<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 17, 2000
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
IMPSAT FIBER NETWORKS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
4899
(PRIMARY INDUSTRIAL
CLASSIFICATION CODE NUMBER)
52-1910372
(IRS EMPLOYER
IDENTIFICATION NUMBER)
ALFEREZ PAREJA 256 (1107)
BUENOS AIRES, ARGENTINA
(5411) 4300-4007
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
MAURICIO J. KLAU
IMPSAT USA, INC.
2040 NORTH DIXIE HIGHWAY
WILTON MANORS, FLORIDA 33305
(954) 779-7171
(NAME, ADDRESS, INCLUDING ZIP CODE, TELEPHONE NUMBER, INCLUDING AREA CODE, OF
AGENT FOR SERVICE FOR REGISTRANT)
------------------------
Please send copies of communications to:
NEIL M. GOODMAN, ESQ.
ARNOLD & PORTER
555 TWELFTH STREET, N.W.
WASHINGTON, D.C. 20004-1202
(202) 942-5191
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC:
As soon as possible after the Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<S> <C> <C> <C> <C>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
AMOUNT OFFERING AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF TO BE PRICE PER OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED UNIT(1) PRICE(1) FEE
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13 3/4% Senior Notes due 2005.............. $300,000,000 $95.00 $285,000,000 $75,240
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Total...................................... $300,000,000 $95.00 $285,000,000 $75,240
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</TABLE>
(1) Pursuant to Rule 457(f) under the Securities Act of 1933, the registration
fee has been calculated based on the average of the bid and asked prices in
the PORTAL market on April 10, 2000 of the 13 3/4% Senior Notes due 2005 of
the Company, for which the securities registered hereby will be exchanged.
------------------
THE REGISTRANTS HEREBY AMEND THE REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
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.
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<PAGE> 2
EXPLANATORY NOTE
This registration statement covers the registration of $300,000,000
principal amount of 13 3/4% Senior Notes due 2005, referred to herein as the new
notes, of IMPSAT Fiber Networks, Inc. that may be exchanged for equal principal
amounts of its outstanding 13 3/4% Senior Notes due 2005, referred to herein as
the old notes. Use of the term "the notes" in this prospectus shall refer to
both the old notes and the new notes. The complete prospectus relating to the
exchange offer follows immediately after this explanatory note.
<PAGE> 3
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.
SUBJECT TO COMPLETION, DATED APRIL 17, 2000
PROSPECTUS
OFFER TO EXCHANGE
all outstanding
13 3/4% Senior Notes due 2005
for
13 3/4% Senior Notes due 2005
of
IMPSAT Fiber Networks, Inc.
------------------------
TERMS OF EXCHANGE OFFER
- - We are offering to exchange the old notes that we sold in a private offering
for new registered notes
- - The exchange offer expires at 5:00 p.m., New York City time, on , 2000,
unless extended
- - Tenders of old notes may be withdrawn any time prior to the expiration of the
exchange offer
- - All old notes that are validly tendered and not validly withdrawn will be
exchanged
- - We believe that the exchange of the old notes will not be a taxable exchange
for U.S. federal income tax purposes
- - The terms of the new notes we will issue in the exchange offer are identical
to the old notes, except the new notes are not subject to transfer
restrictions or entitled to registration rights as were the old notes
THE NEW NOTES
We will pay interest on the new notes on February 15 and August 15 of each
year, beginning on August 15, 2000. The new notes will mature on February 15,
2005. We may redeem the new notes at any time by paying a "make-whole" premium,
based on U.S. Treasury rates. In addition, before February 16, 2003, we may
redeem up to 35% of the new notes at a redemption price of 113.750% of their
principal amount plus accrued interest using proceeds of sales of certain kinds
of our capital stock. See "Description of the Notes -- Optional Redemption."
------------------------
We have applied to list the notes on the Luxembourg Stock Exchange.
Investment in the new notes involves risk. See "Risk Factors" beginning on page
12.
Each broker-dealer that receives new notes for its own account pursuant to
the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of the new notes. See "Plan of Distribution"
beginning on page 117.
Neither the SEC nor any state securities commission has approved the new
notes to be distributed in the exchange offer, nor have any of these
organizations determined that this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
The date of this prospectus is , 2000
<PAGE> 4
FORWARD-LOOKING STATEMENTS
Some of the statements 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 are
building
- 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
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
- our success in completing the segments of the Broadband Network in
Argentina and Brazil by our projected December 2000 completion date
- our ability to obtain all material licenses and rights of way for the
Broadband Network
- 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.
------------------------
Use of the term "the notes" in this prospectus shall refer to both the old
notes and the new notes.
------------------------
The terms "IMPSAT", "company", "we", "our" and "us" refer to IMPSAT Fiber
Networks, Inc. and its subsidiaries unless the context suggests otherwise. The
term "you" refers to a holder of the notes.
------------------------
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.
------------------------
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.
-2-
<PAGE> 5
SUMMARY
This prospectus summary highlights basic information about IMPSAT and the
exchange offer, but does not contain all information important to you. You
should read the more detailed information and consolidated financial statements
and the related notes 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 698 route kilometers. By December
2000, we expect to have built out our Broadband Network to connect major cities
across Argentina and Brazil.
THE INITIAL PUBLIC OFFERING
We recently completed the initial public offering of 11,500,000 shares of
our common stock, representing approximately 12.6% of our current total
outstanding common stock, for total proceeds after expenses and commissions of
approximately $180.8 million. In addition, we raised approximately $48.0 million
after expenses through the simultaneous sale, through a private placement, of
2,850,000 shares of common stock to British Telecommunications plc, one of our
existing stockholders. We refer to this transaction as the British
Telecommunications private placement. We also exchanged shares of our common
stock for minority interests in some of our subsidiaries, and the holders of our
preferred stock converted the preferred stock into shares of our common stock.
We refer to the first of these transactions as the minority interest roll-ups
and the second as the conversion of our preferred stock.
Our common stock is quoted on the Nasdaq National Market System under the
symbol "IMPT."
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
-3-
<PAGE> 6
We also believe that we have differentiated ourselves from our competitors
through our proven historical operating performance. From 1992 to 1999:
- our business customer base grew from 125 customers in two countries to
1,745 customers in seven countries
- property, plant and equipment grew from $47.9 million to $310.3 million
- total consolidated revenues grew from $20.5 million to $228.5 million
- EBITDA grew from $7.9 million to $33.9 million
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
- providing end-to-end seamless solutions over our own network
infrastructure to assure quality
- 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 30%, 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 connections
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 Corporation to construct the Broadband Network in Argentina and
Brazil for approximately $265 million. On October 25, 1999, we signed agreements
with Nortel to borrow up to $297 million from Nortel to finance this
-4-
<PAGE> 7
project and to purchase related equipment from Nortel. In the future, we may
reduce our commitments from Nortel under the financing agreements.
Global Crossing Agreement. We have 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.
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 connections to customized
private telecommunications network solutions.
- Internet Services. We offer backbone and access services to corporate
customers and Internet service providers, or ISPs. Our Broadband Network
will allow us to offer these services with higher speeds, 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 be able 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.
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<PAGE> 8
THE EXCHANGE
The Exchange Offer............ We are offering to exchange $300,000,000 in
principal amount of our 13 3/4% new notes due
February 15, 2005, which have been registered
under federal securities laws, for $300,000,000
in principal amount of our outstanding
unregistered 13 3/4% old notes due February 15,
2005, which we issued on February 16, 2000 in a
private placement. Under the terms of the
exchange offer, you are entitled to exchange
your old notes in the exchange offer for the
registered new notes with substantially
identical terms. The old notes may be tendered
in exchange only in integral multiples of
$1,000.
In order for your outstanding notes to be
exchanged, you must properly tender them prior
to the expiration of the exchange offer. All
old notes that are validly tendered and not
validly withdrawn before the expiration of the
exchange offer will be exchanged. We will issue
the new notes on or promptly after the
expiration of the exchange offer. You should
read the discussion under the heading
"Description of the New Notes" for further
information regarding the new notes.
Registration Rights
Agreement..................... We sold the old notes on February 16, 2000 in a
private placement. At that time, we signed a
registration rights agreement with the initial
purchasers of the notes which requires us to
conduct this exchange offer.
This exchange offer is intended to satisfy
those registration rights set forth in the
registration rights agreement. After the
exchange offer is complete, you will no longer
be entitled to registration rights with respect
to old notes you do not exchange.
If You Fail to Exchange Your
Outstanding Notes............. If you do not exchange your old notes for new
notes in the exchange offer, you will continue
to be subject to the restrictions on transfer
as provided in the old notes and the indenture
governing those notes. In general, you may not
offer or sell your outstanding notes unless the
offer or sale is registered under the federal
securities laws or unless those notes are sold
in a transaction exempt from or not subject to
the registration requirements of the federal
securities laws and applicable state securities
laws.
Expiration Date............... The exchange offer will expire at 5:00 p.m.,
New York City time, on , 2000, unless we
decide to extend the expiration date.
Conditions to the Exchange
Offer......................... We may terminate or amend the exchange offer
if:
- any legal proceeding, government action or
other adverse development materially impairs
our ability to complete the exchange offer
- any SEC rule, regulation or interpretation
materially impairs the exchange offer
- we have not obtained any necessary
governmental approvals with respect to the
exchange offer
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<PAGE> 9
Although we don't expect any of the
above-mentioned conditions to occur, we cannot
assure you that they will not occur.
Procedures for Tendering
Notes......................... If you wish to accept the exchange offer, you
must complete, sign and date the attached
letter of transmittal, or a facsimile of the
letter of transmittal and transmit it together
with all other documents required by the letter
of transmittal, to The Bank of New York, as
exchange agent, at the address set forth on the
cover page of the letter of transmittal.
Special Procedures for
Beneficial Owners............. If you beneficially own old notes registered in
the name of a broker, dealer, commercial bank,
trust company or other nominee and you wish to
tender your old notes in the exchange offer,
you should contact such registered holder
promptly and instruct it to tender on your
behalf. If you wish to tender on your own
behalf, you must, prior to completing and
executing the letter of transmittal and
delivering your old notes, either arrange to
have your notes registered in your name or
obtain a properly completed bond power from the
registered holder.
Guaranteed Delivery
Procedures.................... If you wish to tender your old notes and you
cannot get your required documents to the
exchange agent by the expiration date, you may
tender your old notes according to the
guaranteed delivery procedure described under
the heading "The Exchange Offer -- Guaranteed
Delivery Procedures."
Withdrawal Rights............. You may withdraw the tender of your old notes
at any time prior to 5:00 p.m., New York City
time, on the expiration date. To withdraw, you
must send a written or facsimile transmission
notice of withdrawal to the exchange agent at
its address set forth under "The Exchange
Offer -- Exchange Agent" in this document by
5:00 p.m., New York City time, on the
expiration date.
Certain Federal Income Tax
Considerations................ For a discussion of certain federal income tax
considerations relating to the exchange of the
new notes for the old notes, see "Certain
United States Federal Income Tax
Considerations."
Exchange Agent................ The Bank of New York is the Exchange Agent. Its
telephone number is (212) 815-6333. The address
of the Exchange Agent is set forth in "The
Exchange Offer -- Exchange Agent." The Bank of
New York also serves as trustee under the
Indenture.
-7-
<PAGE> 10
SUMMARY DESCRIPTION OF THE NEW NOTES
The form and terms of the new notes are the same as the form and terms of
the old notes except that the new notes will be registered under the Securities
Act and, therefore, will not bear legends restricting their transfer and will
not be entitled to further registration under the Securities Act. The new notes
will evidence the same debt as the old notes, and both the old notes and the new
notes are governed by the same indenture.
THE NEW NOTES
Securities Offered............ $300,000,000 aggregate principal amount of
Senior Notes due 2005. See "Description of the
Notes."
Maturity...................... February 15, 2005.
Interest...................... Interest will be payable in cash on February 15
and August 15 of each year, beginning on August
15, 2000.
Optional Redemption........... We may redeem the notes at any time by paying a
"make-whole" premium based on U.S. Treasury
rates. In addition, at any time before February
16, 2003, we may redeem up to 35% of the
aggregate principal amount of the notes with
the proceeds of sales of certain kinds of our
capital stock at 113.750% of their principal
amount on the redemption date. We may make such
redemption only if after such redemption at
least 65% of the aggregate principal amount of
the notes originally issued remain outstanding.
See "Description of the Notes -- Optional
Redemption."
Change of Control............. Upon a change of control (as defined under
"Description of the Notes"), we will be
required to make an offer to purchase the
notes. The purchase price will equal 101% of
the principal amount on their date of purchase
plus accrued interest. We may not have
sufficient funds available at the time of any
change of control to make any required debt
payment (including repurchases of the notes).
Ranking....................... The notes will rank equally with all other
unsecured, unsubordinated indebtedness of our
company. At December 31, 1999, assuming that
the offering of the old notes had been
completed at that time, we (on an
unconsolidated basis but giving effect to
guarantees of $7.1 million of indebtedness of
our subsidiaries) would have had approximately
$357.1 million of indebtedness other than the
notes. We are a holding company and the notes
will be effectively subordinated to all
liabilities of our subsidiaries. At December
31, 1999, on the same as adjusted basis and
excluding intercompany payables and the
guarantee of our 12 1/8% Senior Guaranteed
Notes due 2003 by one of our subsidiaries, our
subsidiaries would have had approximately
$309.0 million of liabilities, including
approximately $134.3 million of indebtedness.
Certain Covenants............. The terms of the notes restrict our ability and
the ability of our subsidiaries (as described
in "Description of the Notes -- Covenants") to:
- incur additional indebtedness
- create liens
- engage in sale-leaseback transactions
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<PAGE> 11
- pay dividends or make distributions in
respect of capital stock
- redeem capital stock
- make investments or certain other restricted
payments
- sell assets
- issue or sell stock of restricted
subsidiaries
- enter into transactions with stockholders or
affiliates
- effect a consolidation or merger
Risk Factors.................. You should read the "Risk Factors" section
beginning on page 12 of this prospectus, as
well as other cautionary statements throughout
the entire prospectus, to ensure that you
understand the risks associated with the notes.
USE OF PROCEEDS
On February 16, 2000, we issued $300 million principal amount of old notes.
We sold the old notes to a limited number of institutional investors pursuant to
exemptions from the registration requirements of the SEC and applicable state
securities laws. We received proceeds from the offering of the old notes of
approximately $294.1 million after deducting selling discounts and commissions
and expenses of the offering of the old notes. We will use the net proceeds to
make capital expenditures relating to the Broadband Network and for general
corporate purposes. Pending such application, we will invest the net proceeds in
short-term liquid securities.
-9-
<PAGE> 12
SUMMARY FINANCIAL AND OTHER DATA
The following financial data are derived from our audited consolidated
financial statements.
Our balance sheet data:
- on a pro forma basis give effect to:
- our initial public offering
- the British Telecommunications private placement
- the minority interest roll-ups
- the conversion of our preferred stock
- on a pro forma as adjusted basis give effect to:
- the above events
- this offering
as if these events had occurred at the beginning of the periods presented. These
amounts, however, do not give effect to the $297 million vendor financing
commitments that we recently received from Nortel in connection with the
construction of the Broadband Network in Argentina and Brazil. In the future, we
may reduce our commitments from Nortel under the financing agreements.
The summary financial data set forth below is not complete. The following
data should be read in conjunction with, and is qualified in its entirety by
reference to, the financial statements and notes and Management's Discussion and
Analysis of Financial Condition and Results of Operations included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues from services................................. $ 161,065 $ 208,089 $ 228,451
Costs and expenses......................................... (137,701) (181,219) (324,637)
--------- --------- ---------
Operating income (loss).................................... 23,364 26,870 (96,186)
Interest expense, net...................................... (24,272) (44,698) (55,561)
(Income) loss attributable to minority interest............ (993) (2,502) 6,225
Net loss................................................... $ (7,591) $ (33,987) $(131,543)
========= ========= =========
Comprehensive loss......................................... $ (7,591) $ (34,513) $ (4,644)
========= ========= =========
</TABLE>
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<PAGE> 13
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
AS OF DECEMBER 31, ------------------------
------------------------------- PRO FORMA
1997 1998 1999 PRO FORMA AS ADJUSTED
-------- --------- -------- ---------- -----------
(U.S.$ THOUSANDS,
EXCEPT FOR OPERATING DATA)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............. $ 10,439 $ 90,021 $ 97,507 $ 293,810 $ 587,935
Net property, plant and equipment..... 255,422 330,726 310,330 310,330 310,330
Total assets.......................... 339,916 527,218 828,332 1,112,684 1,412,684
Total debt............................ 220,052 419,692 484,311 484,311 784,311
Total long-term debt, net of current
portion............................. 159,677 379,292 399,415 399,415 699,415
Minority interest..................... 10,398 13,071 4,985 -- --
Redeemable preferred stock............ -- 135,018 149,035 -- --
Stockholders' equity (deficit)........ 63,389 (101,519) 15,341 454,253 454,253
OTHER FINANCIAL DATA:
EBITDA (1)............................ $ 52,037 $ 63,816 $ 33,885
Cash flow provided by (used in):
Operating activities.................. 17,139 16,740 3,849
Investing activities.................. (58,080) (128,155) (133,975)
Financing activities.................. 22,485 191,523 139,336
Ratio of earnings to fixed charges
(2)................................. -- -- --
Pro forma ratio of earnings to fixed
charges.............................
Ratio of EBITDA to interest expense
(3)................................. 2.04x 1.29x --
Pro forma ratio of EBITDA to interest
expense............................. --
Ratio of total debt to EBITDA......... 4.23x 6.58x 14.29x
Pro forma ratio of total debt to
EBITDA.............................. 23.15x
OPERATING DATA:
Customers............................. 1,192 1,467 1,745
Satellite customer sites (VSAT and
SCPC technology only)............... 5,825 6,886 7,875
</TABLE>
- ---------------
(1) "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 remaining amounts after
we pay our interest expense will be used to pay taxes and make capital
expenditures.
(2) The ratio of earnings to fixed charges is computed by dividing operating
income before fixed charges (other than capitalized interest), by fixed
charges. Fixed charges consist of interest charges and amortization of debt
expense and discount or premium related to indebtedness. Earnings of our
company were insufficient to cover fixed charges by approximately $9.6
million, $7.1 million, $2.7 million, $22.5 million and $159.4 million, for
the years ended December 31, 1995, 1996, 1997, 1998 and 1999, respectively.
On a pro forma basis, our earnings would have been insufficient to cover
fixed charges by approximately $195.5 million for the year ended December
31, 1999.
(3) Our gross interest expense for the year ended December 31, 1999 exceeded our
EBITDA by $29.3 million. On a pro forma basis, our EBITDA would have been
insufficient to cover gross interest expense by approximately $61.1 for the
year ended December 31, 1999.
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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, results of operations and our ability to
make payments on the notes could be materially adversely affected by any of the
following risks.
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 December 31, 1999, on a consolidated pro forma as adjusted basis, we
had approximately $784.3 million of indebtedness, and our stockholder's equity
was approximately $454.3 million. In addition, we have unused commitments from
Nortel of approximately $251 million to finance the construction of the
Broadband Network in Argentina and Brazil. We may reduce these commitments from
Nortel in the future.
We had an annual net interest expense of approximately $55.6 million for
1999. At December 31, 1999, our ratio of debt to EBITDA for the prior four
quarters was 14.3 times. Our fixed charges exceeded our earnings by
approximately $2.7 million, $22.5 million, and $159.4 million for 1997, 1998 and
1999, respectively.
Our high level of indebtedness could have important consequences for the
holders of the notes, including:
- making it difficult for us to obtain future financing
- limiting our ability to react to changes in the marketplace
- a substantial portion of our operating income must be allocated to making
principal and interest payments
- we are more indebted than a number of our competitors and this may place
us at a competitive disadvantage in the future
Our significant indebtedness could have a material adverse effect on our
business, results of operations and ability to make payments on the notes.
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 refinancing of short term debt
- net losses
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.
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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
- potential acquisitions, investments and strategic alliances
- our results of operations
During 1999, our cash flow from operations totaled $3.9 million and capital
expenditures totaled $110.3 million. In addition, as of December 31, 1999,
approximately $23.0 million of our debt was scheduled to mature in 2000, and
approximately $399.4 million thereafter. We have historically incurred
substantial amounts of short-term debt. Although we do not have material
commitments for short-term debt, we may borrow substantial amounts of short-term
debt in the future.
We and 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 NO OPERATIONS OR REVENUES AND THE CREDITORS OF OUR SUBSIDIARIES HAVE
PRIOR RIGHTS TO OUR SUBSIDIARIES' ASSETS
We are a holding company with no business operations of our own. Our assets
consist solely of our interests in our subsidiaries and other equity
investments. We intend to use substantially all of the net proceeds from the
offering of the old notes to make loans and provide additional equity to certain
of our subsidiaries, including our subsidiaries in Argentina and Brazil, so that
they can expand and develop their telecommunications infrastructure.
We must rely upon debt service payments, dividends and other payments from
our subsidiaries to generate the funds necessary to meet our obligations,
including the payment of principal of and interest on the notes. Our
subsidiaries, however, are legally distinct from us and have no obligation,
contingent or otherwise, to pay amounts due pursuant to the notes. Our
subsidiaries will not guarantee the notes.
The ability of our subsidiaries to make such payments to us will be subject
to availability of funds, the terms of their own indebtedness and applicable
local laws. These restrictions include withholding taxes that must be paid on
interest payments from our subsidiaries to us and foreign exchange controls. The
maximum withholding tax on interest payments abroad from Argentina, Colombia,
Venezuela, Ecuador, Mexico and Brazil are significant. We have been able to
reduce the applicable withholding tax rates by taking advantage of certain
exemptions and financing structures available to us. The maximum withholding tax
rates on dividends remitted abroad from these countries also are significant.
These rates could change at any time. The laws governing all of our
subsidiaries, except IMPSAT USA, permit companies to pay dividends only out of
positive retained earnings determined in accordance with local generally
accepted accounting principles and also require companies to allocate a minimum
percentage of each year's net income to a legal reserve until the total amount
of those reserves equal a certain percentage of authorized and outstanding
capital stock, and to pay dividends only out of excess income after allocation
of such percentages to legal reserves. As a result of those requirements and in
light of the accumulated net losses incurred to date by IMPSAT Venezuela, IMPSAT
Ecuador, IMPSAT Mexico and IMPSAT Brazil, we do not believe that any of our
subsidiaries other than IMPSAT Argentina and IMPSAT Colombia would be able to
pay dividends to us in the foreseeable future.
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Claims of creditors of our subsidiaries, including trade creditors, will
generally have priority as to the assets of our subsidiaries over our claims and
those of the holders of our indebtedness, including the notes. Accordingly, the
notes will be effectively subordinated to the liabilities including trade
payables, of our subsidiaries. At December 31, 1999, on a pro forma basis after
giving effect to this offering, our subsidiaries would have had approximately
$434.0 million of liabilities (excluding intercompany payables), including
$259.3 million of indebtedness (including guarantees of our 12 1/8% Senior
Guaranteed Notes due 2003).
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 $228.5 million in 1999. 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 net losses of $2.8 million in 1993, $7.4 million in 1995,
$8.5 million in 1996, $7.6 million in 1997, $40.0 million in 1998, and $131.5
million in 1999. In 1994, we recorded net income of $3.0 million.
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
- 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 ability to make payments on the
notes.
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.
WE FACE NUMEROUS RISKS THAT COULD ADVERSELY AFFECT THE DEVELOPMENT OF OUR
BROADBAND NETWORK
DEVELOPING AND BUILDING OUT THE BROADBAND NETWORK MAY HAVE A NEGATIVE IMPACT ON
OUR RESULTS OF OPERATIONS
Developing and building out 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
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<PAGE> 17
- 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., among 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
- performance of the fiber and equipment used in the Broadband Network
- our ability to attract and retain qualified personnel
WE NEED TO OBTAIN AND MAINTAIN THE NECESSARY RIGHTS-OF-WAY FOR THE BROADBAND
NETWORK
We have obtained rights-of-way for the long-haul segments of the Broadband
Network in Argentina and Brazil. We also have rights of way covering all of our
proposed metropolitan area rings in Argentina and covering approximately
one-third of our metropolitan area rings in Brazil. We have approximately
one-half of the construction permits needed to complete the Broadband Network in
Argentina and we are in the process of obtaining our construction permits in
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
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<PAGE> 18
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
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 will increase substantially. We compete on the
basis of our experience, quality, customer service, range of services offered
and price.
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. 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 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 ability to make payments on the notes.
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<PAGE> 19
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 expect to face competition from large
international telecommunications carriers, such as AT&T, MCI WorldCom and
Sprint, and 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 full competition in long distance telephony, which
is expected in November 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, AT&T
announced in November 1999 that it planned to form a new company, AT&T Latin
America, by merging the operations of U.S. telecommunications company, FirstCom
Corp. and Brazil-based Netstream, which companies AT&T recently agreed to
acquire, and by acquiring Keytech LD, a local exchange carrier which is licensed
to offer wireless, high-speed internet and other telecommunications services in
Argentina. AT&T Latin America will have assets in Argentina, Brazil, Chile,
Colombia and Peru and is expected to expand into Venezuela. In addition, we face
competition from emerging private telecommunications providers such as MetroRED
Telecommunications S.A., Engeredes S.A. and Diginet S.A. These companies are
data transmission service providers with expanding operations in Argentina and
Brazil. 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 ability to make
payments on the notes.
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 digital subscriber line, or DSL, can significantly enhance the speed of
traditional copper lines. DSL 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 DSL 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 ability to make
payments on the notes.
OUR EARNINGS WILL DETERIORATE IF WE CANNOT COLLECT ON OUR CUSTOMER ACCOUNTS
We provide trade credit to our customers in the normal course of business.
At December 31, 1999, excluding amounts owed by two large former customers
(Empresa Nacional de Correos y Telegrafos S.A., the former Argentine national
postal service known as ENCOTESA, and IBM de Argentina) that were the subject of
litigation at that date, approximately 19% of our gross trade accounts
receivable were past due more than six months but less than one year and
approximately 26% were past due more than one year. We recorded a provision for
doubtful accounts of $11.2 million in 1999 compared to $5.3 million in 1998.
A significant part of our past due receivables relates to a subcontract
with IBM de Argentina to provide services to Banco de la Nacion Argentina, or
BNA, and to ENCOTESA. For descriptions of these matters, see "Business -- Legal
Matters."
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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 provisioning for
doubtful accounts and increased our reserve to cover 100% of accounts receivable
in excess of 180 days past due. We did not apply this policy to a past due
receivable if the president of the operating subsidiary that generated the
receivable determined that it would be collected within a further 60 days.
