (7)
years after the Term of this Agreement has expired.
19.10 Binding Effect.
This Agreement shall bind, and inure to the benefit of, the Parties,
their successors and permitted assigns.
19.11 Counterparts.
This Agreement may be executed by the Parties in any number of separate
original and facsimile counterparts, and all such counterparts taken together
shall be deemed to constitute one and the same instrument, and the Parties agree
to promptly exchange original copies. This Agreement shall be of no force or
effect until executed by all of the Parties.
76
<PAGE> 82
IN WITNESS WHEREOF, the Parties have executed and delivered this
Agreement as of the date first set forth above through their respective duly
authorized representatives.
IMPSAT S.A.
By: /s/ Marcelo Girotti
------------------------
Name: Marcelo Girotti
Title: General Manager
NORTEL NETWORKS CORPORATION
By: /s/ Erika F. Jung
----------------------
Name: Erika F. Jung
Title: Senior Advisor, Operations/
Customer Service
NORTEL NETWORKS DE ARGENTINA S.A.
By: /s/ Juan L. Gutierrez
--------------------------
Name: Juan L. Gutierrez
Title: President
77
<PAGE> 1
EXHIBIT 10.3
EXECUTION COPY
TAC TURNKEY CONSTRUCTION AND IRU AGREEMENT
AMONG
IMPSAT S.A.,
AN ARGENTINA CORPORATION
IMPSAT S.A.,
A CHILE CORPORATION
AND
SOUTH AMERICAN CROSSING LTD.,
A BERMUDA CORPORATION
SEPTEMBER 22, 1999
<PAGE> 2
TABLE OF CONTENTS
PAGE
ARTICLE 1. DEFINITIONS.......................................................4
ARTICLE 2. PROVISION OF THE SYSTEM AND GRANT OF IRU'S.......................12
ARTICLE 3. CONSIDERATION....................................................14
ARTICLE 4. CONSTRUCTION OF TAC..............................................16
ARTICLE 5. ACCEPTANCE AND TESTING...........................................20
ARTICLE 6. CHANGE ORDERS....................................................23
ARTICLE 7. TERM.............................................................24
ARTICLE 8. OPERATIONS.......................................................25
ARTICLE 9. MAINTENANCE AND REPAIR OF THE TAC................................26
ARTICLE 10. PERMITS; RELOCATIONS............................................27
ARTICLE 11. USE OF THE SEGMENTS.............................................30
ARTICLE 12. INDEMNIFICATION.................................................32
ARTICLE 13. LIABILITY; WARRANTY.............................................32
ARTICLE 14. INSURANCE.......................................................35
ARTICLE 15. TAXES, FEES AND OTHER GOVERNMENTAL IMPOSITIONS..................37
ARTICLE 16. NOTICE..........................................................41
ARTICLE 17. CONFIDENTIALITY.................................................42
ARTICLE 18. TERMINATION FOR DEFAULT.........................................43
ARTICLE 19. FOREIGN CORRUPT PRACTICES ACT...................................47
ARTICLE 20. TERMINATION OF TERM.............................................47
ARTICLE 21. FORCE MAJEURE...................................................48
ARTICLE 22. TERMINATION FOR FORCE MAJEURE...................................49
ARTICLE 23. DISPUTE RESOLUTION..............................................51
ARTICLE 24. ASSIGNMENT, SUBCONTRACTORS AND DARK FIBER TRANSFERS.............51
ARTICLE 25. GUARANTOR.......................................................54
- i -
<PAGE> 3
ARTICLE 26. REPRESENTATIONS, WARRANTIES AND ACKNOWLEDGMENTS.................54
ARTICLE 27. TITLE AND RISK OF LOSS..........................................55
ARTICLE 28. INTELLECTUAL PROPERTY...........................................55
ARTICLE 29. INFRINGEMENT....................................................56
ARTICLE 30. ACQUISITION OF DARK FIBER.......................................56
ARTICLE 31. GENERAL.........................................................57
Exhibits
Exhibit 1 Executive Summary
Exhibit 2 TAC Route
Exhibit 3A Technical Specifications for Ducts & Cable
Exhibit 3B Technical Specifications for Shelters (Huts)
Exhibit 3C Duct Specifications
Exhibit 4 Acceptance Tests
Exhibit 5 Associated Properties
Exhibit 6 Billing Schedule
Exhibit 7 Maintenance Services
Exhibit 8 As-Built Templates
Exhibit 9 Plan of Work
Exhibit 10 Project Management Reports
Exhibit 11 Fee Components
Exhibit A Form of Guaranty
Exhibit B Liquidated Damages
Exhibit C Early Completion Bonus for Phase 2
Exhibit D Form of Payment Escrow Agreement
Exhibit E Form of Payment Certificate
Exhibit F Approved Subcontractors
Exhibit G Form of Completion Bond
- ii -
<PAGE> 4
TAC TURNKEY CONSTRUCTION AND IRU AGREEMENT
THIS TAC TURNKEY CONSTRUCTION AND IRU AGREEMENT (this
"Agreement") is made and entered into as of September 22, 1999 by and among
IMPSAT S.A., an Argentina corporation ("IMPSAT Argentina"), and IMPSAT S.A., a
Chile corporation ("IMPSAT Chile", and together with IMPSAT Argentina,
collectively and individually, as the context may require, "IMPSAT") and SOUTH
AMERICAN CROSSING LTD., a Bermuda corporation ("SAC").
RECITALS
WHEREAS, SAC is developing an undersea fiber optic
telecommunications network to circle the continent of South America (the
"Network") which will connect with the worldwide fiber optic telecommunications
network of Global Crossing Ltd. and its Affiliates;
WHEREAS, a portion of the Network will include terrestrial
connectivity via fiber optic cable between Las Toninas, Argentina, Buenos Aires,
Argentina, Rosario, Argentina, Cordoba, Argentina, Mendoza, Argentina, Santiago,
Chile and Algarrobo, Chile, as indicated in Exhibit 2 (such portion, the "TAC
Route");
WHEREAS, SAC desires to purchase and own [ ] ducts (the
"Owned Ducts") and the Owned Associated Properties (as defined herein) along the
Segments (as defined herein) of the TAC Route between (i) Las Toninas and Buenos
Aires, (ii) Mendoza and Santiago and (iii) Santiago and Algarrobo (the
"Constructed Segments") and wishes to engage IMPSAT Argentina to construct the
Owned Ducts and the Owned Associated Properties located in Argentina and to
engage IMPSAT Chile to construct the Owned Ducts and Owned Associated Properties
located in Chile;
WHEREAS, SAC desires to acquire from IMPSAT Argentina, and IMPSAT
Argentina desires to provide to SAC an IRU to (i) one (1) duct (the "SAC IRU
Duct" and, together with the Owned Ducts, the "Ducts") along the Segment of the
TAC Route between Buenos Aires and Mendoza (the "SAC IRU Segment") and (ii)
collocation space and facilities provided in IMPSAT's points of presence
("POPs") and the related Regeneration and OpAmp Facilities (as defined herein)
along the SAC IRU Segment, and to the rights-of way, easements, way leaves
and/or other real property rights held by IMPSAT along the SAC IRU Segment
necessary for the use of the SAC IRU Duct and the related Regeneration and OpAmp
Facilities to provide telecommunications services;
WHEREAS, IMPSAT Argentina desires to acquire from SAC, and SAC
desires to provide to IMPSAT Argentina, an IRU to (i) one (1) duct (the "IMPSAT
Argentina IRU Duct") along the Segment of the TAC Route between Mendoza and the
border of Argentina and Chile (the "IMPSAT Argentina IRU Segment") and (ii)
collocation space and facilities provided in SAC's POPs and the related
Regeneration and OpAmp Facilities along the IMPSAT Argentina IRU Segment, and to
the rights-of way, easements, way leaves and/or other real property rights held
by SAC along the IMPSAT Argentina IRU Segment necessary for the use of
- 3 -
<PAGE> 5
the IMPSAT Argentina IRU Duct and the related Regeneration and OpAmp Facilities
to provide telecommunications services; and
WHEREAS, IMPSAT Chile desires to acquire from SAC, and SAC
desires to provide to IMPSAT Chile, an IRU to (i) one (1) duct (the "IMPSAT
Chile IRU Duct") along the Segment of the TAC Route between the border of
Argentina and Chile and Santiago (the "IMPSAT Chile IRU Segment") and (ii)
collocation space and facilities provided in SAC's POPs and the related
Regeneration and OpAmp Facilities along the IMPSAT Chile IRU Segment, and to the
rights-of way, easements, way leaves and/or other real property rights held by
SAC along the IMPSAT Chile IRU Segment necessary for the use of the IMPSAT Chile
IRU Duct and the related Regeneration and OpAmp Facilities to provide
telecommunications services; and
WHEREAS, SAC desires to acquire from IMPSAT, and IMPSAT desires
to provide to SAC, specified maintenance services as set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto do hereby agree
as follows:
ARTICLE 1.
DEFINITIONS
1.01. Unless otherwise defined herein, when used herein, the
following terms shall have the following meanings:
"Acceptance Criteria" means the acceptance criteria set forth in
Exhibit 4.
"Acceptance Testing" has the meaning set forth in Section 5.01.
"Additional Amount" has the meaning set forth in Section
15.01(g).
"Affiliate" means, with respect to any entity, any other entity
controlled by or under common control with such entity. For purposes of
this definition, "control" (including the terms "controlling,"
"controlled by" and "under common control with") means the possession,
direct or indirect, of the power to vote more than 50% of the securities
(on a fully diluted basis) having ordinary voting power for the election
of directors, managing general partners or managing members.
"Agreement" has the meaning set forth in the preamble.
"Associated Properties" means the IRU Associated Properties and
the Owned Associated Properties.
"Billing Schedule" means the payment and milestone schedule set
forth in Exhibit 6.
"Bond" has the meaning set forth in Section 4.16.
- 4 -
<PAGE> 6
"Certificate of Final Acceptance" means a certificate issued by
SAC in accordance with Section 5.05 to IMPSAT certifying that TAC is
Ready for Final Acceptance.
"Certificate of Provisional Acceptance" means a certificate
issued by SAC in accordance with Section 5.04 to IMPSAT certifying that
a Segment is Ready for Provisional Acceptance.
"Change Order" means a written modification to this Agreement,
signed by the parties hereto and entered into in accordance with Article
6.
"Commissioning Report" means a written report from IMPSAT
demonstrating that a Segment is Ready for Provisional Acceptance and has
passed all Acceptance Testing.
"Constructed Segments" has the meaning set forth in the recitals.
"Contract Countries" means Argentina and Chile or any political
subdivisions thereof or taxing authorities therein.
"Date of Provisional Acceptance or Final Acceptance" means the
date set forth in the Certificate of Provisional Acceptance or
Certificate of Final Acceptance, as the case may be, provided that, for
purposes of Section 4.04 and Section 4.05, such date shall be deemed to
be the date that SAC receives a Commissioning Report demonstrating, or
deemed pursuant to Section 5.03 to demonstrate, that a Segment is Ready
for Provisional Acceptance or TAC is Ready for Final Acceptance each in
accordance with Article 5.
"Deficiency" means an instance of a failure to conform to the
Acceptance Criteria.
"Deliverable Technical Material" means copies of all technical
information, specifications, drawings, designs, sketches, tools,
operating data, records, documentation and/or other types of engineering
or technical data or information reasonably relating to the operation,
maintenance or repair of each component of the Ducts and the Associated
Properties, including without limitation Exhibits 1 through 10 hereof.
"Design Life Warranty" has the meaning set forth in Section
13.05.
"Design Specifications" means the design specifications set forth
in Exhibits 3A, 3B and 3C.
"Dollars" or "US$" means United States dollars.
"Downpayment" has the meaning set forth in Section 3.01.
"Ducts" has the meaning set forth in the recitals.
"Fee" means the IMPSAT Argentina Fee and the IMPSAT Chile Fee.
- 5 -
<PAGE> 7
"Fiber Changeout Amount" has the meaning set forth in Section
2.02.
"Final Commissioning Report" means a written report from IMPSAT
(a) demonstrating that TAC is Ready for Final Acceptance and has passed
all Acceptance Testing and (b) containing (i) a summary of the results
of Acceptance Testing with respect to each Segment, (ii) specifications,
data sheets, plans and drawings plans for each Regeneration and OpAmp
Facility, (iii) customary documentation with respect to each Segment,
and (iv) all other information related to the Work hereunder reasonably
requested by SAC.
"Framework Agreement" means the Amended and Restated Framework
Agreement, dated as of July 27, 1999, as amended, by and between the
Guarantor and Global Crossing Development Co.
"Grantee" means (a) with respect to the SAC IRU Segment, SAC, (b)
with respect to the IMPSAT Argentina IRU Segment, IMPSAT Argentina and
(c) with respect to the IMPSAT Chile IRU Segment, IMPSAT Chile.
"Grantor" means (a) with respect to the SAC IRU Segment, IMPSAT
Argentina and (b) with respect to each IMPSAT IRU Segment, SAC.
"Guarantor" means IMPSAT Corporation, a Delaware corporation and
the ultimate parent company of IMPSAT Argentina and IMPSAT Chile.
"Guaranty" means the guaranty to be entered into by the Guarantor
in favor of SAC, to be substantially in the form of Exhibit A hereto.
"IMPSAT Access Rights" means all ownership, easement, wayleaves
and/or other property rights, from both private and governmental
entities necessary to access, use and occupy the Ducts and the
Associated Properties in order for SAC to own or acquire an IRU in (as
the case may be), operate and, subject to and without limiting the
generality of Article 9, maintain TAC.
"IMPSAT Argentina Fee" has the meaning set forth in Section 3.01.
"IMPSAT Argentina IRU Associated Properties" means the tangible
and intangible property needed for the use of the IMPSAT Argentina IRU
Duct to provide fiber optic telecommunications services along the IMPSAT
Argentina IRU Segment as contemplated in the Design Specifications
(specifically excluding any electronic or optronic equipment or fiber
optic cable) and will include the properties and locations described in
Exhibit 5.
"IMPSAT Argentina IRU Duct" has the meaning set forth in the
recitals.
"IMPSAT Argentina IRU Fee" has the meaning set forth in Section
2.02.
"IMPSAT Argentina IRU Segment" has the meaning set forth in the
recitals.
- 6 -
<PAGE> 8
"IMPSAT Chile Fee" has the meaning set forth in Section 3.01.
"IMPSAT Contract Taxes" has the meaning set forth in Section
15.10.
"IMPSAT IRU" has the meaning set forth in Section 2.02.
"IMPSAT Chile IRU Associated Properties" means the tangible and
intangible property needed for the use of the IMPSAT Chile IRU Duct to
provide fiber optic telecommunications services along the IMPSAT Chile
IRU Segment as contemplated in the Design Specifications (specifically
excluding any electronic or optronic equipment or fiber optic cable) and
will include the properties and locations described in Exhibit 5.
"IMPSAT Chile IRU Duct" has the meaning set forth in recitals.
"IMPSAT Chile IRU Fee" has the meaning set forth in Section
2.02(a).
"IMPSAT Chile IRU Segment" has the meaning set forth in the
recitals.
"IMPSAT Excluded Tax" shall mean a Tax described in any of the
following clauses:
(i) any franchise, excess profits, net worth, capital or
capital gains Tax, as well as any Tax on doing business or
imposed on net or gross income or receipts (excluding ingresos
brutos under Argentine or Chilean law) (including minimum and
alternative minimum Taxes measured by any items of Tax
preference), but in each case excluding Taxes that are or are in
the nature of sales, use, excise, license, rental, ad valorem,
value added or property Taxes (other than property taxes on
property owned by IMPSAT and not intended to be incorporated into
TAC);
(ii) Taxes imposed on IMPSAT solely as a result of IMPSAT's
gross negligence or willful misconduct; or
(iii) any import duty, other import related charges, sales
or use tax, VAT or property tax imposed by any Non-Contract
Country in respect of supplies brought into (or caused to be
brought into) such Non-Contract Country by IMPSAT or its
Affiliates for testing, modification or other similar purposes
prior to being installed or used outside such Non-Contract
Country.
"IMPSAT IRU Associated Properties" means the IMPSAT Argentina IRU
Associated Properties and the IMPSAT Chile IRU Associated Properties
"IMPSAT IRU Fee" means the IMPSAT Argentina IRU Fee and the
IMPSAT Chile IRU Fee.
"IMPSAT IRU Segment" means the IMPSAT Argentina IRU Segment and
the IMPSAT Chile Segment.
- 7 -
<PAGE> 9
"IMPSAT Permits" means all IMPSAT Access Rights, permits,
approvals, "no objections", permissions-in-principle, authorizations,
consents, registrations, certificates, rights-of-way, certificates of
occupancy, licenses, including without limitation, export and import
licenses, necessary to complete the Work and operate and maintain TAC,
provided that IMPSAT Permits shall not include (a) any of the foregoing
(i) relating to the ownership, operation and maintenance by SAC of the
Constructed Segments and not necessary until after each such Segment is
Ready for Provisional Acceptance, (ii) which is or would be needed by
SAC to engage in any business outside the business of developing, owning
and operating a buried fiber optic cable system or (iii) which is or
would be needed at any time by any purchaser or lessee of capacity on
TAC or (b) any telecommunications licenses required to be held by SAC
and issued by the Secretaria de Comunicaciones and/or the Comision
Nacional de Comunicaciones of Argentina or the Ministerio de Transportes
y Telecomunicaciones of Chile. IMPSAT Permits include all of the
foregoing whether required to be obtained from governmental entities or
private parties.
"IMPSAT System" means the telecommunications system of IMPSAT
along the SAC IRU Segment and other rights associated with the property
and equipment utilized in IMPSAT's telecommunications system along the
SAC IRU Segment.
"Intellectual Property" means any information, computer or other
apparatus programs, software, specifications, drawings, designs,
sketches, tools, market research or operating data, prototypes, records,
documentation, works of authorship or other creative works, ideas,
concepts, methods, inventions, discoveries, improvements, or other
business, financial and/or technical information (whether or not
protectable or registrable under any applicable intellectual property
law).
"Interest Holder" has the meaning set forth in Section 9.07.
"IRU" means (a) with respect to the IRU Ducts, an exclusive,
indefeasible right of use, for the Term, for the purposes described
herein[
] and (b) with respect to the IRU Associated Properties, an
associated, non-exclusive, indefeasible right of use, for the Term, for
the purposes described herein[
].
"IRU Associated Properties" means the SAC IRU Associated
Properties and the IMPSAT IRU Associated Properties.
"IRU Ducts" means the SAC IRU Duct and the IMPSAT IRU Duct.
"IRU Segments" means the SAC IRU Segment and the IMPSAT IRU
Segment.
"Keep-well Letter" means the Keep-well letter, dated the date
hereof, from Global Crossing Holdings Ltd. to IMPSAT.
- 8 -
<PAGE> 10
"Liquidated Damages" means amounts of damages payable due to
delay in accordance with Section 4.04.