During the third quarter of 1999, we further amended 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 IBM de
Argentina. The effect of this change resulted in a charge of approximately $1.1
million with respect to receivables due from IBM de Argentina and additional
charges of approximately $4.1 million. In addition, due to a general slowdown in
the collection of receivables in Argentina and some of the other countries in
which we operate commencing in the second quarter of 1999, which we believe is
due to economic difficulties experienced in those countries, we added
approximately $2.5 million to our allowance for doubtful accounts in the third
quarter of 1999. At December 31, 1999, we also estimated that the net realizable
value on the ENCOTESA receivable to be zero, and accordingly we recorded an
adjustment of $5.1 million relating to this receivable.
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 ability to make payments on the notes.
ECONOMIC AND POLITICAL CONDITIONS IN LATIN AMERICA POSE NUMEROUS RISKS TO OUR
OPERATIONS
Substantially all of our revenues are derived from operations in Latin
America. During 1999, we derived approximately 47.4% of our consolidated net
revenues from services provided by IMPSAT Argentina and approximately 26.7%, by
IMPSAT Colombia. We have also established operations in Venezuela, Mexico and
Ecuador, and in 1998 we began operations in Brazil. Other than the United States
and Mexico, 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 in recent years 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.
A lack of international capital sources for 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 ability to make payments on
the notes.
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 nine months of 1999, Argentina
has experienced a decline in investor confidence as a result of domestic
political and economic developments. In October 1999, Moody's cut Argentina's
long-term foreign currency rating to B1 from Ba3. We are unable to predict the
effect of the recession on our business, financial condition and results of
operations or ability to make payments on the notes. In addition, we cannot
assure you that future uncertainties resulting from the presidential elections
will
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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 in terms of revenues
generated. Colombia is experiencing its first economic recession in over 50
years, with unemployment over 20%. The Colombian economy began experiencing a
severe economic crisis in 1998. 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 performance. Preliminary figures indicate that the Colombian
economy contracted in 1999 for the first time in over half a century and that
Colombia's GDP fell by 6% in the first half of 1999. In June of 1999, 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 violence over the past four decades,
primarily from leftist guerrilla groups, right-wing paramilitary 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,
offensives by FARC 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 ability to make payments on the notes.
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
recession or 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 37.6% in 1997, 29.9% in
1998 and 20.0% in 1999.
The Venezuelan economy declined by over 7% in 1999. In addition, Venezuela
experienced a period of political uncertainty in 1999 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 recently elected president, Mr.
Hugo Chavez, to reform and amend the Venezuelan political system. In December
1999, a new constitution was approved by national referendum and the Venezuelan
Congress was dissolved. Elections for President, a new unicameral legislature
and governorships are expected to occur in the first half of 2000. Mr. Chavez is
expected to run for President in the new elections. The heightened tensions
between the executive branch and the Constitutional Assembly, on the one hand,
and the Venezuelan legislature, on the other hand, and elements of the new
constitution, have made investors reluctant to invest funds in Venezuela. We
cannot assure you that 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. On December 15, 1999, mudslides resulting
from torrential rains destroyed significant areas throughout the northern coast
of Venezuela. An estimated 500,000 Venezuelans have been affected. The impact of
the natural disaster on the Venezuelan economy has not been determined, although
the Venezuelan government has stated that it will take a minimum of two years to
rebuild the affected areas at an estimated cost in excess of $3 billion.
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
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frequently depreciated in relation to the U.S. dollar. At the end of 1998,
foreign exchange reserves in Brazil had declined to $40 billion from nearly $70
billion at the end of August 1998. These outflows, which resulted from 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 Brazilian 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$2.17 =
$1.00 on March 3, 1999. At February 28, 2000, the real traded at a rate of
R$1.78 = $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 if the economic recession worsens and
unemployment figures rise. Economic forecasts suggest that the Brazilian economy
could continue to suffer a recession 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
ability to make payments on the notes.
WE ARE VULNERABLE TO CURRENCY FLUCTUATIONS, DEVALUATIONS AND RESTRICTIONS THAT
MAY INCREASE OUR LOSSES AND CAUSE FLUCTUATIONS IN OUR OPERATING RESULTS
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 denominated in dollars or
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 ability to make payments on the notes.
-20-
<PAGE> 23
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 various telecommunications network services in the 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 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.
OUR BUSINESS IS HIGHLY DEPENDENT ON SATELLITE SYSTEMS AND THEY MAY FAIL AND
IMPAIR OUR ABILITY TO PROVIDE SERVICES TO OUR CUSTOMERS
We currently 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,
indirectly hold significant amounts 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.
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 $20.6 million in revenues from
Internet services in 1998 and $26.6 million in 1999. As of December 31, 1999 we
had 17,076 dial-up Internet access retail customers and 363 dedicated Internet
access
-21-
<PAGE> 24
corporate customers. In August 1999, we entered into an agreement 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. We
concluded the sale of our Brazilian retail Internet business to El Sitio on
October 6, 1999 and the sale of our Argentine retail Internet business to El
Sitio on November 5, 1999. We expect to finalize the sale of our Colombian
retail Internet business during April 2000. 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 anticipate the provision of Internet
access services to ISPs will be an important segment of the services available
through our Broadband Network, and the failure of Internet growth in Latin
America could adversely affect our business, results of operations, financial
condition and ability to make payments on the notes.
OUR AFFAIRS AND BUSINESS POLICIES ARE SUBJECT TO CONTROL BY OUR PRINCIPAL
STOCKHOLDERS
We are a publicly held corporation. Approximately 46.3% of our issued and
outstanding common stock is held by Nevasa Holdings Ltd., 19.8% by Nunsgate
Limited, a wholly owned subsidiary of British Telecommunications, and 5.1% by
the Suramericana Group of Colombia. 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 their stock ownership, these stockholders can control our affairs and
business policies, including the election of directors. In addition, 16.3% of
our common stock is held by certain affiliates of Morgan Stanley Dean Witter
(whom we refer to as the Morgan Stanley investors).
THERE IS NO EXISTING PUBLIC TRADING MARKET FOR THE NOTES
The new notes are being offered to the holders of the old notes. The old
notes were sold by us on February 16, 2000 to a limited number of institutional
investors and are eligible for trading in the Private Offerings, Resale and
Trading through Automated Linkages (PORTAL) Market. To the extent that old notes
are tendered and accepted in the exchange offer, the trading market for the
remaining untendered old notes could be adversely affected. Although we have
applied to list the new notes on the Luxembourg Stock Exchange, there is no
existing trading market for the new notes. We cannot assure you of the future
-22-
<PAGE> 25
development of a market for the new notes, or the ability of holders of the new
notes to sell their new notes or the price at which such holders may be able to
sell their new notes.
If such a market were to develop, the new notes could trade at prices that
may be higher or lower than their principal amount or purchase price, depending
on many factors, including prevailing interest rates, our operating results and
the market for similar securities. Therefore, we cannot give you any assurance
as to the liquidity of any trading market for the new notes or that an active
public market for the new notes will develop. Historically, the market for
noninvestment grade debt has been subject to disruptions that have caused
substantial volatility in the prices of such securities. We cannot assure you
that the market for the new notes will not be subject to similar disruptions.
Any such disruptions may have a significantly adverse effect on your investment
in the new notes.
IF YOU DO NOT EXCHANGE YOUR OLD NOTES, YOU MAY HAVE DIFFICULTY IN TRANSFERRING
THEM AT A LATER TIME
We will issue new notes in exchange for the old notes after the exchange
agent receives your old notes, the letter of transmittal and all related
documents before the expiration of the exchange offer. You should allow adequate
time for delivery if you choose to tender your old notes for the exchange. Old
notes that are not exchanged will remain subject to restrictions on transfer and
will not have any rights to registration.
If you do participate in the exchange offer for the purpose of
participating in the distribution of the new notes, you must comply with the
registration and prospectus delivery requirements of the Securities Act of 1933
for any resale transaction. Each broker-dealer who holds old notes for its own
account due to market-making or other trading activities and who receives new
notes for its own account must acknowledge that it will deliver a prospectus in
connection with any resale of the new notes. If any old notes are not tendered
in the exchange or are tendered but not accepted, the trading market for such
old notes could be negatively affected due to the limited number of old notes
expected to remain outstanding following the completion of the exchange offer.
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 on our ability to make payments on the notes.
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 continue to function adequately
during and after the year 2000. 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 affected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Year 2000" for a discussion of
these risks.
-23-
<PAGE> 26
CAPITALIZATION
The following table shows our cash and cash equivalents and total
capitalization as of December 31, 1999:
- on an historical basis
- on a pro forma basis to give effect to:
- our initial public offering
- the British Telecommunications private placement
- the minority interest roll-ups
- the conversion of our preferred stock
- on a pro forma as adjusted basis to give effect to:
- the above events
- the offering of the old notes
This table should be read in conjunction with our consolidated financial
statements and the notes at the back of this Memorandum.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
----------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------- -------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH AND CASH EQUIVALENTS................................ $ 97,507 $ 293,810 $ 587,935
========= ========= ==========
SHORT-TERM DEBT:
Short-term debt........................................ $ 15,670 $ 15,670 $ 15,670
Broadband Network Vendor Financing..................... 46,219 46,219 46,219
Current portion of long-term debt...................... 23,007 23,007 23,007
--------- --------- ----------
Total short-term debt............................... 84,896 84,896 84,896
LONG-TERM DEBT:
12-1/8% Senior Guaranteed Notes due 2003............... 125,000 125,000 125,000
12-3/8% Senior Notes due 2008.......................... 225,000 225,000 225,000
13 3/4% Senior Notes due 2005.......................... -- -- 300,000
Other long-term debt, net of current portion........... 49,415 49,415 72,422
--------- --------- ----------
Total long-term debt, net........................... 399,415 422,422 699,415
MINORITY INTEREST........................................ 4,985 -- --
REDEEMABLE, CONVERTIBLE PREFERRED STOCK.................. 149,035 -- --
STOCKHOLDERS' EQUITY:
Common stock, $0.01 par value per share; 71,605,993
shares issued and outstanding, actual; 91,428,571
shares issued and outstanding, pro forma)........... 716 914 914
Treasury stock, 14,917,915 shares, at cost............. (125,000) -- --
Additional paid in capital............................. 221,013 534,187 534,187
Accumulated deficit.................................... (202,934) (202,934) (202,934)
Amount paid in excess of carrying value of assets
acquired from related party......................... (4,287) (4,287) (4,287)
Accumulated other comprehensive income................. 126,373 126,373 126,373
--------- --------- ----------
Total stockholders' equity.......................... 15,341 454,253 454,253
--------- --------- ----------
Total capitalization........................... $ 653,672 $ 938,564 $1,238,564
========= ========= ==========
</TABLE>
-24-
<PAGE> 27
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The following financial data are derived from our audited consolidated
financial statements previously filed with the Securities and Exchange
Commission.
Our balance sheet data:
- on a forma basis give effect to:
- our initial public offering
- the British Telecommunications private placement
- the minority interest roll-ups
- the conversion of our preferred stock
- on a pro forma as adjusted basis give effect to:
- the above events
- this offering
as if these events had occurred at the beginning of the periods presented. These
amounts, however, do not give effect to the $297 million vendor financing
commitments that we recently received from Nortel in connection with the
construction of the Broadband Network in Argentina and Brazil. In the future, we
may reduce our commitments from Nortel under the financing agreements.
The selected financial data set forth below is not complete. The following
data should be read in conjunction with the financial statements and notes and
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues from services.......... $105,641 $128,393 $161,065 $208,089 $ 228,451
Direct costs and expenses:
Contracted services............... 5,917 11,411 16,774 20,466 26,769
Other direct costs................ 9,733 10,375 12,541 14,619 28,322
Leased capacity................... 10,973 13,925 19,230 28,660 44,750
Cost of sold equipment............ -- -- 3,137 3,665 5,187
Salaries and wages.................. 22,220 25,561 29,109 38,198 46,174
Selling, general and
administrative.................... 26,094 23,030 28,237 38,665 43,364
Depreciation and amortization....... 20,653 26,318 28,673 36,946 130,071
-------- -------- -------- -------- ---------
Operating income (loss)............. 6,883 18,065 23,364 26,870 (96,186)
Other income (expenses):
Interest expense, net............. (15,677) (23,185) (24,272) (44,698) (55,561)
Net gain (loss) on foreign
exchange....................... 1,838 910 (276) 675 (8,042)
Other income (expenses), net...... 511 1,035 (151) 760 15,305
Income (loss) before income taxes,
cumulative effect and minority
interest.......................... (6,445) (3,175) (1,335) (16,393) (144,484)
Benefit from (provision for) income
taxes............................. 740 (3,542) (5,263) (3,805) 20,733
-------- -------- -------- -------- ---------
Loss before cumulative effect and
minority interest................. (5,705) (6,717) (6,598) (20,198) (123,751)
</TABLE>
-25-
<PAGE> 28
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cumulative effect of change in
accounting principle, net of
tax............................... -- -- -- (1,269) --
(Income) loss attributable to
minority interest................. (1,712) (1,766) (993) (2,502) 6,225
Dividends on redeemable preferred
stock............................. -- -- -- (10,018) (14,017)
-------- -------- -------- -------- ---------
Net loss attributable to common
stockholders...................... $ (7,417) $ (8,483) $ (7,591) $(33,987) $(131,543)
======== ======== ======== ======== =========
Net loss per common share: basic and
diluted........................... $ (0.16) $ (0.18) $ (0.14) $ (0.71) $ (2.31)
======== ======== ======== ======== =========
Weighted average number of common
shares: basic and diluted......... 46,773 46,773 53,594 47,983 54,447
======== ======== ======== ======== =========
</TABLE>
<TABLE>
<CAPTION>
AS OF
AS OF DECEMBER 31, DECEMBER 31, 1999
----------------------------------------------------- ------------------------
1995 1996 1997 1998 1999 PRO FORMA AS ADJUSTED
-------- -------- -------- --------- -------- ---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents........ $ 6,216 $ 28,895 $ 10,439 $ 90,021 $ 97,507 $ 293,810 $ 587,935
Total current
assets............. 36,906 68,304 65,015 159,099 179,026 375,329 669,454
Net property, plant
and equipment...... 199,701 227,086 255,422 330,726 310,330 310,330 310,330
Investments.......... -- -- 4,178 10,708 235,925 235,925 235,925
Total assets......... 249,095 315,230 339,916 527,218 828,332 1,112,684 1,412,684
Total current
liabilities........ 128,813 78,125 103,438 97,910 243,150 243,150 243,150
Total short-term debt
and current portion
of long-term
debt............... 97,510 42,874 60,375 40,400 38,677 38,677 38,677
Total long-term debt,
net................ 30,200 156,230 159,677 379,292 399,415 399,415 699,415
Minority interest.... 28,476 30,242 10,398 13,071 4,985 -- --
Redeemable preferred
stock.............. -- -- -- 135,018 149,035 -- --
Stockholders' equity
(deficit).......... 55,363 46,881 63,389 (101,519) 15,341 454,253 454,253
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- --------- ---------
(IN THOUSANDS, EXCEPT RATIOS AND OTHER DATA)
<S> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
EBITDA.................................. $ 27,536 $ 44,383 $ 52,037 $ 63,816 $ 33,885
Cash flow provided by (used in)
Operating activities.................. 18,894 9,843 17,139 16,740 3,849
Investing activities.................. (66,910) (53,681) (58,080) (128,155) (133,975)
Financing activities.................. 22,097 66,517 22,485 191,923 139,336
Ratio of earnings to fixed charges...... -- -- -- -- --
Pro forma ratio of earnings to fixed
charges............................... -- -- -- -- --
</TABLE>
-26-
<PAGE> 29
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- --------- ---------
(IN THOUSANDS, EXCEPT RATIOS AND OTHER DATA)
<S> <C> <C> <C> <C> <C>
Ratio of EBITDA to interest expense..... 1.67x 1.76x 2.04x 1.29x --
Pro forma ratio of total debt to
EBITDA................................ -- -- -- -- --
OTHER DATA (AT PERIOD END):
Customers............................... 656 907 1,192 1,467 1,745
Satellite customer sites (VSAT and SCPC
technology only)...................... 3,336 5,558 5,825 6,886 7,875
</TABLE>
-27-
<PAGE> 30
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 698 route kilometers and we are constructing an
additional 1,351 route kilometers to close the ring between Cali and Bogota and
to extend this network to reach Barranquilla. By December 2000, we expect to
have built out our Broadband Network to connect major cities across Argentina,
Brazil and Colombia.
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.
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 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 in Colombia. To compensate for
slower growth in maturing markets, we will seek to provide new services through
our Broadband Network and to expand into new countries.
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
experienced economic recession during 1999. In particular, Argentina and
Colombia, our two largest markets in terms of revenues generated, experienced
significant recessions in 1999. These conditions may have material adverse
effects on our business, results of operation and financial condition and
ability to make payments on the notes.
Costs and Expenses. Our costs and expenses principally include:
- direct costs
- salaries and wages
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<PAGE> 31
- selling, general and administrative expenses
- depreciation and amortization
Our direct costs include payments for leased satellite transponder and
fiber optic capacity. Building the Broadband Network will decrease our payments
for leased capacity as a percentage of revenues. However, there will be some
delay in recognizing cost savings associated with shifting transmission from
leased satellite facilities to our Broadband Network because our satellite
contracts cannot be cancelled before they expire. The other principal items
comprising direct costs are contracted services costs and other direct costs.
Contracted services costs include costs of maintenance and installation (and
de-installation) services provided by outside contractors. Installation and
de-installation costs are the costs we incur when we install or remove earth
stations, microstations and other equipment from customer premises. Other direct
costs principally include:
- Licenses and other fees
- Sales commissions paid to third-party sales representatives
- Allowance for doubtful accounts
Our selling, general and administrative expenses consist principally of:
- publicity and promotion costs
- fees and other remuneration
- travel and entertainment
- rent
- plant services and corporate telecommunication and energy expenses
In connection with the stock options granted on January 5, 2000 under the
1999 Stock Option Plan, we will record approximately $5.4 million in
stockholders' equity as deferred compensation. The deferred compensation will be
amortized to expense over the vesting period, which commences four years after
the date of grant.
Capacity Transactions. In September 1999, we sold indefeasible rights of
use of telecommunications capacity on segments of the Broadband Network 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.
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 other
countries in which we operate did not have a material effect on our revenues
during 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, Inc. 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
Brazil transaction contemplated by the El Sitio Framework Agreement was
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<PAGE> 32
consummated on October 6, 1999 and the Argentina transaction was concluded on
November 5, 1999. The Colombia transaction is expected to close during April
2000. Upon the consummation of El Sitio's initial public offering in December
1999, our shares of El Sitio's preferred stock were automatically converted into
15.4% of El Sitio's common stock.
The revenues and expenses associated with the retail Internet businesses
sold to El Sitio were as follows for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------------------
1997 1998 1999
------ ------------ -------
(IN THOUSANDS)
<S> <C> <C> <C>
Net revenues:
Argentina................................................. $2,634 $ 2,982 $ 3,236
Colombia(1)............................................... 1,817 2,131 1,968
Brazil.................................................... -- 6,159 5,766
------ ------- -------
Total.................................................. $4,451 $11,272 $10,970
====== ======= =======
Direct costs:
Argentina................................................. $1,957 $ 2,181 $ 2,416
Colombia(1)............................................... 1,274 2,014 2,237
Brazil.................................................... -- 3,792 5,766
------ ------- -------
Total.................................................. $3,231 $ 7,987 $10,419
====== ======= =======
</TABLE>
- ---------------
(1) The Colombia transaction is expected to close during April 2000.
RESULTS OF OPERATIONS
The following financial table summarizes our results of operations:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1997 1998 1999
------------------- ------------------- -------------------
(IN THOUSANDS AND AS A PERCENTAGE OF CONSOLIDATED REVENUES)
<S> <C> <C> <C> <C> <C> <C>
Net revenues from services............... $161,065 100.0% $208,089 100.0% $228,451 100.0%
Contracted services costs................ 16,774 10.4 20,466 9.8 26,769 11.7
Other direct costs....................... 12,541 7.8 14,619 7.0 28,322 12.4
Leased capacity.......................... 19,230 11.9 28,660 13.8 44,750 19.6
Cost of sold equipment................... 3,137 1.9 3,665 1.8 5,187 2.3
Salaries and wages....................... 29,109 18.1 38,198 18.4 46,174 20.2
Selling, general and administrative...... 28,237 17.5 38,665 18.6 43,364 19.0
Depreciation and amortization............ 28,673 17.8 36,946 17.8 130,071 56.9
Interest expense, net.................... 24,272 15.1 44,698 21.5 55,561 24.3
Net gain (loss) on foreign exchange...... (276) (0.2) 675 0.3 (8,042) (3.5)
(Provision for) benefit from income
taxes.................................. (5,263) (3.3) (3,805) (1.8) 20,733 9.1
Net loss attributable to common
stockholders........................... (7,591) (4.7) (33,987) (16.3) (131,543) (57.6)
</TABLE>
1999 COMPARED TO 1998
General. Our results of operations for 1999 were not as positive as prior
periods for the following principal reasons:
- the recession in Latin America during this period, which was the region's
most severe in decades, has accelerated competitive pricing pressures in
our more mature markets (especially in Argentina and Colombia)
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<PAGE> 33
- higher leased fiber capacity expenses related to increased customer
demand for high bandwidth telecom links
- the fact that we purchased too much satellite capacity because we did not
anticipate the breadth of the recession in Latin America
- expenses of developing the Broadband Network and our Brazilian operations
(which are in a relatively early stage of development)
- an increase in our provision for doubtful accounts as a result of changes
in our provisioning policy, which we discuss further below
- a change in the depreciable life of some of our customer premises
telecommunications equipment in view of technological advances in our
industry
Revenues. Our net revenues for 1999 totaled $228.5 million, an increase of
$20.4 million, or 9.8%, from net revenues for the same period in 1998. Growth in
net revenues was achieved despite a significant economic recession, especially
in the countries where most of our operations are currently deployed (Argentina,
Colombia, Venezuela). In addition to its general adverse effect on revenue and
client growth, the recession in certain cases accelerated pricing pressures
existing in the Company's more mature markets. These conditions could also
affect future periods.
The following tables show our revenues by operating subsidiary and by
business lines (in each case, including intercompany transactions) for the
periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1998 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
IMPSAT Argentina............................................ $100,541 $110,209
IMPSAT Colombia............................................. 60,447 61,047
IMPSAT Venezuela............................................ 15,437 23,232
IMPSAT Ecuador.............................................. 10,433 13,356
IMPSAT Mexico............................................... 4,479 3,573
IMPSAT Brazil............................................... 3,876 8,568
Mandic S.A.................................................. 8,246 6,690
IMPSAT USA.................................................. 14,594 17,243
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1998 1999
-------- --------
<S> <C> <C>
Network services............................................ $162,616 $172,478
Internet.................................................... 20,586 26,639
Other....................................................... 24,887 29,334
-------- --------
Total net revenues from services............................ $208,089 $228,451
======== ========
</TABLE>
Our revenue growth for 1999 was attributable to an overall increase in the
number of customers and services we provided to them offset, in part, by
decreasing prices. Excluding Internet and fax store and forward customers, we
had a total of 1,745 customers at December 31, 1999, compared to 1,467 customers
at year end 1998.
Revenue figures included $8.6 million from retail internet services in
Argentina and Brazil, which were sold to El Sitio, Inc. in the fourth quarter of
1999, and $ 2.0 million in retail internet services in Colombia that will be
transferred to El Sitio in April 2000.
The recessions in Argentina and Colombia and, to a lesser extent, increased
competition resulted in some of our customers canceling their contracts or
reducing the services we provide to them. For example, our
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<PAGE> 34
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. 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.
The Company's business in Colombia, its second oldest market, was adversely
affected by the severe economic recession experienced during 1999. Due to
continuing effects of the recession, we expect IMPSAT Colombia to continue to
experience declining prices and margin pressure in 2000.
In addition, revenue growth at IMPSAT Ecuador could decline in coming
periods due to the effects of the continuing economic and political crisis in
that country. 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 effect of these matters on our results for future periods.
We completed our first full year of operations in Brazil in 1999. Although
IMPSAT Brazil's expansion of its customer base (90 customers as of December 31,
1999 compared to 48 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, caused IMPSAT Brazil's revenues in U.S. dollar
terms to be lower than expected. Revenues recorded by Mandic during 1999 as
compared to 1998 were also negatively affected by the devaluation of the
Brazilian real against the U.S. dollar during 1999. The real was at R$1.21 =
$1.00 on January 1, 1999 and R$2.10 = $1.00 on December 31, 1999.
On October 5, 1999, we merged Mandic into IMPSAT Brazil, and Mandic ceased
operations. On October 6, 1999, IMPSAT Brazil sold the retail internet business
acquired in the Mandic merger for $12.3 million to O Site Entretenimentos Ltda.,
a subsidiary of El Sitio.
Direct Costs. Our direct costs for 1999 totaled $105.0 million, an
increase of $37.6 million, or 55.8%, compared to 1998. Of our total direct costs
for 1999, $54.4 million related to the operations of IMPSAT Argentina and $20.3
million related to the operations of IMPSAT Colombia. This compares to $32.0
million at IMPSAT Argentina and $17.3 million at IMPSAT Colombia for 1998.
Direct costs for IMPSAT Brazil, which commenced operations towards the end of
the second quarter of 1998, totaled $8.8 million for 1999. Direct costs of our
subsidiaries are described prior to the elimination of intercompany
transactions.
(1) Contracted Services. Contracted services costs include costs of
maintenance and installation (and de-installation) services provided by
outside contractors. In 1999, our contracted services costs totaled $26.8
million, compared to $20.5 million in 1998. Of this amount, maintenance
costs for our telecommunications network infrastructure totaled $17.4
million, compared to $12.7 million for 1998. Our maintenance costs
increased because we had more infrastructure. In addition, our installation
costs totaled $9.4 million, compared to $7.6 million for 1998. The increase
in these costs was due in part to:
- private telecommunications network installations completed in 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
- a higher number of de-installations of VSAT microstations due to
customer cancellations and customer upgrades to SCPC technology
(2) Other Direct Costs. Other direct costs principally include
licenses and other fees; sales commissions paid to third-party sales
representatives; and our allowance for doubtful accounts.
Sales commissions paid to third-party sales representatives totaled
$8.0 million, compared to $6.8 million for 1998. Most of these commissions
related to customers of IMPSAT Argentina.
We recorded a provision for doubtful accounts of $11.2 million
compared to $5.3 million for the same period in 1998. At December 31, 1999,
excluding amounts owed by two large former customers ENCOTESA and IBM de
Argentina) that were the subject of litigation at that date, approximately
19%
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<PAGE> 35
of our gross trade accounts receivable were past due more than six months
but less than one year and approximately 26% were past due more than one
year.
During the third quarter of 1999, we amended 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 IBM de Argentina. During that quarter we recognized a charge of
approximately $1.1 million with respect to receivables due from IBM de
Argentina and additional charges of approximately $4.1 million. In
addition, at December 31, 1999, we also estimated that the net realizable
value on the ENCOTESA receivable to be zero, and accordingly we recorded an
adjustment of $5.1 million relating to this receivable.