"Maintenance Services" means those services to be provided by
IMPSAT to SAC pursuant to Article 9.
"MTTR" has the meaning set forth in Section 18.02(b).
"Network" has the meaning set forth in the recitals.
"Non-Contract Countries" means all countries, or any political
subdivisions thereof or taxing authorities therein, other than the
Contract Countries.
"Notice of Termination" has the meaning set forth in Section
21.05.
"Owned Associated Properties" means the tangible and intangible
property needed for the use of the Owned Ducts to provide fiber optic
telecommunications services along the Constructed Segments as
contemplated by the Design Specifications, including, but not limited
to, the related Regeneration and OpAmp Facilities and all IMPSAT Permits
with respect to the Constructed Segments (specifically excluding any
electronic or optronic equipment or fiber optic cable) and will include
the properties and locations described in Exhibit 5.
"Owned Ducts" has the meaning set forth in the recitals.
"Payment Escrow Agent" means the escrow agent under the Payment
Escrow Agreement referred to in Section 3.06(b), and its successors in
such capacity.
"Permits" means the SAC Permits and the IMPSAT Permits.
"Punch List" has the meaning set forth in Section 5.04(a).
"Ready for Final Acceptance" means, for TAC, that
(i) TAC has been completed in accordance with the Design
Specifications,
(ii) all Acceptance Testing of TAC has been successfully
completed,
(iii) SAC has received the Final Commissioning Report, and
(iv) all Deficiencies noted in the Certificates of Provisional
Acceptance have been corrected (other than minor deficiencies
which will not affect the operation of TAC for the use for which
it was intended, in respect of which an equitable adjustment to
the Fee will be made).
"Ready for Provisional Acceptance" means, with respect to any
Segment,
(a) such Segment is complete, except for a Punch List, agreed to
between IMPSAT and SAC, listing the items of the Work not yet completed,
provided, that such
- 9 -
<PAGE> 11
Segment is complete in all material respects, and such incomplete
portion of the Work will not (i) materially impair SAC's ability to
install and operate fiber and equipment therein in the manner intended
and (ii) during its completion, unreasonably impair SAC's ability to
install and operate fiber and equipment therein in the manner intended.
At the sole discretion of SAC, the Punch List may contain items not
meeting the standards of clauses (i) and/or (ii) above,
(b) the results of Acceptance Testing of such Segment demonstrate
that such Segment has satisfied the Acceptance Criteria,
(c) except as included in the Punch List, all IMPSAT Permits are
obtained and in effect for such Segment and, in the case of the SAC IRU
Segment, IMPSAT has provided to SAC copies of IMPSAT Permits obtained
with respect thereto, and
(d)(i) in the case of the SAC IRU Segment, the Date of
Provisional Acceptance of the Segment between Buenos Aires and Las
Toninas has occurred and (ii) in the case of the Segments between
Mendoza and Algarrobo, the Date of Provisional Acceptance of the SAC IRU
Segment has occurred.
"Recurring Service Charge" has the meaning set forth in Section
9.02(a).
"Regeneration and OpAmp Facilities" has the meaning set forth in
Section 4.02(a).
"SAC Contract Taxes" has the meaning set forth in Section
15.01(a).
"SAC Excluded Tax" means a Tax described in any of the following
clauses:
(i) any franchise, excess profits, net worth, capital or capital
gains Tax, as well as any Tax on doing business or imposed on net
or gross income or receipts (excluding ingresos brutos under
Argentine or Chilean law) (including minimum and alternative
minimum Taxes measured by any items of Tax preference), but in
each case excluding Taxes that are or are in the nature of sales,
use, excise, license, rental, ad valorem, value added or property
Taxes (other than property taxes on property owned by SAC and not
intended to be incorporated into the IMPSAT IRU Duct and the
IMPSAT IRU Associated Properties);
(ii) Taxes imposed on SAC solely as a result of SAC's gross
negligence or willful misconduct; or
(iii) any import duty, other import related charges, sales or use
tax, VAT or property tax imposed by any Non-Contract Country in
respect of supplies brought into (or caused to be brought into)
such Non-Contract Country by SAC or its Affiliates for testing,
modification or other similar purposes prior to being installed
or used outside such Non-Contract Country.
"SAC IRU" has the meaning set forth in Section 2.01.
- 10 -
<PAGE> 12
"SAC IRU Associated Properties" means the tangible and intangible
property needed for the use of the SAC IRU Duct to provide fiber optic
telecommunications services along the SAC IRU Segment as contemplated in
the Design Specifications (specifically excluding any electronic or
optronic equipment or fiber optic cable) and will include the properties
and locations described in Exhibit 5.
"SAC IRU Duct" has the meaning set forth in the recitals.
"SAC IRU Segment" has the meaning set forth in the recitals.
"SAC Permits" means (i) any telecommunications licenses required
to be held by SAC and issued by the Secretaria de Comunicaciones and/or
the Comision Nacional de Comunicaciones of Argentina or the Ministerio
de Transportes y Telecomunicaciones of Chile in respect of the IMPSAT
IRU Segment and (ii) all other permits, approvals, authorizations and
consents necessary for SAC to grant to IMPSAT Argentina and IMPSAT Chile
an IRU in the IMPSAT IRU Duct and the IMPSAT IRU Associated Properties
in accordance with this Agreement, provided that SAC Permits shall not
include (a) any IMPSAT Permits with respect to the IMPSAT IRU Segment
(other than, after the Date of Provisional Acceptance of such Segment,
any such IMPSAT Permits assigned, transferred or issued to SAC pursuant
to Section 10.02) and (b) any of the foregoing (x) which is or would be
needed by IMPSAT Argentina or IMPSAT Chile to engage in any business
outside the business of developing, owning and operating a buried fiber
optic cable system or (y) which is or would be needed at any time by any
purchaser or lessee of capacity on the IMPSAT IRU Segment.
"Scheduled RFS Date" means, with respect to each Segment, the
date set forth below with respect to such Segment, as any such date may
be extended for and during the period of any delay described in Article
21, pursuant to a Change Order or otherwise under this Agreement or by
agreement of the parties.
<TABLE>
<CAPTION>
Segment Scheduled RFS Date
------- ------------------
<S> <C>
Las Toninas-Buenos Aires [ ], 2000
Buenos Aires-Mendoza [ ], 2000
Mendoza-Santiago [ ], 2000
Santiago-Algarrobo [ ], 2000
</TABLE>
"Segment" means each of the four city-to-city segments of
Trans-Andean Crossing between (i) Las Toninas and Buenos Aires, (ii)
Buenos Aires and Mendoza, (iii) Mendoza and Santiago and (iv) Santiago
and Algarrobo, in each case as set forth in more detail on Exhibit 2.
"Span" has the meaning set forth in Section 5.07.
- 11 -
<PAGE> 13
"Subcontractors" has the meaning set forth in Section 24.05.
"Supplies" means any and all materials, plant, machinery,
equipment, hardware and items supplied by IMPSAT under this Agreement.
"TAC Route" has the meaning set forth in the recitals hereto.
"Tax" means any tax, duty, levy, charge or custom (including,
without limitation, any sales or use tax, VAT or octroi duty relating to
the contract items and fiscal stamps connected with contract
legalization) imposed or collected by any taxing authority or agency
(domestic or foreign).
"Term" has the meaning set forth in Section 7.01(e).
"Trans-Andean Crossing" or "TAC" means the Ducts and the
Associated Properties.
"Underlying Rights Requirements" has the meaning set forth in
Section 11.01.
"Warranty Period" has the meaning set forth in Section 13.03.
"Work" means all activities and services (other than activities
and services specified herein to be provided by SAC) necessary to be
performed or provided in developing, planning, engineering, designing,
manufacturing, procuring, constructing, delivering, installing and
testing TAC in accordance with the terms hereof until TAC is Ready for
Final Acceptance, including without limitation, designating,
coordinating and obtaining all IMPSAT Permits.
"Year 2000 Compliant" means, when used with respect to any
equipment, Supplies or materials, that such equipment, Supplies or
materials will operate accurately and, without interruption, accept,
possess and in all manner retain full functionality when referring to,
or involving, any year or date in the twentieth or twenty first
centuries.
1.02. Unless otherwise defined herein, all terms used herein
which are commonly used in the terrestrial telecommunications industry shall
have the meanings commonly given such terms in the industry.
ARTICLE 2.
PROVISION OF THE SYSTEM AND GRANT OF IRU'S
2.01. In consideration of the IMPSAT Argentina Fee, IMPSAT
Argentina hereby agrees to construct the Ducts and the Associated Properties
located in Argentina on a turnkey, fixed-price, date-certain basis, meeting the
Acceptance Criteria on or before the Scheduled RFS Date for each Segment and to
grant to SAC an IRU for the Term in the SAC IRU Duct and the SAC IRU Associated
Properties (the "SAC IRU"), all in accordance with the terms hereof. In
consideration of the IMPSAT Chile Fee, IMPSAT Chile hereby agrees to construct
the Ducts and the Associated Properties located in Chile on a turnkey,
fixed-price, date-certain
- 12 -
<PAGE> 14
basis, meeting the Acceptance Criteria on or before the Scheduled RFS Date for
each Segment, all in accordance with the terms hereof. On the Date of
Provisional Acceptance with respect to a Segment, the parties shall execute such
documentation as may be reasonably required to evidence the passage of title or
grant of an IRU (as the case may be) with respect to such Segment.
2.02. In consideration of the payment by IMPSAT Argentina to SAC
of a fee of U.S.$[ ], plus applicable IMPSAT Contract Taxes thereon (the
"IMPSAT Argentina IRU Fee"), and the payment by IMPSAT Chile to SAC of a fee of
U.S.$[ ], plus applicable IMPSAT Contract Taxes thereon (the "IMPSAT Chile IRU
Fee"), each payable in full on the Date of Provisional Acceptance of the IMPSAT
IRU Segment, SAC hereby agrees to grant to (i) IMPSAT Argentina an IRU for the
Term in the IMPSAT Argentina IRU Duct and the IMPSAT Argentina IRU Associated
Properties and (ii) IMPSAT Chile an IRU for the Term in the IMPSAT Chile IRU
Duct and the IMPSAT Chile IRU Associated Properties (the IRUs granted in clauses
(i) and (ii) above, collectively, the "IMPSAT IRU"), all in accordance with the
terms hereof. SAC shall pay to IMPSAT Argentina on or before the Date of
Provisional Acceptance of the IMPSAT IRU Segment the amount of U.S.$[ ], plus
applicable SAC Contract Taxes thereon, as full payment of the amount owed by SAC
to IMPSAT with respect to the fiber changeout pursuant to paragraph 3 of Exhibit
3 to the Framework Agreement (the "Fiber Changeout Amount"). IMPSAT Argentina
may, in its sole discretion, pay to SAC the amount of the IMPSAT Argentina IRU
Fee net of the Fiber Changeout Amount otherwise owed to it by SAC.
2.03. The Constructed Segments shall be owned exclusively by SAC
and shall not include property owned by IMPSAT, any Affiliate of IMPSAT or any
third party. It is acknowledged and agreed by SAC that the SAC IRU Duct will be
located within facilities, and operated pursuant to IMPSAT Permits, that are
shared with IMPSAT or other telecommunications providers.
2.04. It is acknowledged and agreed by IMPSAT that the IMPSAT IRU
Duct will be located within facilities, and operated pursuant to SAC Permits,
that are shared with SAC or other telecommunications providers.
2.05. The Segments included in this Agreement are set forth in
more detail on Exhibit 2.
2.06. Within 30 days after the Date of Provisional Acceptance of
the SAC IRU Segment, IMPSAT Argentina agrees to [ ] to SAC a [ ]. The [
] shall not include IMPSAT's intermediate head-end buildings in Rosario,
Cordoba and Mendoza, as described in Exhibit 5, provided that IMPSAT Argentina
shall lease space in such locations to SAC, for the Term, upon mutually
agreeable terms and conditions. Such [ ] shall extend for the maximum term
permitted under Argentine law. Within 30 days after the Date of Provisional
Acceptance of the IMPSAT IRU Segment, SAC agrees to [ ] to IMPSAT Argentina
and IMPSAT Chile (as applicable) [ ]. Such [ ] shall extend for (i) the
maximum term permitted under Argentine law, in the case of the IMPSAT Argentina
IRU
- 13 -
<PAGE> 15
Segment and (ii) for a term of 25 years, in the case of the IMPSAT Chile IRU
Segment. If the term of [ ] expires, by its terms, on a date earlier than the
last day of the Term, each of SAC and IMPSAT Argentina agrees to extend the term
of the [ ] with respect to the IMPSAT IRU Segment or the SAC IRU Segment (as
the case may be) until a date that is not earlier than the last day of the Term.
Each such [ ] shall to the extent permitted by law incorporate (by reference
or otherwise) the substance of the terms and conditions set forth in this
Agreement. The parties agree to prepare, execute and record all documents as are
reasonably necessary to [ ] this Section 2.06.
ARTICLE 3.
CONSIDERATION
3.01. In consideration for the construction of the Ducts and the
Associated Properties located in Argentina and the grant of the IRU hereunder by
IMPSAT Argentina to SAC, SAC agrees to pay to IMPSAT Argentina a fixed fee (the
"IMPSAT Argentina Fee") of US$[ ], payable in accordance with the Billing
Schedule. In consideration for the construction of the Ducts and the Associated
Properties located in Chile, SAC agrees to pay to IMPSAT Chile a fixed fee (the
"IMPSAT Chile Fee") of US$[ ], payable in accordance with the Billing
Schedule. The parties agree that the Fee shall be allocated as set forth in
Exhibit 11. Promptly after the execution of this Agreement, SAC shall pay to
IMPSAT an initial payment in the amount of $[ ], representing a downpayment in
respect of the Fee (the "Downpayment"). IMPSAT shall present the invoice in
respect of the Downpayment and the Fiber Changeout Amount to and in the name of
GC SAC Argentina S.R.L. or any other entity designated by SAC.
3.02. Subject to Article 15 and to the accrual of any bonus under
Section 4.05, the Fee is all-inclusive, including, without limitation, any and
all insurance costs, customs duties for the equipment to be provided by IMPSAT,
legal costs (incurred by IMPSAT), costs related to obtaining and maintaining the
IMPSAT Permits, construction costs, and any other costs incurred or assumed by
IMPSAT in obtaining, constructing or conveying Trans-Andean Crossing to SAC with
all required Permits. IMPSAT acknowledges and agrees that this Agreement is a
fixed-price contract and, subject to Article 21, explicitly assumes the risk of
any cost overruns beyond its budgeted amount or unexpected costs or expenses.
IMPSAT hereby waives any right it may have to renegotiate or terminate this
Agreement under Section 1198 of the Argentine Civil Code or under any similar
law or principle.
3.03. All payments to be made to IMPSAT under this Agreement
shall be made in Dollars by wire transfer of immediately available funds to the
account or accounts designated by IMPSAT.
3.04. If SAC fails to make any payment under this Agreement when
invoiced and due, such amount shall accrue interest from the date such payment
is due until it is paid, such interest to be payable along with the amount due
on the date the underlying payment is made, compounded monthly at a rate per
annum equal to the prime rate of interest published by The Wall Street Journal
plus [ ]% or, if lower, the highest percentage allowed by New York law.
- 14 -
<PAGE> 16
3.05. (a) All invoices shall be submitted according to the
Billing Schedule, provided that the appropriate milestones set forth therein
have been achieved. All invoices shall be submitted with all appropriate
supporting VAT documentation and shall have a certificate in the form of Exhibit
E attached.
(b) Any Change Orders shall be invoiced and paid in accordance
with the terms of the Change Order as specified in Article 6.
(c) Invoices for amounts not described in clauses (a) or (b)
above, which may become payable hereunder, shall be submitted after applicable
costs have been incurred or such other time as may be specified in this
Agreement, and shall be accompanied by a certificate of IMPSAT explaining such
amount and certifying that it is payable.
(d) IMPSAT shall render all invoices to the following address or
facsimile number:
South American Crossing Ltd.
Wessex House
45 Reid Street
Hamilton HM12, Bermuda
Facsimile: 441-296-6749/8606
Attn: Robert Klug
with a copy to:
South American Crossing Ltd.
150 El Camino Drive
Suite 204
Beverly Hills, CA 90212
Facsimile: 310-281-4942
Attn: Dale Miller
3.06. (a) Invoices given to SAC shall be due and payable [ ]
after receipt thereof, or such other time as may be specified in this Agreement.
(b)(i) In the event that SAC has an objection to any invoice or
other payment obligation or any amount owing by IMPSAT to SAC shall not have
been paid when due, SAC shall promptly notify IMPSAT of such objection and such
amount, and SAC and IMPSAT shall make every reasonable effort to settle promptly
the dispute concerning the payment(s) in question. In the event such dispute
cannot be settled, IMPSAT and SAC will promptly execute and deliver a Payment
Escrow Agreement substantially in the form of Exhibit D hereto (the "Payment
Escrow Agreement"), with such changes therein as the Payment Escrow Agent may
reasonably request, and SAC will have the right to withhold payment of the
disputed amount(s) (or withhold from the invoice amount a sum equal to the
amount purportedly owing by IMPSAT) so long as it deposits, in full, such
disputed amount(s) into the Dispute Account created pursuant to the Payment
Escrow Agreement (the "Dispute Account").
- 15 -
<PAGE> 17
(ii) Provided such disputed amount is placed into the Dispute
Account in a timely manner and SAC has acted in good faith, SAC shall
not be deemed to be in breach of or in default for failing to pay
IMPSAT.
(iii) The Payment Escrow Agent will distribute the disputed
amount in accordance with the terms of the Payment Escrow Agreement.
(iv) In addition, the prevailing party shall be entitled to
receive from the Dispute Account an amount equal to the interest earned
by the Payment Escrow Agent on the distributed, disputed amount, which
shall be distributed by the Payment Escrow Agent under clause (iii)
above.
IMPSAT and SAC will share equally the costs and expenses of the Payment Escrow
Agent.
(c) SAC shall make timely payments for that portion of the
invoice not in dispute in accordance with Section 3.06(a) or such payments will
accrue interest as set forth in Section 3.04. Pending resolution of the dispute,
SAC may not withhold payment (unless also subject to dispute) on any other
invoice concerning different goods and/or services submitted by IMPSAT.
ARTICLE 4.
CONSTRUCTION OF TAC
4.01. IMPSAT Argentina shall design and construct on a turnkey
basis, the Ducts and the Associated Properties located in Argentina in
accordance with the Design Specifications, industry standards and practices, and
applicable IMPSAT Permits. IMPSAT Chile shall design and construct on a turnkey
basis, the Ducts and the Associated Properties located in Chile in accordance
with the Design Specifications, industry standards and practices, and applicable
IMPSAT Permits.
4.02. (a) Exhibit 5 describes and sets forth the sites along the
TAC Route at which regeneration and optical amplification facilities currently
are located or are to be installed in accordance with the Acceptance Criteria
(collectively, the "Regeneration and OpAmp Facilities"). SAC's and IMPSAT's use
of the Regeneration and OpAmp Facilities along the SAC IRU Segment or the IMPSAT
IRU Segment, respectively, shall be subject to the provisions of this Agreement.
(b) The IRU with respect to the SAC IRU Associated Properties
shall include for SAC the right to occupy and use, subject to the terms of this
Agreement, [ ] square meters of space and facilities in each Regeneration and
OpAmp Facility. SAC acknowledges that each Regeneration and OpAmp Facility along
the SAC IRU Segment may be shared with IMPSAT and other entities, but that each
such party shall have exclusive access to a specified portion of such facility
for its sole use. If SAC notifies IMPSAT that SAC's available space is
inadequate for the operation and installation of telecommunications equipment at
any Regeneration and OpAmp Facility along the SAC IRU Segment, IMPSAT agrees to
use reasonable best efforts to make additional space available for use pursuant
to an IRU upon any expansion of such
- 16 -
<PAGE> 18
Regeneration and OpAmp Facility that IMPSAT, in its sole discretion, may cause
to occur. Any such space that is made available by IMPSAT shall be made
available at a price to be agreed, plus value added tax.
(c) The IRU with respect to the IMPSAT IRU Associated Properties
shall include for IMPSAT Argentina or IMPSAT Chile, as applicable, the right to
occupy and use, subject to the terms of this Agreement, [ ] square meters of
space and facilities in each Regeneration and OpAmp Facility. IMPSAT
acknowledges that each Regeneration and OpAmp Facility along the IMPSAT IRU
Segment may be shared with SAC and other entities, but that each such party
shall have exclusive access to a specified portion of such facility for its sole
use. If IMPSAT notifies SAC that IMPSAT's available space is inadequate for the
operation and installation of telecommunications equipment at any Regeneration
and OpAmp Facility along the IMPSAT IRU Segment, SAC agrees to use reasonable
best efforts to make additional space available for use pursuant to an IRU upon
any expansion of such Regeneration and OpAmp Facility that SAC, in its sole
discretion, may cause to occur. Any such space that is made available by SAC
shall be made available at a price to be agreed, plus value added tax.
(d) The IRU with respect to the SAC IRU Duct and the SAC IRU
Associated Properties shall include for SAC (and its suppliers and agents) a
right to access the SAC IRU Duct and the SAC IRU Associated Properties upon
prior authorization, not to be unreasonably withheld, to install fiber or
maintain its equipment and to add or upgrade equipment as it may consider
necessary. IMPSAT shall have the right to be present at all times during any
access by SAC of the SAC IRU Duct.
(e) The IRU with respect to the IMPSAT IRU Duct and the IMPSAT
IRU Associated Properties shall include for IMPSAT (and its suppliers and
agents) a right to access the IMPSAT IRU Associated Properties upon prior
authorization, not to be unreasonably withheld, to install fiber or maintain its
equipment and to add or upgrade equipment as it may consider necessary. SAC
shall have the right to be present at all times during any access by IMPSAT of
the IMPSAT IRU Duct.
(f) IMPSAT Argentina or IMPSAT Chile, as applicable, shall
provide the services set forth in Exhibit 5 for the Regeneration and OpAmp
Facilities including, without limitation, power, air conditioning and security
and fire suppression. Except for the cost of power, which shall be paid
separately by SAC to IMPSAT, and property taxes, the ongoing costs related to
the services described in this clause (f) are included in the Recurring Service
Charge. Any requirements of SAC outside the scope of services described in
Exhibit 5 shall be charged in accordance with IMPSAT's then-current price list.
4.03. IMPSAT shall complete the construction and satisfactory
Acceptance Testing of each of the Segments and TAC, including the provision of
such Regeneration and OpAmp Facilities on such Segment as are required to be
provided pursuant to Section 4.02, by the applicable Scheduled RFS Date
respecting such Segment.
4.04. The parties agree that damages for delay are difficult to
calculate and therefore agree that, if the Date of Provisional Acceptance for
any Segment does not occur by the Scheduled RFS Date with respect to such
Segment due to a failure of IMPSAT to fulfill its
- 17 -
<PAGE> 19
obligations hereunder, IMPSAT shall pay Liquidated Damages to SAC in accordance
with Exhibit B, not to exceed US$[ ]. Liquidated Damages for the Buenos
Aires-Mendoza Segment and the Mendoza-Santiago Segment shall be allocated
between IMPSAT Argentina and IMPSAT Chile as set forth in Exhibit B. Any such
damages shall be payable in Dollars. Liquidated Damages and SAC's rights to
terminate under Article 18 shall be SAC's sole remedies for any delay in the
performance of IMPSAT's obligation to deliver TAC hereunder.
4.05. If the Date of Provisional Acceptance of each of the Buenos
Aires- Mendoza Segment and the Mendoza-Santiago Segment occurs prior to the
Scheduled RFS Date therefor, SAC shall pay an early completion bonus to IMPSAT
in accordance with Exhibit C, not to exceed US$[ ]. Any such bonus shall be
payable in Dollars, and shall be allocated between IMPSAT Argentina and IMPSAT
Chile as set forth in Exhibit C.
4.06. IMPSAT shall provide SAC and, upon SAC's request, a
contractor designated by SAC, with access to inspect the construction and
testing of TAC during the course and at the time of the relevant construction,
installation and testing period for the purpose of verifying conformity with the
Acceptance Criteria; provided such access does not unreasonably interfere with
IMPSAT's performance hereunder and such access is coordinated in advance with
IMPSAT. Upon SAC's request, IMPSAT shall make available for inspection by SAC
and, upon SAC's request, by a contractor designated by SAC, at IMPSAT's offices,
copies of all information, documents, reports, IMPSAT Permits, drawings and
specifications generated, obtained or acquired by IMPSAT in performing its
duties under this Agreement that are reasonably requested by SAC or, upon SAC's
request, by a contractor designated by SAC, to the extent that the terms of each
such document or the legal restrictions applicable to such information or
document permits disclosure and further as may be redacted to protect disclosure
of confidential business and proprietary terms.
4.07. Within [ ] after the Date of Provisional Acceptance of
each Segment, IMPSAT shall provide SAC with as-built drawings for such Segment
in accordance with the requirements described in Exhibit 8 ("As-Builts").
4.08. IMPSAT shall construct the TAC in accordance with the
Acceptance Criteria.
4.09. IMPSAT shall perform the Work in a safe manner, in
accordance with industry standards. IMPSAT shall timely comply with all
applicable laws and procure, maintain and comply with all IMPSAT Permits,
including without limitation IMPSAT Permits with respect to the SAC IRU Segment,
and other authorizations required for the conduct of its business, except for
the application of laws or the corresponding acts of authorities that are being
contested in good faith and by appropriate proceedings timely initiated and
diligently conducted, and except where the failure to so comply would not have a
material adverse effect on its ability to perform its obligations hereunder, and
would not affect the legality, validity or enforceability of this Agreement or
any of the transactions contemplated hereby.
4.10. As part of the Fee, IMPSAT shall obtain, at its own risk
and expense, any export and import license and other official authorization and
carry out all customs formalities
- 18 -
<PAGE> 20
for the exportation and importation of goods and, where necessary, for their
transit through another country.
4.11. IMPSAT represents and warrants to SAC that it, its
Affiliates or its other subcontractors performing the Work possess, or will
possess, a valid license to perform the Work in the jurisdictions where the Work
is to be performed and is registered in good standing with the appropriate
governmental authorities therein. IMPSAT, its Affiliates or its other
subcontractors performing the Work shall remain licensed and in good standing
during the performance of the Work. IMPSAT shall bear all costs associated with
remaining licensed and in good standing.
4.12. Subject to Article 21, IMPSAT assumes the risk of
conditions on the TAC Route relevant to the Work and, regardless of such
conditions, expense or difficulty of performance, will fully complete the Work
for the Fee without further recourse to SAC. Information on the site of the Work
and local conditions at such site which may have been furnished by SAC is not
guaranteed with respect to accuracy by SAC and is furnished only for the
convenience of IMPSAT. SAC, however, is not aware of any inaccuracy in such
information and will promptly inform IMPSAT of any inaccuracy of which it
becomes aware.
4.13. IMPSAT shall be permitted, with the consent of SAC (not to
be unreasonably withheld), to make changes to the TAC Route, if necessary for
operational reasons, without additional cost to SAC. Any changes to the TAC
Route requested by SAC shall be treated as a Change Order. Any changes to any
aspect of the Work due to changes in the TAC Route requested by IMPSAT pursuant
to this subsection (other than any such changes required pursuant to a
governmental order) will not result in any change to the Fee or the Scheduled
RFS Date with respect to any Segment.
4.14. IMPSAT shall provide to SAC, on the first and fifteenth day
of each month, a construction progress report in accordance with Exhibit 10
containing the following information: (i) scheduled and forecasted completion
dates for all Segments and Associated Properties, (ii) kilometers of duct
installed between each Associated Property, (iii) a brief narrative describing
the Work performed and a list of any potential risks which may prevent or delay
project completion by the agreed upon dates and the proposed actions to minimize
or diminish such risks and (iv) any other information of a similar nature
reasonably requested by SAC. Additionally, SAC may request weekly from IMPSAT
the information contained in (ii) above. Such request and its response may be
verbal or in writing.
4.15. IMPSAT understands that other portions and elements of the
Network are intended to be installed by another contractor(s). IMPSAT agrees to
use its reasonable best efforts to cooperate with SAC and such other
contractor(s) as necessary.
4.16. In order to receive payment of the amount otherwise due on
the Date of Provisional Acceptance with respect to each Segment in accordance
with Exhibit 6, IMPSAT shall deliver to SAC a completion bond substantially in
the form of Exhibit G hereto (each, a "Bond"), issued by an entity reasonably
acceptable to SAC. The Bond with respect to each Segment shall be in the
following amounts:
- 19 -
<PAGE> 21
<TABLE>
<CAPTION>
Segment Amount of Bond
------- --------------
<S> <C>
Las Toninas-Buenos Aires U.S.$[ ]
Buenos Aires-Mendoza U.S.$[ ]
Mendoza-Santiago U.S.$[ ]
Santiago-Algarrobo U.S.$[ ]
</TABLE>
The Bond for the Mendoza-Santiago Segment may, at IMPSAT's option, consist of
two bonds, one from each of IMPSAT Argentina and IMPSAT Chile. The Bonds shall
be maintained by IMPSAT until, and released by SAC on, the Date of Final
Acceptance of TAC.
4.17. Notwithstanding anything to the contrary herein, it is
expressly agreed and acknowledged that: (a) (i) all aspects of the Work to be
performed hereunder in Chile and the performance of all other obligations of
IMPSAT hereunder in Chile, shall be performed or delivered by IMPSAT Chile, and
(ii) all payments hereunder with respect to such Work and the performance of
such obligations shall be paid to IMPSAT Chile, and (b) (i) all aspects of the
Work to be performed hereunder in Argentina and the performance of all other
obligations of IMPSAT hereunder in Argentina, shall be performed or delivered by
IMPSAT Argentina, and (ii) all payments hereunder with respect to such Work and
the performance of such obligations shall be paid to IMPSAT Argentina.
ARTICLE 5.
ACCEPTANCE AND TESTING
5.01. Overview.
Acceptance testing shall be conducted for each Segment pursuant
to the provisions of this Article 5 ("Segment Acceptance Testing" or "Acceptance
Testing").
5.02. Acceptance Testing.
(a) Acceptance Testing shall be performed by IMPSAT in accordance
with Exhibit 4. SAC and its designated representatives may observe, at their own
expense, IMPSAT's tests and review the test results. SAC may request IMPSAT to
conduct and/or may itself conduct any additional tests to demonstrate compliance
with the provisions of this Agreement and the Acceptance Criteria, provided such
additional tests are conducted in a manner designed to minimize any interference
with, or delay in, IMPSAT's construction thereof. If such additional tests do
demonstrate that the provisions of this Agreement and the Design Specification
or the Acceptance Criteria have been complied with, then SAC shall be
responsible for paying the costs of such additional tests, and any delay beyond
IMPSAT's schedule for
- 20 -
<PAGE> 22
completion of its tests caused by such process shall be a Force Majeure. If,
however, such additional tests demonstrate that the provisions of this Agreement
or the Acceptance Criteria have not been complied with, then it shall be
IMPSAT's responsibility to pay the costs of such additional tests, and any delay
caused by such process shall not be a Force Majeure.
(b) Until the Date of Final Acceptance of TAC, SAC agrees to
allow IMPSAT access to all Segments of TAC which have previously been the
subject of Provisional Acceptance, provided that IMPSAT shall give SAC
reasonable notice of its requirement for such access and shall take reasonable
steps to minimize disruptions to the operation of TAC.
(c) Once a Segment is Ready for Provisional Acceptance, SAC shall
issue a Certificate of Provisional Acceptance with respect to such Segment.
(d) Once TAC is Ready for Final Acceptance, SAC shall issue a
Certificate of Final Acceptance.
(e) SAC shall not unreasonably withhold or delay issuance of a
Certificate of Provisional Acceptance or a Certificate of Final Acceptance.
(f) IMPSAT agrees that the Date of Provisional Acceptance of each
Segment will occur by the Scheduled RFS Dates for such Segment.
5.03. Notice of Acceptance or Rejection.
(a) Within [ ] after receipt by SAC of a Commissioning Report,
SAC must issue notification to IMPSAT of the following:
(i) issuance of a Certificate of Provisional Acceptance in
accordance with Section 5.04; or
(ii) rejection of the Segment in its existing condition and
a written explanation of reasons for rejection.
If SAC fails to respond with such notification within [ ], then
the Date of Provisional Acceptance of the Segment shall be deemed
to be the date occurring [ ] after such Commissioning Report
was received by SAC, provided, however, that for purposes of
Section 4.04 and 4.05, such date shall be the date that SAC
receives a Commissioning Report demonstrating, or deemed pursuant
to this Section 5.03 to demonstrate, that a Segment is Ready for
Provisional Acceptance in accordance with this Article 5.
(b) On receipt of a notice from SAC pursuant to Section
5.03(a)(ii) above, IMPSAT shall be entitled to address any disputes and explain
any discrepancies to SAC. Unless SAC, for good cause, rejects such explanation,
it shall issue a new notice pursuant to Section 5.03(a) above, which shall be
deemed to have been issued on the date of the original notice.
- 21 -
<PAGE> 23
(c) In case of rejection, and if the explanation by IMPSAT
pursuant to Section 5.03(b) above is not accepted, for good cause, by SAC,
IMPSAT shall carry out the necessary corrective actions and will effect the
necessary tests to establish that the corrective action satisfies the Acceptance
Criteria ("Retesting"). After receipt by SAC of the new Commissioning Report
describing the corrective action and the results of Retesting, SAC will be
granted a new period of [ ] to analyze the new Commissioning Report according
to the provisions of Section 5.03(a) and any new notice by SAC shall apply from
the date SAC receives such new Commissioning Report.
5.04. Provisional Acceptance.
(a) The Certificate of Provisional Acceptance may have annexed to
it a list of any outstanding Deficiencies (a "Punch List") to be corrected by
IMPSAT.
(b) IMPSAT shall, as soon as reasonably practicable, correct, at
its sole cost and expense, such Deficiencies and complete the Work indicated on
all such listed items so as to comply in all material respects with the
requirements of this Agreement, provided that SAC allows IMPSAT the necessary
access to the Segment(s) as IMPSAT needs to correct such deficiencies and
complete the Work. IMPSAT shall give SAC reasonable notice of its requirement
for such access.
5.05. Final Acceptance
(a) Within [ ] after the date of receipt by SAC of the Final
Commissioning Report, SAC shall issue a Certificate of Final Acceptance or
reject the Final Commissioning Report. If SAC neither issues a Certificate of
Final Acceptance nor rejects the Final Commissioning Report within such [ ]
period, then the Date of Final Acceptance of TAC shall be deemed to be the date
occurring [ ] after the Final Commissioning Report was received by SAC,
provided, however, that for purposes of Section 4.04 and 4.05, such date shall
be the date that SAC receives a Commissioning Report demonstrating, or deemed
pursuant to this Section 5.05 to demonstrate, that TAC is Ready for Final
Acceptance in accordance with this Article 5.
5.06. Title and Risk of Loss
(a) Upon the issuance of a Certificate of Provisional Acceptance
with respect to a Segment by SAC in accordance with this Agreement, title to, or
an IRU for the Term in, such Segment, as the case may be, shall vest in SAC,
free and clear of all liens except those deriving through or from SAC or as
provided in Section 24.03. A statement of the time of vesting of title or an IRU
in such Certificate shall be final and conclusive.
(b) As from the date of vesting in SAC of title or an IRU for the
Term, as the case may be, in a Segment, but subject to the next succeeding
paragraph, SAC shall assume the risk of loss in respect of all parts of such
Segment and (without limiting the provisions of Article 9)
- 22 -
<PAGE> 24
responsibility for its maintenance. IMPSAT will be allowed access to such
Segment as provided in Section 5.02(b).
(c) As from the date of the effectiveness of the IMPSAT IRU, IMPSAT shall
assume the risk of loss in respect of all parts of the IMPSAT IRU Duct and the
IMPSAT IRU Associated Properties and responsibility for their maintenance.
5.07. Spans
SAC may upon reasonable written notice to IMPSAT request IMPSAT
to perform Acceptance Testing with respect to portions of a Segment identified
by SAC (such portions, a "Span"). In such event, the parties shall cooperate to
minimize any resulting interference with the construction and Acceptance Testing
of the remainder of such Segment, and IMPSAT shall, subject to the aforesaid
obligation of cooperation, not be responsible, in Liquidated Damages or
otherwise, for any resulting delay in the Date of Provisional Acceptance of the
remainder of such Segment. The provisions of Sections 5.01 through 5.06 of this
Agreement shall apply to such Spans mutatis mutandis.
ARTICLE 6.
CHANGE ORDERS
6.01. Either party may request, during construction of the
Constructed Segments, by written order, a change order (a "Change Order")
requiring additions or alterations to, deviations or deductions from the
Constructed Segments. If the other Party consents, in its sole discretion, this
change will be formalized as an amendment to this Agreement by a Change Order;
provided that IMPSAT will not unreasonably withhold its consent to a Change
Order requested by SAC; and provided, further, that SAC will not unreasonably
withhold its consent to a Change Order requested by IMPSAT, in either case so
long as such Change Order does not affect the Fee, any Scheduled RFS Date, any
warranties, the Acceptance Criteria or the Design Specifications.
6.02. A Change Order shall not become effective unless and until
the price adjustment, the terms and schedule of payment and the extension of
time and all other terms have been mutually agreed upon by the parties (and the
parties shall act reasonably and in good faith in negotiating all such terms)
and such Change Order is signed by an authorized representative of each party.
Each Change Order shall be incorporated as an amendment to this Agreement.