In addition, due to a general slowdown in the collection of
receivables in Argentina and some of the other countries in which we
operate commencing in the second quarter of 1999, which we believe is due
to economic difficulties experienced in those countries, we added
approximately $2.5 million to our allowance for doubtful accounts in the
third quarter of 1999. In particular, our collection of receivables in
Argentina was adversely affected by the recession in that country during
1999. IMPSAT Argentina's average days outstanding for net trade receivables
due was 90 days at December 31, 1999. This represents an improvement from
IMPSAT Argentina's average days outstanding for net trade receivables due
of 97 days at June 30, 1999, but a decline from 69 days at December 31,
1998.
In February, 2000, we reached an agreement with IBM de Argentina for
the settlement of its receivables due from that company, for which we
received approximately $2.0 million, representing a recovery of 89.7% of
the approximately $2.3 million amount reserved.
(3) Leased Capacity. Our leased capacity costs totaled $44.8 million,
which represented an increase of $16.1 million, or 56.1%, from the
corresponding period in 1998. We had approximately 801 MHz of leased
satellite capacity at December 31, 1999 and 650 MHz at December 31, 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 1999, we increased our leased dedicated
capacity on third-party fiber optic networks in Argentina, spending $16.9
million compared to $10.0 million for 1998. Due to this need for greater
fiber optic bandwidth, we expect our leased capacity costs to increase
until we implement the Broadband Network. Leased fiber optic capacity in
Argentina is quite expensive due to the very limited number of providers.
(4) Costs of Equipment Sold. We incurred costs of equipment sold of
$5.2 million, compared to $3.7 million in 1998.
Salaries and Wages. Salaries and wages totaled $46.2 million, an increase
of $8.0 million, or 20.9%, from the 1998. The increase resulted primarily from:
- an increase in the number of employees, from 1,029 at December 31, 1998
to 1,107 at December 31, 1999, particularly in connection with the
progression of our operations in Brazil, and the development of the
Broadband Network
- increases in the salaries and wages of our personnel to match market
rates for personnel with the expertise we require and increases in cost
of living
IMPSAT Argentina incurred salaries and wages for 1999 of $19.7 million
compared to $16.3 million in 1998. Salaries and wages for 1999 relating to the
Broadband Network totaled $3.0 million. Salaries and wages for 1999 paid with
respect to IMPSAT Brazil and Mandic totaled $4.7 million. IMPSAT Brazil
increased its
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<PAGE> 36
number of employees by 60 persons, or 50.4%, during 1999 in connection with the
Company's development of operations in that country.
Selling, General and Administrative Expenses. We incurred SG&A expenses of
$43.4 million for 1999. SG&A expenses increased $4.7 million, or 12.2%, from
1998.
The increase in SG&A expenses principally reflect growth in our operations
and the development and implementation of the Broadband Network. For example,
the increase in our expenses for legal, tax and consultancy advice to $8.5
million compared to $7.1 million for 1998 is attributable to the expansion of
our operations, including the financing and development of the Broadband
Network.
Depreciation and Amortization. Our depreciation and amortization expenses
for 1999 totaled $130.1 million, an increase of $93.1 million, or 252.1%, from
1998. The increase primarily reflected accelerated depreciation resulting from
our decision in the third quarter of 1999 to change the depreciable life of some
of our customer premises telecommunications equipment from 10 years to 5 years
in view of technological advances in our industry.
Interest Expense, Net. Our net interest expense totaled $55.6 million.
This consists of interest expense of $63.2 million and interest income of $7.4
million. Our net interest expense increased $10.9 million, or 24.3%, from net
interest expense for 1998.
The increase in our net interest expense reflects higher average
outstanding indebtedness in 1999 compared to 1998 as a result of our issuance in
June 1998 of $225 million principal amount of 12 3/8% Senior Notes due 2008. For
1999, the average interest rate on our indebtedness was 11.3%, compared to an
average interest rate of 12.1% for 1998. Our total indebtedness as of December
31, 1999 was $438.1 million, as compared to $419.7 million as of December 31,
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, including the two financing agreements that we
signed with Nortel in October 1999 for a total of up to $297.4 million to
construct the Broadband Network in Argentina and Brazil
- the issuance of the old notes in February 2000
See "-- Liquidity and Capital Resources."
Net Loss on Foreign Exchange. We recorded a net loss on foreign exchange
of $8.0 million, compared to a net gain of $0.7 million for 1998. The increase
was principally caused by the devaluation of the Brazilian real against the U.S.
dollar.
Benefit from (Provision for) Income Taxes. We recorded a benefit from
income taxes (all of which are for foreign taxes) of $20.7 million compared to a
provision for income taxes of $3.8 million for 1998. The increased benefit from
income taxes is attributable to the expected net loss carry-forwards that we
will be able to use in future periods as a result of the accelerated
depreciation expense taken beginning the third quarter of 1999 with respect to
some of our customer premises telecommunications equipment.
Net Loss Attributable to Common Stockholders. For 1999, we incurred a net
loss attributable to common stockholders of $131.5 million, compared to $34.0
million for 1998.
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<PAGE> 37
1998 COMPARED TO 1997
Revenues. Revenues for 1998 totaled $208.1 million, compared to $161.1
million for 1997, a $47.0 million increase from revenues for 1997. The following
table shows our revenues by operating subsidiary, including intercompany
amounts) for 1998 and 1997:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------
1997 1998
------- --------
(IN THOUSANDS)
<S> <C> <C>
IMPSAT Argentina............................................ $90,942 $100,541
IMPSAT Colombia............................................. 50,099 60,447
IMPSAT Venezuela............................................ 9,242 15,437
IMPSAT Ecuador.............................................. 5,716 10,433
IMPSAT Mexico............................................... 1,776 4,479
IMPSAT Brazil............................................... -- 3,876
Mandic...................................................... -- 8,246
IMPSAT USA.................................................. 7,912 14,594
</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 our network
services other than our VSAT based services. 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. Revenues from Minidat services
for 1998 totaled $2.3 million compared to revenues of $17,000 in 1997. In
addition, our revenues from newer network service offerings such as Minidat,
increased significantly during 1998. 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 network 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.
Internet service revenues totaled $21.1 million in 1998, as compared to
$7.7 million for 1997. At December 31, 1998, we had in excess of 79,000 retail
Internet customers and 241 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 $6.1 million, an increase of $1.8 million, or 41.4%,
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.
Direct Costs. Our direct costs totaled $67.4 million, an increase of $15.7
million, or 27.4%, from 1997. Of total direct costs for 1998, $32.0 million
related to the operations of IMPSAT Argentina and $17.3 million related to
IMPSAT Colombia (compared to $32.2 million at IMPSAT Argentina and $13.6 million
at IMPSAT Colombia in 1997).
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<PAGE> 38
(1) Contracted Services. Our contracted services costs totaled $20.5
million, compared to $16.8 million in 1997. Of this amount, our maintenance
costs totaled $12.7 million, an increase of $6.0 million from 1997, and our
installation costs totaled $7.6 million, compared to $4.7 million in 1997.
(2) Other Direct Costs. Other direct costs were $14.6 million in
1998, compared to $12.5 million in 1997. Of this total, sales commissions
paid to third party sales representatives equaled $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.
Other direct costs also reflected an increase in our provision for
doubtful accounts. 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.
(3) Leased Capacity. Our leased capacity payments totaled $28.7
million, an increase of $9.4 million, or 49.0%, from 1997. We had
approximately 650.0 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.
(4) Cost of Equipment Sold. We incurred costs of equipment sold of
$3.7 million, compared to $3.1 million in 1997.
Salaries and Wages. Salaries and wages totaled $38.2 million, an increase
of $9.1 million, or 31.2%, from 1997. We increased the salaries and wages of our
personnel to match market rates and increases in costs of living. The increase
also reflects the acquisitions during the second quarter of 1998 of IMPSAT
Brazil and Mandic, which had 119 and 67 employees, respectively, at December 31,
1998. Salaries and wages paid with respect to IMPSAT Brazil and Mandic for 1998
totaled $3.6 million and $1.1 million, respectively. We maintained a total of
1,029 employees at December 31, 1998, compared to 669 employees at December 31,
1997. Of our total employees at December 31, 1998, 28 individuals were assigned
to the Broadband Network. Salaries and wages for 1998 relating to the Broadband
Network totaled $0.5 million.
Selling, General and Administrative Expenses. We incurred SG&A expenses of
$38.7 million, an increase of $10.4 million, or 36.9%, compared to 1997. This
increase was principally due to SG&A expenses incurred by our two new
subsidiaries, IMPSAT Brazil and Mandic. 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.
Compared to 1997, the increase in our SG&A expenses reflected an 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)
- 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.
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<PAGE> 39
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 12.1%, 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.
Net Loss Attributable to Common Stockholders. We incurred a net loss
attributable to common stockholders of $34.0 million, an increase of $26.4
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 net 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
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, and will continue to have,
substantial interest expense.
At December 31, 1999, we had total cash and cash equivalents of $97.5
million. Our cash and cash equivalents relate principally to:
- unused proceeds from our 12 3/8% note offering in 1998
- unused proceeds of our $125 million equity private placement to British
Telecommunications in April 1999
- advances from Global Crossing totaling approximately $23.2 million in
respect of our ongoing construction of a terrestrial portion of their
South American network, described below in "Business -- The Broadband
Network -- Global Crossing Agreements"
On February 4, 2000, we completed our initial public offering and the
British Telecommunications private placement. The net proceeds from these
offerings totaled approximately $228.8 million. The net proceeds from the
offering of the old notes was approximately 294.1 million.
Our budget contemplates that we will need approximately $246.1 million
during the period from December 31, 1999 through the end of 2000 for capital
expenditures related to the Broadband Network in Argentina and Brazil. In
October 1999, we executed definitive agreements with Nortel for long term vendor
financing commitments of up to approximately $297 million, which we can use to
pay for Nortel's construction of the segments of our Broadband Network in
Argentina and Brazil. See "Business -- The Broadband Network -- Nortel
Agreements." In addition, we are negotiating a vendor financing agreement of
approximately $20 million with Lucent Technologies, Inc. as part of our
agreement to purchase Lucent fiber optic cable for the long-haul portions of the
Broadband Network in Argentina. In the future, we may reduce the commitments
from Nortel under the vendor financing agreements.
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<PAGE> 40
We do not have any other commitments regarding financing for the Broadband
Network. As a result, the further expansion and 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 our results of
operations.
In addition, we anticipate that we will require approximately $125 million
for other capital expenditures, including those related to our existing
telecommunications business (including amounts spent to date), through the end
of 2000, and significant amounts thereafter.
In 1999, our operating activities generated $3.9 million, compared with
$16.7 million generated during 1998. Financing activities, principally our
issuance of common stock to a subsidiary of British Telecommunications in April
1999, provided $139.3 million in net cash for 1999, compared with $191.5 million
for 1998, principally related to our issuance of 12 3/8% notes in June 1998.
During the 1999, we used $134.0 million net cash for investing activities,
compared to $128.2 million for 1998.
At December 31, 1999, we had leased satellite capacity with annual rental
commitments of approximately $28.5 million through the year 2003. In addition,
at December 31, 1999, we had commitments to purchase telecommunications
equipment amounting to approximately $9.5 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 were reviewed and, where required,
detailed plans were developed and implemented to permit our computer systems and
services to continue to function properly in the year 2000. Where necessary,
these plans involved a combination of software modification, upgrades and
replacement. We 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.
To develop contingency plans with respect to the year 2000 problem, we
analyzed potential operational risks that could lead to the interruption of
critical service functions and installed preventive and remedial measures, such
as alternative sources of power generation.
Ensuring that our equipment and operational systems are year 2000 compliant
increased costs in 1999. To date, we have incurred approximately $2.3 million of
costs related to the year 2000 problem. Most of these costs were incurred with
respect to IMPSAT Argentina ($1.0 million) and IMPSAT Colombia ($1.0 million),
our largest operating subsidiaries.
We continue to 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. 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 cannot assure you
that the systems of our customers and suppliers will continue to be year 2000
compliant. We could be adversely affected by the year 2000 problem if we or our
suppliers, customers and other businesses have not addressed this issue
successfully.
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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. According to industry sources, 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 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, minutes of outgoing
telecommunications traffic (MTT) and MTT per capita for 1998 for the countries
indicated, according to industry sources:
<TABLE>
<CAPTION>
POPULATION OUTGOING OUTGOING
COUNTRY OF OPERATION (MILLIONS) GDP/CAPITA MTT (MILLIONS) MTT/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 2,177 5.9
===== ------ ===== ---
</TABLE>
- ---------------
(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 Telecommunications Services to
demonopolize their telecommunications industry within varying time frames that
began in February 1998.
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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 began demonopolization of the
sector beginning in November 1999 and granted two new licenses that became
operative starting at that time and several others that will be operative in
November 2000. We have been granted one of the licenses that 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 November 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, according to industry
sources. In Latin America, growth in revenues derived from these services is
expected to accelerate and achieve compounded annual growth of approximately 30%
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 or
cost efficient operations.
- 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 connections will increase and their
adoption of bandwidth intensive applications is likely to accelerate.
- 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 digital
subscriber line, or DSL, 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. 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
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Internet hosts based in the Latin American markets in which we operate
increased from approximately 7,500 to over 340,000.
The Latin American projections that we cite in this prospectus were
published in the last half of 1998 when Latin America was generally in
recession. 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 are broadly indicative of what can be expected to
occur in Latin America.
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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
698 route kilometers and we are constructing an additional 1,351 route
kilometers to close the ring between Cali and Bogota to extend this network to
reach Barranquilla. By December 2000, we expect to have built out our Broadband
Network to connect major cities across Argentina and Brazil.
IMPSAT Fiber Networks, Inc. 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 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. We have recently opened offices in Chile and Peru and
plan to commence commercial operations in those countries in the future. In
January 2000, we changed our company's name from IMPSAT Corporation to IMPSAT
Fiber Networks, Inc. and on February 4, 2000 we completed the initial public
offering of our common stock and the British Telecommunications private
placement.
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 with numerous large, multinational
corporations, including YPF/Repsol, Citibank, Royal Dutch Shell,
SmithKline Beecham, Siemens, American Express and HSBC, as well
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<PAGE> 45
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 1,745 in 1999. 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.
- 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. These regulatory
processes are time-consuming and we believe we are ahead of competitors
who are seeking to construct and operate similar networks. 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. The Morgan Stanley investors own approximately 16.3%
and British Telecommunications owns approximately 19.2% of our common
stock. We believe that the ongoing sponsorship of these investors
provides us with beneficial strategic advantages as we expand our market
presence.
We also believe that we have distinguished ourselves from our competitors
through our proven historical operating performance. From 1992 to 1999:
- our business customer base grew from 125 customers in two countries to
1,745 customers in seven countries
- property, plant and equipment grew from $47.9 million to $310.3 million
- total consolidated revenues grew from $20.5 million to $228.5 million
- EBITDA grew from $7.9 million to $33.9 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 for our corporate and carrier's carrier customers. 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.
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<PAGE> 46
- PROVIDING END-TO-END SEAMLESS SOLUTIONS OVER OUR OWN NETWORK
INFRASTRUCTURE TO ASSURE QUALITY. Since our inception, we have provided
our services on an end-to-end basis over our networks to ensure quality
control at both ends and maintain a high level of customer service. We
seek to continue this operational strategy in the development of our
Broadband Network, where we will provide both long-haul services and
last-mile connections through fiber optic and wireless connections. We
have obtained wireless spectrum in Argentina, Colombia, Venezuela and
Peru for this purpose.
- 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 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 30%, 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 connections
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, over time
- 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
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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
the long-haul segments of our Broadband Network will have the capacity to
transmit up to 5.7 terabits per second.
Coverage. By December 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 1,800 route kilometers 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 1,586 route kilometers 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 185 route kilometers of fiber optic metropolitan area
backbone and local rings, as well as 3,992 square kilometers of wireless
coverage, across Buenos Aires, Rosario, Cordoba, La Plata and Mendoza in
Argentina
- approximately 501 route kilometers of fiber optic metropolitan area
backbone and local rings, as well as 1,489 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 698 route kilometers,
and we are constructing an additional 1,351 route kilometers to close the ring
between Cali and Bogota and to extend this network to reach Barranquilla.
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
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- preparation of network maintenance and operations plans and procedures
On October 25, 1999 we signed agreements with Nortel to borrow up to $297
million from Nortel to finance this project and to purchase related equipment
from Nortel. In the future, we may reduce Nortel's commitments under the vendor
financing agreements. We have completed the installation of more than 95% of the
necessary ducts between Buenos Aires and Rosario in Argentina and are continuing
the development of the long-haul and metropolitan area rings in Argentina and
Brazil.
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 expect to 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 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 368 route
kilometers between Las Toninas and Buenos Aires, Argentina and over 464
route kilometers 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 and Peru 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.
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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 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 connections 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.
- Connection 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 connection 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. During this year, 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:
- Backbone Internet Services. We provide a complete Internet service for
ISPs, including managed line provisioning for domestic and international
backbone connections 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. During this year, 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 connections 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.
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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 have a
license to provide these services in Argentina starting in November 2000 and
expect to be able 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 December 31, 1999, we had 4,140 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 December 31, 1999,
we had a total of 1,292 Minidat microstations installed. Certain of our VSAT
microstations and related technology are supplied to us by Hughes Network
Systems.
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
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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 December 31, 1999,
we had a total of 1,107 Dataplus earth stations and 375 Interplus earth stations
installed.
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.
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 December 31, 1999, there were a total of 7,875 connections
in service in our metropolitan area networks. At that date, we had 137 route
kilometers installed in our owned metropolitan area networks. In addition, we
manage and operate a fiber optic network covering 352 route kilometers 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.
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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 December 31, 1999, we had installed 382 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 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. We expect to purchase 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 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
fourth 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 December 31, 1999, we had a total
available leased capacity of 801 MHz, 760 MHz of which we are using in the
following manner:
- a total of 396.7 MHz of leased capacity on seven Intelsat satellites,
various amounts of which are scheduled to expire between May 2000 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 39.9 MHz,
which expires in 2009
- 68.8 MHz of capacity on Brasilsat, which expires in 2002
- 115.2 MHz of capacity on Nahuelsat's Nahuel-1 satellite, which expires
between January 2002 and August 2003
- 64.4 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)
- 69.8 MHz of capacity on PanAmSat's PAS-5 satellite, which expires between
the end of 2003 and January 2009
- 5.2 MHz of capacity on Mexico's Solidaridad-II satellite, which expires
in December 2002
Our lease payments for satellite capacity totaled approximately $34.6
million in 1999.
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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 1,745 corporate customers in seven countries
at December 31, 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 Colombia, a significant number of our customers,
including our largest customers, are located in those two countries. As our
business matures and as we commence the operation of the Broadband Network, we
expect that the average size of our customers will decline.
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 17.1% of our revenues in 1999 and approximately 17.3% in 1998.
Our ten largest customers as of December 31, 1999 were:
- the Government of the Province of Buenos Aires
- Banco de la Nacion Argentina, or BNA, a state-owned bank and the largest
bank in Argentina, with over 500 branches throughout Argentina
- YPF/Repsol, an integrated oil company that is one of the largest
companies in Argentina
- Corporacion Nacional de Ahorro y Vivienda, or Conavi, one of Colombia's
largest financial institutions
- the Government of the Province of Mendoza
- Banco Cafetero Bancafe, a large Colombian state-owned financial
institution
- Perez Companc S.A., an Argentine energy conglomerate
- Banco de Galicia y Buenos Aires, a private bank with more than 180
branches in Argentina
- BanColombia S.A., a private bank headquartered in Bogota, Colombia and
the largest commercial bank in Colombia
- Banco Mercantil SAICA, one of Venezuela's largest commercial banks
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The following table shows our customer concentration by country as of the
dates indicated. Totals presented do not include customers from our Internet
service and fax, store and forward service.
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------------------
COUNTRY 1998 1999
------- ---------------- -------------------
(NUMBER OF CUSTOMERS AND
PERCENTAGE OF TOTAL)
<S> <C> <C> <C> <C>
Argentina................................................... 490 33.4% 687 39.3%
Colombia.................................................... 602 41.0 560 32.1
Venezuela................................................... 140 9.5 191 10.9
Ecuador..................................................... 134 9.1 149 8.5
Brazil...................................................... 48 3.4 90 5.2
Mexico...................................................... 28 1.9 31 1.8
USA......................................................... 25 1.7 37 2.2
----- ----- ----- -----
Total.................................................. 1,467 100.0% 1,745 100.0%
===== ===== ===== =====
</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.
Except in Brazil, 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 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, 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
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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
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.
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 and local data transmission providers. 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, a fixed wireless broadband services provider that is building a
network in metropolitan Buenos Aires and 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
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- NetStream, an established fiber optic network service provider that AT&T
recently acquired and 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 third category, major telecommunications carriers have indicated
their intention to enter the market 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. Also, AT&T announced in November 1999 that it planned to
form a new company, AT&T Latin America, by merging the operations of U.S.
telecommunications company, FirstCom Corp. and Brazil-based Netstream, which
companies AT&T recently agreed to acquire, and by acquiring Keytech LD, a local
exchange carrier that is licensed to offer wireless, high-speed internet and
other telecommunications services in Argentina. AT&T Latin America will have
assets in Argentina, Brazil, Chile, Colombia and Peru and is expected to expand
into Venezuela. 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 DSL 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 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, infrastructure to provide quality services to meet
those needs and capital.
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
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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 December 31, 1999, we employed a total of 1,107 persons, of whom 308
were employed by IMPSAT Argentina and 220 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 operate,
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. At December 31,
1999, we estimated that the net realizable value of the ENCOTESA receivables to
be zero and recorded an adjustment of $5.1 million on amounts due from
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ENCOTESA, see "Risk Factors -- Our earnings 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. IMPSAT Argentina has recorded an allowance for
100% of this amount. 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. 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. On February 8, 2000, we signed an agreement with IBM
de Argentina to settle our lawsuit against them. Pursuant to our settlement, IBM
de Argentina paid approximately $2.0 million.
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 100% 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 72 route kilometers of fiber.
In addition, IMPSAT Argentina operates a microwave link that provides
telecommunications services between Buenos Aires and Mendoza. At December 31,
1999, we had installed approximately 2,424 VSAT microstations and 504 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 December 31, 1999, IMPSAT Argentina had 687 customers. Financial
institution customers provided approximately 28.0% of IMPSAT Argentina's
revenues during 1999. The second largest sector of IMPSAT Argentina's customer
base consists of industrial and manufacturing companies, which represented
approximately 26.0% of its revenues during 1999. IMPSAT Argentina's largest
customers during 1999 included:
- Gobierno de la Provincia de Buenos Aires ([5.8]% of IMPSAT Argentina's
1999 revenues)
- BNA (5.4% of IMPSAT Argentina's 1999 revenues)
- YPF/Repsol (5.4% of IMPSAT Argentina's 1999 revenues)
- Gobierno de Mendoza (3.2% of IMPSAT Argentina's 1999 revenues)
Revenues from IMPSAT Argentina's top ten customers accounted for
approximately 30.6% of IMPSAT Argentina's revenues for 1999.
IMPSAT Argentina is a leader in data transmission services in Argentina and
estimates that in 1999 it had over a 30% market share based on revenues. Our
principal competitors in Argentina include Telecom Soluciones and Advance
Telecomunicaciones.
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In May 1999, IMPSAT Argentina entered into a distribution agreement and a
supply agreement with Concert Communications Sales Limited, 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 deregulation of local and long-distance
telephony markets commenced 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 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
telecommunications revenues.
IMPSAT COLOMBIA
IMPSAT Colombia began operations in December 1992. We hold a 100% equity
interest in IMPSAT Colombia. In January 2000, we exchanged 4,624,714 shares of
our common stock for a 24.6% minority interest in IMPSAT Colombia owned by
member companies of the Sindicato Antioqueno. 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
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premises, controls and monitors the network, provides technical support and
sells network services to customers. We also own and operate a 698 route
kilometer long-haul fiber optic network in Colombia connecting Bogota, Cali, and
Medellin, and we are constructing an additional 1,351 route kilometers to close
the ring between Cali and Bogota and to extend this network to reach
Barranquilla. 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 December
31, 1999, IMPSAT Colombia had approximately 724 VSAT microstations and 314
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 December 31, 1999, IMPSAT Colombia had 560 customers. Financial
institutions provided approximately 51.5% of IMPSAT Colombia's revenues for
1999. The second largest sector of IMPSAT Colombia's customer base is composed
of manufacturing companies (including oil companies) which provided
approximately 23.5% of IMPSAT Colombia's revenues for 1999. IMPSAT Colombia's
largest customers during 1999 included:
- BanColombia
- SECAB, the administrator of government funds for Colombia's National
Learning Service
- Concasa, a savings and loan corporation
- Conavi, one of Colombia's largest financial institutions and a member of
the Suramericana Group
- Banco de la Republica, the central bank of Colombia
- Banco Cafetero Bancafe
Revenues from IMPSAT Colombia's top ten customers accounted for
approximately 28.5% of IMPSAT Colombia's revenues for 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 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 $32.9 million. The revenues for 1999 from this contract
totalled approximately $0.5 million.
At December 31, 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 which recently was acquired by
Spain's Telefonica S.A.
- 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 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 1991, 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.
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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 100% equity
interest in IMPSAT Venezuela.
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 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 December 31, 1999 we had 804 VSAT microstations and 114 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 December 31, 1999, IMPSAT Venezuela had 191 customers. IMPSAT
Venezuela's largest customers are generally large national and multinational
corporations. IMPSAT Venezuela's largest customers during 1999 included:
- Banco Mercantil
- 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 27.5% of IMPSAT Venezuela's revenues for 1999.
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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. 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 25.5% market share in
data transmission services based on revenues during 1999. 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 Infrastructure.
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.
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 does not permit us to interconnect with CANTV
in connection with the transmission of voice.
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 1999, this stipulated portion of its gross revenues represented
approximately 44.9% 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 and Intelsat 805 satellites.
Our main teleport is located in Quito, Ecuador and we have a regional teleport
in Guayaquil.
At December 31, 1999, 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 28.0% for 1999.
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We believe that we are a leading provider of data transmission services in
Ecuador with a 49% market share based on revenues for 1999. 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.
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 telecommunications services between Latin America and North America in
February 1996.
IMPSAT USA operates owned teleports throughout 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 provides telecommunications services to international long-distance
carriers. As of December 31, 1999, IMPSAT USA was providing services to 37
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 5 locations in South America and ABN AMRO Bank
with links covering nine locations throughout Central and South America.
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 such as CMET (Chile), Metrocall
(Panama), T-Net (Venezuela), Netsys (Honduras) and Inter Red (Colombia).
As part of its telecommunications offerings, IMPSAT USA provides MCI Global
Resources, Inc. with circuits from Florida to MCI WorldCom customer locations in
Honduras and Colombia.
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IMPSAT USA expects intense competition in the market for international
private telecommunications services between the United States and Latin America.
This competition is expected to come primarily from 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.