6.03. IMPSAT may seek a Change Order for any change, after the
date hereof, of any law (except those, and to the extent, affecting only Taxes
or wages) which, with respect to the Constructed Segments only, requires a
change in the Work or affects the costs (other than wages) incurred or to be
incurred by IMPSAT or any combination of the foregoing and SAC shall agree to
any such change in Work as may be required and to an equitable adjustment to the
Fee. As of the date hereof, neither party has actual knowledge of any proposed
change in any law that would require a change in the Work.
- 23 -
<PAGE> 25
ARTICLE 7.
TERM
7.01. (a) The grant of the IRUs hereunder in the SAC IRU Duct and
the SAC IRU Associated Properties shall become effective on the first day when
both (i) the Date of Provisional Acceptance with respect to the SAC IRU Segment
has occurred and (ii) IMPSAT Argentina has received payment in full of the
IMPSAT Argentina Fee with respect to the SAC IRU Segment in accordance with
Article 3. Subject to the provisions of Article 10, such grant shall extend for
a period ending twenty-five (25) years after the Date of Provisional Acceptance
of the SAC IRU Segment.
(b) The grant of the IRUs hereunder in the IMPSAT IRU Duct and
the IMPSAT IRU Associated Properties shall become effective on the first day
when both (i) the Date of Provisional Acceptance with respect to the IMPSAT IRU
Segment has occurred and (ii) SAC has received payment in full of the IMPSAT IRU
Fee with respect to the IMPSAT IRU Segment in accordance with Section 2.02.
Subject to the provisions of Article 10, such grant shall extend for a period
ending twenty-five (25) years after the Date of Provisional Acceptance of the
IMPSAT IRU Segment.
(c) Upon the expiration of the period referred to in Section
7.01(a) (or upon any earlier termination of the IRUs referred to therein except
for default on the part of SAC), SAC shall have the option, exercisable on
thirty (30) days' prior written notice to IMPSAT (i) if IMPSAT shall thereafter
continue to own and operate the IMPSAT System, to renew the IRUs hereunder for a
period equal to the lesser of the remaining useful life of the SAC IRU Duct and
the SAC IRU Associated Properties and the period during which IMPSAT continues
to operate the IMPSAT System, and (ii) if IMPSAT will not thereafter own or
operate the IMPSAT System, to purchase the SAC IRU Duct and the SAC IRU
Associated Properties, in either case upon payment of US$[ ]. If the IRUs
hereunder shall be renewed as aforesaid, SAC shall pay [ ] of the cost of any
related required IMPSAT Permits for the renewal period, subject otherwise to the
provisions of Article 10. SAC shall execute (and, to the extent necessary,
record, at its own expense) instruments reasonably required by IMPSAT at the
expiration or termination of the Term of the SAC IRU Duct and the SAC IRU
Associated Properties to clear from IMPSAT's title to IMPSAT's property any
leasehold interest, license, or other possessory or nonpossessory estate, right
or interest that SAC (or persons claiming through SAC) might have or claim under
this Agreement.
(d) Upon the expiration of the period referred to in Section
7.01(b) (or upon any earlier termination of the IRUs referred to therein except
for default on the part of IMPSAT), IMPSAT shall have the option, exercisable on
thirty (30) days' prior written notice to SAC, (i) if SAC shall thereafter
continue to own and operate TAC, to renew the IRUs hereunder for a period equal
to the lesser of the remaining useful life of the IMPSAT IRU Duct and the IMPSAT
IRU Associated Properties and the period during which SAC continues to operate
the IMPSAT IRU Segment, and (ii) if SAC will not thereafter own or operate the
IMPSAT IRU Segment, to purchase the IMPSAT IRU Duct and the IMPSAT IRU
Associated Properties, in either case upon payment of US$[ ]. If the IRUs
hereunder shall be renewed as aforesaid, IMPSAT shall pay [ ] of the cost of
any related required SAC Permits for the renewal period, subject
- 24 -
<PAGE> 26
otherwise to the provisions of Article 10. IMPSAT shall execute (and, to the
extent necessary, record, at its own expense) instruments reasonably required by
SAC at the expiration or termination of the Term of the IMPSAT IRU Duct and the
IMPSAT IRU Associated Properties to clear from SAC's title to SAC's property any
leasehold interest, license, or other possessory or nonpossessory estate, right
or interest that IMPSAT (or persons claiming through IMPSAT) might have or claim
under this Agreement.
(e) The IRU periods set forth in the immediately preceding
paragraphs (a), (b), (c)(i) and (d)(i) shall, collectively with respect to the
IRU to which they apply, be referred to as the "Term."
7.02. It is understood and agreed that, except for the Owned
Ducts and the Owned Associated Properties, IMPSAT shall maintain legal title to
the entire IMPSAT System, the SAC IRU Duct and the SAC IRU Associated Properties
subject to the SAC IRU hereunder.
7.03. It is understood and agreed that, except for the SAC IRU
Duct and the SAC IRU Associated Properties, SAC shall maintain legal title to
the entire TAC, the IMPSAT IRU Duct and the IMPSAT IRU Associated Properties
subject to the IMPSAT IRU hereunder.
ARTICLE 8.
OPERATIONS
8.01. SAC acknowledges and agrees that IMPSAT is not obligated to
supply to SAC any cable or opto-electronics or electronics or optical or
electrical equipment with respect to TAC, all of which are the sole
responsibility of SAC; nor is IMPSAT responsible for performing any Work or
providing any facilities with the respect to the foregoing, including without
limitation, monitoring and testing equipment, unless expressly specified herein.
IMPSAT acknowledges and agrees that SAC is not obligated to supply to IMPSAT any
cable or opto-electronics or electronics or optical or electrical equipment with
respect to the IMPSAT IRU Segment, all of which are the sole responsibility of
IMPSAT; nor is SAC responsible for performing any work or providing any
facilities with the respect to the foregoing, including without limitation,
monitoring and testing equipment.
8.02. The IRU granted to SAC hereunder shall include the right at
SAC's sole cost to install additional equipment, or replace existing equipment,
in the Regeneration and OpAmp Facilities along the SAC IRU Segment provided to
SAC pursuant to Section 4.02(b), subject to the provisions of Section 4.02(b)
and to compliance with the terms of the related IMPSAT Permits obtained and
maintained by IMPSAT as required hereby.
8.03. The IRU granted to IMPSAT hereunder shall include the right
at IMPSAT's sole cost to install additional equipment, or replace existing
equipment, in the Regeneration and OpAmp Facilities along the IMPSAT IRU Segment
provided to IMPSAT pursuant to Section 4.02(c), subject to the provisions of
Section 4.02(c) and to compliance with the terms of the related SAC Permits
obtained and maintained by SAC as required hereby.
- 25 -
<PAGE> 27
ARTICLE 9.
MAINTENANCE AND REPAIR OF THE TAC
9.01. Beginning on the Date of Provisional Acceptance of each
Segment, (i) IMPSAT Argentina shall provide the maintenance services set forth
in Exhibit 7 (the "Maintenance Services") with respect to the portions of such
Segment located in Argentina and (ii) IMPSAT Chile shall provide the Maintenance
Services with respect to the portions of such Segment located in Chile. TAC
shall be maintained throughout the Term in accordance with the procedures set
forth in Exhibit 7 and the Design Specifications, provided that the parties'
respective obligations under this Article 9 and related provisions hereunder
with respect to the Segments between Buenos Aires and Las Toninas and Santiago
and Algarrobo shall have a term of [ ].
9.02. (a) SAC agrees to pay to IMPSAT Argentina or IMPSAT Chile,
as applicable, the following annual amounts for the Maintenance Services (the
"Recurring Service Charge"):
<TABLE>
<S> <C>
Owned Ducts/Owned Associated Properties
Las Toninas - Buenos Aires (IMPSAT Argentina) $[ ]
Mendoza - Border of Argentina and Chile (IMPSAT Argentina) $[ ]
Border of Argentina and Chile -Santiago (IMPSAT Chile) $[ ]
Santiago - Algarrobo (IMPSAT Chile) $[ ]
Total $[ ]
SAC IRU Duct/SAC IRU Associated Properties (IMPSAT Argentina) $[ ]
</TABLE>
The above amounts are based on [ ]. Such amounts shall be payable in advance
in quarterly installments within [ ] following the commencement of each
calendar quarter after the Date of Provisional Acceptance of the respective
Segment. If the respective Date of Provisional Acceptance does not occur at the
beginning of a calendar quarter, such payment shall be prorated based on the
number of calendar days remaining in the then current calendar quarter and paid
within [ ] following such Date of Provisional Acceptance.
(b) The Recurring Service Charge shall be reviewed and agreed on
each second anniversary of the Date of Provisional Acceptance of the first
Segment to be completed to account for system augments by SAC and inflationary
effects.
(c) IMPSAT Argentina hereby agrees to pay to [ ] of the cost of
maintenance incurred by SAC with respect to the portion of the Mendoza-Santiago
Segment located in Argentina. IMPSAT Chile hereby agrees to pay to SAC [ ] of
the cost of
- 26 -
<PAGE> 28
maintenance incurred by SAC with respect to the portion of the Mendoza-Santiago
Segment located in Chile.
9.03. In the event of a fault, SAC shall immediately notify
IMPSAT of the occurrence thereof. IMPSAT shall use its reasonable best efforts
to cause such fault to be repaired and service to be restored within the
respective periods therefor set forth in Exhibit 7.
9.04. [ ]
9.05. IMPSAT shall be responsible for preventive maintenance in
respect of TAC in accordance with Exhibit 7.
9.06. IMPSAT may subcontract testing, maintenance, repair,
restoration, relocation, or other operational and technical services it is
obligated to provide hereunder; provided, however, such subcontracting shall not
relieve IMPSAT of any obligations under this Agreement, including without
limitation all DMOQs. Prior to engaging any such Subcontractor, IMPSAT shall
provide to SAC the name of such proposed Subcontractor and other information
reasonably requested by SAC. Within 30 days after receipt of such information,
SAC may object to the engagement of any Subcontractor, but only on the basis
that a proposed Subcontractor does not possess the necessary technical
capabilities or resources to perform the tasks proposed to be performed by such
Subcontractor. If SAC has not objected in writing to the use of any
Subcontractor within 30 days after receipt of such information, then SAC shall
be deemed to have consented to the use of such Subcontractor.
9.07. When restoring a cut cable in an IRU Segment, the parties
agree to work together to restore all traffic as quickly as possible. IMPSAT,
promptly upon arriving on the site of the cut, shall determine the course of
action to be taken to restore the cable and shall begin restoration efforts.
IMPSAT shall [ ].
ARTICLE 10.
PERMITS; RELOCATIONS
10.01. Upon written request of IMPSAT or SAC, as the case may be,
the other party shall reasonably cooperate with and assist the requesting party
to obtain all IMPSAT Permits or SAC Permits, as the case may be, to the extent
that the other party's cooperation and assistance are necessary for the
requesting party to expeditiously and cost-efficiently obtain such Permits. Each
party agrees to respond reasonably promptly to any such request from the other
party. Further, each party agrees that it will not impede or interfere with the
other party's abilities to perform its obligations hereunder. Upon notice from
IMPSAT or SAC, as the case may be, with respect to an IMPSAT Permit or a SAC
Permit, respectively, or receipt by IMPSAT or SAC, as the case may be, of a copy
of a SAC Permit or an IMPSAT Permit, respectively, IMPSAT or SAC, as the case
may be, shall fulfill all conditions of such Permit and
- 27 -
<PAGE> 29
perform all responsibilities thereunder, except to the extent that such
conditions or responsibilities are those of the other party hereunder. Each
party will inform the other party as to any such conditions or responsibilities
that are not ordinary and routine (based on industry standards). Each party (and
its representatives and legal counsel) may, at its sole option, participate with
the other party in the process of obtaining any Permits to the extent it deems
reasonably necessary; provided that any such participation shall not relieve or
alter any of the parties' obligations under this Agreement with respect to
obtaining all Permits and shall not, by itself, be deemed to impede or interfere
with such parties' obligations with respect thereto.
10.02. IMPSAT shall have the responsibility for obtaining, at
IMPSAT's sole cost and expense, all IMPSAT Permits (on SAC's behalf with the
respect to the Constructed Segments). Subject to the third to last sentence of
this paragraph, IMPSAT will cause all IMPSAT Permits with respect to the
Constructed Segments, ultimately required to be held by SAC but not initially
issued in the name of SAC to be assignable or issued to SAC, and to be assigned
or issued to SAC at the time title to any Constructed Segment must be
transferred to SAC pursuant to this Agreement. [ ] Subject to the third to
last sentence of this paragraph, IMPSAT shall be responsible to pay any transfer
and/or issuance fees in connection with any such assignment or issuance. SAC
shall be responsible for payment of all IMPSAT Permit fees and other costs and
expenses due with respect to any IMPSAT Permit after the Date of Provisional
Acceptance of any Segment (except for any of the foregoing assignment or
issuance fees that are to be paid by IMPSAT); provided, however, that [ ].
Notwithstanding the foregoing provisions of this Section 10.02, if prior to the
Date of Provisional Acceptance of a Constructed Segment, the applicable
governmental authority or private entity () has not granted its approval for
IMPSAT to assign, transfer or issue any IMPSAT Permit to SAC, or () would
require either (A) aggregate incremental payments in excess of the amount
payable by an entity holding permits, licenses or other authorizations of the
type then held by IMPSAT to be made in connection with such assignment, transfer
or issuance, which excess SAC shall not have agreed to pay, or (B) [ ], then,
in either case, in lieu of title to such Constructed Segment or portion thereof,
IMPSAT shall grant to SAC, at no additional cost, an IRU hereunder to such
Constructed Segment or portion thereof on the same terms as the IRU of the SAC
IRU Segment, for the shorter of (x) the Term originally in effect, and (y) the
period until such IMPSAT Permits may be transferred, assigned or issued to SAC
without payment of such excess costs. In the event that, in lieu of title to the
Mendoza-Santiago Segment or portion thereof, IMPSAT shall grant to SAC an IRU in
such Segment or portion thereof pursuant to the immediately preceding sentence,
the terms of the IRU to be granted by SAC to IMPSAT hereunder with respect to
the IMPSAT IRU Duct and the IMPSAT IRU Associated Properties shall be adjusted
accordingly, but without affecting the IMPSAT IRU Fee. Promptly after the
applicable governmental authority or private entity grants its approval for the
assignment, transfer or issuance of any IMPSAT Permit to SAC without payment of
such excess costs, the parties shall effect the transfer of title to such
Constructed Segment or portion thereof to SAC.
10.03. Within 30 days after the date of execution of this
Agreement, IMPSAT will prepare and deliver to SAC a detailed list of IMPSAT
Permits that to its knowledge are
- 28 -
<PAGE> 30
required to be obtained under current law in order to complete the Work and
shall update such list from time to time if it becomes aware of changes in
IMPSAT Permit requirements. Such list, as updated from time to time, shall set
forth the projected dates of filing for such IMPSAT Permits and an estimate of
when such IMPSAT Permits are expected to be obtained. Without limiting IMPSAT's
liabilities in respect of Section 10.02, IMPSAT shall have no liability in
respect of the accuracy of the information furnished under this Section 10.03,
except in the case of gross negligence or willful misconduct.
10.04. With respect to IMPSAT Permits relating to ownership,
operation and maintenance of the SAC IRU Segment, IMPSAT shall either require
that the initial stated term of each such IMPSAT Permit be for a period that
does not expire, in accordance with its ordinary terms, prior to the last day of
the Term then in effect or, if the initial stated term of any such IMPSAT Permit
expires, in accordance with its ordinary terms, on a date earlier than the last
day of the Term then in effect, IMPSAT shall, at its cost, exercise any renewal
rights thereunder, or otherwise acquire such extensions, additions and/or
replacements as may be necessary, in order to cause the stated term thereof to
be continued until a date that is not earlier than the last day of the Term then
in effect. The parties acknowledge and agree that (subject to the second to last
sentence of Section 7.01(c) and the parenthetical sentence in Section 10.02) the
Fee includes the IMPSAT Permits for the Term originally in effect and that,
except to the extent otherwise provided in this Agreement, any further payments
required to renew or maintain the IMPSAT Permits shall be for the sole account
of IMPSAT.
10.05. SAC shall have the responsibility for obtaining, at SAC's
sole cost and expense, all SAC Permits. SAC shall either require that the
initial stated term of each such SAC Permit be for a period that does not
expire, in accordance with its ordinary terms, prior to the last day of the Term
or, if the initial stated term of any such SAC Permit expires, in accordance
with its ordinary terms, on a date earlier than the last day of the Term, SAC
shall, at its cost, exercise any renewal rights thereunder, or otherwise acquire
such extensions, additions and/or replacements as may be necessary, in order to
cause the stated term thereof to be continued until a date that is not earlier
than the last day of the Term. The parties acknowledge and agree that (subject
to the second to last sentence of Section 7.01(d)) the IMPSAT IRU Fee includes
the SAC Permits for the Term and that any further payments required to renew or
maintain the SAC Permits shall be for the sole account of SAC.
10.06. If, after the Date of Provisional Acceptance with respect
to the SAC IRU Segment, (i) IMPSAT is required by a third party with legal
authority to so require or by the loss of an IMPSAT Permit to relocate any
portion of the SAC IRU Segment, including any of the facilities used or required
in providing the IRU in the SAC IRU Segment, or (ii) IMPSAT determines in its
sole discretion to effect such a relocation, IMPSAT shall proceed with such
relocation, and shall have the right, in good faith, to reasonably determine the
extent of, the timing of, and methods to be used for such relocation; provided
that (a) any such relocation shall be constructed and tested in accordance with
the Acceptance Criteria, (b) if the relocation is at IMPSAT's determination, it
shall not adversely affect in any material respect the operations, performance,
or endpoints of the SAC IRU Segment and (c) IMPSAT shall have obtained SAC's
prior consent to such relocation (not to be unreasonably withheld).
- 29 -
<PAGE> 31
10.07. If, after the Date of Provisional Acceptance with respect
to the IMPSAT IRU Segment, (i) SAC is required by a third party with legal
authority to so require or by the loss of a SAC Permit to relocate any portion
of the IMPSAT IRU Segment, including any of the facilities used or required in
providing the IRU in the IMPSAT IRU Segment, or (ii) SAC determines in its sole
discretion to effect such a relocation, SAC shall proceed with such relocation,
and shall have the right, in good faith, to reasonably determine the extent of,
the timing of, and methods to be used for such relocation; provided that (a) if
the relocation is at SAC's determination, it shall not adversely affect in any
material respect the operations, performance, or endpoints of the IMPSAT IRU
Segment and (b) SAC shall have obtained IMPSAT's prior consent to such
relocation (not to be unreasonably withheld).
10.08. In the case of any relocation under Section 10.06 required
by a third party with the power to so require (not due to any violation of law
or term of an IMPSAT Permit by IMPSAT), SAC shall reimburse IMPSAT for SAC's
proportionate share of the reasonable costs of relocation of any portion of the
SAC IRU Segment relocated under Section 10.06.
10.09. In the case of any relocation under Section 10.07 required
by a third party with the power to so require (not due to any violation of law
or term of a SAC Permit by SAC), IMPSAT shall reimburse SAC for IMPSAT's
proportionate share of the reasonable costs of relocation of any portion of the
IMPSAT IRU Segment relocated under Section 10.07.
10.10. If any party determines in its sole discretion to effect a
relocation under Section 10.06 or 10.07 (as the case may be), such party shall
be solely responsible for the costs associated with such relocation.
10.11. Upon IMPSAT's written request, SAC shall deliver to IMPSAT
updated As-Builts with respect to the IMPSAT IRU Segment relocated under Section
10.07 within ninety (90) days following the completion of such relocation. Upon
SAC's written request, IMPSAT shall deliver to SAC updated As-Builts with
respect to the SAC IRU Segment relocated under Section 10.06 within ninety (90)
days following the completion of such relocation.
ARTICLE 11.
USE OF THE SEGMENTS
11.01. The requirements, restrictions, and/or limitations upon
the parties' right to use the IRU Ducts and the IRU Associated Properties as
provided under this Agreement and as imposed under, and associated with safety,
operational and other rules and regulations imposed in connection with, the
Permits are referred to collectively as the "Underlying Rights Requirements."
11.02. Each party shall use its respective IRU Duct and IRU
Associated Properties in compliance with and subject to the Underlying Rights
Requirements and all applicable government codes, ordinances, laws, rules and
regulations.
11.03. Subject to the provisions of Article 24 and this Article
11, SAC may use the Ducts and the Associated Properties to provide fiber optic
telecommunications services and to sell capacity, and dark fiber, to other
persons and as a portion of the Network. SAC agrees
- 30 -
<PAGE> 32
and acknowledges that it has no right to use any of the ducts, other than the
SAC IRU Duct, included in the SAC IRU Segment. SAC shall keep any and all parts
of the IMPSAT System along the SAC IRU Segment free from any liens, rights or
claims of any third party attributable to SAC, and IMPSAT shall keep SAC's
property in the SAC IRU Duct and SAC's property in the SAC IRU Associated
Properties free from any liens, rights or claims of any third party attributable
to IMPSAT, except as provided in Section 24.03. Nothing contained in this
paragraph shall limit SAC's right to subject its own property and equipment in
the SAC IRU Duct and the SAC IRU Associated Properties to any liens, rights or
claims of any third party.
11.04. Subject to the provisions of Article 24 and this Article
11, IMPSAT may use the IMPSAT IRU Duct and the IMPSAT IRU Associated Properties
to provide telecommunications services and to sell capacity, and dark fiber, to
other persons and as a portion of a fiber optic telecommunications system.
IMPSAT agrees and acknowledges that it has no right to use any of the ducts,
other than the IMPSAT IRU Duct, included in the IMPSAT IRU Segment. IMPSAT shall
keep any and all parts of TAC along the IMPSAT IRU Segment free from any liens,
rights or claims of any third party attributable to IMPSAT, and SAC shall keep
IMPSAT's property in the IMPSAT IRU Duct and IMPSAT's property in the IMPSAT IRU
Associated Properties free from any liens, rights or claims of any third party
attributable to SAC. Nothing contained in this paragraph shall limit IMPSAT's
right to subject its own property and equipment in the IMPSAT IRU Duct and the
IMPSAT IRU Associated Properties to any liens, rights or claims of any third
party.
11.05. SAC shall not use, or permit to be used, TAC in a way
which physically interferes in any material way with or materially and adversely
affects the use of the IMPSAT System by any other person including, without
limitation, IMPSAT, it being expressly acknowledged that the IMPSAT System
includes or will include other participants, including IMPSAT and other owners
and holders of dark fiber, or other interests and telecommunication system
operations. IMPSAT shall not use, or permit to be used, the IMPSAT System in a
way that physically interferes with in any material way or materially and
adversely affects SAC's use of the SAC IRU Segment pursuant to this Agreement.
IMPSAT may comply with the obligations in the foregoing sentence by obtaining a
similar agreement from any person that acquires the right to use fibers in the
IMPSAT System after the date hereof, which agreement shall provide that other
users of the IMPSAT System (including SAC) are intended third party
beneficiaries thereof. Such an agreement will satisfy IMPSAT's obligations under
this Section 11.05.
11.06. IMPSAT shall not use, or permit to be used, the IMPSAT IRU
Segment in a way which physically interferes in any material way with or
materially and adversely affects the use of TAC by any other person including,
without limitation, SAC it being expressly acknowledged that TAC includes or may
include other participants, including SAC and other owners and holders of dark
fiber, or other interests and telecommunication system operations. SAC shall not
use, or permit to be used, TAC in a way that physically interferes with in any
material way or materially and adversely affects IMPSAT's use of the IMPSAT IRU
Segment pursuant to this Agreement. SAC may comply with the obligations in the
foregoing sentence by obtaining a similar agreement from any person that
acquires the right to use fibers in TAC after the date hereof, which agreement
shall provide that other users of TAC (including IMPSAT) are
- 31 -
<PAGE> 33
intended third party beneficiaries thereof. Such an agreement will satisfy SAC's
obligations under this Section 11.06.
11.07. SAC and IMPSAT each agree to cooperate with and support
the other in all reasonable respects in complying with any requirements
applicable to their respective rights and obligations hereunder by any
governmental or regulatory agency or authority.
ARTICLE 12.
INDEMNIFICATION
12.01. SAC agrees to indemnify and hold harmless IMPSAT and its
Affiliates and their respective officers, directors, employees, agents and
representatives from and against any loss, damage, expense, liability, claim or
cost arising out of, related to or in connection with: (i) any physical damage
to the IMPSAT System to the extent arising out of or resulting from the acts or
omissions of SAC; (ii) any breach or violation by SAC of applicable law or
governmental regulation or other statute, rule or regulation issued by an
applicable regulatory authority; (iii) any claim of whatever nature by third
parties in respect of acts or omissions by SAC, in each case within its
reasonable control; and (iv) SAC's or any third party's use, maintenance, repair
or replacement of the IMPSAT IRU Segment (other than the IMPSAT IRU Duct and the
IMPSAT IRU Associated Properties) and any equipment located therein.
12.02. IMPSAT agrees to indemnify and hold harmless SAC and its
Affiliates and their respective officers, directors, employees, agents and
representatives from and against any loss, damage, expense, liability, claim or
cost arising out of, related to or in connection with: (i) any physical damage
to the Constructed Segments to the extent arising out of or resulting from the
acts or omissions of IMPSAT, (ii) any breach or violation by IMPSAT of
applicable law or governmental regulation or other statute, rule or regulation
issued by any applicable regulatory authority; (iii) third party claims in
respect of acts or omissions by IMPSAT, in each case within its reasonable
control; and (iv) IMPSAT's or any third party's installation, construction, use,
maintenance, repair or replacement of the IMPSAT System (other than the SAC IRU
Duct and the SAC IRU Associated Properties) and any equipment located therein.
ARTICLE 13.
LIABILITY; WARRANTY
13.01. NOTWITHSTANDING ANY PROVISION OF THIS AGREEMENT TO THE
CONTRARY, NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY OR ANY OF ITS
DIRECTORS, OFFICERS, EMPLOYEES OR AGENTS FOR ANY SPECIAL, INCIDENTAL, INDIRECT,
PUNITIVE OR CONSEQUENTIAL DAMAGES, WHETHER FORESEEABLE OR NOT, ARISING OUT OF,
OR IN CONNECTION WITH, SUCH PARTY'S FAILURE TO PERFORM ITS RESPECTIVE
OBLIGATIONS OR BREACH OF ITS RESPECTIVE REPRESENTATIONS HEREUNDER, INCLUDING,
BUT NOT LIMITED TO, LOSS OF USE, PROFITS OR REVENUE, COST OF CAPITAL, COST OF
REPLACEMENT SERVICES OR RESTORATION (WHETHER ARISING OUT OF TRANSMISSION
INTERRUPTIONS OR PROBLEMS, ANY INTERRUPTION OR
- 32 -
<PAGE> 34
DEGRADATION OF SERVICE OR OTHERWISE), OR CLAIMS OF CUSTOMERS, IN EACH CASE
WHETHER OCCASIONED BY ANY CONSTRUCTION, RECONSTRUCTION, RELOCATION, REPAIR OR
MAINTENANCE PERFORMED BY, OR FAILED TO BE PERFORMED BY, THE OTHER PARTY OR ANY
OTHER CAUSE WHATSOEVER, WHETHER ARISING UNDER CONTRACT OR TORT, INCLUDING BREACH
OF CONTRACT, BREACH OF WARRANTY, ACTIVE, PASSIVE OR IMPUTED NEGLIGENCE, OR
STRICT LIABILITY, ALL CLAIMS WITH RESPECT TO WHICH SUCH SPECIAL, INCIDENTAL,
INDIRECT, PUNITIVE OR CONSEQUENTIAL DAMAGES ARE HEREBY SPECIFICALLY AND
EXPRESSLY DISCLAIMED, EXCLUDED AND WAIVED.
13.02. EXCEPT TO THE EXTENT SET FORTH IN THE NEXT SUCCEEDING
SENTENCE AND IN SECTION 18.05, IMPSAT'S MAXIMUM AGGREGATE LIABILITY TO SAC
HEREUNDER, WHETHER ARISING UNDER TORT, CONTRACT OR ANY OTHER LEGAL OR EQUITABLE
THEORY, SHALL NOT EXCEED [ ]. THE FOREGOING
LIMITATION SHALL NOT APPLY TO CLAIMS FOR GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.
13.03. IMPSAT warrants that the Work in each Segment will
strictly comply with the Design Specifications and that the entire length of
Trans-Andean Crossing, including any maintenance spares provided by IMPSAT,
shall be free from defects in construction, supplies, workmanship and design for
a period of [ ] commencing from the Date of Provisional Acceptance of each
Segment (the "Warranty Period").
(a) During the Warranty Period, IMPSAT shall make good, by repair
or replacement, at its sole option, any defects in TAC, including any
maintenance spares provided by IMPSAT, which may become apparent or be
discovered due to imperfect workmanship, faulty design or faulty material
supplied by IMPSAT, or any act, neglect or omission on IMPSAT's part.
(b) If at any time within the Warranty Period any defect occurs
which causes TAC to fail to meet the Acceptance Criteria, IMPSAT shall repair or
replace such part or parts. In making such repairs, IMPSAT may make changes to
TAC or substitute equipment of later or comparable design, provided the changes,
modifications, or substitutions under normal and proper use do not cause TAC to
fail to meet the Acceptance Criteria. In the event IMPSAT fails to make the
repair pursuant to this Article 13, to provide the Maintenance Services pursuant
to Article 9 or to make reasonable efforts to minimize the period that TAC is
out of service for repairs, SAC may itself make the repair or dispatch any other
person to make the repair, and IMPSAT shall reimburse SAC for all costs of such
repair. Any repair by SAC or any person dispatched by SAC shall not in any way
diminish IMPSAT's obligations under this Article 13 or Article 9.
(c) IMPSAT shall use reasonable efforts to minimize the period of
time that any Segment or TAC is out of service for testing and repair. SAC
agrees to cooperate with IMPSAT to facilitate IMPSAT's repair activity.
- 33 -
<PAGE> 35
(d) Any equipment discovered to be defective or faulty and
recovered during a warranty repair shall be returned to IMPSAT at its request.
(e) IMPSAT shall bear the costs of each repair or replacement
required during the Warranty Period.
(f) IMPSAT shall effect all warranty repairs of TAC and shall
supply all necessary repair materials.
(g) IMPSAT warrants that services furnished hereunder will be
performed in a workmanlike manner using materials free from defects except when
such materials are provided by SAC (it being understood that all materials
arranged for by IMPSAT, whether or not purchased or otherwise arranged for in
the name of SAC, are not materials provided by SAC). If such services prove to
be not so performed and SAC notifies IMPSAT within six (6) months after the
completion of the service, or before the end of the Warranty Period, whichever
is later, IMPSAT will promptly correct the defect.
(h) Any part which replaces a defective part during the
applicable Warranty Period shall be subject to the warranties hereunder for the
remaining Warranty Period of the part which was replaced, or, if longer, for six
months from the date of replacement.
13.04. IMPSAT shall, in accordance with its normal operating
practices, investigate any defective part or parts repaired or replaced pursuant
to the terms of this Agreement to determine the type of defect and the cause of
failure of the part or parts. IMPSAT shall provide a written report to SAC on
the results of the investigation, if any.
13.05. Subject to the provisions of Section 13.06, from the Date
of Provisional Acceptance of each Segment until the date which is [ ] after
the Date of Provisional Acceptance of such Segment (the "Design Life Period"),
IMPSAT warrants that each Segment and TAC shall be designed so that during the
Design Life Period no pattern of failure shall develop in the Ducts, the
Regeneration and OpAmp Facilities or the manholes and handholes associated
therewith that, because of the number or nature of such failures, causes such
Segment to become unusable for its intended purpose (the "Design Life
Warranty"). In the event TAC is not so designed as provided in the first
sentence of this Section, IMPSAT shall make such repairs or replace such parts
as may be necessary to correct such deficiency. IMPSAT shall bear the costs of
all repairs and parts and necessary to effect such repairs and replacements.
13.06. [ ]
13.07. In addition to the warranties provided to SAC pursuant to
Sections 13.03 and 13.05, IMPSAT shall (i) [
- 34 -
<PAGE> 36
], (ii) provide SAC with copies of all
manufacturer's, vendor's, contractor's or other warranties applicable to the
Duct and Regeneration and OpAmp Facilities within each Segment, (iii) use its
reasonable best efforts to cause all such warranties to be in effect for at
least [ ] after the Date of Provisional Acceptance for such Segment, (iv) [
], assign
all such warranties with respect to the Duct and Regeneration and OpAmp
Facilities to SAC on or prior to the Date of Provisional Acceptance of such
Segment, and (v) [ ] IMPSAT shall pursue all remedies
against such manufacturers, contractors or vendors on behalf of SAC and other
Persons having the right of use of the IMPSAT System, and IMPSAT shall
reimburse SAC for any repair costs SAC has incurred as a result of any breach of
warranty to the extent the manufacturer, contractor or vendor pays such costs.
13.08. The warranties provided above in Sections 13.03, 13.05 and
13.07 by IMPSAT shall not apply to defects or failures of performance, which
result from damage caused by acts of SAC or its agents, employees or
representatives or (after Provisional Acceptance with respect to a Segment or
TAC, as the case may be) third parties (other than IMPSAT or its agents), or
which result from modifications, misuse, neglect, accident or abuse, repair,
storage or maintenance by SAC or its agents, employees or representatives or
(after Provisional Acceptance with respect to a Segment or TAC, as the case may
be) third parties (other than IMPSAT or its agents).
13.09. THE FOREGOING WARRANTIES ARE EXCLUSIVE AND ARE IN LIEU OF
ALL OTHER EXPRESS AND IMPLIED WARRANTIES INCLUDING, BUT NOT LIMITED TO,
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE WHICH ARE
SPECIFICALLY DISCLAIMED. SAC'S SOLE AND EXCLUSIVE REMEDY WITH RESPECT TO DEFECTS
IN TAC COVERED BY THE FOREGOING WARRANTIES SHALL BE IMPSAT'S OBLIGATION TO MAKE
REPAIRS OR REPLACEMENTS AS SET FORTH IN THIS ARTICLE; PROVIDED, THAT IMPSAT'S
FAILURE TO SO PERFORM SHALL BE SUBJECT TO ARTICLE 18 HEREOF.
ARTICLE 14.
INSURANCE
14.01. During the construction period with respect to any
Segment, and until the transfer of title (or an IRU, as the case may be) and
risk of loss to such Segment shall have passed to SAC, IMPSAT shall procure and
maintain in force the following insurance coverage from insurance companies
covering the jurisdiction where the construction will be performed:
(a) not less than US$[ ] combined single-limit liability
insurance, on an occurrence basis, for personal injury and property damage,
including, without limitation, liability for completed operations, which
insurance shall name SAC as additional insured hereunder;
(b) comprehensive automobile liability insurance covering all
vehicles and vehicular equipment owned, hired, or in the custody and control of
IMPSAT and complying with
- 35 -
<PAGE> 37
all applicable legislation with limits not less than U.S.$[ ] for cars and
U.S.$[ ] for construction equipment combined single limit for the death or
injury of any person per accident, and not less than U.S.$[ ] for the loss or
damage to property resulting from any one accident;
(c) workers' compensation insurance or similar statutory workers'
coverage in amounts required by applicable law and employers' liability
insurance with a limit of at least US$[ ] per occurrence; and
(d) any other insurance coverages required pursuant to IMPSAT's
right of way agreements with railroads or other third parties. IMPSAT shall
require its Subcontractors who are engaged in connection with the construction
of TAC to maintain insurance in the types and amounts as would be obtained by a
prudent person to provide adequate protection against loss. In all
circumstances, IMPSAT shall require its Subcontractors to carry a minimum of
US$[ ] in commercial general liability coverage.
14.02. Following the date on which the transfer of an IRU and
risk of loss to any IRU Segment shall have passed to SAC or IMPSAT (as the case
may be), and throughout the remaining Term of this Agreement with respect to
such IRU Segment, each party shall procure and maintain in force, at its own
expense:
(a) not less than US$[ ] combined single limit liability
insurance, on an occurrence basis, for personal injury and property damage,
including, without limitation, injury or damage arising from the operation of
vehicles or equipment and liability for completed operation, which insurance
shall name the other party as additional insured hereunder;
(b) comprehensive automotive liability insurance covering all
vehicles and vehicular equipment owned, hired or in the custody of such party
and complying with all applicable legislation with limits not less than U.S.$[
] for cars and U.S.$[ ] for construction equipment combined single limit for
the death or injury of any person per accident, and not less than U.S.$[ ] for
the loss or damage to property resulting from any one accident;
(c) workers' compensation insurance or similar statutory workers'
coverage in amounts required by applicable law and employers' liability
insurance with a limit of at least US$[ ] per occurrence; and
(d) any other insurance coverages specifically required of such
party pursuant to IMPSAT's right of way agreements with railroads or other third
parties.
14.03. Both parties expressly acknowledge that a party shall be
deemed to be in compliance with the provisions of this Article 14 to the extent
it maintains an approved self-insurance program providing for a retention and
deductibles in an amount that prudent companies of similar size and nature would
maintain. If either party provides any of the foregoing coverages on a
claims-made basis, such policy or policies shall be for at least a three-year
extended reporting or discovery period. Unless otherwise agreed, each party's
insurance policies shall be obtained with companies of good financial standing.
Each party shall provide the other with an insurance certificate confirming
compliance with the requirements of this
- 36 -
<PAGE> 38
Article 14. Such insurance certificates shall provide for at least [ ] prior
written notice of cancellation or material change to the other party.