As a provider of telecommunications between the United States and foreign
countries, IMPSAT USA is subject to the jurisdiction of the Federal
Communications Commission. The FCC has authorized IMPSAT USA to provide
facilities-based and resold international telecommunications services.
Currently, IMPSAT USA provides private telecommunications services which, among
other things, means that IMPSAT USA is exempt from most FCC regulation.
Although IMPSAT USA currently does not operate as a common carrier, it is
still subject to FCC regulations governing universal service. The FCC's
universal service rules generally require a provider of interstate
telecommunications to contribute a certain percentage, historically
approximately 5%, of its interstate and international end user revenue to the
universal service programs. Historically, IMPSAT USA has not contributed to the
universal service program because it did not provide any interstate
telecommunications. IMPSAT USA may be required to contribute to the universal
service program in the future, under current FCC rules, if IMPSAT USA's end user
revenues for interstate services exceed 8% of its end user revenues from
interstate and international services.
The FCC is responsible for licensing all radio communications, including
satellite-based radio transmissions, to, from and within the United States.
IMPSAT USA holds non-common carrier earth station licenses and is therefore
subject to FCC regulations governing their operation. Recently, the FCC has
granted earth station operators, such as IMPSAT USA, the right to obtain direct
access to the Intelsat satellite system, a multilateral treaty-based system,
instead of having to obtain access through COMSAT, the U.S. signatory to the
Intelsat treaty. IMPSAT USA has requested the right to obtain direct access to
Intelsat, which should make it less expensive for IMPSAT USA to access Intelsat
services.
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.
We provide our portfolio of services using leased satellite capacity. 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 other Brazilian cities. Our operations in Brazil use the
C-bands and Ku-bands on Brazilsat, PanAmSat, Intelsat and Nahuel satellites.
At December 31, 1999, IMPSAT Brazil had a total of 90 customers, including
Shell do Brasil S.A., Ericsson, YPF/Repsol, Mercedes Benz do Brasil, TV
Paranaense and Confederacao Nacional de Industrias.
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 were 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.
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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 that AT&T recently
acquired and that 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
- Telefonica, the regional fixed switch telephony operator for the state of
Sao Paulo
- Intelig Telefonica SA, a joint venture of France Telecom, Sprint and
National Grid, which holds a license to provide domestic and
international long-distance telephony and data services. Brazil's
telecommunications regulators have ordered Sprint to leave the joint
venture in connection with Sprint's pending merger with MCI WorldCom.
- Global One, a joint venture of Deutsche Telekom, France Telecom and
Sprint that provides international telecommunications services, focusing
on multinational companies. France Telecom has recently agreed to
purchase the interests of Sprint and Deutsche Telekom in Global One.
In March 1999, IMPSAT Brazil entered into a distribution agreement and a
supply agreement with Concert Communications Sales Limited 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, telecommunications services may
not be provided in Brazil without prior governmental authorization. In January
1998, ANATEL granted IMPSAT Brazil a ten-year license to sell corporate
telecommunications services (data, voice and video) using terrestrial and
satellite links to third parties and to provide circuits for use by other
telecommunication carriers. Additionally, in March 1999 IMPSAT Brazil was
authorized by ANATEL to lease satellite capacity directly from satellite
carriers.
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.
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As of December 31, 1999, IMPSAT Mexico had 31 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.
- 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 and
Internet 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.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
In accordance with our 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.
Our president and our other corporate executive 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 December 31, 1999. Executive officers of IMPSAT Fiber
Networks, Inc. are employees of IMPSAT Argentina.
<TABLE>
<CAPTION>
AGE
---
<S> <C> <C>
Enrique M. Pescarmona............... 58 Chairman of the Board
Ricardo A. Verdaguer................ 50 Director, President and Chief Executive Officer
Roberto A. Vivo..................... 46 Director, Deputy Chief Executive Officer
Alexander Rivelis................... 59 Director and Vice President, Carrier's Carrier
Lucas Pescarmona.................... 30 Director
Sofia Pescarmona.................... 26 Director
Stephen R. Munger................... 41 Director
Jeronimo Bosch...................... 28 Director
Geoffrey Almeida.................... 47 Director
John McElligott..................... 48 Director
Hector Alonso....................... 42 Chief Operating Officer
Guillermo Jofre..................... 44 Chief Financial Officer
Guillermo V. Pardo.................. 49 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, Internet
Jaime Vinocur....................... 53 Vice President, Project Execution
Rodolfo Arroyo...................... 41 Chief Information Officer
Marcelo Girotti..................... 35 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
Norberto Musante.................... 42 President of IMPSAT Ecuador
Mauricio G. Klau.................... 36 President of IMPSAT USA
Daniel V. Hourquescos............... 47 President of IMPSAT Brazil
</TABLE>
Our board of directors has been classified into three classes, which will
consist of, as nearly as practicable, an equal number of directors. Nominees for
director will be divided among the three classes upon their election or
appointment. The members of each class will serve staggered three-year terms:
- Mr. John McElligott, Mr. Lucas Pescarmona and Ms. Sofia Pescarmona have
been elected to serve until the annual stockholder meeting to be held in
2001
- Mr. Ricardo Verdaguer, Mr. Roberto Vivo, Mr. Alexander Rivelis and Mr.
Jeronimo Bosch have been elected to serve until the annual stockholder
meeting to be held in 2002
- Mr. Geoffrey Almeida, Mr. Stephen Munger and Mr. Enrique Pescarmona have
been elected to serve until the annual stockholder meeting to be held in
2003
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Upon the expiration of the initial term of a class, directors thereafter
elected to that class shall hold office for a term of three years.
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 is also a Director of El Sitio, Inc.
Roberto A. 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 Argentine company engaged in public construction
projects.
Alexander Rivelis has been Vice President of Carrier's Carrier and a member
of our 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 Pescarmona, a son of Enrique M. Pescarmona, has been a member of our
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 Mercantil Andina.
Sofia Pescarmona, a daughter of Enrique M. Pescarmona, has been a member of
our board of directors since February 1996. Ms. Pescarmona is currently
assistant to the Chief Executive Officer of IMPSAT Fiber Networks, Inc. From
August 1994 to December 1997, Ms. Pescarmona held several positions in IMPSAT,
including in the Internet unit and marketing department of IMPSAT Fiber
Networks, Inc. and the sales department of IMPSAT Argentina. Ms. Pescarmona has
been a member of the board of directors of El Sitio since October 1999.
Stephen R. Munger has been a member of 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 Co-Chairman of the investment committee 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 TVN
Entertainment Corp. since December 1997.
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, 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 Bharti Cellular Limited,
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Maxis Berhad, BT INTERKOM Verwaltungs GmbH, BT Communications Services KK and
Southgate Development Limited.
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
1995, 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, Internet 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.
Rodolfo Arroyo has been our Chief Information Officer since February 2000.
Before that, Mr. Arroyo was 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.
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.
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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.
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 Fiduciaria Bolsa de Medellin
S.A., a trust company, from 1991 to 1993 and as Vice President of International
and Special Business at Fiduciaria Suramericana y BIC S.A., another trust
company, 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.
Norberto D. Musante has been President of IMPSAT Ecuador since February
2000 after joining IMPSAT Ecuador as Operational General Manager in July 1997.
From February 1990 until July 1997, Mr. Musante was employed in several
different capacities at IMPSAT Argentina including Operational Manager from 1994
until 1995 and Vice President, Operations from 1995 until 1997.
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. Hourquescos has held several positions in IMPSAT, including
General Manager of IMPSAT Argentina from March 1993 to April 1995.
COMMITTEES OF THE BOARD OF DIRECTORS
On December 21, 1998, we established a stock option committee. The stock
option committee was responsible for the granting of stock options, incentives
and other forms of compensation to eligible persons under our 1998 stock option
plan.
In January 2000, we established 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 recommends policies relating to our benefit
plans. In this regard, the compensation committee replaces and assumes the
functions of the stock option committee. The compensation committee is currently
constituted by Mr. Enrique Pescarmona, Mr. Stephen Munger and Mr. John
McElligott. The audit committee, composed of a majority of non-employee
directors, oversees the engagement of our independent auditors and, together
with our independent auditors, will review our accounting practices, internal
accounting controls and financial results. The audit committee is currently
constituted by Mr. Geoffrey Almeida, Mr. Stephen Munger and Mr. Jeronimo Bosch.
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 our directors
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
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by us to these executive officers during 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.................... 1999 $353,745 $240,000(1) 47,362 --
Chairman of the Board 1998 355,315 200,000(2) 59,202 --
1997 310,495 -- -- --
Ricardo A. Verdaguer..................... 1999 449,800 300,000(1) 47,362 --
President and Chief Executive Officer 1998 426,603 250,000(2) 59,202 --
1997 240,500 -- -- --
Roberto Vivo............................. 1999 360,100 240,000(1) 37,890 --
Director, Deputy Chief Executive
Officer 1998 341,110 200,000(2) 47,362 --
and Vice President, Marketing 1997 198,250 -- -- --
Hector Alonso............................ 1999 260,000 150,000(1) 27,470 --
Chief Operating Officer 1998 250,287 150,000(2) 34,337 --
1997 134,680 -- -- --
Daniel Hourquescos....................... 1999 296,011 74,100(1) 15,156 $71,954(3)
President of IMPSAT Brazil 1998 240,500 -- 18,945 --
1997 210,600 -- -- --
</TABLE>
- ---------------
(1) This amount represents bonuses we paid to the executive officers named in
the table above in December 1999. This amount relates to our 1998 operating
results.
(2) This amount represents bonuses we paid to the officers named in the table
above in December 1998. This amount related to 1997 operating results.
(3) Annual housing allowance.
STOCK OPTION GRANTS
The following table shows information regarding grants of options to
purchase our common stock made by us during 1999 to each of the executive
officers named in the summary compensation table above. We granted no stock
appreciation rights during 1999. No stock options were exercised by the
executive officers named in the summary compensation table above during 1999.
We computed potential realizable values by first multiplying the number of
shares of common stock subject to a given option by the option exercise price to
determine the initial aggregate stock value. We then assumed that the initial
aggregate stock value compounds at an annual 5% or 10% rate shown in the table
for the entire ten-year term of the option to determine the final aggregate
stock value. Finally, we subtracted from the final aggregate stock value the
initial aggregate stock value to determine the potential realizable value. The
5% and 10% assumed annual rates of stock appreciation are mandated by the rules
of the SEC and do not reflect our estimate or projection of future stock price
growth. Actual gains, if any, on stock option exercises depend upon the actual
future price of common stock and the continued employment of the option holders
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throughout the vesting period. Accordingly, the potential realizable values
listed in this table may not be achieved.
<TABLE>
<CAPTION>
PERCENT POTENTIAL REALIZABLE
OF TOTAL VALUE AT ASSUMED
NUMBER OF OPTIONS ANNUAL RATES OF STOCK
SECURITIES GRANTED PRICE APPRECIATION
UNDERLYING TO EXERCISE FOR OPTION TERM
OPTIONS EMPLOYEES PRICE EXPIRATION ---------------------
NAME GRANTED(1) IN 1999 ($/SHARE) DATE (5%) (10%)
---- ---------- --------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Enrique M. Pescarmona............ 47,362 12.0% $10.47 6/25/07 $238,022 $565,303
Ricardo A. Verdaguer............. 47,362 12.0 10.47 6/25/07 238,022 565,303
Roberto Vivo..................... 37,890 9.6 10.47 6/25/07 190,420 452,247
Hector Alonso.................... 27,470 7.0 10.47 6/25/07 138,053 327,876
Daniel Hourquescos............... 15,156 3.9 10.47 6/25/07 76,168 180,899
</TABLE>
- ---------------
(1) Options granted in 1999 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, 2007, unless sooner terminated under the
terms of the stock option plan.
(2) Subject to earlier expiration, upon the occurrence of certain events, as
provided in the stock option plan.
AGGREGATE OPTION EXERCISES DURING 1999 AND OPTION VALUES ON DECEMBER 31, 1999
We have not included information on option exercises in 1999 by the
executive officers named in the summary compensation table above or the value of
those officers' unexercised options as of December 31, 1999, because there was
no public market for our common stock in 1999.
STOCK OPTION PLANS
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 1998 stock option plan is included as Exhibit 10.1 to our
1998 Annual Report on Form 10-K filed with the SEC. The total number of shares
of our common stock for which options may be granted pursuant to the 1998 stock
option plan is 4,776,016, subject to certain adjustments reflecting changes in
our capitalization. The 1998 stock option plan is currently administered by our
compensation committee constituted by non-employee directors. The compensation
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 1998 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 compensation committee.
The exercise price of incentive and non-qualified stock options is
determined by the compensation 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 compensation 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 1998 stock option plan. Payment of the option price may also be made
by delivery to us, on a form prescribed by the compensation committee, of a
properly executed exercise notice and irrevocable instructions to a registered
securities broker approved by the compensation committee to sell the shares of
common stock held by the optionee and promptly deliver cash to us. Options
granted pursuant to the 1998 stock option plan are not transferable, except by
will or the laws of descent and distribution in the event of death. During an
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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 1998 stock option plan, after which no option may be
granted thereunder, is October 1, 2008.
1999 Stock Option Plan. On January 5, 2000, IMPSAT's board of directors
adopted the 1999 stock option plan, which provides for the grants to our key
officers and employees of stock options that are non-qualified for U.S. federal
income tax purposes. A copy of the 1999 stock option plan is filed as an exhibit
to the registration statement relating to the initial public offering of our
common stock. The terms of the 1999 stock option plan are otherwise identical to
those of the 1998 stock option plan except that:
- The total number of shares of our common stock for which options may be
and were granted pursuant to the stock option plan is 355,214
- The exercise price is $1.69 per share of common stock
- Ten percent, twenty percent, thirty percent and forty percent of the
options granted vest on the fourth, fifth, sixth and seventh
anniversaries, respectively, of the date of grant or upon a change of
control of our company
- The expiration date of the 1999 stock option plan is January 5, 2010
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Stephen Munger, who is a member of our board of directors and a member
of our compensation committee and our audit committee, is the Co-Chairman of the
Investment Committee of Princes Gate. Princes Gate is an affiliate of Morgan
Stanley & Co. Incorporated. In 1999, we paid commissions to Morgan Stanley in
connection with our private placement of shares of our common stock to Nunsgate
Limited. In addition, Morgan Stanley was the lead underwriter in our recent
initial public offering. The Morgan Stanley investors own 14,917,915 shares of
our common stock.
Mr. Roberto Vivo, who is our Deputy Chief Executive Officer, is a member of
the compensation committee of the board of directors of El Sitio.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
OVERVIEW
In the normal course of business, we provide private telecommunications
network services to companies in which the following persons 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
- we have an approximately 15.3% equity interest
- affiliates of Mr. Roberto Vivo and Mr. Ricardo Verdaguer have equity
interests
- Mr. Roberto Vivo is Chairman of the board of directors and a member
of its compensation committee
- Mr. Ricardo Verdaguer and Ms. Sofia Pescarmona are directors
- affiliates of the Suramericana Group
Total telecommunications services provided by us during 1999 to:
- companies in which CORIM or members of the Pescarmona family have an
interest totaled approximately $1.0 million
- El Sitio subsidiaries totaled approximately $281,000
- companies affiliated with the Suramericana Group totaled approximately
$9.7 million
The following is a description of our most significant transactions with
entities affiliated with CORIM, the Suramericana Group and El Sitio during 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
Our company 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 1999 totaled approximately $315,000. During the same period, IMPSA
provided services to IMPSAT Argentina totaling approximately $56,000.
- 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 1999 totaled approximately $69,000.
- 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 1999 totaled approximately $453,000. 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 $338,000.
- Puerto Seco, S.A., a company controlled by CORIM and IMPSA that produces
wire harnesses for automobile electrical systems and coil springs for
automobile suspension systems in Argentina and Brazil. Telecommunications
services provided to Puerto Seco during 1999 equaled $69,000.
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- Lagarde S.A., a company owned by members of the Pescarmona family that
owns and operates a winery in the Mendoza area of Argentina.
Telecommunications services provided to Lagarde S.A. for 1999 equaled
$45,000. In addition, Lagarde S.A. provided wine products to IMPSAT
Argentina totaling approximately $115,000 during 1999.
SURAMERICANA GROUP
Representatives of the Suramericana Group serve as directors of IMPSAT
Colombia and IMPSAT Venezuela. During 1999, the total dollar amount of
telecommunications services rendered to the Suramericana Group totaled
approximately $9.7 million, the most significant of which were as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Suramericana de Seguros (insurance)......................... $ 555,000
Corporacion Financiera Nacional y Suramericana S.A.
(Corfinsura) (finance).................................... 188,000
Susalud (health services)................................... 82,000
Sufinanciamiento (finance).................................. 171,000
Proteccion (pension fund)................................... 332,000
Suleasing (finance)......................................... 89,000
Corporacion Nacional de Ahorro y Vivienda (finance)......... 4,057,000
Suvalor (insurance)......................................... 124,000
Industrias Noel (food products)............................. 423,000
Acerias Paz del Rio (steel works)........................... 102,000
Almacenes Exito (food products)............................. 162,000
BanColombia (finance)....................................... 2,359,000
</TABLE>
During 1999, IMPSAT Venezuela provided telecommunications services to
Cadena de Tiendas Venezolanas S.A., which totaled approximately $827,000.
Corfinsura and BanColombia are creditors of IMPSAT Colombia. As of December
31, 1999, IMPSAT Colombia was indebted to Corfinsura in the amount of
approximately $7.0 million and to BanColombia in the amount of approximately
$12.1 million. The total interest paid for 1999 was approximately $5.2 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 $409,000 in 1999.
Certain other companies within the Suramericana Group, including Suleasing,
provide financial leasing services to IMPSAT Colombia. Our total indebtedness to
Suleasing as of December 31, 1999 was approximately $8.4 million and the total
interest paid in 1999 was approximately $632,000.
Other payments made by IMPSAT Colombia to companies of Suramericana Group
in 1999 included: payments of approximately $352,000 to Proteccion for pension
fund services; total payments to Susalud of approximately $128,000 for health
benefit services, and payments of approximately $298,000 to Sodexho Pass for
employee luncheon services.
EL SITIO
We provide telecommunications services to El Sitio, Inc. During 1999, the
total value of telecommunications services we rendered to El Sitio was
approximately $281,000. During the same period, El Sitio charged us $164,928 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. In connection with
these transactions, El Sitio has entered into telecommunications services
agreements under which our subsidiaries 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
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operations in Brazil, Mexico, Uruguay and the United States. The Brazil
transaction contemplated by the El Sitio Framework Agreement was consummated on
October 6, 1999 and the Argentina transaction was concluded on November 5, 1999.
We anticipate that the Colombia transaction will close during April 2000. Upon
the consummation of El Sitio's initial public offering in December 1999, our
shares of El Sitio's preferred stock were automatically converted into 15.4% of
El Sitio's common stock.
MORGAN STANLEY INVESTORS
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 Morgan Stanley investors exercised their rights to convert 19,848
shares of our preferred stock into 14,917,915 shares of our common stock upon
the closing of our initial public offering on February 4, 2000. No shares of our
preferred stock are outstanding. Some of the principal rights the Morgan Stanley
investors 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
- 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
We paid commissions to Morgan Stanley of $4.0 million in 1999 in connection
with the sale of shares of our common stock to Nunsgate Limited in April 1999.
See "-- British Telecommunications."
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 11,934,332 newly issued shares of our common stock
to Nunsgate Limited for $125 million, and Nevasa Holdings agreed to sell
2,386,867 shares of our common stock to Nunsgate Limited for $25 million. These
transactions were consummated on April 19, 1999. On February 4, 2000, Nunsgate
Limited purchased from us an additional 2,850,000 shares of our common stock in
a private placement to maintain its approximate ownership share in us after our
initial public offering.
We are a party to a shareholders agreement with Nevasa Holdings and
Nunsgate Limited dated as of March 10, 1999, a copy of which has been filed as
an exhibit to the registration statement relating to the initial public offering
of our common stock. Pursuant to the terms of this shareholders agreement, as
long as Nunsgate Limited owns 15% of our outstanding common stock (as determined
on a fully-diluted basis) and subject to certain conditions, Nunsgate Limited
has the right to nominate two members of our board of directors. Nevasa Holdings
has agreed to vote for the two Nunsgate Limited nominees to our board of
directors so long as Nunsgate Limited owns 15% of our outstanding common stock.
As long as Nunsgate Limited owns 10% of our outstanding common stock (as
determined on a fully-diluted basis) and subject to certain conditions, Nunsgate
Limited 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 Nunsgate Limited owns 5% of our outstanding common stock (as
determined on a fully-diluted basis), Nunsgate Limited 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
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- include common stock held by Nunsgate Limited in a public offering of our
common stock registered under the Securities Act, subject to certain
conditions
- nominate one member to our board of directors and to have Nevasa Holdings
vote for that nominee
Nunsgate Limited has agreed to vote for Nevasa Holdings' nominees to our
board of directors for so long as Nevasa Holdings is obligated to vote for
Nunsgate Limited's nominees to our board of directors.
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.
Senior Notes. 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 semiannually 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
semiannually 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
Vendor Financing. On October 25, 1999, each of IMPSAT Argentina and IMPSAT
Brazil signed definitive agreements with Nortel to borrow up to approximately
$149.1 million and $148.3 million, respectively, of long-term vendor financing.
This vendor financing, which will be disbursed over a two-year period with final
maturity in 2006, will be used by us to finance Nortel's construction of the
segments of the Broadband Network in each of Argentina and Brazil. We have
borrowed a total of $46.2 million from Nortel and have unused commitments of
$251 million under these agreements. We may reduce our commitments from Nortel
under these agreements in the future.
Subject to mandatory or optional prepayment under the terms of the vendor
financing, principal amounts borrowed by us will be repayable over the last five
years of a seven-year period beginning on October 25, 2001, and will bear
interest at LIBOR (or, under certain circumstances, prime rate) plus an
applicable margin, commencing on the first disbursement date. The vendor
financing is not revolving. Any amounts that are repaid or prepaid by us may not
be reborrowed.
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To secure repayment of disbursements under the vendor financing, we have
granted Nortel a first priority security interest over equipment, infrastructure
and other assets related to the Broadband Network and to be acquired by us with
the proceeds of the vendor financing. In addition, we have agreed to guarantee
the obligations of each of IMPSAT Argentina and IMPSAT Brazil under the vendor
financing agreements.
If we sell or otherwise dispose of or suffer material losses with respect
to the property comprising Nortel's security under the financing and fail to
reinvest the proceeds within the time specified, then such proceeds must be used
to prepay the loans under the vendor financing. We are also mandated to prepay
amounts borrowed under the vendor financing if we make voluntary or mandatory
prepayments under the indentures under which our notes are issued. In addition,
under certain circumstances, we are obligated to apply the proceeds of certain
sales of debt securities towards prepayments of the vendor financing. We are
permitted to make voluntary prepayments of amounts borrowed under the vendor
financing.
The making of each disbursement under the vendor financing will be subject
to our satisfaction of several ongoing conditions. The vendor financing
agreements also contain a number of covenants that, among other things, limit
our ability to:
- incur additional indebtedness
- create liens and other encumbrances
- sell or otherwise dispose of assets
- make acquisitions, investments, loans and advances
- merge or consolidate with another entity
- engage in any business other than the telecommunications business
- make distributions to our stockholders
- enter into transactions with affiliates
In addition, the vendor financing will require ongoing compliance by IMPSAT
Argentina and IMPSAT Brazil with certain financial and operating covenants,
including, without limitation, the maintenance of specified ratios of debt to
total capitalization, total debt to EBITDA, EBITDA to interest expense and
capital expenditure limitations.
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PRINCIPAL STOCKHOLDERS
The following table and the accompanying notes show certain information
concerning the beneficial ownership of our capital stock as of February 28, 2000
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.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
--------------------
OWNED
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT
------------------------------------ ---------- -------
<S> <C> <C>
Common Stock
Beneficial Owners of more than 5%
Nevasa Holdings Ltd.(1)..................................... 42,366,878 46.3%
Princes Gate Investors II, L.P.(2).......................... 11,934,332 13.1
Morgan Stanley Global Emerging Markets Private Investment
Fund, L.P.(3)............................................. 2,983,583 3.3
Nunsgate Limited(4)......................................... 17,571,198 19.8
Suramericana Group(5)....................................... 4,624,714 5.1
Directors and Executive Officers (1)
Enrique M. Pescarmona(1)(6)................................. 42,378,598 46.3
Ricardo A. Verdaguer(1)(7).................................. 11,720 *
Roberto A. Vivo(1)(8)....................................... 10,536 *
Alexander Rivelis(1)(9)..................................... 15,895 *
Sofia Pescarmona............................................ 700 *
Geoffrey Almeida(4)......................................... 1,200 *
John McElligott(4).......................................... 1,200 *
Hector Alonso(10)........................................... 7,534 *
Daniel Hourquescos(11)...................................... 3,495 *
All Directors and Officers as a Group (24 persons)(1)(12)... 42,558,086 46.6%
</TABLE>
- ---------------
(*) Less than 1%.
(1) Nevasa Holdings is owned by CORIM, Militello Ltd. and Rotling International
Corporation. The business address of Nevasa Holdings is Vanderpool Plaza,
Wickham Cay I, Road Town, Tortola, British Virgin Islands.
- 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.
The business address of our executive officers and directors is c/o IMPSAT
Fiber Networks, Inc., Alferez Pareja 256, 1107 Buenos Aires, Argentina,
unless otherwise noted herein.
(2) These are shares of common stock owned by Princes Gate and affiliates of
Princes Gate over which Princes Gate has sole voting 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 Co-Chairman
of the Investment Committee of Princes Gate and a member of our board of
directors, disclaims voting or dispositive power over the shares of our
common stock owned by Princes Gate and its affiliates.
(3) These are shares of common stock on December 31, 1999, owned by MSGEM and
Morgan Stanley Global Emerging Markets Private Investors, L.P. over which
MSGEM has sole voting power. The business address of each of these persons
is c/o Morgan
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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 a member of
our board of directors, disclaims voting or dispositive power over the
shares of our common stock owned by MSGEM.
(4) The business address of Nunsgate Limited is Queen Victoria Street, Queen
Victoria House, Douglas Im12lS, Isle of Man. Mr. John McElligott and Mr.
Geoffrey Almeida, each of whom is an officer of British Telecommunications
and a designee of Nunsgate Limited to our board of directors, disclaim
voting or dispositive power over the shares of our common stock owned by
Nunsgate Limited.
(5) The Suramericana Group includes Portafolio de Inversiones Suramericana,
Compania Suramericana de Inversiones Inmobiliarias y Avaluos, Suramericana
de Inversiones and Compania Suramericana de Construcciones, the investment
and construction arms of the Sindicato Antioqueno, which was formed in
Medellin, Colombia in the mid-1970s, and is a group of over 100 companies
related through cross-ownerships and interlocking directorates. The
business address of the Suramericana Group is Carrera 64B # 49A30,
Medellin, Colombia.