14.04. In the event either party fails to obtain the required
insurance and a claim is made or suffered, such party shall indemnify and hold
harmless the other party from any and all claims for which the required
insurance would have provided coverage. In the event of any such failure which
continues after [ ] written notice thereof by the other party, such other
party may, but shall not be obligated to, obtain such insurance and will have
the right to be reimbursed for the cost of such insurance by the party failing
to obtain such insurance.
14.05. Each party shall obtain from the insurance companies
providing the coverages required by this Agreement the permission of such
insurers to allow each party to waive all rights of subrogation and each party
does hereby waive all rights of said insurance companies to subrogation against
the other party, its parent corporation, Affiliates, subsidiaries, assignees,
officers, directors, and employees or any other party entitled to indemnity
under this Agreement.
ARTICLE 15.
TAXES, FEES AND OTHER GOVERNMENTAL IMPOSITIONS
15.01. The provisions of this Section 15.01 shall apply only with
respect to the construction phase of TAC and payment of the Recurring Service
Charge pursuant to Article 9.
(a) The Fee and the Recurring Service Charge exclude any Tax. The
Fee and the Recurring Service Charge shall without duplication be adjusted for
any Tax imposed on or in connection with this Agreement including, without
limitation, the execution and delivery of this Agreement and the Work to be
performed hereunder, but excluding any IMPSAT Excluded Taxes (any such Taxes,
other than IMPSAT Excluded Taxes, are hereinafter referred to as "SAC Contract
Taxes"). IMPSAT shall be responsible for any IMPSAT Excluded Tax incurred by
IMPSAT. With respect to the Recurring Service Charge, IMPSAT Excluded Tax shall
include ingresos brutos under Argentine or Chilean law, and IMPSAT shall be
responsible for payment of all ingresos brutos under Argentine or Chilean law in
connection with the Recurring Service Charge.
(b) SAC will be ultimately responsible for the payment of all SAC
Contract Taxes (including, without limitation, SAC Contract Taxes that are VAT,
ingresos brutos under Argentine or Chilean law (with respect to the Fee only),
octroi duties relating to contract items and fiscal stamps, etc. connected with
contract legalizations to the authorities in their countries). In the case of
any SAC Contract Taxes paid by IMPSAT, IMPSAT shall submit payment on SAC's
behalf and IMPSAT will be reimbursed by SAC.
(c) IMPSAT agrees to use commercially reasonable efforts,
including, without limitation, by registering for VAT and any applicable sales
Taxes in any country, state or other jurisdiction where legally required, to
cooperate with and assist SAC in its efforts (i) to have supplies which are the
subject of this Agreement made exempt from SAC Contract Taxes, whether in the
manufacture of the supplies or related to the importation or location or
installation
- 37 -
<PAGE> 39
of the supplies, (ii) to request revisions, drawbacks, remissions,
reclassifications or the like in the jurisdictions identified by SAC; or (iii)
to reduce or eliminate SAC Contract Taxes (including the provision of applicable
certifications and forms) and to obtain any available refunds of SAC Contract
Taxes, provided that IMPSAT shall not be required to act other than in
accordance with the relevant laws then in force. SAC shall reimburse IMPSAT, for
any costs (including the reasonable fees and expenses of legal counsel,
accountants and other advisors) incurred by IMPSAT under this Section 15.01(c),
provided that SAC was notified and has consented to the incurrence of such
costs, fees and expenses.
(d) Prior to the Date of Provisional Acceptance with respect to
the Santiago- Algarrobo Segment, IMPSAT shall provide evidence of having made
all payments for Taxes included in the Fee and the Recurring Service Charge,
other than VAT due on payments of the Fee and the Recurring Service Charge made
on or after the Date of Provisional Acceptance of the Santiago-Algarrobo
Segment, which evidence shall be provided within sixty (60) days after the date
of each such payment.
(e) As part of the Work to be performed by it hereunder, IMPSAT
shall obtain at its expense, on SAC's behalf, any import license or other
official authorization and carry out all customs formalities necessary for the
importation or exportation of goods in connection with such Work. With respect
to each Contract Country, SAC agrees to be the importer or exporter of record or
designate an importer or exporter of record/consignee on its behalf. SAC must
provide a letter of authorization from any third party designate stating it
agrees to be the importer or exporter of record on SAC's behalf and identify the
name and address of the designated importer or exporter of record.
(f) If withholding for any Tax is required in respect of any
payment to IMPSAT, SAC shall (i) withhold the appropriate amount from such
payment and (ii) pay such amount to the relevant authorities in accordance with
the applicable laws. In the case of any withholding in respect of a SAC Contract
Tax (other than any withholding which would not have been required if IMPSAT had
satisfied its other Tax payment obligations), SAC shall pay IMPSAT an additional
amount (each such amount, an "Additional Amount") such that the net amount
received by IMPSAT is the amount IMPSAT would have received in the absence of
such withholding. In such a case, SAC shall provide to IMPSAT, as soon as
reasonably practicable, a certified copy of an official tax receipt for any Tax
which is retained from any payment due to IMPSAT or for any Tax which is paid on
behalf of IMPSAT. All such receipts shall be in the name of IMPSAT. SAC shall
not be obligated to pay Additional Amounts if IMPSAT does not accurately and
timely provide to SAC or, if required, to the applicable taxing authority, such
forms, certifications or other documents as may be requested in timely manner by
SAC, which would have allowed it to make payments to IMPSAT without any
deduction or withholding on account of withholding Taxes (or at a reduced rate
thereof) or to receive a refund of any amounts deducted or withheld on account
of withholding Taxes.
(g) If IMPSAT shall become aware that it is entitled to receive a
refund or credit from a relevant taxing or governmental authority in respect of
a SAC Contract Tax as to which SAC has paid an additional amount pursuant to
Section 15.01(f) above, IMPSAT shall promptly notify SAC of the availability of
such refund or credit and shall, within 30 days after receipt of a request by
SAC (whether as a result of notification that it has made to SAC or otherwise),
make
- 38 -
<PAGE> 40
a claim to such taxing or governmental authority for such refund or credit at
SAC's expense. If IMPSAT receives a refund or credit in respect of a SAC
Contract Tax as to which SAC has paid an additional amount pursuant to Section
15.01(f) above, or if, as a result of SAC's payment of such additional amounts,
IMPSAT or any other subsidiary of IMPSAT Corporation, a Delaware corporation,
receives a credit against Taxes imposed on its income or franchise taxes imposed
on it by the country under the laws of which it is organized or any political
subdivision thereof, IMPSAT shall promptly notify SAC of such refund or credit
and shall within 30 days from the date of receipt of such refund or benefit of
such credit pay over the amount of such refund or benefit of such credit
(including any interest paid or credited by the relevant taxing or governmental
authority with respect to such refund or credit) to SAC (but only to the extent
of the additional payments made by SAC under Section 15.01(f) above with respect
to the SAC Contract Tax giving rise to such refund or credit), net of all
out-of-pocket expenses of IMPSAT which it would not have incurred but for the
application of this paragraph; provided, however, that SAC, upon the request of
IMPSAT agrees to repay the amount paid over to SAC (plus penalties, interest or
other charges due to the appropriate authorities in connection therewith) to
IMPSAT in the event IMPSAT is required to repay such refund or credit to such
relevant authority.
15.02. Notwithstanding anything to the contrary in this
Agreement, IMPSAT and SAC shall each be responsible for payment of any Taxes
expressly or implicitly imposed on them based upon gross or net receipts
(excluding, except as otherwise provided herein with respect to the Recurring
Service Charge, ingresos brutos under Argentine or Chilean law), or gross or net
income, due to their respective assets, properties or ownership or use of TAC
and/or the IMPSAT System.
15.03. To the extent VAT applies to all or any part of the
purchase of, or acquisition of an IRU in, TAC by SAC or its Affiliates, IMPSAT
agrees to issue (or shall cause its Affiliates to issue) to SAC an invoice or
invoices which is (are) suitable for presentation to the applicable VAT
authorities.
15.04. The parties acknowledge and agree that it is their mutual
objective and intent to (a) minimize, to the extent feasible, the aggregate
Taxes payable with respect to the IMPSAT System and TAC and (b) share such Taxes
according to their respective interests in the IMPSAT System and TAC, and that
they will cooperate with each other in all reasonable respects and coordinate
their mutual efforts to achieve such objectives in accordance with the
provisions of Sections 15.04 through 15.09.
15.05. IMPSAT shall be responsible for and shall timely pay any
and all Taxes with respect to the construction or operation of the IMPSAT System
which Taxes are (a) imposed or assessed prior to the Date of Provisional
Acceptance of the SAC IRU Segment or (b) imposed or assessed (regardless of the
time) with respect to the IMPSAT System in exchange for the granting of an
interest in public real property relating to the IMPSAT System. Notwithstanding
the foregoing obligations, IMPSAT shall have the right to challenge any such
Taxes. SAC's responsibility concerning Taxes with respect to the construction of
TAC and the performance of the Work shall be governed by Section 15.01.
- 39 -
<PAGE> 41
15.06. Except as to Taxes described in Section 15.05(b),
following the Date of Provisional Acceptance of an IRU Segment, the Grantor of
such Segment shall timely pay any and all Taxes imposed upon or with respect to
the IMPSAT System or TAC (as the case may be) to the extent such Taxes may not
feasibly be separately assessed or imposed upon or against the respective
ownership interests of the Grantor and the Grantee in the IMPSAT System or TAC
(as the case may be) (after a reasonable and good faith effort by the Grantor to
procure such separate assessment); provided that, upon receipt of a notice of
any such Tax, the Grantor shall promptly notify the Grantee of such Tax and
following payment of such Tax by the Grantor, the Grantee shall promptly
reimburse the Grantor for its proportionate share of such Tax, which share shall
be determined (a) to the extent possible, based upon the manner and methodology
used by the particular authority imposing such Tax (e.g., on the cost of the
relative property interests, historic or projected revenue derived therefrom, or
any combination thereof) or (b) if the same cannot be so determined, then the
Grantee's share will be one-third of the Taxes assessed or imposed.
15.07. Notwithstanding any provision herein to the contrary, the
Grantor shall have the right to contest any Tax described in Section 15.06,
above (including by non-payment of such Tax), subject, however, to reasonable
and appropriate consultation with the Grantee, which hereby agrees to cooperate
with the Grantor in such contest. The out-of-pocket costs and expenses
(including reasonable attorneys' fees) incurred by the Grantor in any such
contest shall be shared by the Grantor and the Grantee in the same proportion as
to which the parties would have shared in such Taxes, as they were originally
assessed. Any refunds or credits resulting from a contest brought pursuant to
this Section 15.07 shall be divided between the Grantor and the Grantee in the
same proportion as to which such refunded or credited Taxes were borne by the
Grantor and the Grantee. In any such event, the Grantor shall provide timely
notice of such challenge to the Grantee.
15.08. Except as to Taxes described in Section 15.05(b),
following the Date of Provisional Acceptance of the an IRU Segment, the Grantor
and the Grantee, respectively, shall be separately responsible for any and all
Taxes (a) expressly or implicitly imposed upon, based upon, or otherwise
measured by the gross receipts, gross income, net receipts or net income
received by or accrued to such party due to its respective ownership or use of
the IMPSAT System, TAC and/or the IRU Segment, or (b) which have been separately
assessed or imposed upon the respective ownership interest of such party in the
IMPSAT System, TAC and/or the SAC IRU Segment.
15.09. With respect to any Taxes relating to the IMPSAT System or
TAC which are imposed upon both the Grantor and the Grantee (or both of their
respective interests therein), the Grantor, at its option and at its own
expense, shall have the right to direct and manage any such contest; subject,
however, to reasonable and appropriate consultation with the Grantee, which
hereby agrees to cooperate with the Grantor in any such contest.
15.10. The IMPSAT IRU Fee excludes any Tax. The IMPSAT IRU Fee
shall without duplication be adjusted for any Tax imposed on or in connection
with this Agreement including, without limitation, the execution and delivery of
this Agreement and the Work to be performed hereunder, but excluding any SAC
Excluded Taxes (any such Taxes, other than SAC Excluded Taxes, are hereinafter
referred to as "IMPSAT Contract Taxes"). SAC shall be responsible for any SAC
Excluded Tax incurred by SAC. The provisions of Sections 15.01(b)
- 40 -
<PAGE> 42
through 15.01(h) shall apply, mutatis mutandis, to the respective parties'
obligations in respect of the IMPSAT IRU Fee.
15.11. Any stamp tax imposed on any party with respect to this
Agreement or any related contract documents shall be borne equally by SAC and
IMPSAT.
15.12. The parties agree that the entire amount of each of the
Fee and the IMPSAT IRU Fee shall be subject to VAT under the laws of Argentina
and Chile as currently in effect.
ARTICLE 16.
NOTICE
16.01. All notices and communications concerning this Agreement
shall be in writing and addressed to the other party as follows:
If to IMPSAT:
IMPSAT S.A.
Alferez Pareja 256 (1107)
Buenos Aires, Argentina
Fax: 011-54-114-328-0140
Attention: President
with a copy to:
IMPSAT
Alferez Pareja 256 (1107)
Benos Aires, Argentina
Fax: 011-54-114-328-0140
Attention: Director - Contracts Administration
with a copy to:
Latham & Watkins
1001 Pennsylvania Ave., N.W.
Suite 1300
Washington, D.C. 20004
Attention: Gary M. Epstein
If to SAC:
c/o Global Crossing Ltd.
150 El Camino Drive
Suite 240
Beverly Hills, CA 90212
- 41 -
<PAGE> 43
Attention: General Counsel
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
Attention: George K. Miller
or at such other address as either party may designated from time to time in
writing to the other party.
16.02. Notices shall be hand delivered or sent by commercial
overnight delivery service, and shall be deemed served or delivered to the
addressee or its office when received at the address for notice specified above
when hand delivered or on the second day after being sent when sent by overnight
delivery service, provided that receipt of delivery is obtained. Notices
delivered to IMPSAT Argentina shall also be effective with respect to IMPSAT
Chile.
ARTICLE 17.
CONFIDENTIALITY
17.01. (a) IMPSAT and SAC hereby agree that if either party
provides (or, prior to the execution hereof, has provided) confidential or
proprietary information to the other party ("Proprietary Information"), such
Proprietary Information shall be held in confidence, and the receiving party
shall afford such Proprietary Information the same care and protection as it
affords generally to its own confidential and proprietary information (which in
any case shall be not less than reasonable care) in order to avoid disclosure to
or unauthorized use by any third party.
(b) As used herein, Proprietary Information shall mean any and
all technical or business information furnished, in whatever form or medium, or
disclosed by any party to the other including, but not limited to, product or
service specifications, prototypes, computer programs, models, drawings,
marketing plans, financial data, and personnel statistics.
(c) All Proprietary Information, unless otherwise specified in
writing, shall remain the property of the disclosing party, and such written
Proprietary Information, including all copies thereof, shall be returned to the
disclosing party or destroyed after the receiving party's need for it has
expired or upon the request of the disclosing party. Proprietary Information
shall not be reproduced except to the extent necessary to accomplish the purpose
and intent of this Agreement, or as otherwise may be permitted in writing by the
disclosing party.
17.02. The foregoing provisions of Section 17.01 shall not apply
to any Proprietary Information which (a) becomes publicly available other than
through the recipient; (b) is required to be disclosed by a governmental or
judicial law, order, rule or regulation, provided that the party availing itself
of this exception has used commercially reasonable efforts to avoid or limit
such disclosure; (c) is independently developed by the disclosing party; (d)
- 42 -
<PAGE> 44
becomes available to the disclosing party without restriction from a third party
without an obligation to keep confidential such Proprietary Information; or (e)
becomes relevant to the settlement of any dispute or enforcement of either
party's rights under this Agreement in accordance with the provisions of this
Agreement, in which case appropriate protective measures shall be taken to
preserve the confidentiality of such Proprietary Information as fully as
possible within the confines of such settlement or enforcement process. If any
Proprietary Information is required to be disclosed pursuant to the foregoing
clause (b), the party required to make such disclosure shall promptly inform the
other party of the requirements of such disclosure.
17.03. Nothing herein shall be construed as granting any right or
license under any trademarks, copyrights, inventions, patents or other
intellectual property now or hereafter owned or controlled by any party.
17.04. Notwithstanding Sections 17.01 and 17.02, either party may
disclose Proprietary Information to its employees, agents, and legal, financial,
and accounting advisors (including its lenders and other financial institutions)
to the extent necessary or appropriate in connection with the negotiation and/or
performance of this Agreement or its obtaining of financing, provided that each
such party is notified of the confidential and proprietary nature of such
Proprietary Information and is subject to or agrees to be bound by the terms of
this Article.
17.05. All media releases, public announcements, and public
disclosures relating to this Agreement or the subject matter of this Agreement,
including promotional or marketing material, but not including announcements
intended solely for internal distribution or disclosures to the extent required
to meet legal or regulatory requirements, shall be coordinated with and shall be
subject to approval by both parties prior to release.
17.06. The provisions of this Article 17 shall survive for two
years after expiration or termination of this Agreement.
ARTICLE 18.
TERMINATION FOR DEFAULT
18.01. (a) With respect to all payments required to be made by
SAC hereunder, including, without limitation, payment of the Fee and the
Recurring Service Charge and all other amounts payable by SAC hereunder, if SAC
fails to make a payment by the date due and payable hereunder, such unpaid
amount shall bear interest until paid at a rate equal to the rate set forth in
Section 3.04. In the event any amount or amounts due and payable hereunder
remain unpaid for a period of [ ] after written notice thereof from IMPSAT to
SAC, SAC shall be in default hereunder.
(b) With respect to all of its other obligations hereunder, if
SAC fails to perform a material nonpayment obligation or any representation or
warranty made by SAC herein shall prove to be false, incorrect or misleading in
any material respect and, in each case, such default shall continue for a period
of [ ] after IMPSAT shall have given SAC written notice of such default, SAC
shall be in default hereunder unless SAC shall have cured such default or such
default is otherwise waived in writing by IMPSAT within such [ ];
- 43 -
<PAGE> 45
provided, however, that where such default cannot reasonably be cured within
such [ ] period and is susceptible to cure, if SAC shall proceed promptly to
cure the same and prosecute such cure with due diligence, the time for curing
such failure shall be extended for such period of time as may be necessary to
complete such cure, up to a maximum of [ ]; and provided further, that no cure
period shall be available to SAC for any breach of Article 19.
(c) SAC shall be in default hereunder if (i) SAC shall commence a
voluntary case or other proceeding seeking liquidation, reorganization or other
relief with respect to itself or its debts under any bankruptcy, insolvency or
other similar law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, or shall consent to any such relief or to the
appointment of or taking possession by any such official in an involuntary case
or other proceeding commenced against it, or shall make a general assignment for
the benefit of creditors, or shall fail generally to pay its debts as they
become due, or shall take any corporate action to authorize any of the
foregoing; or (ii) an involuntary case or other proceeding shall be commenced
against SAC seeking liquidation, reorganization or other relief with respect to
it or its debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any substantial part of
its property, and such involuntary case or other proceeding shall remain
undismissed and unstayed for a period of [ ]; or (iii) an order for relief
shall be entered against SAC.