(6) Includes 42,366,273 shares of common stock owned by Nevasa Holdings, of
which Mr. Pescarmona may be deemed to be the beneficial owner, and 5,920
shares of common stock issuable under options that are presently
exercisable.
(7) Includes 5,920 shares of common stock issuable under options that are
presently exercisable.
(8) Includes 4,736 shares of common stock issuable under options that are
presently exercisable.
(9) Includes 1,895 shares of common stock issuable under options that are
presently exercisable.
(10) Includes 3,434 shares of common stock issuable under options that are
presently exercisable.
(11) Includes 1,895 shares of common stock issuable under options that are
presently exercisable.
(12) Includes 39,429 shares of common stock issuable under options that are
presently exercisable.
THE EXCHANGE OFFER
On February 16, 2000 we sold $300 million in principal amount of the old
notes in a private placement through Morgan Stanley & Co. Incorporated, as
representative of the initial purchasers, to a limited number of institutional
investors. In connection with the sale of the old notes, we entered into a
registration rights agreement with Morgan Stanley & Co. Incorporated, dated as
of February 16, 2000. Under that agreement, we must, among other things, use our
best efforts to file with the Commission a registration statement under the
Securities Act of 1933 covering the exchange offer and to cause the registration
statement to become effective under the Securities Act of 1933. Upon the
effectiveness of the registration statement, we must also offer each holder of
the old notes the opportunity to exchange their old notes for an equal principal
amount of new notes. The new notes will be issued without a restrictive legend
and may be reoffered and resold by the holders of the new notes without
restrictions or limitations under the Securities Act of 1933. We are making the
exchange offer to comply with our obligations under the registration rights
agreement. A copy of the registration rights agreement has been filed as an
exhibit to the registration statement of which this prospectus is a part. You
are a holder with respect to the exchange offer if you are a person in whose
name any old notes are registered on our books or if you have obtained a
properly completed assignment of old notes from a registered holder.
Upon the terms and subject to the conditions set forth in this prospectus
and in the letter of transmittal, we will accept any and all old notes validly
tendered and not withdrawn prior to 5:00 p.m., New York City time, on the day
the exchange offer expires. The expiration date is 5:00 p.m., New York City time
on [ ], 2000, unless we extend the exchange offer, in which case, the expiration
date will be the latest date and time to which the exchange offer is extended.
As of the date of this prospectus, $300 million in principal amount of the
notes are outstanding. This prospectus, together with the letter of transmittal,
is being sent to all registered holders of the old notes known to us on this
date. Our obligation to accept old notes for exchange pursuant to the exchange
offer is subject to certain customary conditions described below under
" -- Certain Conditions to Exchange Offer".
We may, in our sole discretion, extend the expiration date of the exchange
offer, and thereby delay acceptance of any old notes for exchange, by giving
oral or written notice of such extension to the holders of the old notes. During
any such extension, all old notes previously tendered will remain subject to the
exchange offer and may be accepted for exchange by us. Any old notes not
accepted for exchange for any reason will be returned without expense to the
tendering holder of the old notes as promptly as practicable after the
expiration or termination of the exchange offer.
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Old notes you tender in the exchange offer must be in denominations of
principal amount of $1,000 or any integral multiple thereof.
We expressly reserve the right to amend or terminate the exchange offer,
and not to accept for exchange any old notes not previously accepted for
exchange, upon the occurrence of any of the conditions of the exchange offer
specified below under "-- Certain Conditions to the Exchange Offer." We will
give oral or written notice of any extension, amendment, non-acceptance or
termination to the holders of the old notes as promptly as practicable. We will
give you notice of any extension of the expiration date by means of a press
release or other public announcement no later than 9:00 a.m., New York City
time, on the next business day after the previously scheduled expiration date.
PROCEDURES FOR TENDERING OLD NOTES
Only a registered holder of old notes may tender such old notes in the
exchange offer. If you tender your old notes and do not withdraw them prior to
the expiration date of the exchange offer, you will be deemed to have an
agreement with us in accordance with the terms and subject to the conditions set
forth in this prospectus and in the letter of transmittal.
To tender in the exchange offer, you must complete, sign and date an
original or facsimile letter of transmittal, have the signatures thereon
guaranteed if required by the letter of transmittal, and mail or otherwise
deliver the letter of transmittal to the exchange agent for receipt before the
expiration date of the exchange offer. In addition, either:
- the exchange agent must receive from you certificates for the old notes,
along with the letter of transmittal, on or before the expiration date or
- the exchange agent must receive, prior to the expiration date of the
exchange offer, a timely confirmation of transfer by book-entry of those
old notes into the exchange agent's account at The Depository Trust
Company, also known as DTC, as set forth in the procedure for book-entry
transfer described below, or
- you must comply with the guaranteed delivery procedures described below
The method of delivery of old notes and the letter of transmittal and all
other required documents to the exchange agent is at your risk. Instead of
delivery by mail, it is recommended that you use an overnight or hand delivery
service, properly insured. In all cases, you should allow sufficient time to
assure delivery to the exchange agent before the expiration date of the exchange
offer. Do not send the letter of transmittal or old notes to us.
If your old notes are registered in the name of a broker, dealer,
commercial bank, trust company, or other nominee and you wish to tender those
old notes, you should contact the registered holder promptly and instruct that
registered holder to tender the old notes on your behalf. If you wish to tender
your old notes on your own behalf, you must, prior to completing and executing
the letter of transmittal and delivering your old notes, either make appropriate
arrangements to register ownership of the old notes in your name or obtain a
properly completed assignment from the registered holder. The transfer of
registered ownership of old notes may take considerable time.
Signatures on a letter of transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an eligible institution unless the old notes
tendered are:
- by a registered holder of the old notes who has not completed the box
entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on the letter of transmittal
- for the account of an eligible institution
In the event that signatures on a letter of transmittal or a notice of
withdrawal, as the case may be, are required to be guaranteed, such guarantee
must be made by an eligible financial institution. An eligible
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institution, including most banks, savings and loan associations and brokerage
houses, is a financial institution that is a participant in the:
- Securities Transfer Agents Medallion Program, or
- New York Stock Exchange Medallion Program, or
- Stock Exchanges Medallion Program
If the letter of transmittal is signed by a person other than the
registered holder of any old notes, the old notes must be endorsed or
accompanied by a written instrument or instruments of transfer or exchange. The
written instrument should be in satisfactory form as shall be determined by us,
in our sole discretion, and:
- duly executed by the registered holder exactly as the name or names of
the registered holder or holders appear on the old notes
- with the signature thereon guaranteed by an eligible institution
We will determine all questions as to the validity, form, eligibility,
including time of receipt, acceptance of tendered old notes, and withdrawal of
tendered old notes, in our sole discretion. All of our determinations will be
final and binding. We reserve the absolute right to reject any old notes not
properly tendered or any old notes the acceptance of which would, in the opinion
of our counsel, be unlawful. We also reserve the right to waive any defects,
irregularities or conditions of tender as to particular old notes. Our
interpretation of the terms and conditions of the exchange offer, including the
instructions in the letter of transmittal, will be final and binding on all
parties. Unless waived, any defects or irregularities in connection with tenders
of old notes must be cured within the time we determine. Although we intend to
notify holders of old notes of defects or irregularities with respect to tenders
of old notes, neither we, nor the exchange agent, or any other person will incur
any liability for failure to give this notification.
If trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity sign the letter of transmittal or any of the old notes or bond power,
those persons should so indicate when signing, and evidence satisfactory to us
of their authority to so act must be submitted with the letter of transmittal,
unless we waive that requirement.
Based on a previous interpretation by the staff of the SEC set forth in
no-action letters to third parties, we believe that the new notes issued
pursuant to the exchange offer in exchange for old notes may be offered for
resale, resold, and otherwise transferred by a holder thereof, other than:
- a broker-dealer who purchases such new notes directly from us to resell
pursuant to Rule 144A or any other available exemption under the
Securities Act of 1933
- a person that is our affiliate (within the meaning of Rule 405 under the
Securities Act of 1933) without compliance with the registration and
prospectus delivery provisions of the Securities Act of 1933, provided
that the holder is acquiring the new notes in the ordinary course of its
business and is not participating, and has no arrangement or
understanding with any person to participate, in the distribution of the
new notes
By tendering, each holder will represent to us that, among other things,
the new notes acquired pursuant to the exchange offer are being obtained in the
ordinary course of its business, whether or not such person is the holder, and
that neither the holder nor such other person has any arrangement or
understanding with any person to participate in the distribution of the new
notes. You are our "affiliate", as defined under Rule 405 of the Securities Act
of 1933, if you are engaged in or intend to engage in, or have an arrangement or
understanding with any person to participate in, a distribution of the new
notes. If an affiliate, you or any such other person
- may not rely on the applicable interpretation of the staff of the SEC
- must comply with the registration and prospectus delivery requirements of
the Securities Act of 1933 in connection with any resale transaction
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In addition, each broker-dealer that receives new notes for its own account
in exchange for old notes, where such old notes were acquired by the
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus meeting the
requirements of the Securities Act of 1933 in connection with any resale of the
new notes. See "Plan of Distribution." The letter of transmittal states that by
so acknowledging and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act of 1933.
This prospectus, as it may be amended or supplemented from time to time,
may be used by a broker-dealer in connection with resales of new notes received
in exchange for old notes where such old notes were acquired by the
broker-dealer as a result of market-making activities or other trading
activities. We have agreed that, for a period of 180 days after the expiration
date, we will make this prospectus available to any broker-dealer for use in
connection with any such resale. See "Plan of Distribution".
To comply with the securities laws of certain jurisdictions, if applicable,
the new notes may not be offered or sold unless they have been registered or
qualified for sale in such jurisdictions or any exemption from registration or
qualification is available and is complied with. We have agreed, pursuant to the
registration rights agreement, subject to certain limitations specified therein,
to register or qualify the new notes for offer or sale under the securities laws
of such jurisdictions as any holder reasonably requests in writing. Unless a
holder so requests, we do not currently intend to register or qualify the sale
of the new notes in any such jurisdictions.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the exchange offer,
we will accept, promptly after the expiration date, all old notes properly
tendered and will issue the new notes promptly after acceptance of the old
notes. See "-- Certain Conditions to the Exchange Offer" below. For purposes of
the exchange offer, we will be deemed to have accepted properly tendered old
notes for exchange when, as and if we have given oral or written notice thereof
to the exchange agent.
The holder of each old note accepted for exchange will receive as set forth
below under "Description of the Notes -- Book-Entry, Delivery and Form" a new
note having a principal amount equal to that of the surrendered old note.
Accordingly, registered holders of new notes on the relevant record date for the
first interest payment date following the consummation of the exchange offer
will receive interest accruing from the most recent date to which interest has
been paid on the old notes or, if no interest has been paid, from February 15,
2000. Old notes accepted for exchange will cease to accrue interest from and
after the date of consummation of the exchange offer. You will not receive any
payment in respect of accrued interest on your old notes that are accepted for
exchange on any interest payment date the record date for which occurs on or
after consummation of the exchange offer. If the exchange offer is not
consummated and a Shelf Registration Statement is not declared effective on or
prior to August 16, 2000, the annual interest rate borne by the notes will be
increased to 14.25%. Upon consummation of the exchange offer or the
effectiveness of the Shelf Registration Statement, the interest rate on the
notes will revert to 13.75%. See "Description of the Notes -- Registration
Rights." Old notes not tendered or not accepted for exchange will continue to
accrue interest from and after the date of consummation of the exchange offer.
In all cases, issuance of new notes for old notes that are accepted for
exchange pursuant to the exchange offer will be made only after
- timely receipt by the exchange agent of
- certificates for such old notes or
- a timely book-entry confirmation of such old notes into the exchange
agent's account at the Depository Trust Company
- a properly completed and duly executed letter of transmittal and all
other required documents
If any tendered old notes are not accepted for any reason set forth in the
terms and conditions of the exchange offer or if any of your old notes are
submitted for a greater principal amount than the you desire to exchange, such
unaccepted or non-exchanged old notes will be returned to you without expense to
you (or, in
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the case of old notes tendered by book-entry transfer into the exchange agent's
account at DTC pursuant to the book-entry procedures described below, such
non-exchanged old notes will be credited to your account maintained with DTC) as
promptly as practicable after the expiration or termination of the exchange
offer.
BOOK-ENTRY TRANSFER
The exchange agent will make a request to establish an account with respect
to the old notes at DTC for the purposes of the exchange offer within two
business days after the date of this prospectus, and any financial institution
that is a participant in DTC's systems may make book-entry delivery of old notes
by causing DTC to transfer the old notes into the exchange agent's account at
DTC in accordance with DTC's procedures for transfer. However, although delivery
of old notes may be effected through book-entry transfer at DTC, the letter of
transmittal or facsimile thereof, with any required signature guarantees and any
other required documents, must, in any case, be transmitted to and received by
the exchange agent at the address set forth below under "-- Exchange Agent" on
or prior to the expiration date of the exchange offer, unless the holder
complies with the guaranteed delivery procedures described below.
GUARANTEED DELIVERY PROCEDURES
If you desire to tender old notes and (1) the old notes are not immediately
available, or (2) time will not permit your old notes or other required
documents to reach the exchange agent before the expiration date, or the
procedure for book-entry transfer cannot be completed on a timely basis, you may
effect a tender if
- the tender is made through an eligible institution
- on or prior to 5:00 P.M., New York City time, on the expiration date, the
exchange agent receives from such eligible institution a properly
completed and duly executed letter of transmittal (or a facsimile
thereof) and notice of guaranteed delivery, substantially in the form
provided by us (by telegram, telex, facsimile transmission, mail or hand
delivery), setting forth your name and address as the holder of old notes
and the amount of old notes tendered, stating that the tender is being
made thereby and guaranteeing that within three New York Stock Exchange
("NYSE") trading days after the date of execution of the notice of
guaranteed delivery, the certificates for all physically tendered old
notes, in proper form for transfer, or a book-entry confirmation, as the
case may be, and any other documents required by the letter of
transmittal will be deposited by the eligible institution with the
exchange agent, and
- you will deposit the certificates for all physically tendered old notes,
in proper form for transfer, or a book-entry confirmation, as the case
may be, and any other documents required by the letter of transmittal
with the eligible institution within three NYSE trading days after the
date of execution of the notice of guaranteed delivery
WITHDRAWAL RIGHTS
Except as otherwise provided, you may withdraw tender of old notes at any
time prior to 5:00 p.m., New York City time, on the expiration date of the
exchange offer.
To withdraw a tender of old notes in the exchange offer, a written or
facsimile transmission notice of withdrawal must be received by the exchange
agent at its address set forth herein prior to 5:00 p.m., New York City time, on
the expiration date of the exchange offer. Any such notice of withdrawal must
- specify the name of the person having deposited the old notes to be
withdrawn
- identify the old notes to be withdrawn
- be signed by the holder in the same manner as the original signature on
the Letter of Transmittal by which the old notes were tendered or be
accompanied by documents of transfer sufficient to have the exchange
agent register the transfer of the old notes in the name of the person
withdrawing the tender and
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- specify the name in which any old notes are to be registered, if
different from that of the person who deposited the old notes to be
withdrawn
We will determine all questions as to the validity, form, and eligibility
of the notices, which determination will be final and binding on all parties.
Any old notes so withdrawn will be deemed not to have been validly tendered for
purposes of the exchange offer, and no new notes will be issued with respect to
those old notes unless the old notes so withdrawn are validly retendered.
Any old notes that have been tendered but that are withdrawn or not
accepted for payment will be returned to the holder of those old notes, or in
the case of old notes tendered by book-entry transfer, will be credited to an
account maintained with DTC, without cost to the holder as soon as practicable
after withdrawal, rejection of tender or termination of the exchange offer.
Properly withdrawn old notes may be retendered by following one of the
procedures described above under "-- Procedures for Tendering" at any time
before the expiration date of the exchange offer.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provisions of the exchange offer, and subject to
our obligations pursuant to the registration rights agreement, we shall not be
required to accept for exchange, or to issue new notes in exchange for, any old
notes and may terminate or amend the exchange offer, if at any time before the
acceptance of such new notes for exchange, any of the following events shall
occur:
- any injunction, order or decree shall have been issued by any court or
any governmental agency that would prohibit, prevent or otherwise
materially impair our ability to proceed with the exchange offer
- the exchange offer will violate any applicable law or any applicable
interpretation of the staff of the SEC
The foregoing conditions are for our sole benefit and may be asserted by us
in whole or in part at any time and from time to time in its sole discretion.
Our failure at any time to exercise any of the foregoing rights shall not be
deemed a waiver of any such right and such right shall be deemed an ongoing
right which may be asserted at any time and from time to time.
In addition, we will not accept for exchange any old notes tendered, and no
new notes will be issued in exchange for any such old notes, if at such time any
stop order is threatened by the SEC or in effect with respect to the
registration statement of which this prospectus is a part or the qualification
of the Indenture under the Trust Indenture Act of 1939, as amended.
The exchange offer is not conditioned on any minimum principal amount of
old notes being tendered for exchange.
EXCHANGE AGENT
The Bank of New York has been appointed as the exchange agent for the
exchange offer. All executed letters of transmittal should be directed to the
exchange agent at one of the addresses set forth below. Questions and requests
for assistance, requests for additional copies of this prospectus or of the
letter of transmittal and requests or notices of guaranteed delivery should be
directed to the exchange agent addressed as follows:
The Bank of New York, Exchange Agent
By Mail:
101 Barclay Street
New York, New York 10286
Attention: Corporate Trust Operations, 7E
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By Hand or Overnight Courier:
101 Barclay Street
New York, New York 10286
Attn: Securities Processing Window
Ground Level Reorganization, 7E
By Facsimile: 212-571-3080
Confirm by Telephone: 212-815-2742
Delivery of the letter of transmittal to an address other than as set forth
above or transmission of instructions via facsimile other than as set forth
above does not constitute valid delivery of such letter of transmittal.
FEES AND EXPENSES
We will not make any payment to brokers, dealers, or others soliciting
acceptances of the exchange offer.
We will pay the cash expenses to be incurred in connection with the
exchange offer. Such expenses include registration fees, fees and expenses of
the exchange agent and trustee, accounting and legal fees and printing costs,
among others.
TRANSFER TAXES
Holders who tender their old notes for exchanges will not be obligated to
pay any transfer taxes in connection therewith, except that holders who instruct
us to register new notes in the name of, or request that old notes not tendered
or not accepted in the exchange offer be returned to, a person other than the
registered tendering holder will be responsible for the payment of the
applicable transfer tax thereon.
CONSEQUENCES OF FAILURE TO EXCHANGE OLD NOTES
If you do not exchange your old notes for new notes pursuant to the
exchange offer, you will continue to be subject to the provisions in the
indenture regarding transfer and exchange of the old notes and the restrictions
on transfer of such old notes as set forth in the legend thereon as a
consequence of the issuance of the old notes pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities Act
of 1933 and applicable state securities laws.
In general, the old notes may not be offered or sold, unless registered
under the Securities Act of 1933 and applicable state securities laws. We do not
currently anticipate that we will register old notes under the Securities Act of
1933. See "Description of the Notes -- Exchange Offer; Registration Rights".
Based on interpretations by the staff of the SEC, as set forth in no-action
letters issued to third parties, we believe that new notes issued pursuant to
the exchange offer in exchange for old notes may be offered for resale, resold
or otherwise transferred by holders thereof (other than any such holder which is
an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act of 1933) without compliance with the registration and prospectus
delivery provisions of the Securities Act of 1933, provided that such new notes
are acquired in the ordinary course or such holders' business and such holders,
other than broker-dealers, have no arrangement or understanding with any person
to participate in the distribution of such new notes. However, the SEC has not
considered the exchange offer in the context of a no-action letter and we can
give you no assurance that the staff of the SEC would make a similar
determination with respect to the exchange offer as in such other circumstances.
DESCRIPTION OF THE NOTES
The notes were issued under an Indenture, dated as of February 16, 2000
(the "Indenture"), between us, as issuer, and The Bank of New York, as Trustee,
Registrar and Paying Agent (the "Trustee") and Banque Internationale a
Luxembourg S.A., as Paying Agent and Transfer Agent. The following summary of
certain provisions of the Indenture is not complete and is subject to, and is
qualified by reference to, all the provisions
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of the Indenture. A copy of the Indenture is available from us upon request.
Whenever particular defined terms of the Indenture are referred to but not
defined, those terms are incorporated herein by reference. You can find the
definitions of certain terms used in this description under the subheading
"-- Certain Definitions." As used in this "Description of the Notes," the term
"company" means IMPSAT Fiber Networks, Inc., and excludes any subsidiaries.
The following description of the terms of the Indenture is a summary. This
summary does not restate the Indenture and excludes certain definitions and
complex legal terminology contained in the Indenture. While we believe this
summary contains all of the information about the Indenture that is important to
your decision to exchange the old notes for new notes, it does not include all
of the provisions of the Indenture that you may feel are important. It is the
Indenture, and not this summary, that defines your rights as a noteholder. If
you would like to read the Indenture in its entirety, you may obtain a copy from
us by contacting us as the address set forth on page 3 of this prospectus.
GENERAL
The notes will be unsecured unsubordinated obligations of our company,
initially limited to $300 million aggregate principal amount, and will mature on
February 15, 2005. Each note bears interest at the rate per annum 13 3/4% from
the Closing Date, or from the most recent interest payment date to which
interest has been paid or provided for, payable semiannually (to holders of
record at the close of business on the February 1 or August 1 immediately
preceding the interest payment date) on February 15 and August 15 of each year,
commencing August 15, 2000. Interest will be computed on the basis of a 360-day
year of twelve 30-day months.
Principal of, premium, if any, and interest on the notes will be payable,
and the notes may be exchanged or transferred, at the office or agency of our
company in the Borough of Manhattan, the City of New York (which initially will
be the corporate trust office of the Trustee at 101 Barclay Street, Floor 21
West, New York, New York 10286) and at the offices of the Luxembourg Paying and
Transfer Agent in Luxembourg; provided that, at our option, payment of interest
may be made by check mailed to the holders at their addresses as they appear in
the Security Register. For so long as the notes are listed on the Luxembourg
Stock Exchange and the rules of such stock exchange so require, we will maintain
a Paying Agent and a Transfer Agent in Luxembourg.
The notes will be issued only in fully registered form, without coupons, in
denominations of $1,000 of principal amount and any integral multiple thereof.
See "-- Book-Entry; Delivery and Form." No service charge will be made for any
registration of transfer or exchange of notes, but we may require payment of a
sum sufficient to cover any transfer tax or other similar governmental charge
payable in connection therewith.
Subject to the covenants described below under "Covenants" and applicable
law, we may issue additional notes under the Indenture. The notes offered hereby
and any additional notes subsequently issued would be treated as a single class
for all purposes under the Indenture.
For purposes of determining compliance with the Indenture, the U.S. dollar
equivalent of any amounts denominated in a foreign currency shall be calculated
using the noon dollar buying rate in New York City for wire transfers of such
currency as published by the Federal Reserve Bank of New York on the date such
foreign currency amount is received, incurred or paid. For other financial
reporting purposes, currency translations will be performed in accordance with
U.S. generally accepted accounting practices.
OPTIONAL REDEMPTION
The notes may be redeemed, in whole or in part, at any time at our option
at a redemption price (the "Make-Whole Price") equal to the greater of (1) 100%
of the principal amount thereof or (2) as determined by an Independent
Investment Banker, the sum of the present values of the Remaining Scheduled
Payments discounted to the redemption date on a semiannual basis (assuming a
360-day year consisting of twelve 30-day months) at the Adjusted Treasury Rate,
plus, in each case, accrued and unpaid interest (including Additional Interest,
as provided for in the Registration Rights Agreement), if any, to the date of
redemption.
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"Adjusted Treasury Rate" means with respect to any redemption date, the
rate per annum equal to the semiannual equivalent yield to maturity of the
Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue
(expressed as a percentage of its principal amount) equal to the Comparable
Treasury Price for such redemption date, plus 0.50%.
"Comparable Treasury Issue" means the United States Treasury Security
selected by an Independent Investment Banker as having a maturity comparable to
the remaining term of the notes that would be utilized, at the time of selection
and in accordance with customary financial practice, in pricing new issues of
corporate debt securities of comparable maturity to the remaining term of the
notes.
"Comparable Treasury Price" means, with respect to any redemption date, (1)
the average of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) on the third
business day preceding such redemption date, as set forth in the daily
statistical release (or any successor release) published by the Federal Reserve
Bank of New York and designated "Composite 3:30 p.m. Quotations for U.S.
Government Securities" or (2) if such release (or any successor release) is not
published or does not contain such prices on such business day, (A) the
Reference Treasury Dealer Quotations for such redemption date, after excluding
the highest and lowest of such Reference Treasury Dealer Quotations, or (B) if
the Trustee obtains fewer than three such Reference Treasury Dealer Quotations,
the average of all such Quotations.
"Independent Investment Banker" means any Reference Treasury Dealer
appointed by the Trustee after consultation with us.
"Reference Treasury Dealer" means each of Morgan Stanley & Co.
Incorporated, Chase Securities Inc., First Union Capital Markets, a division of
Wheat First Securities, Inc., NationsBanc Montgomery Securities LLC and TD
Securities (USA) Inc. and their respective successors; provided, however, that
if any of the foregoing shall cease to be a primary U.S. Government securities
dealer in New York City (a "Primary Treasury Dealer"), our company shall
substitute another Primary Treasury Dealer.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any redemption date, the average as determined by
the Trustee, of the bid and asked prices of the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m. on the
third business day preceding such redemption date.
"Remaining Scheduled Payments" means, with respect to each note to be
redeemed, the remaining scheduled payments of the principal thereof and interest
thereon that would be due after the related redemption date but for such
redemption; provided, however, that, if such redemption date is not an interest
payment date with respect to such note, the amount of the next succeeding
scheduled interest payment thereon will be reduced by the amount of interest
accrued and unpaid thereon to such redemption date.
In addition, at any time before February 16, 2003, we may redeem up to 35%
of the principal amount of the notes originally issued with the Net Cash
Proceeds of one or more public or private issuances of Capital Stock (other than
Disqualified Stock) at any time or from time to time in part, at a redemption
price of 113.750% of the principal amount thereof on the redemption date,
together with accrued and unpaid interest, if any, thereon; provided that (i) at
least 65% of the principal amount of the notes remain outstanding after each
such redemption and (ii) notice of such redemption is mailed within 60 days of
such issuance.
In the case of any partial redemption, selection of the notes for
redemption will be made by the Trustee in compliance with the requirements of
the principal national securities exchange, if any, on which the notes are
listed or, if the notes are not listed on a national securities exchange, by lot
or by such other method as the Trustee in its sole discretion shall deem to be
fair and appropriate; provided that no note of $1,000 in principal amount at
maturity or less shall be redeemed in part. If any note is to be redeemed in
part only, the notice of redemption relating to such note shall state the
portion of the principal amount thereof to be redeemed. A new note in principal
amount equal to the unredeemed portion thereof will be issued in the name of the
holder thereof upon cancellation of the original note.
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Unless we default in payment of the redemption price, on and after the
redemption date, interest will cease to accrue on the notes or portion thereof
called for redemption.
SINKING FUND
There will be no sinking fund payments for the notes.
REGISTRATION RIGHTS
We have agreed to use our best efforts to file and cause to become
effective a registration statement with respect to an exchange offer in order to
exchange the old notes for registered notes of our company, which we call the
new notes, with terms identical to the old notes, except that the new notes will
not bear legends restricting their transfer. We have agreed to use our best
efforts to have the exchange offer consummated before August 16, 2000. The
registration statement we filed on April , 2000 will remain effective until we
are able to close the exchange offer.
If the Securities and Exchange Commission , also known as the SEC or the
Commission, does not permit us to effect the exchange offer, or under certain
other circumstances, we will use our best efforts to cause to become effective a
shelf registration statement with respect to resales of the old notes. Under
such circumstances, the shelf registration statement will remain effective until
the expiration of the time period referred to in Rule 144(k) under the
Securities Act, or such shorter period that will terminate when all notes
covered by the shelf registration statement have been sold pursuant to the shelf
registration statement.
We will, in the event of such a shelf registration, provide to each holder
copies of the prospectus, notify each such holder when the shelf registration
statement for the notes has become effective and take certain other actions as
are required to permit resales of the notes. A holder that sells its notes
pursuant to the shelf registration statement generally will be required to be
named as a selling security holder in the related prospectus and to deliver a
prospectus to purchasers, will be subject to certain of the civil liability
provisions under the Securities Act in connection with such sales and will be
bound by the provisions of the Registration Rights Agreement that are applicable
to such a holder (including certain indemnification obligations).
If the exchange offer for the notes is not consummated or a shelf
registration statement is not declared effective on or prior to August 14, 2000,
interest on the notes will
- accrue at the rate of 14.25%
- be payable in cash twice a year on each interest payment date, starting
February 15, 2001, until the registered exchange offer or the
effectiveness of a shelf registration statement is finalized
The description of the Registration Rights Agreement in this prospectus is not
complete. You should read the Registration Rights Agreement attached as an
exhibit to this prospectus.
RANKING
The indebtedness evidenced by the notes ranks equally with all of our other
unsecured unsubordinated indebtedness. At December 31, 1999, on an as adjusted
basis after giving effect to the offering of the old notes, we (on an
unconsolidated basis but giving effect to guarantees of $7.1 million of
indebtedness of our subsidiaries) would have had approximately $357.1 million of
indebtedness (other than the notes). We are a holding company, and the notes are
effectively subordinated to all existing and future liabilities (including trade
payables) of our subsidiaries. At December 31, 1999, on the same as adjusted
basis and excluding intercompany payables and the guarantee of our 12 1/8%
Senior Guaranteed Notes due 2003 by one of our subsidiaries, our subsidiaries
would have had approximately $[309.0] million of liabilities, including
approximately $134.3 million of indebtedness. The Indenture will permit us and
our subsidiaries to incur substantial amounts of additional indebtedness.
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COVENANTS
Limitation on Indebtedness
(a) We will not, and will not permit any of our Restricted Subsidiaries to,
Incur any Indebtedness (other than the notes and Indebtedness existing on the
Closing Date); provided that our company may Incur Indebtedness if, after giving
effect to the Incurrence of such Indebtedness and the receipt and application of
the proceeds therefrom, the Indebtedness to EBITDA Ratio would be greater than
zero and less than 4:1.
Notwithstanding the foregoing, our company and any Restricted Subsidiary
(except as specified below) may Incur each and all of the following:
(1) Indebtedness outstanding at any time in an aggregate principal amount
not to exceed the greater of (A) $200 million or (B) the Consolidated
EBITDA for the four preceding quarters for which financial statements
of our company have been filed with the SEC or provided to the Trustee
pursuant to the "Commission Reports and Reports to Holders" covenant,
in each case less any amount of Indebtedness permanently repaid as
provided under the "Limitation on Asset Sales" covenant described below
(other than any of the notes permanently repaid); provided that no more
than 25% of the Indebtedness Incurred under this clause (1) may be used
for purposes other than capital expenditures;
(2) Indebtedness owed (A) to our company evidenced by a promissory note or
(B) to any Restricted Subsidiary; provided that any event which results
in any such Restricted Subsidiary ceasing to be a Restricted Subsidiary
or any subsequent transfer of such Indebtedness (other than to our
company or another Restricted Subsidiary) shall be deemed, in each
case, to constitute an Incurrence of such Indebtedness not permitted by
this clause (2);
(3) Indebtedness issued in exchange for, or the net proceeds of which are
used to refinance or refund, then outstanding Indebtedness (other than
Indebtedness Incurred under clause (2), (6), (8) or (10) of this
paragraph) and any refinancings thereof in an amount not to exceed the
amount so refinanced or refunded (plus premiums, accrued interest, fees
and expenses); provided that Indebtedness the proceeds of which are
used to refinance or refund the notes or Indebtedness that is pari
passu with, or subordinated in right of payment to, the notes shall
only be permitted under this clause (3) if (A) in case the notes are
refinanced in part or the Indebtedness to be refinanced is pari passu
with the notes, such new Indebtedness, by its terms or by the terms of
any agreement or instrument pursuant to which such new Indebtedness is
outstanding, is expressly made pari passu with, or subordinate in right
of payment to, the remaining notes, (B) in case the Indebtedness to be
refinanced is subordinated in right of payment to the notes, such new
Indebtedness, by its terms or by the terms of any agreement or
instrument pursuant to which such new Indebtedness is issued or remains
outstanding, is expressly made subordinate in right of payment to the
notes at least to the extent that the Indebtedness to be refinanced is
subordinated to the notes and (C) such new Indebtedness, determined as
of the date of Incurrence of such new Indebtedness, does not mature
prior to the Stated Maturity of the Indebtedness to be refinanced or
refunded, and the Average Life of such new Indebtedness is at least
equal to the remaining Average Life of the Indebtedness to be
refinanced or refunded; and provided further that in no event may
Indebtedness of our company be refinanced by means of any Indebtedness
of any Restricted Subsidiary pursuant to this clause (3);
(4) Indebtedness (A) in respect of performance, surety or appeal bonds
provided in the ordinary course of business, (B) under Currency
Agreements and Interest Rate Agreements; provided that such agreements
(i) are designed solely to protect our company or its Restricted
Subsidiaries against fluctuations in foreign currency exchange rates or
interest rates and (ii) do not increase the Indebtedness of the obligor
outstanding at any time other than as a result of fluctuations in
foreign currency exchange rates or interest rates or by reason of fees,
indemnities and compensation payable thereunder; and (C) arising from
agreements providing for indemnification, adjustment of purchase price
or similar obligations, or from Guarantees or letters of credit, surety
bonds or performance bonds securing any obligations of our company or
any of its Restricted Subsidiaries pursuant to such
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agreements, in any case Incurred in connection with the disposition of
any business, assets or Restricted Subsidiary (other than Guarantees of
Indebtedness Incurred by any Person acquiring all or any portion of
such business, assets or Restricted Subsidiary for the purpose of
financing such acquisition), in a principal amount not to exceed the
gross proceeds actually received by our company or any Restricted
Subsidiary in connection with such disposition;
(5) Indebtedness of our company, to the extent the net proceeds thereof
are promptly (A) used to purchase notes tendered in an Offer to
Purchase made as a result of a Change in Control or (B) deposited to
defease the notes as described below under "Defeasance";
(6) Guarantees of the notes and Guarantees of Indebtedness of our company
by any Restricted Subsidiary provided the Guarantee of such
Indebtedness is permitted by and made in accordance with the
"Limitation on Issuance of Guarantees by Restricted Subsidiaries"
covenant described below;
(7) Indebtedness (including Guarantees) Incurred to finance the cost
(including the cost of design, development, acquisition, construction,
installation, improvement, transportation or integration) to acquire
equipment, inventory or network assets (including acquisitions by way
of Capitalized Lease and acquisitions of the Capital Stock of a Person
that becomes a Restricted Subsidiary to the extent of the fair market
value of the equipment, inventory or network assets so acquired) by
our company or a Restricted Subsidiary after the Closing Date;
(8) Indebtedness of our company not to exceed, at any one time
outstanding, two times the sum of (A) the Net Cash Proceeds received
by our company after June 17, 1998 as a capital contribution or from
the issuance and sale of its Capital Stock (other than Disqualified
Stock) to a Person that is not a Subsidiary of our company, to the
extent (I) such capital contribution or Net Cash Proceeds are not, at
our company's option, added to the amount calculated pursuant to
clause (C)(ii) of the first paragraph of the "Limitation on Restricted
Payments" covenant or used to make a Restricted Payment pursuant to
clause (3), (4) or (8) of the second paragraph of the "Limitation on
Restricted Payments" covenant and (II) if such capital contribution or
Net Cash Proceeds are used to consummate a transaction pursuant to
which our company Incurs Acquired Indebtedness, the amount of such Net
Cash Proceeds exceeds one-half of the amount of Acquired Indebtedness
so Incurred and (B) 80% of the fair market value of property (other
than cash and cash equivalents) received by our company after the
Closing Date from the sale of its Capital Stock (other than
Disqualified Stock) to a Person that is not a Subsidiary of our
company, to the extent (I) such capital contribution or sale of
Capital Stock has not been used to make a Restricted Payment pursuant
to clause (3), (4) or (8) of the second paragraph of the "Limitation
on Restricted Payments" covenant and (II) if such capital contribution
or Capital Stock is used to consummate a transaction pursuant to which
our company Incurs Acquired Indebtedness, 80% of the fair market value
of the property received exceeds one-half of the amount of Acquired
Indebtedness so Incurred; provided that such Indebtedness does not
mature prior to the Stated Maturity of the notes and has an Average
Life longer than the notes;
(9) Acquired Indebtedness;
(10) Strategic Subordinated Indebtedness;
(11) Indebtedness consisting of one or more loans to any Restricted
Subsidiary, evidenced by one or more Promissory Notes and Guaranteed
by our company, in each case under the Intermediary Documents;
provided that the Promissory Notes shall, at all times, have an
aggregate principal amount equal to the aggregate principal amount of
the Certificates of Deposit and shall not be outstanding at any time
that the Certificates of Deposit are not validly outstanding and
beneficially owned by our company;
(12) Indebtedness of any Restricted Subsidiary, to the extent that our
company is the beneficial owner of such Indebtedness and such
Indebtedness is evidenced by a promissory note or participation
certificate issued to our company by the record holder of such
Indebtedness;
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(13) Indebtedness of our company, the proceeds of which are used to make an
Investment in Intelsat, in an amount at any one time outstanding not
to exceed $30 million; provided that our company reasonably believes,
at the time such Indebtedness is Incurred, that the benefits of such
Investment will result in cash flow sufficient to cover the payment of
interest and principal on such Indebtedness; and
(14) subordinated Indebtedness of our company (in addition to Indebtedness
permitted under clauses (1) through (13) above) in an aggregate
principal amount outstanding at any time not to exceed $100 million,
less any amount of such Indebtedness permanently repaid as provided
under the "Limitation on Asset Sales" covenant described below.
(b) Notwithstanding any other provision of this "Limitation on
Indebtedness" covenant, the maximum amount of Indebtedness that our company or a
Restricted Subsidiary may Incur pursuant to this "Limitation on Indebtedness"
covenant shall not be deemed to be exceeded, with respect to any outstanding
Indebtedness due solely to the result of fluctuations in the exchange rates of
currencies.
(c) For purposes of determining any particular amount of Indebtedness under
this "Limitation on Indebtedness" covenant, (1) Guarantees, Liens or obligations
with respect to letters of credit supporting Indebtedness otherwise included in
the determination of such particular amount shall not be included and (2) any
Liens granted pursuant to the equal and ratable provisions referred to in the
"Limitation on Liens" covenant described below shall not be treated as
Indebtedness. For purposes of determining compliance with this "Limitation on
Indebtedness" covenant, in the event that an item of Indebtedness meets the
criteria of more than one of the types of Indebtedness described in the above
clauses, our company, in its sole discretion, shall classify, and from time to
time may reclassify, such item of Indebtedness and only be required to include
the amount and type of such Indebtedness in one of such clauses.
LIMITATION ON RESTRICTED PAYMENTS
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly,
(1) declare or pay any dividend or make any distribution on or with respect
to its Capital Stock held by Persons other than our company or any
Restricted Subsidiary (other than (x) dividends or distributions
payable solely in shares of its or such Restricted Subsidiary's Capital
Stock (other than Disqualified Stock) or in options, warrants or other
rights to acquire shares of such Capital Stock and (y) pro rata
dividends or distributions on Common Stock of Restricted Subsidiaries),
(2) purchase, redeem, retire or otherwise acquire for value any shares of
Capital Stock of our company (including options, warrants or other
rights to acquire such shares of Capital Stock) held by Persons other
than our company or any of its Wholly-Owned Restricted Subsidiaries,
(3) make any voluntary or optional principal payment, or voluntary or
optional redemption, repurchase, defeasance, or other acquisition or
retirement for value, of Indebtedness of our company that is
subordinated in right of payment to the notes, or
(4) make any Investment, other than a Permitted Investment, in any Person
(such payments or any other actions described in clauses (1) through
(4) above being collectively "Restricted Payments")
if, at the time of, and after giving effect to, the proposed Restricted Payment:
(A) a Default or Event of Default shall have occurred and be continuing,
(B) our company could not Incur at least $1.00 of Indebtedness under the
first paragraph of the "Limitation on Indebtedness" covenant, or
(C) the aggregate amount of all Restricted Payments (the amount, if other
than in cash, to be determined in good faith by the Board of Directors, whose
determination shall be conclusive and evidenced by a Board Resolution) made
after the Closing Date shall exceed the sum of (i) 50% of the aggregate amount
of the Adjusted Consolidated Net Income (or, if the Adjusted Consolidated Net
Income is a loss, minus 100% of the amount of such loss) (determined by
excluding income resulting from transfers of assets by our company
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or a Restricted Subsidiary to an Unrestricted Subsidiary) accrued on a
cumulative basis during the period (taken as one accounting period) beginning on
the first day of the fiscal quarter commencing July 1, 1998 and ending on the
last day of the last fiscal quarter preceding the Transaction Date for which
reports have been filed with the SEC or provided to the Trustee pursuant to the
"Commission Reports and Reports to Holders" covenant plus (ii) the aggregate Net
Cash Proceeds received by our company after June 17, 1998 as a capital
contribution or from the issuance and sale of its Capital Stock (other than
Disqualified Stock) to a Person who is not a Subsidiary of our company,
including an issuance or sale permitted by the Indenture of Indebtedness of our
company for cash subsequent to the Closing Date upon the conversion of such
Indebtedness into Capital Stock (other than Disqualified Stock) of our company,
or from the issuance to a Person who is not a Subsidiary of our company of any
options, warrants or other rights to acquire Capital Stock of our company (in
each case, exclusive of any convertible indebtedness, Disqualified Stock or any
options, warrants or other rights that are redeemable at the option of the
holder, or are required to be redeemed, prior to the Stated Maturity of the
notes), in each case except to the extent such Net Cash Proceeds are used to
Incur Indebtedness pursuant to clause (8) of the second paragraph under the
"Limitation on Indebtedness" covenant, plus (3) an amount equal to the net
reduction in Investments made pursuant to this first paragraph of this
"Limitation on Restricted Payments" covenant in any Person resulting from
payments of interest on Indebtedness, dividends, repayments of loans or
advances, or other transfers of assets, in each case to our company or any
Restricted Subsidiary or from the Net Cash Proceeds from the sale of any such
Investment (except, in each case, to the extent any such payment or proceeds are
included in the calculation of Adjusted Consolidated Net Income), or from
redesignations of Unrestricted Subsidiaries as Restricted Subsidiaries (valued
in each case as provided in the definition of "Investments"), not to exceed, in
each case, the amount of Investments previously made by our company or any
Restricted Subsidiary in such Person or Unrestricted Subsidiary.
The foregoing provision shall not be violated by reason of:
(1) the payment of any dividend within 60 days after the date of
declaration thereof if, at said date of declaration, such payment
would comply with the foregoing paragraph;
(2) the redemption, repurchase, defeasance or other acquisition or
retirement for value of Indebtedness that is subordinated in right of
payment to the notes including premium, if any, and accrued and unpaid
interest, with the proceeds of, or in exchange for, Indebtedness
Incurred under clause (3) of the second paragraph of part (a) of the
"Limitation on Indebtedness" covenant;
(3) the repurchase, redemption or other acquisition of Capital Stock of
our company (or options, warrants or other rights to acquire such
Capital Stock) in exchange for, or out of the proceeds of a capital
contribution or a substantially concurrent offering of, shares of
Capital Stock (other than Disqualified Stock) of our company (or
options, warrants or other rights to acquire such Capital Stock);
(4) the making of any principal payment or the repurchase, redemption,
retirement, defeasance or other acquisition for value of Indebtedness
of our company which is subordinated in right of payment to the notes
in exchange for, or out of the proceeds of a capital contribution or a
substantially concurrent offering of, shares of the Capital Stock
(other than Disqualified Stock) of our company (or options, warrants
or other rights to acquire such Capital Stock);
(5) payments or distributions to dissenting stockholders pursuant to
applicable law, pursuant to or in connection with a consolidation,
merger or transfer of assets that complies with the provisions of the
Indenture applicable to mergers, consolidations and transfers of all
or substantially all of the property and assets of our company;
(6) Investments in Unrestricted Subsidiaries not to exceed, at any one
time outstanding, the greater of (A) $5 million or (B) 10% of
Consolidated EBITDA for the preceding four quarters for which reports
have been filed pursuant to the "Commission Reports and Reports to
Holders" covenant;
(7) Investments in any Person the primary business of which is related,
ancillary or complementary to the business of our company and its
Restricted Subsidiaries on the date of such Investments;
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provided that the aggregate amount of Investments made pursuant to
this clause (7) does not exceed $20 million;
(8) Investments acquired in exchange for Capital Stock (other than
Disqualified Stock) of our company or with the proceeds of such
Capital Stock; provided that such proceeds are so applied within 90
days of receipt thereof;
(9) the declaration or payment of dividends on our common stock following
a public offering of common stock of up to 6% per annum of the Net
Cash Proceeds received by our company in such Public Equity Offering;
(10) other Restricted Payments in an aggregate amount not to exceed $25
million; provided that, except in the case of clauses (1) and (3), no
Default or Event of Default shall have occurred and be continuing or
occur as a consequence of the actions or payments set forth therein.
The value of any Restricted Payment made other than in cash shall be
the fair market value thereof. The amount of any Investment
"outstanding" at any time shall be deemed to be equal to the amount of
such Investment on the date made, less the return of capital to our
company and its Restricted Subsidiaries with respect to such
Investment (up to the amount of such Investment).
Each Restricted Payment permitted pursuant to the preceding paragraph
(other than the Restricted Payment referred to in clause (2) thereof, an
exchange of Capital Stock for Capital Stock or Indebtedness referred to in
clause (3) or (4) thereof and an Investment referred to in clause (6) thereof),
and the Net Cash Proceeds from any capital contribution or any issuance of
Capital Stock referred to in clauses (3), (4) and (8), shall be included in
calculating whether the conditions of clause (C) of the first paragraph of this
"Limitation on Restricted Payments" covenant have been met with respect to any
subsequent Restricted Payments. If the proceeds of an issuance of Capital Stock
of our company are used for the redemption, repurchase or other acquisition of
the notes, or Indebtedness that is pari passu with the notes, then the Net Cash
Proceeds of such issuance shall be included in clause (C) of the first paragraph
of this "Limitation on Restricted Payments" covenant only to the extent such
proceeds are not used for such redemption, repurchase or other acquisition of
Indebtedness. For purposes of determining compliance with this "Limitation on
Restricted Payments" covenant, in the event that a Restricted Payment meets the
criteria of more than one of the types of Restricted Payments described in
clauses (1) through (10) of the preceding paragraph, our company, in its sole
discretion, shall classify such Restricted Payment and only be required to
include the amount and type of such Restricted Payment in one of such clauses.
Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries
We will not, and will not permit any Restricted Subsidiary to, create or
otherwise cause or suffer to exist or become effective any consensual
encumbrance or restriction of any kind on the ability of any Restricted
Subsidiary to
(1) pay dividends or make any other distributions permitted by applicable
law on any Capital Stock of such Restricted Subsidiary owned by our
company or any other Restricted Subsidiary,
(2) pay any Indebtedness owed to our company or any other Restricted
Subsidiary,
(3) make loans or advances to our company or any other Restricted
Subsidiary, or
(4) transfer any of its property or assets to our company or any other
Restricted Subsidiary.
The foregoing provisions shall not restrict any encumbrances or restrictions:
(1) existing on the Closing Date in the Indenture or any other agreements
in effect on the Closing Date, and any extensions, refinancings,
renewals or replacements of such agreements; provided that the
encumbrances and restrictions in any such extensions, refinancings,
renewals or replacements are no less favorable in any material respect
to the holders than those encumbrances or restrictions that are then in
effect and that are being extended, refinanced, renewed or replaced;
(2) existing under or by reason of applicable law;
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(3) existing with respect to any Person or the property or assets of such
Person acquired by our company or any Restricted Subsidiary, existing
at the time of such acquisition and not incurred in contemplation
thereof, which encumbrances or restrictions are not applicable to any
Person or the property or assets of any Person other than such Person
or the property or assets of such Person so acquired;
(4) in the case of clause (4) of the first paragraph of this "Limitation on
Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries" covenant, (A) that restrict in a customary manner the
subletting, assignment or transfer of any property or asset that is a
lease, license, conveyance or contract or similar property or asset,
(B) existing by virtue of any transfer of, agreement to transfer,
option or right with respect to, or Lien on, any property or assets of
our company or any Restricted Subsidiary not otherwise prohibited by
the Indenture or (C) arising or agreed to in the ordinary course of
business, not relating to any Indebtedness, and that do not,
individually or in the aggregate, detract from the value of property or
assets of our company or any Restricted Subsidiary in any manner
material to our company or any Restricted Subsidiary;
(5) with respect to a Restricted Subsidiary and imposed pursuant to an
agreement that has been entered into for the sale or disposition of all
or substantially all of the Capital Stock of, or property and assets
of, such Restricted Subsidiary during the period between the execution
of such agreement and the closing thereunder within three months of
such execution;
(6) with respect to Restricted Subsidiaries in which, on and subsequent to
the Closing Date, our company and other Restricted Subsidiaries only
make Investments that are evidenced by unsubordinated promissory notes
that bear a reasonable rate of interest and are payable prior to the
Stated Maturity of the notes; provided that such encumbrances and
restrictions expressly allow the payment of interest and principal on
such promissory notes;
(7) encumbrances or restrictions solely of the type referred to in clause
(3) or (4) of the preceding paragraph that are contained in any
stockholders' agreement, joint venture agreement or similar agreement
among owners of Common Stock of a Restricted Subsidiary; provided that
such restrictions consist solely of requirements that transactions
between such Restricted Subsidiaries and affiliates thereof (including
our company and its Restricted Subsidiaries) be on fair and reasonable
terms no less favorable to such Restricted Subsidiary than could be
obtained in a comparable arm's-length transaction with a Person that is
not such an affiliate; or
(8) contained in the terms of any Indebtedness or any agreement pursuant to
which such Indebtedness was issued if (A) the encumbrance or
restriction applies only in the event of a payment default or a default
with respect to a financial covenant contained in such Indebtedness or
agreement, (B) the encumbrance or restriction is not materially more
disadvantageous to the holders of the notes than is customary in
comparable financings (as determined by our company) and (C) our
company determines that any such encumbrance or restriction will not
materially affect our company's ability to make principal or interest
payments on the notes. Nothing contained in this "Limitation on
Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries" covenant shall prevent our company or any Restricted
Subsidiary from (i) creating, incurring, assuming or suffering to exist
any Liens otherwise permitted in the "Limitation on Liens" covenant or
(ii) restricting the sale or other disposition of property or assets of
our company or any of its Restricted Subsidiaries that secure
Indebtedness of our company or any of its Restricted Subsidiaries.
Limitation on the Issuance and Sale of Capital Stock of Restricted
Subsidiaries
We will not sell, and will not permit any Restricted Subsidiary, directly
or indirectly, to issue or sell, any shares of Capital Stock of a Restricted
Subsidiary (including options, warrants or other rights to purchase shares of
such Capital Stock) except
(1) to our company or a Wholly-Owned Restricted Subsidiary;
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(2) issuances of director's qualifying shares or sales to foreign nationals
of shares of Capital Stock of foreign Restricted Subsidiaries, to the
extent required by applicable law;
(3) if, immediately after giving effect to such issuance or sale, such
Restricted Subsidiary would no longer constitute a Restricted
Subsidiary and any Investment in such Person remaining after giving
effect to such issuance or sale would have been permitted to be made
under the "Limitation on Restricted Payments" covenant if made on the
date of such issuance or sale; or
(4) the sale of common stock of Restricted Subsidiaries that is not
Disqualified Stock, if the proceeds of such issuance or sale are
applied in accordance with clause (A) or (B) of the first paragraph of
the "Limitation on Asset Sales" covenant or
(5) the transfer of up to 3% of the common stock of each Restricted
Subsidiary to employees of such Restricted Subsidiary in connection
with such employment.
Limitation on Issuances of Guarantees by Restricted Subsidiaries
We will not permit any Restricted Subsidiary, directly or indirectly, to
Guarantee any of our Indebtedness which is pari passu with or subordinate in
right of payment to the notes ("Guaranteed Indebtedness"), unless
(1) such Restricted Subsidiary simultaneously executes and delivers a
supplemental indenture to the Indenture providing for a Guarantee (a
"Subsidiary Guarantee") of payment of the notes by such Restricted
Subsidiary and
(2) such Restricted Subsidiary waives and will not in any manner whatsoever
claim or take the benefit or advantage of, any rights of reimbursement,
indemnity or subrogation or any other rights against our company or any
other Restricted Subsidiary as a result of any payment by such
Restricted Subsidiary under its Subsidiary Guarantee; provided that
this paragraph shall not be applicable to any Guarantee of any
Restricted Subsidiary that existed at the time such Person became a
Restricted Subsidiary and was not Incurred in connection with, or in
contemplation of, such Person becoming a Restricted Subsidiary. If the
Guaranteed Indebtedness is (A) pari passu with the notes, then the
Guarantee of such Guaranteed Indebtedness shall be pari passu with, or
subordinated to, the Subsidiary Guarantee or (B) subordinated to the
notes, then the Guarantee of such Guaranteed Indebtedness shall be
subordinated to the Subsidiary Guarantee at least to the extent that
the Guaranteed Indebtedness is subordinated to the notes.