(d) Upon any default by SAC, after notice thereof from IMPSAT,
IMPSAT may (a) terminate this Agreement in its entirety (provided that in the
event SAC shall have paid all amounts due in respect of the Fee and shall
thereafter be in default solely in respect of the payment of the Recurring
Service Charge, IMPSAT may only terminate its obligations under Article 9 and
not the IRU hereunder of the SAC IRU Duct and the SAC IRU Associated Properties)
and/or (b) subject to the limitations of Section 13.01, pursue the remedies
specifically provided in this Agreement or otherwise available at law or in
equity.
(e) If this Agreement is terminated by IMPSAT as provided in
Section 18.01, SAC shall pay, in addition to any other damages payable pursuant
to Section 18.06 below, the total of (i) the reasonable cost of settling and
paying claims arising out of the termination of Work under the contracts and
orders, as provided in Section 22.01 (c) below which are properly chargeable to
the terminated portion of this Agreement; and (ii) the reasonable costs of
settlement including accounting, legal, clerical and other expenses necessary
for the preparation of settlement claims and supporting data with respect to the
terminated portion of this Agreement and for termination and settlement of
contracts thereunder, together with reasonable storage, transportation and other
costs incurred in connection with the protection, preservation and disposition
of property proper to this Agreement.
(f) If this Agreement is terminated by IMPSAT as a result of a
default by SAC on or after the Date of Provisional Acceptance of the
Santiago-Algarrobo Segment, IMPSAT shall have the right to receive from SAC a
pro rata refund of the IMPSAT IRU Fee allocable to the remaining portion of the
Term of the IRU of the IMPSAT IRU Duct and the IMPSAT IRU Associated Properties
in effect immediately prior to such termination.
- 44 -
<PAGE> 46
18.02. (a) With respect to its obligation to complete the
construction, installation and satisfactory Acceptance Testing by the Scheduled
RFS Date for a particular Segment or TAC pursuant to Section 4.03, IMPSAT shall
be in default under this Agreement if the Date of Provisional Acceptance with
respect to any Segment or TAC has not occurred within [ ] after the Scheduled
RFS Date for such Segment (a "Delivery Default").
(b) With respect to its obligation to achieve the Corrective
Maintenance Mean Time to Repair ("MTTR") in accordance with Exhibit 7, SAC shall
have the right to terminate this Agreement if IMPSAT fails to achieve [ ].
(c) With respect to IMPSAT's other obligations hereunder, in the
event that IMPSAT shall fail to perform a material obligation or any
representation or warranty made by IMPSAT herein shall prove to be false,
incorrect or misleading in any material respect and, in each case, such default
shall continue for a period of [ ] after SAC shall have given IMPSAT written
notice of such default, IMPSAT shall be in default hereunder unless IMPSAT shall
have cured such default or such default is otherwise waived in writing by SAC
within such [ ]; provided however, that where such default cannot reasonably
be cured within such [ ] period and is susceptible to cure, if IMPSAT shall
proceed promptly to cure the same and prosecute such cure with due diligence,
the time for curing such default shall be extended for such period of time as
may be necessary to complete such cure, up to a maximum of [ ], and provided
further, that no cure period shall be available to IMPSAT for any breach of
Article 19.
(d) IMPSAT shall be in default hereunder if (i) IMPSAT shall
commence a voluntary case or other proceeding seeking liquidation,
reorganization or other relief with respect to itself or its debts under any
bankruptcy, insolvency or other similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator, custodian or other
similar official of it or any substantial part of its property, or shall consent
to any such relief or to the appointment of or taking possession by any such
official in an involuntary case or other proceeding commenced against it, or
shall make a general assignment for the benefit of creditors, or shall fail
generally to pay its debts as they become due, or shall take any corporate
action to authorize any of the foregoing; or (ii) an involuntary case or other
proceeding shall be commenced against IMPSAT seeking liquidation, reorganization
or other relief with respect to it or its debts under any bankruptcy, insolvency
or other similar law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, and such involuntary case or other proceeding
shall remain undismissed and unstayed for a period of [ ]; or (iii) an order
for relief shall be entered against IMPSAT; or (iv) the Guaranty shall for any
reason cease to be in full force and effect or the Guarantor shall repudiate any
of its obligations thereunder.
(e) Upon any default by IMPSAT, after notice thereof from SAC,
SAC may (a) terminate this Agreement in its entirety (or, in the case of a
default relating to the provision of Maintenance Services, Article 9 and related
provisions), provided that, on or after the Date of Provisional Acceptance of
the IMPSAT IRU Segment, in the event IMPSAT shall have paid all amounts due in
respect of the IMPSAT IRU Fee and shall be in compliance with all covenants and
other provisions of this Agreement in respect of the IMPSAT IRU Segment, SAC may
not terminate the IRU thereunder of the IMPSAT IRU Duct and the IMPSAT IRU
Associated
- 45 -
<PAGE> 47
Properties, and/or (b) subject to the limitations of Article 13, pursue the
remedies specifically provided in this Agreement or otherwise available at law
or in equity. In the event of a termination of Maintenance Services with respect
to the SAC IRU Segment, the parties will mutually develop and agree reasonable
procedures for third-party access and repairs to the outside plant and
infrastructure necessary for SAC to continue the operation of TAC.
(f) If this Agreement is terminated by SAC as a result of a
default by IMPSAT on or after the Date of Provisional Acceptance of the
Santiago-Algarrobo Segment, SAC shall have the right to receive from IMPSAT a
pro rata refund of the Fee allocable to the IRU of the SAC IRU Duct and the SAC
IRU Associated Properties based upon the remaining portion of the Term thereof
in effect immediately prior to such termination.
18.03. If this Agreement is terminated by SAC as a result of a
Delivery Default, SAC, in addition to any other rights provided in this Section,
may require IMPSAT to transfer title and deliver to SAC in the manner and to the
extent directed by SAC any completed equipment, material or supplies, and such
partially completed Owned SAC Ducts and materials, parts, tools, dies, jigs,
fixtures, plans, drawings, information, and contract rights as IMPSAT has had
specifically produced or specifically acquired for the performance of such part
of this Agreement as has been terminated and which, if this Agreement had been
completed, would have been required to be furnished to SAC; and IMPSAT shall,
upon the direction of SAC, protect and preserve property in IMPSAT's possession
in which SAC has an interest.
18.04. If this Agreement is terminated by SAC as a result of a
Delivery Default, IMPSAT shall pay, in addition to any other damages payable
pursuant to Section 18.06 below, the reasonable costs of settlement, including
accounting, legal, clerical and other expenses necessary for the preparation of
settlement claims and supporting data with respect to the terminated portion of
this Agreement and for termination and settlement of contracts thereunder,
together with reasonable storage, transportation and other costs incurred in
connection with the protection, preservation and disposition of property proper
to this Agreement.
18.05. Without limiting the foregoing, in the event that SAC
terminates this Agreement as a result of a Delivery Default, IMPSAT shall be
liable to SAC (without duplication) for the total of all costs and expenses
reasonably incurred by SAC in completing the Work or in correcting deficiencies
in the Work or in procuring a substitute duct in place of the SAC IRU Duct to
the extent that the payments made to IMPSAT pursuant to this Agreement, together
with such costs and expenses, exceed the Fee; provided, however, (i) that IMPSAT
shall only pay such costs and expenses of such substitute provider up to such
amounts as are commercially reasonable, (ii) that the cost of any additional
features obtained in the substitute system shall not be compensated and (iii)
that any Liquidated Damages previously paid by IMPSAT shall be credited to the
amounts for which IMPSAT is liable.
18.06. Regardless of any termination of this Agreement as a
result of a Delivery Default, neither party shall be relieved from any liability
for damages or otherwise which may have been incurred by reason of any breach of
this Agreement.
- 46 -
<PAGE> 48
ARTICLE 19.
FOREIGN CORRUPT PRACTICES ACT
19.01. Each party hereby represents and warrants that:
(a) In carrying out its responsibilities under this Agreement, it
shall not pay, offer or promise to pay, or authorize the payment directly or
indirectly of any monies or anything of value to (i) any person or firm employed
by or acting for or on behalf of any customer, whether private or governmental,
or (ii) any government official or employee or any political party or candidate
for political office, for the purpose of inducing or rewarding any favorable
action by the customer in any commercial transaction or in any governmental
matter; and
(b) No owner, partner, officer, director or employee of such
party or of any parent or subsidiary company of such party is or will become an
official or employee of the government during the term of this Agreement while
simultaneously maintaining his/her position with such party, unless such person
obtains the prior written approval of the other party.
19.02. In the event that it is established in an arbitration
pursuant to Article 25 or in any criminal proceeding that a party has breached
the provisions of this Article 19, the other party shall have the right to
terminate this Agreement pursuant to Section 18.01(b) or 18.02(c), as the case
may be.
19.03. In no event shall any party be obligated under this
Agreement to take any action or omit to take any action that such party
believes, in good faith, would cause it to be in violation of any U.S. laws,
including the Foreign Corrupt Practices Act.
ARTICLE 20.
TERMINATION OF TERM
20.01. This Agreement automatically shall terminate upon the
expiration of the Term pursuant to Article 7 or termination pursuant to Article
18.
20.02. Upon the expiration or termination of this Agreement with
respect to the SAC IRU Segment, all IRUs with respect to such Segment shall
immediately terminate and all rights of SAC to use the IMPSAT System, the SAC
IRU Duct, the SAC IRU Associated Properties or any part thereof relating to such
Segment, shall cease and IMPSAT shall have no further obligations to SAC with
respect to such Segment. Promptly thereupon, [ ].
20.03. Upon the expiration or termination of this Agreement with
respect to the IMPSAT IRU Segment, all IRUs with respect to such Segment shall
immediately terminate and all rights of IMPSAT to use the IMPSAT IRU Duct, the
IMPSAT IRU Associated Properties or any part thereof relating to such Segment,
shall cease and SAC shall have no further obligations to IMPSAT with respect to
such Segment. Promptly thereupon, [
- 47 -
<PAGE> 49
].
20.04. Notwithstanding the foregoing, no termination or
expiration of this Agreement shall affect the rights or obligations of any party
hereto (a) with respect to any then existing defaults or the obligation to make
any payment hereunder for services rendered prior to the date of termination or
expiration, but subject to Article 19 or (b) pursuant to Article 12, Article 13,
Article 15 or Article 17 herein, which Articles shall survive the expiration or
termination hereof.
ARTICLE 21.
FORCE MAJEURE
21.01. Neither party hereto shall be responsible for any loss,
damage, delay or failure of performance resulting directly or indirectly from
any cause which is beyond its reasonable control and which prevents such party
from performing any material obligation ("Force Majeure"), including but not
limited to: acts of God or of the public enemy; acts or failures to act of any
governmental authority, including without limitation any delay in obtaining, or
failure to obtain, any Permits, unless resulting from any act or omission of
such party, including without limitation the failure to duly or timely apply for
such Permits; war or warlike operations, civil war or commotion, mobilizations
or military call-up, and acts of similar nature; revolution, rebellions,
sabotage, and insurrections or riots; fires, floods, epidemics quarantine
restrictions; strikes, and other labor actions; freight embargoes; unworkable
weather (in the case of IMPSAT, so long as IMPSAT shall have taken reasonably
foreseeable unworkable (based on average weather conditions over the last [ ])
weather into account when planning its work schedule); acts or omissions of
transporters; or damage caused by other construction activity such as building
of roads and railroads; provided that the following shall not, in and of
themselves, constitute Force Majeure: (i) a loss by IMPSAT or any Subcontractor
of employees (other than by reason of Force Majeure), (ii) strikes and other
labor actions involving IMPSAT's or any Subcontractor's own work force not part
of a general strike, (iii) the first [ ] of unworkable weather (unless any
such day occurs during the [ ] immediately preceding the then Scheduled RFS
Date for TAC or any Segment), (iv) the failure (other than by reason of Force
Majeure) of any Subcontractor, supplier or transporter to perform its
obligations to IMPSAT (including on account of insolvency), (v) the
unavailability of any raw materials or components, unless such raw materials or
components are generally unavailable in the marketplace or are unavailable by
reason of Force Majeure, (vi) any increase in IMPSAT's costs, (vii) any
reasonably foreseeable site, soil or subsurface conditions or (viii) the failure
of any governmental authority or private entity to grant its approval for IMPSAT
to assign, transfer or issue any IMPSAT Permit to SAC.
21.02. If any such Force Majeure causes an increase in the time
or costs required for performance of any of its duties or obligations, IMPSAT
shall be entitled to an equitable extension of time for completion of the Work
and an equitable adjustment in the Fee.
21.03. Each party shall inform the other party promptly with
written notification, and in all cases within [ ] of discovery and knowledge,
of any occurrence covered
- 48 -
<PAGE> 50
under this Article and shall use its reasonable efforts to minimize such
additional delays. In the case of a notification by IMPSAT, IMPSAT shall
promptly provide an estimate of the anticipated time required to complete the
Work. IMPSAT shall be entitled to an equitable extension of time resulting from
the Force Majeure condition, but only to the extent that such Force Majeure
actually causes a delay in the timely completion of the Work after all
reasonable efforts to minimize such a delay have been made.
21.04. Within [ ] after receipt of such a notice from either
party, the other party may provide a written response.
21.05. If a Force Majeure (except pursuant to Section 5.02(a))
continues for a total of [ ], either party may terminate this Agreement by
written notice to the other (a "Notice of Termination") and this Agreement shall
be deemed to have been terminated by SAC, effective on the date of the
terminating party's notice, and the provisions of Article 22 shall apply to such
termination.
21.06. Every [ ] during the period of Force Majeure, the
parties shall meet and review the circumstances surrounding the Force Majeure,
including, without limitation, the anticipated date of recommencing the Work.
21.07. Force Majeure shall not excuse the late payment of money.
ARTICLE 22.
TERMINATION FOR FORCE MAJEURE
22.01. After the delivery of a Notice of Termination with respect
to a Constructed Segment pursuant to Section 21.05, and except as otherwise
directed by SAC, IMPSAT shall:
(a) Stop Work under this Agreement with respect to such
Constructed Segment on the date and to the extent specified in the Notice of
Termination;
(b) Place no further orders or contracts for materials, services
or facilities with respect to such Constructed Segment except as may be
necessary for completion of such portion of Work under this Agreement as is not
terminated;
(c) Use reasonable efforts to terminate all orders and contracts
with respect to such Constructed Segment to the extent that they relate to the
performance of Work terminated by the Notice of Termination;
(d) Assign to SAC, in the manner, at the time, and to the extent
directed by SAC, all of IMPSAT's rights, title and interest under the orders and
contracts so terminated with respect to such Constructed Segment;
- 49 -
<PAGE> 51
(e) Use reasonable efforts to settle all outstanding liabilities
and all claims arising out of such termination of orders and contracts, with
SAC's approval or ratification to the extent required;
(f) Transfer title and deliver to SAC in the manner, at the time
and to the extent (if any) directed for the fabricated or unfabricated parts,
work in process, completed work, supplies and other material produced as a part
of, or acquired in connection with, the performance of the Work terminated by
the Notice of Termination;
(g) Use reasonable efforts to sell, in the manner, at the time,
to the extent and at the price or prices directed or authorized by SAC, any
property of the types referred to in Section 22.01(f) above provided, however,
that IMPSAT:
(i) shall not be required to extend credit to any buyer; and
(ii) may acquire any such property under the conditions
prescribed by and at a price approved by SAC;
and provided further that the net proceeds of any such transfer or disposition
shall be applied in reduction of any payments to be made by SAC to IMPSAT under
this Agreement or, if no such payments are due, paid in such other manner as SAC
may direct;
(h) Complete performance of such part of the Work which was not
terminated by the Notice of Termination; and
(i) Take such action as may be necessary, or as SAC may
reasonably direct, for the protection and preservation of the property related
to this Agreement which is in IMPSAT's possession and in which SAC has acquired
or may acquire an interest.
22.02. After such Notice of Termination, IMPSAT shall submit to
SAC a written termination claim. Such claim shall be submitted promptly, but,
unless otherwise extended, in no event later than six months from the effective
date of termination.
22.03. In the settlement of any such partial or total termination
claim, SAC shall pay to IMPSAT the total of:
(a) all amounts invoiced in accordance with this Agreement with
respect to the affected Constructed Segment plus, for Work or Supplies which
have been done or provided with respect to such Constructed Segment but which
have not been invoiced, an amount in proportion to the amount of such Work or
Supplies done or provided;
(b) the cost of settling and paying claims arising out of the
termination of Work with respect to such Constructed Segment under the contracts
and orders, as provided in Section 22.01(e) above which are properly chargeable
to the terminated portion of this Agreement; and
(c) the reasonable costs of settlement including accounting,
legal, clerical and other expenses necessary for the preparation of settlement
claims and supporting data with
- 50 -
<PAGE> 52
respect to the terminated portion of this Agreement and for termination and
settlement of contracts thereunder, together with reasonable storage,
transportation and other costs incurred in connection with the protection and
disposition of property proper to this Agreement.
22.04. In arriving at the amount due to IMPSAT under this Article
22, all unliquidated payments made to IMPSAT, any liability which IMPSAT may
have to SAC, and the agreed price for, or the proceeds of sale of any materials,
Supplies or other things acquired by IMPSAT or sold, pursuant to the provisions
of this Article 22, and not otherwise recovered by or credited to SAC shall be
deducted.
22.05. SAC may, from time to time, under such terms and
conditions as it prescribes, approve partial payments and payments on account
against costs incurred by IMPSAT in connection with the terminated portion of
this Agreement. If such payments total in excess of the amount finally agreed or
determined to be due under this Article 22, such excess shall be refunded, upon
demand, by IMPSAT.
22.06. For a period of one year after final settlement under this
Agreement, IMPSAT shall preserve and make available to SAC at reasonable times
at IMPSAT's office, but without direct charge to SAC, all supporting books,
records and documents required to be kept relating to the terminated Work.
ARTICLE 23.
DISPUTE RESOLUTION
23.01. The parties shall endeavor to settle amicably by mutual
discussions any disputes, differences, or claims whatsoever related to this
Agreement.
23.02. Failing such amicable settlement, any controversy, claim
or dispute arising under or relating to this Agreement, including the existence,
validity, interpretation, performance, termination or breach thereof, shall
finally be settled by arbitration in accordance with the International
Arbitration Rules of the American Arbitration Association ("AAA"). Unless the
parties agree to a sole arbitrator, there shall be three (3) arbitrators, with
each party appointing one arbitrator, who collectively will select a third. The
language of the arbitration shall be English. The arbitrators will not have
authority to award punitive damages to either party. Each party shall bear its
own expenses, but the parties shall share equally the fees and expenses of the
arbitration tribunal and the AAA. Any award in such arbitration shall be final,
and judgment thereon may be entered in any court of competent jurisdiction. In
any such arbitration, the decision in any prior arbitration under this Agreement
shall not be deemed conclusive of the rights as among themselves of the parties
hereunder. The arbitration shall be held in New York, New York, U.S.A.