Notwithstanding the foregoing, any Subsidiary Guarantee by a Restricted
Subsidiary may provide by its terms that it shall be automatically and
unconditionally released and discharged upon
(1) any sale, exchange or transfer, to any Person not an Affiliate of our
company, of all of our company's and each Restricted Subsidiary's
Capital Stock in, or all or substantially all the assets of, such
Restricted Subsidiary (which sale, exchange or transfer is not
prohibited by the Indenture) or
(2) the release or discharge of the Guarantee which resulted in the
creation of such Subsidiary Guarantee, except a discharge or release by
or as a result of payment under such Guarantee.
Limitation on Transactions with Shareholders and Affiliates
We will not, and will not permit any Restricted Subsidiary to, directly or
indirectly, enter into, renew or extend any transaction (including, without
limitation, the purchase, sale, lease or exchange of property or assets, or the
rendering of any service) with any holder (or any Affiliate of such holder) of
5% or more of any class of Capital Stock of our company or with any Affiliate of
our company or any Restricted Subsidiary, except upon fair and reasonable terms
no less favorable to our company or such Restricted Subsidiary than could be
obtained, at the time of such transaction or, if such transaction is pursuant to
a written agreement, at the time of the execution of the agreement providing
therefor, in a comparable arm's-length transaction with a Person that is not
such a holder or an Affiliate.
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The foregoing limitation does not limit, and shall not apply to:
(1) transactions (A) approved by a majority of the disinterested members of
the Board of Directors or (B) for which our company or a Restricted
Subsidiary delivers to the Trustee a written opinion of a nationally
recognized U.S. investment banking firm stating that the transaction is
fair to our company or such Restricted Subsidiary from a financial
point of view;
(2) any transaction solely between our company and any of its Wholly-Owned
Restricted Subsidiaries or solely between Wholly-Owned Restricted
Subsidiaries;
(3) the payment of reasonable and customary regular fees to directors of
our company who are not employees of our company;
(4) any payments or other transactions pursuant to any tax-sharing
agreement between our company and any other Person with which our
company files a consolidated tax return or with which our company is
part of a consolidated group for tax purposes; or
(5) any Restricted Payments not prohibited by the "Limitation on Restricted
Payments" covenant (other than pursuant to clause (4) of the definition
or "Permitted Investment"). Notwithstanding the foregoing, any
transaction or series of related transactions covered by the first
paragraph of this "Limitation on Transactions with Shareholders and
Affiliates" covenant and not covered by clauses (2) through (5) of this
paragraph, the aggregate amount of which exceeds $1 million in value,
must be approved or determined to be fair in the manner provided for in
clause (1)(A) or (B) above.
Limitation on Liens
We will not, and will not permit any Restricted Subsidiary to, create,
incur, assume or suffer to exist any Lien on any of its assets or properties of
any character (including, without limitation, licenses), or any shares of
Capital Stock or Indebtedness of any Restricted Subsidiary, without making
effective provision for all of the notes and all other amounts due under the
Indenture to be directly secured equally and ratably with (or, if the obligation
or liability to be secured by such Lien is subordinated in right of payment to
the notes, prior to) the obligation or liability secured by such Lien.
The foregoing limitation does not apply to
(1) Liens existing on the Closing Date;
(2) Liens granted after the Closing Date on any assets or Capital Stock of
our company or its Restricted Subsidiaries created in favor of the
holders;
(3) Liens with respect to the assets of a Restricted Subsidiary granted by
such Restricted Subsidiary to our company or a Wholly-Owned Restricted
Subsidiary to secure Indebtedness owing to our company or such other
Restricted Subsidiary;
(4) Liens securing Indebtedness which is Incurred to refinance secured
Indebtedness which is permitted to be Incurred under clause (3) of the
second paragraph of the "Limitation on Indebtedness" covenant; provided
that such Liens do not extend to or cover any property or assets of our
company or any Restricted Subsidiary other than the property or assets
securing the Indebtedness being refinanced;
(5) Liens on the Capital Stock of, or any property or assets of, a
Restricted Subsidiary securing Indebtedness of such Restricted
Subsidiary permitted under the "Limitation on Indebtedness" covenant;
(6) Liens on the Capital Stock of Restricted Subsidiaries securing up to
$100.0 million of Indebtedness Incurred under clause (7) of the second
paragraph of the "Limitation on Indebtedness" covenant;
(7) Liens on assets having a fair market value equal to no more than 10% of
the fair market value of the Adjusted Consolidated Net Tangible Assets
that are not subject to Liens on the Closing Date; or
(8) Permitted Liens.
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Limitation on Sale-Leaseback Transactions
We will not, and will not permit any Restricted Subsidiary to, enter into
any sale-leaseback transaction involving any of its assets or properties whether
now owned or hereafter acquired, whereby our company or a Restricted Subsidiary
sells or transfers such assets or properties and then or thereafter leases such
assets or properties or any part thereof or any other assets or properties which
our company or such Restricted Subsidiary, as the case may be, intends to use
for substantially the same purpose or purposes as the assets or properties sold
or transferred.
The foregoing restriction does not apply to any sale-leaseback transaction
if
(1) the lease is for a period, including renewal rights, of not in excess
of three years;
(2) the lease secures or relates to industrial revenue or pollution control
bonds;
(3) the transaction is solely between our company and any Wholly-Owned
Restricted Subsidiary or solely between Wholly-Owned Restricted
Subsidiaries; or
(4) our company or such Restricted Subsidiary, within 12 months after the
sale or transfer of any assets or properties is completed, applies an
amount not less than the net proceeds received from such sale in
accordance with clause (A) or (B) of the first paragraph of the
"Limitation on Asset Sales" covenant described below.
Limitation on Asset Sales
We will not, and will not permit any Restricted Subsidiary to, consummate
any Asset Sale, unless
(1) the consideration received by our company or such Restricted Subsidiary
is at least equal to the fair market value of the assets sold or
disposed of and
(2) at least 75% of the consideration received consists of cash or
Temporary Cash Investments; provided, however, that this clause (2)
shall not apply to long-term assignments in capacity in a
telecommunications network. In the event and to the extent that the Net
Cash Proceeds received by our company or any of its Restricted
Subsidiaries from one or more Asset Sales occurring on or after the
Closing Date in any period of 12 consecutive months exceed 10% of
Adjusted Consolidated Net Tangible Assets (determined as of the date
closest to the commencement of such 12-month period for which a
consolidated balance sheet of our company and its Subsidiaries has been
filed with the SEC pursuant to the "Commission Reports and Reports to
Holders" covenant), then our company shall or shall cause the relevant
Restricted Subsidiary to (1) within 12 months after the date Net Cash
Proceeds so received exceed 10% of Adjusted Consolidated Net Tangible
Assets (A) apply an amount equal to such excess Net Cash Proceeds to
permanently repay unsubordinated Indebtedness of our company, or any
Restricted Subsidiary providing a Subsidiary Guarantee pursuant to the
"Limitation on Issuances of Guarantees by Restricted Subsidiaries"
covenant described above or Indebtedness of any other Restricted
Subsidiary, in each case owing to a Person other than our company or
any of its Restricted Subsidiaries or (B) invest an equal amount, or
the amount not so applied pursuant to clause (A) (or enter into a
definitive agreement committing to so invest within 12 months after the
date of such agreement), in property or assets (other than current
assets) of a nature or type or that are used in a business (or in a
company having property and assets of a nature or type, or engaged in a
business) similar or related to the nature or type of the property and
assets of, or the business of, our company and its Restricted
Subsidiaries existing on the date of such investment (as determined in
good faith by the Board of Directors, whose determination shall be
conclusive and evidenced by a Board Resolution) and (2) apply (no later
than the end of the 12-month period referred to in clause (1)) such
excess Net Cash Proceeds (to the extent not applied pursuant to clause
(1)) as provided in the following paragraph of this "Limitation on
Asset Sales" covenant. The amount of such excess Net Cash Proceeds
required to be applied (or to be committed to be applied) during such
12-month period as set forth in clause (1) of the preceding sentence
and not applied as so required by the end of such period shall
constitute "Excess Proceeds."
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If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not theretofore subject to an Offer to Purchase pursuant to this
"Limitation on Asset Sales" covenant totals at least $5 million, our company
must commence, not later than the fifteenth Business Day of such month, and
consummate an Offer to Purchase from the holders on a pro rata basis an
aggregate principal amount of notes equal to the Excess Proceeds on such date,
at a purchase price equal to 101% of the principal amount of the notes, plus
accrued interest (if any) to the Payment Date.
REPURCHASE OF NOTES UPON A CHANGE OF CONTROL
We must commence, within 30 days of the occurrence of a Change of Control,
and consummate an Offer to Purchase for all notes then outstanding, at a
purchase price equal to 101% of the principal amount of the notes on the
relevant Payment Date, plus , accrued interest (if any) to the Payment Date.
Prior to the mailing of the notice to holders commencing such Offer to Purchase,
but in any event within 30 days following any Change of Control, our company
covenants to
(1) repay in full all indebtedness of our company that would prohibit the
repurchase of the notes pursuant to such Offer to Purchase or
(2) obtain any requisite consents under instruments governing any such
indebtedness of our company to permit the repurchase of the notes. The
Company shall first comply with the covenant in the preceding sentence
before it shall be required to repurchase notes pursuant to this
"Repurchase of Notes upon a Change of Control" covenant.
If our company is unable to repay all of its indebtedness that would
prohibit repurchase of the notes or is unable to obtain the consents of the
holders of indebtedness, if any, of our company outstanding at the time of a
Change of Control whose consent would be so required to permit the repurchase of
notes, then our company will have breached such covenant. This breach will
constitute an Event of Default under the Indenture if it continues for a period
of 30 consecutive days after written notice is given to our company by the
Trustee or the holders of at least 25% in aggregate principal amount of the
notes outstanding. In addition, the failure by our company to repurchase the
notes at the conclusion of the Offer to Purchase will constitute an Event of
Default without any waiting period or notice requirements.
SEC REPORTS AND REPORTS TO HOLDERS
Whether or not we are required to file reports with the SEC, if any notes
are outstanding, we will file with the SEC all such reports and other
information as we would be required to file with the SEC by Sections 13(a) or
15(d) under the Securities Exchange Act of 1934, as amended, if we were subject
thereto, unless we will be unable to effect such filing or the SEC will refuse
to accept such filing. We will supply the Trustee and each holder or will supply
to the Trustee for forwarding to each holder, without cost to such holder,
copies of such reports and other information, whether or not we will be unable
to effect such filing or the SEC refuses to accept such filing.
EVENTS OF DEFAULT
The following events will be defined as "Events of Default" in the
Indenture:
(a) default in the payment of principal of (or premium, if any, on) any
note when the same becomes due and payable at maturity, upon
acceleration, redemption or otherwise;
(b) default in the payment of interest on any note when the same becomes
due and payable, and such default continues for a period of 30 days;
(c) our company defaults in the performance of or breaches any other
covenant or agreement of our company in the Indenture or under the
notes and such default or breach continues for a period of 30
consecutive days after written notice by the Trustee or the holders of
25% or more in aggregate principal amount of the notes;
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(d) there occurs with respect to any issue or issues of Indebtedness of our
company or any Significant Subsidiary having an outstanding principal
amount of $5 million or more in the aggregate for all such issues of
all such Persons, whether such Indebtedness now exists or shall
hereafter be created, (I) an event of default that has caused the
holder thereof to declare such Indebtedness to be due and payable prior
to its Stated Maturity and such Indebtedness has not been discharged in
full or such acceleration has not been rescinded or annulled within 30
days of such acceleration and/or (II) the failure to make a principal
payment at the final (but not any interim) fixed maturity and such
defaulted payment shall not have been made, waived or extended within
30 days of such payment default;
(e) any final judgment or order (not covered by insurance) for the payment
of money in excess of $5 million in the aggregate for all such final
judgments or orders against all such Persons (treating any deductibles,
self-insurance or retention as not so covered) shall be rendered
against our company or any Significant Subsidiary and shall not be paid
or discharged, and either (A) an enforcement proceeding shall have been
commenced by a creditor upon such judgment or order or (B) there shall
be any period of 30 consecutive days following entry of the final
judgment or order that causes the aggregate amount for all such final
judgments or orders outstanding and not paid or discharged against all
such Persons to exceed $5 million during which a stay of enforcement of
such final judgment or order, by reason of a pending appeal or
otherwise, shall not be in effect;
(f) a court having jurisdiction in the premises enters a decree or order
for (A) relief in respect of our company or any Significant Subsidiary
in an involuntary case under any applicable bankruptcy, insolvency or
other similar law now or hereafter in effect, (B) appointment of a
receiver, liquidator, assignee, custodian, trustee, sequestrator or
similar official of our company or any Significant Subsidiary or for
all or substantially all of the property and assets of our company or
any Significant Subsidiary or (C) the winding up or liquidation of the
affairs of our company or any Significant Subsidiary and, in each case,
such decree or order shall remain unstayed and in effect for a period
of 30 consecutive days; or
(g) our company or any Significant Subsidiary (A) commences a voluntary
case under any applicable bankruptcy, insolvency or other similar law
now or hereafter in effect, or consents to the entry of an order for
relief in an involuntary case under any such law, (B) consents to the
appointment of or taking possession by a receiver, liquidator,
assignee, custodian, trustee, sequestrator or similar official of our
company or any Significant Subsidiary or for all or substantially all
of the property and assets of our company or any Significant Subsidiary
or (C) effects any general assignment for the benefit of creditors.
If an Event of Default (other than an Event of Default specified in clause
(f) or (g) above that occurs with respect to our company) occurs and is
continuing under the Indenture, the Trustee or the holders of at least 25% in
aggregate principal amount of the notes then outstanding, by written notice to
our company (and to the Trustee if such notice is given by the holders), may,
and the Trustee at the request of such holders shall, declare the principal of,
premium, if any, and accrued interest on the notes to be immediately due and
payable. Upon a declaration of acceleration, such principal of, premium, if any,
and accrued interest on the notes shall be immediately due and payable. In the
event of a declaration of acceleration because an Event of Default set forth in
clause (d) above has occurred and is continuing, such declaration of
acceleration shall be automatically rescinded and annulled if the event of
default triggering such Event of Default pursuant to clause (d) shall be
remedied or cured by our company or the relevant Significant Subsidiary or
waived by the holders of the relevant Indebtedness within 60 days after the
declaration of acceleration with respect thereto, and no other Defaults under
the Indenture have occurred and are continuing after giving pro forma effect to
such remedy, cure or waiver. If an Event of Default specified in clause (f) or
(g) above occurs with respect to our company, the principal of, premium, if any,
and accrued interest on the notes then outstanding shall ipso facto become and
be immediately due and payable without any declaration or other act on the part
of either Trustee or any holder. The holders of at least a majority in principal
amount of the outstanding notes by written notice to the Trustee, may waive all
past defaults and rescind and annul a declaration of acceleration and its
consequences if (i) all existing Events of Default, other than the nonpayment of
the principal of,
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premium, if any, and interest on the notes that have become due solely by such
declaration of acceleration, have been cured or waived and (ii) the rescission
would not conflict with any judgment or decree of a court of competent
jurisdiction. For information as to the waiver of defaults, see "-- Modification
and Waiver."
The holders of at least a majority in aggregate principal amount of the
outstanding notes may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee. However, the Trustee may refuse to follow any
direction that conflicts with law or the Indenture, that may involve the Trustee
in personal liability, or that the Trustee determines in good faith may be
unduly prejudicial to the rights of holders of notes not joining in the giving
of such direction and may take any other action it deems proper that is not
inconsistent with any such direction received from holders of notes. A holder
may not pursue any remedy with respect to the Indenture or the notes unless:
(1) the holder gives the Trustee written notice of a continuing Event of
Default;
(2) the holders of at least 25% in aggregate principal amount of
outstanding notes make a written request to the Trustee to pursue the
remedy;
(3) such holder or holders offer the Trustee indemnity satisfactory to the
Trustee against any costs, liability or expense;
(4) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer of indemnity; and
(5) during such 60-day period, the holders of a majority in aggregate
principal amount of the outstanding notes do not give the Trustee a
direction that is inconsistent with the request. However, such
limitations do not apply to the right of any holder of a note to
receive payment of the principal of, premium, if any, or interest on,
such note or to bring suit for the enforcement of any such payment, on
or after the due date expressed in the notes, which right shall not be
impaired or affected without the consent of the holder.
The Indenture will require certain officers of our company to certify, on
or before a date not more than 90 days after the end of each fiscal year, that a
review has been conducted of the activities of our company and its Restricted
Subsidiaries and our company's, and its Restricted Subsidiaries' performance
under the Indenture and that our company has fulfilled all obligations
thereunder, or, if there has been a default in the fulfillment of any such
obligation, specifying each such default and the nature and status thereof. The
Company will also be obligated to notify the Trustee of any default or defaults
in the performance of any covenants or agreements under the Indenture.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company will not consolidate with, merge with or into, or sell, convey,
transfer, lease or otherwise dispose of all or substantially all of its property
and assets (as an entirety or substantially an entirety in one transaction or a
series of related transactions) to, any Person (other than a consolidation or
merger with or into a Wholly-Owned Restricted Subsidiary with a positive net
worth; provided that, in connection with any such merger or consolidation, no
consideration (other than Common Stock in the surviving Person or our company
shall be issued or distributed to the stockholders of our company) or permit any
Person to merge with or into our company unless:
(1) our company shall be the continuing Person, or the Person (if other
than our company) formed by such consolidation or into which our
company is merged or that acquired or leased such property and assets
of our company shall be a corporation organized and validly existing
under the laws of the United States of America or any jurisdiction
thereof and shall expressly assume, by a supplemental indenture,
executed and delivered to the Trustees, all of the obligations of our
company on all of the notes and under the Indenture;
(2) immediately after giving effect to such transaction, no Default or
Event of Default shall have occurred and be continuing;
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(3) immediately after giving effect to such transaction on a pro forma
basis, our company or any Person becoming the successor obligor of the
notes shall have a Consolidated Net Worth equal to or greater than the
Consolidated Net Worth of our company immediately prior to such
transaction;
(4) immediately after giving effect to such transaction on a pro forma
basis our company, or any Person becoming the successor obligor of the
notes, as the case may be, could Incur at least $1.00 of Indebtedness
under the first paragraph of the "Limitation on Indebtedness" covenant;
provided that this clause (4) shall not apply to (x) a consolidation,
merger or sale of all (but not less than all) of the assets of our
company if all Liens and Indebtedness of our company or any Person
becoming the successor obligor on the notes, as the case may be, and
its Restricted Subsidiaries outstanding immediately after such
transaction would, if Incurred at such time, have been permitted to be
Incurred (and all such Liens and Indebtedness, other than Liens and
Indebtedness of our company and its Restricted Subsidiaries outstanding
immediately prior to the transaction, shall be deemed to have been
Incurred) for all purposes of the Indenture or (y) a consolidation,
merger or sale of all or substantially all of the assets of our company
if immediately after giving effect to such transaction on a pro forma
basis, our company or any Person becoming the successor obligor of the
notes shall have an Indebtedness to EBITDA Ratio equal to or less than
the Indebtedness to EBITDA Ratio of our company immediately prior to
such transaction; and
(5) our company delivers to the Trustee an Officers' Certificate (attaching
the arithmetic computations to demonstrate compliance with clauses (3)
and (4) above) and Opinion of Counsel, in each case stating that such
consolidation, merger or transfer and such supplemental indenture
complies with this provision and that all conditions precedent provided
for herein relating to such transaction have been complied with;
provided, however, that clauses (3) and (4) above do not apply if, in
the good faith determination of the Board of Directors of our company,
whose determination shall be evidenced by a Board Resolution, the
principal purpose of such transaction is to change the state of
incorporation of our company; and provided further that any such
transaction shall not have as one of its purposes the evasion of the
foregoing limitations.
DEFEASANCE
Defeasance and Discharge. The Indenture will provide that our company will
be deemed to have paid and will be discharged from any and all obligations in
respect of the notes on the 123rd day after the deposit referred to below, and
the provisions of the Indenture will no longer be in effect with respect to the
notes (except for, among other matters, certain obligations to register the
transfer or exchange of the notes, to replace stolen, lost or mutilated notes,
to maintain paying agencies and to hold monies for payment in trust) if, among
other things,
(A) our company has deposited with the Trustee, in trust, money and/or U.S.
Government Obligations that through the payment of interest and
principal in respect thereof in accordance with their terms will
provide money in an amount sufficient to pay the principal of, premium,
if any, and accrued interest on the notes on the Stated Maturity of
such payments in accordance with the terms of the Indenture and the
notes,
(B) our company has delivered to the Trustee (1) either (x) an Opinion of
Counsel to the effect that holders will not recognize income, gain or
loss for federal income tax purposes as a result of our company's
exercise of its option under this "Defeasance" provision and will be
subject to federal income tax on the same amount and in the same manner
and at the same times as would have been the case if such deposit,
defeasance and discharge had not occurred, which Opinion of Counsel
must be based upon (and accompanied by a copy of) a ruling of the
Internal Revenue Service to the same effect unless there has been a
change in applicable federal income tax law after the Closing Date such
that a ruling is no longer required or (y) a ruling directed to the
Trustee received from the Internal Revenue Service to the same effect
as the aforementioned Opinion of Counsel and (2) an Opinion of Counsel
to the effect that the creation of the defeasance trust does not
violate the Investment Company Act of 1940 and after the passage of 123
days following the deposit, the trust
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fund will not be subject to the effect of Section 547 of the United
States Bankruptcy Code or Section 15 of the New York Debtor and
Creditor Law,
(C) immediately after giving effect to such deposit on a pro forma basis,
no Event of Default, or event that after the giving of notice or lapse
of time or both would become an Event of Default, shall have occurred
and be continuing on the date of such deposit or during the period
ending on the 123rd day after the date of such deposit, and such
deposit shall not result in a breach or violation of, or constitute a
default under, any other agreement or instrument to which our company
or any of its Subsidiaries is a party or by which our company or any of
its Subsidiaries is bound, and
(D) if at such time the notes are listed on a national securities exchange,
our company has delivered to the Trustee an Opinion of Counsel to the
effect that the notes will not be delisted as a result of such deposit,
defeasance and discharge.
Defeasance of Certain Covenants and Certain Events of Default. The
Indenture further will provide that the provisions of the Indenture will no
longer be in effect with respect to clauses (3) and (4) under "Consolidation,
Merger and Sale of Assets" and all the covenants described herein under
"Covenants," and clause (c) under "Events of Default" with respect to such
clauses (3) and (4) under "Consolidation, Merger and Sale of Assets," and
clauses (d) and (e) under "Events of Default" shall be deemed not to be Events
of Default upon, among other things, the deposit with the Trustee, in trust, of
money and/or U.S. Government Obligations that through the payment of interest
and principal in respect thereof in accordance with their terms will provide
money in an amount sufficient to pay the principal of, premium, if any, and
accrued interest on the notes on the Stated Maturity of such payments in
accordance with the terms of the Indenture and the notes, the satisfaction of
the provisions described in clauses (B)(2), (C) and (D) of the preceding
paragraph and the delivery by our company to the Trustee of an Opinion of
Counsel to the effect that, among other things, the holders will not recognize
income, gain or loss for federal income tax purposes as a result of such deposit
and defeasance of certain covenants and Events of Default and will be subject to
federal income tax on the same amount and in the same manner and at the same
times as would have been the case if such deposit and defeasance had not
occurred.
Defeasance and Certain Other Events of Default. If our company exercises
its option to omit compliance with certain covenants and provisions of the
Indenture with respect to the notes as described in the immediately preceding
paragraph and the notes are declared due and payable because of the occurrence
of an Event of Default that remains applicable, the amount of money and/or U.S.
Government Obligations on deposit with the Trustee will be sufficient to pay
amounts due on the notes at the time of their Stated Maturity but may not be
sufficient to pay amounts due on the notes at the time of the acceleration
resulting from such Event of Default. However, our company will remain liable
for such payments.
MODIFICATION AND WAIVER
Modifications and amendments of an Indenture may be made by our company and
the Trustee with the consent of the holders of not less than a majority in
aggregate principal amount of the outstanding notes; provided, however, that no
such modification or amendment may, without the consent of each holder affected
thereby,
(1) change the Stated Maturity of the principal of, or any installment of
interest on, any note,
(2) reduce the principal amount of, or premium, if any, or interest on, any
note, or adversely affect any right of repayment at the option of any
holder of any note,
(3) change the place or currency of payment of principal of, or premium, if
any, or interest on, any note,
(4) impair the right to institute suit for the enforcement of any payment
on or after the Stated Maturity (or, in the case of a redemption, on or
after the Redemption Date) of any note,
(5) reduce the above-stated percentage of outstanding notes the consent of
whose holders is necessary to modify, supplement or amend the
Indenture,
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(6) waive a default in the payment of principal of, premium, if any, or
interest on the notes, or
(7) reduce the percentage or aggregate principal amount of outstanding
notes the consent of whose holders is necessary for waiver of
compliance with certain provisions of the Indenture or for waiver of
certain defaults.
NO PERSONAL LIABILITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS, DIRECTORS, OR
EMPLOYEES
The Indenture provides that no recourse for the payment of the principal
of, premium, if any, or interest on any of the notes or for any claim based
thereon or otherwise in respect thereof, and no recourse under or upon any
obligation, covenant or agreement of our company in the Indenture, or in any of
the notes or because of the creation of any Indebtedness represented thereby,
shall be had against any incorporator, stockholder, officer, director, employee
or controlling person of our company or of any successor Person thereof. Each
holder, by accepting the notes, waives and releases all such liability.
CONCERNING THE TRUSTEE
The Indenture provides that, except during the continuance of a Default,
the Trustee will not be liable, except for the performance of such duties as are
specifically set forth in such Indenture. If an Event of Default has occurred
and is continuing, the Trustee will use the same degree of care and skill in its
exercise of the rights and powers vested in it under the Indenture as a prudent
person would exercise under the circumstances in the conduct of such person's
own affairs.
The Indenture and provisions of the Trust Indenture Act of 1939, as
amended, incorporated by reference therein contain limitations on the rights of
the Trustee, should it become a creditor of our company, to obtain payment of
claims in certain cases or to realize on certain property received by it in
respect of any such claims, as security or otherwise. The Trustee is permitted
to engage in other transactions; provided, however, that if it acquires any
conflicting interest, it must eliminate such conflict or resign.
GOVERNING LAW AND SUBMISSION TO JURISDICTION
The notes and the Indenture will be governed by the laws of the State of
New York. We will submit to the jurisdiction of the U.S. federal and New York
state courts located in the City of New York for purposes of all legal actions
and proceedings instituted in connection with the notes and the Indenture.