ARTICLE 24.
ASSIGNMENT, SUBCONTRACTORS AND DARK FIBER TRANSFERS
24.01. Except as provided in this Article or in Section 9.06,
neither party shall assign this Agreement or any right or interest under this
Agreement, nor delegate any work or
- 51 -
<PAGE> 53
obligation to be performed under this Agreement ("Assignment"), without the
other party's prior written consent which shall not be unreasonably withheld (it
being understood that it shall be deemed to be reasonable to withhold consent to
the assignment of this Agreement or any rights, interest or obligations
hereunder to a competitor of IMPSAT or an Affiliate of a competitor or
uncreditworthy party).
24.02. Each of IMPSAT Argentina and IMPSAT Chile has the right to
assign all or any part of its rights under this Agreement, or to delegate all or
any part of its duties hereunder at any time without SAC's consent to (a) a
successor to substantially all the assets of such IMPSAT entity by way of a
merger, consolidation or sale of assets or (b) an Affiliate of such IMPSAT
entity; provided that (i) in the case of any assignment or delegation pursuant
to this Section 24.02, such assignee or delegee shall assume in writing all
liabilities, warranties, representations and obligations of such IMPSAT entity
under this Agreement with respect to the rights and duties so assigned or
delegated and (ii) in the case of an assignment pursuant to clause (b) above,
the Guaranty shall remain in effect. Each of IMPSAT Argentina and IMPSAT Chile
shall also have the right to (a) convey, transfer or sell capacity on the IMPSAT
IRU Duct to any person and (b) convey, transfer and sell to any person, pursuant
to the grant of IRUs or otherwise, any dark fibers from any fiber pairs in the
IMPSAT IRU Duct, together with rights in the accompanying IMPSAT IRU Associated
Properties. Each of IMPSAT Argentina and IMPSAT Chile shall give SAC written
notice [ ] prior to any assignment or delegation by it. Each of IMPSAT
Argentina and IMPSAT Chile shall remain jointly and severally liable with any
such assignee or delegee.
24.03. (a) SAC acknowledges and agrees that each of IMPSAT
Argentina and IMPSAT Chile may grant security interests of any kind in and/or
collaterally assign its rights with respect to, the IMPSAT System, the SAC IRU
Duct, the SAC IRU Associated Properties, the IMPSAT Permits along the SAC IRU
Segment, the Regeneration and OpAmp Facilities along the SAC IRU Segment, and/or
this Agreement, including the proceeds thereof, to other parties, provided that
any secured party agrees to recognize and be bound by the terms of this
Agreement. After receipt of notice from any secured party of a default by either
IMPSAT Argentina or IMPSAT Chile under any relevant security document, SAC
agrees to make, and makes, all payments thereafter as instructed by such secured
party. SAC acknowledges and consents to the foreclosure, should it occur, upon
this Agreement by any secured party or its designee, successor or assignee, and
the consequent replacement of IMPSAT Argentina and/or IMPSAT Chile under this
Agreement by the secured party, its designee, successor or assignee, or another
purchaser or assignee.
(b) Any secured party shall be entitled to exercise all rights
and to cure any defaults of IMPSAT Argentina and/or IMPSAT Chile under this
Agreement, within such cure period as may be available to such IMPSAT entity
under this Agreement. Upon receipt of notice from a secured party, SAC agrees to
accept such exercise and cure by a secured party and to render all or any part
of the performance due by SAC under this Agreement to such secured party. Any
secured party replacing either IMPSAT entity hereunder shall be bound by the
terms of this Agreement to the same extent and in the same manner as such IMPSAT
entity.
(c) Any secured party shall be deemed an intended third party
beneficiary of this Section 24.03. This Section 24.03 shall be self-operative
and no further instrument shall be
- 52 -
<PAGE> 54
required by any security agreement, mortgage or other document reflecting the
security interest to make this Section 24.03 effective.
24.04. SAC has the right to assign all or any part of its rights
and delegate all or any part of its duties hereunder at any time without
IMPSAT's consent to (a) any other entity to whom all or any part of SAC's rights
and interests in TAC have been transferred or (b) an Affiliate of SAC; provided
(i) that in the case of any assignment or delegation pursuant to this Section
24.04, such assignee or delegee shall assume in writing all liabilities,
representations and obligations of SAC under this Agreement with respect to the
rights and duties so assigned or delegated and (ii) in the case of an assignment
pursuant to clause (b) above, the Keep-well Letter shall remain in effect. SAC
may assign all warranties and/or guarantees hereunder to any assignee or
delegee. SAC shall give IMPSAT written notice 30 days prior to any such
assignment or delegation. SAC shall remain jointly and severally liable with any
such assignee or delegee. SAC also has the right to (a) convey, transfer or sell
capacity on TAC to any person and (b) convey, transfer or sell to any person,
pursuant to the grant of IRUs or otherwise, any dark fibers from any fiber pairs
in TAC, together with rights in the accompanying Owned Ducts, SAC IRU Duct,
Owned Associated Properties and SAC IRU Associated Properties. SAC may further
assign its rights and delegate its obligations under Article 9 hereof to (or
cause a novation of such rights and duties on the same terms with) Global
Crossing Network Center Ltd., and IMPSAT shall execute such documentation as SAC
shall reasonably request to give effect to such assignment, delegation or
novation, including without limitation a maintenance agreement reflecting the
terms set forth in Article 9.
24.05. IMPSAT may select subcontractors ("Subcontractors") in
connection with the performance of the Work such that all Work provided by any
such Subcontractors meet the Acceptance Criteria and the reliability and
performance requirements set forth in this Agreement. If a proposed
Subcontractor is not listed on Exhibit F hereto, IMPSAT shall obtain approval
thereof from SAC, which approval will not be unreasonably withheld. Regardless
of whether or not IMPSAT uses a Subcontractor recommended by SAC, use by IMPSAT
of a Subcontractor will not, under any circumstances: (i) give rise to any claim
by IMPSAT against SAC if such Subcontractor breaches its subcontract or contract
with IMPSAT; (ii) give rise to any claim by such Subcontractor against SAC;
(iii) create any contractual obligation by SAC to the Subcontractor; (iv) give
rise to a waiver by SAC of its rights to reject any defects or deficiencies or
defective Work; or (v) in any way release IMPSAT from being solely responsible
to SAC for the Work to be performed under this Agreement.
24.06. IMPSAT is the general contractor for the Work and remains
responsible for all of its obligations under this Agreement, including the Work,
regardless of whether a subcontract or supply agreement is made or whether
IMPSAT relies upon any Subcontractor to any extent. IMPSAT's use of
Subcontractors for any of the Work will in no way increase IMPSAT's rights or
diminish IMPSAT's liabilities to SAC with respect to this Agreement, and in all
events IMPSAT's rights and liabilities hereunder with respect to SAC will be as
though IMPSAT had itself performed such Work. IMPSAT will be liable for any
delays caused by any Subcontractor as if such delays were caused by IMPSAT.
24.07. The terms of this Agreement will in all events be binding
upon IMPSAT regardless of and without regard to the existence of any
inconsistent terms in any agreement
- 53 -
<PAGE> 55
between IMPSAT and any Subcontractor whether or not and without regard to the
fact that SAC may have directly and/or indirectly had notice of any such
inconsistent term.
24.08. IMPSAT must make all payments to all Subcontractors
(except in the case of legitimate disputes between IMPSAT and any such
Subcontractor arising out of the agreement between IMPSAT and such
Subcontractor) in accordance with the respective agreements between IMPSAT and
its Subcontractors such that Subcontractors will not be in a position to enforce
liens and/or other rights against SAC, TAC or any part thereof.
24.09. This Agreement and each of the parties' respective rights
and obligations under this Agreement, shall be binding upon and shall inure to
the benefit of the parties hereto and each of their respective permitted
successors and assigns.
24.10. Any attempted assignment, transfer or other disposition by
either party which is in violation of this Article shall be void and of no force
and effect.
ARTICLE 25.
GUARANTOR
IMPSAT agrees to cause the Guarantor to execute and deliver the
Guaranty to SAC as a condition precedent to the effectiveness of this Agreement.
ARTICLE 26.
REPRESENTATIONS, WARRANTIES AND ACKNOWLEDGMENTS
26.01. Each party represents and warrants that:
(a) it is duly organized and validly existing under the laws of
the jurisdiction of its organization and has the corporate power and authority
and the legal right to own and operate its property, to lease the property it
operates and to conduct the business in which it is currently engaged;
(b) it has the corporate power and authority and the legal right
to execute and deliver, and to perform its obligations under, this Agreement,
and has taken all necessary corporate action to authorize its execution,
delivery and performance of this Agreement;
(c) this Agreement constitutes a legal, valid and binding
obligation of such party enforceable in accordance with its terms, except as
affected by bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and other similar laws relating to or affecting the enforcement of
creditors' rights generally, general equitable principles and an implied
covenant of good faith and fair dealing;
(d) the execution, delivery and performance of this Agreement
will not violate any provision of any law, rule or regulation or any lease,
agreement or instrument applicable to such party or to which any of its property
is subject and will not result in or require the creation
- 54 -
<PAGE> 56
or imposition of any lien on any of the properties or revenues of such party
pursuant to any law, rule or regulation or any lease, agreement or instrument
applicable to such party or to which any of its property is subject; and
(e) except for Permits (in the case of IMPSAT, other than as set
forth in Section 26.02 below), no consent or authorization of, filing with, or
other act by or in respect of, any arbitrator or governmental authority and no
consent of any other person (including, without limitation, any stockholder or
creditor of such party) is required in connection with the execution, delivery,
performance, validity or enforceability of this Agreement, except in each case
those that have been made or obtained.
26.02. IMPSAT hereby represents and warrants that it has obtained
a license to operate a satellite telecommunications service in Chile and that
with such permit IMPSAT is legally able to perform its obligations under this
Agreement with respect to the Work in Chile. IMPSAT agrees that the failure of
such permit to be or remain in effect for its original term shall not of itself
give rise to a Force Majeure.
ARTICLE 27.
TITLE AND RISK OF LOSS
27.01. Title to all Supplies provided by IMPSAT hereunder for
incorporation in or attachment to a Segment shall pass to and vest in SAC in
accordance with Article 5. Risk of loss or damage to all Supplies provided by
IMPSAT for incorporation in or attachment to such Segment shall pass to and vest
in SAC in accordance with Article 5. Upon termination of this Agreement pursuant
to Article 18 or Article 22, SAC may require, upon full payment of all amounts
due thereunder (provided that, without limiting SAC's obligation to make any
such payment, if this Agreement is terminated by SAC pursuant to the fourth
paragraph of Section 18.02, full payment shall not be required prior to the
transfer of title), that title to the equipment, materials and Supplies with
respect to the Constructed Segments, which has not previously passed to SAC,
pass to SAC, free and clear of all liens, claims, charges and other encumbrances
other than those deriving through SAC.
27.02. Upon the passage of title in accordance with the terms of
Section 5.06, IMPSAT warrants that all parts, materials, and equipment to which
title has passed (or have otherwise been transferred) will be free and clear of
all liens, claims, charges and other encumbrances other than those deriving
through SAC.
ARTICLE 28.
INTELLECTUAL PROPERTY
28.01. All right, title, and interest in and to all Intellectual
Property created or developed by IMPSAT in the course of its performance under
this Agreement is and shall remain the sole property of IMPSAT. IMPSAT grants
(or in the case of items owned by other parties, agrees to cause such other
party to grant) to SAC a perpetual, royalty-free, non-transferable license to
use and reproduce those Deliverable Technical Materials owned, controlled, or
- 55 -
<PAGE> 57
developed by IMPSAT (or such other party) for purposes of using and operating
TAC, with the right to employ third parties (under appropriate written
obligations respecting confidentiality) to assist SAC with such use and
operation, but with no right to sublicense. The licenses granted to SAC by
IMPSAT in the Deliverable Technical Material are personal and non-transferable,
except that SAC may assign or transfer such licenses to an affiliated entity
under common control with the SAC or to any entity succeeding to SAC's entire
interest in TAC as a result of reorganization or restructuring of the SAC or in
the event of a change of control of the SAC.
ARTICLE 29.
INFRINGEMENT
29.01. IMPSAT agrees to defend or settle at its own expense all
suits for infringement of any patent, copyright, trademark or other form of
intellectual property right in any country of the world, for any component part
of TAC as provided by IMPSAT or material or equipment used therein (or the
manufacture of any material or the normal use thereof) provided by IMPSAT or on
its behalf pursuant to this Agreement and will hold SAC harmless from all
expense of defending any such suit and all payments for final judgment assessed
on account of such infringement.
29.02. IMPSAT will not settle any suit for infringement as to
which it is obliged to defend SAC as provided in Section 29.01 without first
consulting with SAC, and IMPSAT will not settle any suit for infringement in a
manner that would materially diminish SAC's use and enjoyment of TAC or cause
SAC to incur any monetary obligation to any third party without SAC's prior
consent. SAC, at its own expense, may elect to participate in the defense of any
suit for infringement relating to this Agreement.
29.03. IMPSAT and SAC agree to give each other prompt written
notice of claims and suits for infringement and full opportunity and authority
to assume the sole defense, including appeals, of suits for infringement
described in Section 29.01. Upon request and at its own expense, each party
agrees to furnish to the other party all information and assistance available to
it for such defense.
29.04. If all or any portion of TAC or any material, part or
equipment provided by IMPSAT or on its behalf is held to constitute an
infringement and is subject to an injunction restraining its use or any order
providing for its delivery up to or destruction, or if in respect of any such
claim of infringement IMPSAT deems it advisable to do so, IMPSAT shall at its
own expense either (i) procure for SAC the right to retain and continue to use
TAC, the affected portion thereof, or any such material, part or equipment
without interruption for SAC; or (ii) replace or modify TAC, the affected
portion thereof, or any material, part or equipment so that it becomes
noninfringing while continuing to meet the Acceptance Criteria.
ARTICLE 30.
ACQUISITION OF DARK FIBER
- 56 -
<PAGE> 58
30.01. SAC and IMPSAT shall negotiate in good faith regarding the
acquisition by IMPSAT of dark fiber on the Las Toninas-Buenos Aires Segment and
the Santiago-Algarrobo Segment.
ARTICLE 31.
GENERAL
31.01. The failure of either party hereto to enforce any of the
provisions of this Agreement, or the waiver thereof in any instance, shall not
be construed as a general waiver or relinquishment on its part of any such
provision, but the same shall nevertheless be and remain in full force and
effect.
31.02. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of New York.
31.03. The captions or headings in this Agreement are strictly
for convenience and shall not be considered in interpreting this Agreement or as
amplifying or limiting any of its content. Words in this Agreement which import
the singular connotation shall be interpreted as plural, and words which import
the plural connotation shall be interpreted as singular, as the identity of the
parties or objects referred to may require.
(a) Unless expressly defined herein, words having well known
technical or trade meanings shall be so construed. All listing of items shall
not be taken to be exclusive, but shall include other items, whether similar or
dissimilar to those listed, as the context reasonably requires.
(b) This Agreement has been fully negotiated between and jointly
drafted by the parties.
(c) All actions, activities, consents, approvals and other
undertakings of the parties in this Agreement shall be performed in a reasonable
and timely manner. Except as specifically set forth herein, for the purpose of
this Agreement the standards and practices of performance within the
telecommunications industry in the relevant market shall be the measure of a
party's performance.
31.04. This Agreement constitutes the entire and final agreement
and understanding between the parties with respect to the subject matter hereof
and supersedes all prior agreements relating to the subject matter hereof, which
are of no further force or effect. The Exhibits referred to herein are integral
parts hereof and are hereby made a part of this Agreement. To the extent that
any of the provisions of any Exhibit hereto are inconsistent with the express
terms of this Agreement, the terms of this Agreement shall prevail. This
Agreement may only be modified or supplemented by an instrument in writing
executed by a duly authorized representative of each party and delivered to the
party relying on the writing.
31.05. The relationship between SAC and IMPSAT shall not be that
of partners, agents, or joint venturers for one another, and nothing contained
in this Agreement shall be deemed to constitute a partnership or agency
agreement between them for any purposes,
- 57 -
<PAGE> 59
including, but not limited to federal income tax purposes. Neither party may
represent to its customers, potential customers or others that the other party
jointly participates with such party in the provision of services or facilities.
SAC and IMPSAT, in performing any of their obligations hereunder, shall be
independent contractors or independent parties and shall discharge their
contractual obligations at their own risk subject, however, to the terms and
conditions hereof.
31.06. If any term, covenant or condition contained herein is, to
any extent, held invalid or unenforceable in any respect under the laws
governing this Agreement, the remainder of this Agreement shall not be affected
thereby, and each term, covenant or condition of this Agreement shall be valid
and enforceable to the fullest extent permitted by law.
31.07. This Agreement may be executed in one or more
counterparts, all of which taken together shall constitute one and the same
instrument.
In confirmation of their consent and agreement to the terms and
conditions contained in this Agreement and intending to be legally bound hereby,
the parties have executed this Agreement as of the date first above written.
IMPSAT S.A.,
an Argentina corporation
By:
---------------------------------------------
Name: Marcelo Daniel Girotti
Title: Apoderado
By:
---------------------------------------------
Name: Jorge Ignacio Marine
Title: Apoderado
By:
---------------------------------------------
Name: Jose Ramon Torres
Title: Apoderado
IMPSAT S.A.,
a Chile corporation
By:
---------------------------------------------
Name: Jorge Orlando Flamarique Bonfanti
Title: Apoderado
SOUTH AMERICAN CROSSING LTD.,
a Bermuda corporation
- 58 -
<PAGE> 60
By:
---------------------------------------------
Name:
Title:
- 59 -
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of IMPSAT Corporation
on Form S-1 of our report dated March 12, 1999 appearing in the Prospectus,
which is part of this Registration Statement.
We also consent to the reference to us under the headings "Selected
Consolidated Financial and Other Data" and "Experts" in such Prospectus.
/s/ Deloitte & Touche LLP
- ------------------------------
Miami, Florida
October 4, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS OF IMPSAT CORPORATION AND ITS CONSOLIDATED
SUBSIDIARIES AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 151,501
<SECURITIES> 0
<RECEIVABLES> 54,094
<ALLOWANCES> 11,935
<INVENTORY> 0
<CURRENT-ASSETS> 230,517
<PP&E> 346,894
<DEPRECIATION> 147,862
<TOTAL-ASSETS> 632,023
<CURRENT-LIABILITIES> 96,581
<BONDS> 388,784
141,853
0
<COMMON> 120,951
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 632,023
<SALES> 0
<TOTAL-REVENUES> 111,218
<CGS> 0
<TOTAL-COSTS> 109,551
<OTHER-EXPENSES> 8,550
<LOSS-PROVISION> 3,055
<INTEREST-EXPENSE> 28,106
<INCOME-PRETAX> (34,989)
<INCOME-TAX> 4,017
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (37,948)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