CURRENCY INDEMNITY
U.S. dollars are the sole currency of account and payment for all sums
payable by us under or in connection with the notes, including damages. Any
amount received or recovered in a currency other than dollars (whether as a
result of, or of the enforcement of, a judgment or order of a court of any
jurisdiction, in the winding-up or dissolution of our company or otherwise) by
any holder of a note in respect of any sum expressed to be due to it from our
company shall only constitute a discharge to our company to the extent of the
dollar amount which the recipient is able to purchase with the amount so
received or recovered in that other currency on the date of that receipt or
recovery (or, if it is not practicable to make that purchase on that date, on
the first date on which it is practicable to do so). If that dollar amount is
less than the dollar amount expressed to be due to the recipient under any note,
we will indemnify the recipient against any loss sustained by it as a result. In
any event, we will indemnify the recipient against the cost of making any such
purchase. For the purposes of this paragraph, it will be sufficient for the
holder of a note to certify in a satisfactory manner (indicating the sources of
information used) that it would have suffered a loss had an actual purchase of
dollars been made with the amount so received in that other currency on the date
of receipt or recovery (or, if a purchase of dollars on such date had not been
practicable, on the first date on which it would have been practicable, it being
required that the need for a change of date be certified in the manner mentioned
above). These indemnities constitute a separate and independent obligation from
our Company's other obligations, shall give rise to a separate and independent
cause of action, shall apply irrespective of any indulgence granted by any
holder of a note and shall continue in full force and effect despite any other
judgment, order, claim or proof for a liquidated amount in respect of any sum
due under any note.
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BOOK-ENTRY; DELIVERY AND FORM
Except as set forth below, the New Notes to be issued upon the consummation
of the Exchange Offer will be issued in the form of a single global note. The
global note will be deposited with the Trustee as custodian for, and registered
in the name of, a nominee of DTC. Except as set forth below, the global note may
be transferred, in whole and not in part, only to the DTC or another nominee of
the DTC. Ownership of beneficial interests in a global note will be limited to
persons who have accounts with DTC (referred to as "participants") or persons
who hold interests through participants. Ownership of beneficial interests in a
global note will be shown on, and the transfer of that ownership will be
effected only through, records maintained by DTC or its nominee (with respect to
interests of participants) and the records of participants (with respect to
interests of persons other than participants).
So long as DTC, or its nominee, is the registered owner or holder of a
global note, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the notes represented by such global note for all
purposes under the Indenture and the notes. You will not be able to transfer
your interest in a global note except in accordance with DTC's applicable
procedures in addition to those provided for under the Indenture.
Payments of the principal of, and interest on, a global note will be made
to DTC or its nominee, as the case may be, as the registered owner thereof.
Neither our company, the Trustee nor any Paying Agent will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in a global note or
for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
We expect that DTC or its nominee, upon receipt of any payment of principal
or interest in respect of a global note, will credit participants' accounts with
payments in amounts proportionate to their respective beneficial interests in
the principal amount of such global note as shown on the records of DTC or its
nominee. We also expect that payments by participants to owners of beneficial
interests in such global note held through such participants will be governed by
standing instructions and customary practices, as is now the case with
securities held for the accounts of customers registered in the names of
nominees for such customers. Such payments will be the responsibility of such
participants.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in same-day funds. Transfers
between participants in Euroclear and Cedel Bank will be effected in the
ordinary way in accordance with their respective rules and operating procedures.
We expect that DTC will take any action permitted to be taken by a holder
of notes (including the presentation of notes for exchange as described below)
only at the direction of one or more participants to whose account the DTC
interests in a global note is credited and only in respect of such portion of
the aggregate principal amount of notes as to which such participant or
participants has or have given such direction. However, if there is an event of
default under the notes, DTC will exchange the applicable global note for
certificated notes, which it will distribute to its participants and which may
bear a legend containing certain transfer restrictions.
We understand that DTC is a limited purpose trust company organized under
the laws of the State of New York, a "banking organization" within the meaning
of New York Banking Law, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the Uniform Commercial Code and a "Clearing
Agency" registered pursuant to the provisions of Section 17A of the Exchange
Act. DTC was created to hold securities for its participants and facilitate the
clearance and settlement of securities transactions between participants through
electronic book-entry changes in accounts of its participants, thereby
eliminating the need for physical movement of certificates and certain other
organizations. Indirect access to the DTC system is available to others such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or indirectly
("indirect participants").
Although DTC is expected to follow the foregoing procedures in order to
facilitate transfers of interests in a global note among participants of DTC,
they are under no obligation to perform or continue to perform these procedures,
and these procedures may be discontinued at any time. Neither our company nor
the Trustee will
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have any responsibility for the performance by DTC or its participants or
indirect participants of their respective obligations under the rules and
procedures governing their operations.
If DTC is at any time unwilling or unable to continue as a depositary for
the global notes and a successor depositary is not appointed by our company
within 90 days, we will issue certificated notes, which may bear a legend
containing certain transfer restrictions in exchange for the global notes.
Holders of an interest in a global note may receive certificated notes, which
may bear a legend containing certain transfer restrictions in accordance with
the DTC's rules and procedures in addition to those provided for under the
Indenture.
LUXEMBOURG STOCK EXCHANGE LISTING
We have applied to list the notes on the Luxembourg Stock Exchange. As long
as the notes are listed on the Luxembourg Stock Exchange and the exchange so
requires, we will maintain a transfer and paying agent in Luxembourg. The name
and address of the initial transfer and paying agent in Luxembourg is Banque
Internationale a Luxembourg S.A., 69, route d'Esch, L-1470, Luxembourg. Upon
maturity, notes may be presented for payment at the offices of the transfer and
paying agent in Luxembourg.
All notices to holders of the notes, including any notices with respect to
the redemption of all or a portion of the notes by us, notices to holders of the
notes of an Offer to Purchase all notes then outstanding in the event of a
Change of Control, or notices with respect to the Exchange Offer, will be given
by publication in a daily newspaper in Luxembourg, which is expected to be the
Luxemburger Wort. If publication in accordance with the preceding sentence is
not practicable, notice will be validly given if made in accordance with the
requirements of the Luxembourg Stock Exchange.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
covenants and other provisions of the Indenture. Reference is made to the
Indenture for the definition of any other capitalized term used herein for which
no definition is provided.
"Acquired Indebtedness" means Indebtedness of a Person existing at the time
such Person becomes a Restricted Subsidiary or assumed in connection with an
Asset Acquisition by a Restricted Subsidiary and not Incurred in connection
with, or in anticipation of, such Person becoming a Restricted Subsidiary or
such Asset Acquisition.
"Adjusted Consolidated Net Income" means, for any period, the aggregate net
income (or loss) of our company and its Restricted Subsidiaries for such period
determined in conformity with GAAP; provided that the following items shall be
excluded in computing Adjusted Consolidated Net Income (without duplication):
(1) the net income (or loss) of any Person that is not a Restricted
Subsidiary, except (x) with respect to net income, to the extent of the
amount of dividends or other distributions actually paid to our company
or any of its Restricted Subsidiaries by such Person during such period
and (y) with respect to net losses, to the extent of the amount of
Investments made by our company or any Restricted Subsidiary in such
Person during such period;
(2) solely for the purposes of calculating the amount of Restricted
Payments that may be made pursuant to clause (C) of the first paragraph
of the "Limitation on Restricted Payments" covenant described below
(and in such case, except to the extent includable pursuant to clause
(1) above), the net income (or loss) of any Person accrued prior to the
date it becomes a Restricted Subsidiary or is merged into or
consolidated with our company or any of its Restricted Subsidiaries or
all or substantially all of the property and assets of such Person are
acquired by our company or any of its Restricted Subsidiaries;
(3) the net income of any Restricted Subsidiary to the extent that the
declaration or payment of dividends or similar distributions by such
Restricted Subsidiary of such net income is not at the time permitted
by the operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to such Restricted Subsidiary;
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(4) any gains or losses (on an after-tax basis) attributable to Asset
Sales;
(5) except for purposes of calculating the amount of Restricted Payments
that may be made pursuant to clause (C) of the first paragraph of the
"Limitation on Restricted Payments" covenant described below, any
amount paid or accrued as dividends on preferred stock of our company
or any Restricted Subsidiary owned by Persons other than our company
and any of its Restricted Subsidiaries;
(6) all extraordinary gains and extraordinary losses; and
(7) any compensation expense paid or payable solely with Capital Stock
(other than Disqualified Stock) of our company or any options, warrants
or other rights to acquire Capital Stock (other than Disqualified
Stock) of our company.
"Adjusted Consolidated Net Tangible Assets" means the total amount of
assets of our company and our Restricted Subsidiaries (less applicable
depreciation, amortization and other valuation reserves), except to the extent
resulting from write-ups of capital assets (excluding write-ups in connection
with accounting for acquisitions in conformity with GAAP), after deducting
therefrom
(1) all current liabilities of our company and our Restricted Subsidiaries
(excluding intercompany items) and
(2) all goodwill, trade names, trademarks, patents, unamortized debt
discount and expense and other like intangibles, all as set forth on
the most recent quarterly or annual consolidated balance sheet of our
company and its Restricted Subsidiaries, prepared in conformity with
GAAP and filed with the SEC or provided to the Trustee pursuant to the
"Commission Reports and Reports to Holders" covenant.
"Affiliate" means, as applied to any Person, any other Person directly or
indirectly controlling, controlled by, or under direct or indirect common
control with, such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as applied to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
"Asset Acquisition" means
(1) an investment by our company or any of its Restricted Subsidiaries in
any other Person pursuant to which such Person shall become a
Restricted Subsidiary or shall be merged into or consolidated with our
company or any of its Restricted Subsidiaries; provided that such
Person's primary business is related, ancillary or complementary to the
businesses of our company and its Restricted Subsidiaries on the date
of such investment or
(2) an acquisition by our company or any of its Restricted Subsidiaries of
the property and assets of any Person other than our company or any of
its Restricted Subsidiaries that constitute substantially all of a
division or line of business of such Person; provided that the property
and assets acquired are related, ancillary or complementary to the
businesses of our company and its Restricted Subsidiaries on the date
of such acquisition.
"Asset Disposition" means the sale or other disposition by our company or
any of its Restricted Subsidiaries (other than to our company or another
Restricted Subsidiary) of
(1) all or substantially all of the Capital Stock of any Restricted
Subsidiary or
(2) all or substantially all of the assets that constitute a division or
line of business of our company or any of its Restricted Subsidiaries.
"Asset Sale" means any sale, transfer or other disposition (including by
way of merger, consolidation or sale-leaseback transaction) in one transaction
or a series of related transactions by our company or any of its Restricted
Subsidiaries to any Person other than our company or any of its Restricted
Subsidiaries of
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(1) all or any of the Capital Stock of any Restricted Subsidiary,
(2) all or substantially all of the property and assets of an operating
unit or business of our company or any of its Restricted Subsidiaries,
or
(3) any other property and assets (other than the Capital Stock of, or
other Investment in, an Unrestricted Subsidiary) of our company or any
of its Restricted Subsidiaries outside the ordinary course of business
of our company or such Restricted Subsidiary and, in each case, that is
not governed by the provisions of the Indenture applicable to mergers,
consolidations and sales of all or substantially all of the assets of
our company; provided that "Asset Sale" shall not include (a) sales or
other dispositions of equipment that has become obsolete or no longer
useful in the business of our company or its Restricted Subsidiaries or
inventory, receivables and other current assets, (b) sales, transfers
or other dispositions of assets constituting a Restricted Payment
permitted to be made under the "Limitation on Restricted Payments"
covenant, (c) sales, transfers or other dispositions of assets with a
fair market value (as certified in an Officers' Certificate) not in
excess of $1 million in any transaction or series of related
transactions, (d) sales or other dispositions of assets for
consideration at least equal to the fair market value of the assets
sold or disposed of, to the extent that the consideration received
would constitute property or assets of the kind described in clause (B)
of the "Limitation on Asset Sales" covenant or (e) issuances and sales
of common stock of Restricted Subsidiaries in accordance with clauses
(1), (3) or (5) of the second paragraph of the "Limitation on the
Issuance of and Sale of Capital Stock of Restricted Subsidiaries"
covenant.
"Average Life" means, at any date of determination with respect to any debt
security, the quotient obtained by dividing
(1) the sum of the products of (a) the number of years from such date of
determination to the dates of each successive scheduled principal
payment of such debt security and (b) the amount of such principal
payment by
(2) the sum of all such principal payments.
"Bank" means Banco Rio de la Plata S.A. and any other party that the Board
of Directors has determined does not present any material credit risk.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) in equity of such Person, whether outstanding on the
Closing Date or issued thereafter, including, without limitation, all common
stock and preferred stock.
"Capitalized Lease" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) of which the discounted present value
of the rental obligations of such Person as lessee, in conformity with GAAP, is
required to be capitalized on the balance sheet of such Person.
"Capitalized Lease Obligations" means the discounted present value of the
rental obligations under a Capitalized Lease.
"Change of Control" means such time as
(1) a "person" or "group" (within the meaning of Sections 13(d) and
14(d)(2) of the Exchange Act) becomes the ultimate "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act) of Voting Stock
representing more than 30% of the total voting power of the Voting
Stock of our company on a fully diluted basis and such ownership
represents a greater percentage of the total voting power of the Voting
Stock of our company, on a fully diluted basis, than is held by the
Existing Stockholders on such date; or
(2) individuals who on the Closing Date constitute the Board of Directors
(together with any new directors whose election by the Board of
Directors or whose nomination for election by our company's
stockholders was approved by a vote of at least two-thirds of the
members of the Board of Directors then in office who either were
members of the Board of Directors on the Closing Date or
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whose election or nomination for election was previously so approved)
cease for any reason to constitute a majority of the members of the
Board of Directors then in office.
"Closing Date" means the date on which the notes are originally issued
under the Indenture.
"Consolidated EBITDA" means, for any period, Adjusted Consolidated Net
Income for such period plus, to the extent such amount was deducted in
calculating such Adjusted Consolidated Net Income,
(1) Consolidated Interest Expense,
(2) income taxes (other than income taxes (either positive or negative)
attributable to extraordinary and non-recurring gains or losses or
sales of assets) and the portion of any other tax payable as a result
of generating income before taxes,
(3) depreciation expense,
(4) amortization expense, and
(5) all other non-cash items reducing Adjusted Consolidated Net Income
(other than items that will require cash payments and for which an
accrual or reserve is, or is required by GAAP to be, made), less all
non-cash items increasing Adjusted Consolidated Net Income, all as
determined on a consolidated basis for our company and its Restricted
Subsidiaries in conformity with GAAP; provided that, if any Restricted
Subsidiary is not a Wholly Owned Restricted Subsidiary, Consolidated
EBITDA shall be reduced (to the extent not otherwise reduced in
accordance with GAAP) by an amount equal to (A) the amount of the
Adjusted Consolidated Net Income attributable to such Restricted
Subsidiary multiplied by (B) the percentage ownership interest in the
income of such Restricted Subsidiary not owned on the last day of such
period by our company or any of its Restricted Subsidiaries.
"Consolidated Interest Expense" means, for any period, the aggregate amount
of interest in respect of Indebtedness (including, without limitation,
amortization of original issue discount on any Indebtedness and the interest
portion of any deferred payment obligation, calculated in accordance with the
effective interest method of accounting; all commissions, discounts and other
fees and charges owed with respect to letters of credit and bankers' acceptance
financing; the net costs associated with Interest Rate Agreements; and interest
paid or accrued (by any Person) on Indebtedness that is Guaranteed or secured by
our company or any of its Restricted Subsidiaries) and all but the principal
component of rentals in respect of Capitalized Lease Obligations paid, accrued
or scheduled to be paid or to be accrued by our company and its Restricted
Subsidiaries during such period; excluding, however,
(1) any amount of such interest of any Restricted Subsidiary if the net
income of such Restricted Subsidiary is excluded in the calculation of
Adjusted Consolidated Net Income pursuant to clause (3) of the
definition thereof (but only in the same proportion as the net income
of such Restricted Subsidiary is excluded from the calculation of
Adjusted Consolidated Net Income pursuant to clause (3) of the
definition thereof) and
(2) any premiums, fees and expenses (and any amortization thereof) payable
in connection with the offering of the notes, the offering of our
12 1/8% Senior Guaranteed Notes due 2003, and the offering of our
12 3/8% Senior Notes due 2008, all as determined on a consolidated
basis (without taking into account Unrestricted Subsidiaries) in
conformity with GAAP.
"Consolidated Net Worth" means, at any date of determination, stockholders'
equity as set forth on the quarterly or annual consolidated balance sheet of our
company and its Restricted Subsidiaries most recently filed with the SEC or
provided to the Trustee pursuant to the "Commission Reports and Reports to
Holders" covenant described below, less the amount of stockholders' equity
attributable to Unrestricted Subsidiaries and any amounts attributable to
Disqualified Stock or any equity security convertible into or exchangeable for
Indebtedness, the cost of treasury stock and the principal amount of any
promissory notes receivable from the sale of the Capital Stock of our company or
any of its Restricted Subsidiaries, each item to be determined in
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conformity with GAAP (excluding the effects of foreign currency exchange
adjustments under Financial Accounting Standards Board Statement of Financial
Accounting Standards No. 52).
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Disqualified Stock" means any class or series of Capital Stock of any
Person that by its terms or otherwise is
(1) required to be redeemed prior to the Stated Maturity of the notes,
(2) redeemable at the option of the holder of such class or series of
Capital Stock at any time prior to the Stated Maturity of the notes, or
(3) convertible into or exchangeable for Capital Stock referred to in
clause (1) or (2) above or Indebtedness having a scheduled maturity
prior to the Stated Maturity of the notes; provided that any Capital
Stock that would not constitute Disqualified Stock but for provisions
thereof giving holders thereof the right to require such Person to
repurchase or redeem such Capital Stock upon the occurrence of an
"asset sale" or "change of control" occurring prior to the Stated
Maturity of the notes shall not constitute Disqualified Stock if the
"asset sale" or "change of control" provisions applicable to such
Capital Stock are no more favorable to the holders of such Capital
Stock than the provisions in favor of holders that are contained in
"Limitation on Asset Sales" and "Repurchase of Notes upon a Change of
Control" covenants described below and such Capital Stock, or the
agreements or instruments governing the redemption rights thereof,
specifically provides that such Person will not repurchase or redeem
any such stock pursuant to such provision prior to our company's
repurchase of such notes as are required to be repurchased pursuant to
the "Limitation on Asset Sales" and "Repurchase of Notes upon a Change
of Control" covenants described below.
"Existing Stockholders" means
(1) Mr. Enrique Pescarmona, Mrs. Silvia Monica Pescarmona de Baldini, Mrs.
Liliana Pescarmona de Mayol, Mr. Roberto Vivo and Mr. Ricardo
Verdaguer,
(2) a parent, brother or sister of any of the individuals named in clause
(1),
(3) the spouse of any individual named in clause (1) or (2),
(4) the lineal descendants of any person named in clauses (1) through (3),
(5) the estate or any guardian, custodian or other legal representative of
any individual named in clauses (1) through (4),
(6) any trust established solely for the benefit of any one or more of the
individuals named in clauses (1) through (5),
(7) any Person in which all of the equity interests are owned, directly or
indirectly, by any one or more of the Persons named in clauses (1)
through (6) or clauses (8), (9) or (12),
(8) Nevasa Holdings Ltd.,
(9) Corporacion IMPSA, S.A.,
(10) Princes Gate Investors II, L.P.,
(11) Morgan Stanley Global Emerging Markets Private Investment Fund, L.P.,
(12) British Telecommunications plc, and
(13) any Affiliate of any of the Persons named in clauses (10), (11) or
(12).
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"Fair market value" means the price that would be paid in an arm's-length
transaction between an informed and willing seller under no compulsion to sell
and an informed and willing buyer under no compulsion to buy, as determined in
good faith by the Board of Directors, whose determination shall be conclusive if
evidenced by a Board Resolution.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the date of determination, including, without
limitation, those set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other entity as approved by a significant segment
of the accounting profession. All ratios and computations contained or referred
to in the Indenture shall be computed in conformity with GAAP applied on a
consistent basis, except that calculations made for purposes of determining
compliance with the terms of the covenants and with other provisions of the
Indenture shall be made without giving effect to
(1) the amortization of any expenses incurred in connection with the
offering of the notes, the offering of our 12 1/8% Senior Guaranteed
Notes due 2003 and the offering of our 12 3/8% Senior Notes due 2008,
(2) except as otherwise provided, the amortization of any amounts required
or permitted by Accounting Principles Board Opinion Nos. 16 and 17 and
(3) any nonrecurring charges associated with the adoption, after the
Closing Date, of Financial Accounting Standard Nos. 106 and 109.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness or other obligation of any
other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person
(1) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness or other obligation of such other Person
(whether arising by virtue of partnership arrangements, or by
agreements to keep-well, to purchase assets, goods, securities or
services (unless such purchase arrangements are on arm's-length terms
and are entered into in the ordinary course of business), to
take-or-pay, or to maintain financial statement conditions or
otherwise) or
(2) entered into for purposes of assuring in any other manner the obligee
of such Indebtedness or other obligation of the payment thereof or to
protect such obligee against loss in respect thereof (in whole or in
part); provided that the term "Guarantee" shall not include
endorsements for collection or deposit in the ordinary course of
business. The term "Guarantee" used as a verb has a corresponding
meaning.
"Incur" means, with respect to any Indebtedness, to incur, create, issue,
assume, Guarantee or otherwise become liable for or with respect to, or become
responsible for, the payment of, contingently or otherwise, such Indebtedness,
including, with respect to our company and its Restricted Subsidiaries, an
"Incurrence" of Acquired Indebtedness; provided that neither the accrual of
interest nor the accretion of original issue discount shall be considered an
Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person at any date of
determination (without duplication),
(1) all indebtedness of such Person for borrowed money,
(2) all obligations of such Person evidenced by bonds, debentures, notes or
other similar instruments,
(3) all obligations of such Person in respect of letters of credit or other
similar instruments (including reimbursement obligations with respect
thereto, but excluding obligations with respect to letters of credit
(including trade letters of credit) securing obligations (other than
obligations described in (1) or (2) above or (5), (6) or (7) below)
entered into in the ordinary course of business of such Person to the
extent such letters of credit are not drawn upon or, if drawn upon, to
the extent such drawing is reimbursed no later than the third Business
Day following such drawing),
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(4) all obligations of such Person to pay the deferred and unpaid purchase
price of property or services, which purchase price is due more than
six months after the date of placing such property in service or taking
delivery and title thereto or the completion of such services, except
Trade Payables,
(5) all Capitalized Lease Obligations of such Person,
(6) all Indebtedness of other Persons secured by a Lien on any asset of
such Person, whether or not such Indebtedness is assumed by such
Person; provided that the amount of such Indebtedness shall be the
lesser of (A) the fair market value of such asset at such date of
determination and (B) the amount of such Indebtedness,
(7) all Indebtedness of other Persons Guaranteed by such Person to the
extent such Indebtedness is Guaranteed by such Person, and
(8) to the extent not otherwise included in this definition, obligations
under Currency Agreements and Interest Rate Agreements. The amount of
Indebtedness of any Person at any date shall be (without duplication)
the outstanding balance at such date of all unconditional obligations
as described above and, with respect to contingent obligations, the
maximum liability upon the occurrence of the contingency giving rise to
the obligation (unless the underlying contingency has not occurred and
the occurrence of the underlying contingency is entirely within the
control of our company or its Restricted Subsidiaries), provided (A)
that the amount outstanding at any time of any Indebtedness issued with
original issue discount is the original issue price of such
Indebtedness, (B) that money borrowed and set aside at the time of the
Incurrence of any Indebtedness in order to prefund the payment of the
interest on such Indebtedness shall not be deemed to be "Indebtedness"
and (C) that Indebtedness shall not include any liability for federal,
state, local or other taxes.
"Indebtedness to EBITDA Ratio" means, on any Transaction Date, the ratio of
(1) the aggregate amount of Indebtedness of our company and its Restricted
Subsidiaries on a consolidated basis outstanding on such Transaction
Date to
(2) the aggregate amount of Consolidated EBITDA for the then most recent
four fiscal quarters for which financial statements of our company have
been filed with the SEC or provided to the Trustee pursuant to the
"Commission Reports and Reports to Holders" covenant described below
(such four fiscal quarter period being the "Four Quarter Period");
provided that, in making the foregoing calculation, (A) pro forma
effect shall be given to any Indebtedness to be Incurred or repaid on
the Transaction Date; (B) pro forma effect shall be given to Asset
Dispositions and Asset Acquisitions (including giving pro forma effect
to the application of proceeds of any Asset Disposition) that occur
from the beginning of the Four Quarter Period through the Transaction
Date (the "Reference Period"), as if they had occurred and such
proceeds had been applied on the first day of such Reference Period;
and (C) pro forma effect shall be given to asset dispositions and asset
acquisitions (including giving pro forma effect to the application of
proceeds of any asset disposition) that have been made by any Person
that has become a Restricted Subsidiary or has been merged with or into
our company or any Restricted Subsidiary during such Reference Period
and that would have constituted Asset Dispositions or Asset
Acquisitions had such transactions occurred when such Person was a
Restricted Subsidiary as if such asset dispositions or asset
acquisitions were Asset Dispositions or Asset Acquisitions that
occurred on the first day of such Reference Period; provided that to
the extent that clause (B) or (C) of this sentence requires that pro
forma effect be given to an Asset Acquisition or Asset Disposition,
such pro forma calculation shall be based upon the four full fiscal
quarters immediately preceding the Transaction Date of the Person, or
division or line of business of the Person, that is acquired or
disposed of for which financial information is available.
"Interest Rate Agreement" means any interest rate protection agreement,
interest rate future agreement, interest rate option agreement, interest rate
swap agreement, interest rate cap agreement, interest rate collar agreement,
interest rate hedge agreement, option or future contract or other similar
agreement or arrangement.
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"Intermediary Documents" means documents relating to the issuance of one or
more Certificates of Deposit (the "Certificates of Deposit") by the Issuer to
our company, the issuance of one or more promissory notes (having a principal
amount equal to the principal amount of the Certificate of Deposit (the
"Promissory Notes")) by any Restricted Subsidiary to the Bank and the Guarantees
of the Promissory Notes by our company.
"Investment" in any Person means any direct or indirect advance, loan or
other extension of credit (including, without limitation, by way of Guarantee or
similar arrangement; but excluding advances to customers (other than
Unrestricted Subsidiaries of our company) and accounts payable to suppliers in
the ordinary course of business that are, in conformity with GAAP, recorded as
accounts receivable or accounts payable, as the case may be, on the balance
sheet of our company or its Restricted Subsidiaries and Trade Payables) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition of Capital Stock, bonds, notes,
debentures or other similar instruments issued by, such Person and shall include
(1) the designation of a Restricted Subsidiary as an Unrestricted
Subsidiary and
(2) the fair market value of the Capital Stock (or any other Investment),
held by our company or any of its Restricted Subsidiaries, of (or in)
any Person that has ceased to be a Restricted Subsidiary, including
without limitation, by reason of any transaction permitted by clause
(3) of the "Limitation on the Issuance and Sale of Capital Stock of
Restricted Subsidiaries" covenant. For purposes of the definition of
"Unrestricted Subsidiary" and the "Limitation on Restricted Payments"
covenant described below, (i) "Investment" shall include the fair
market value of the assets (net of liabilities, other than liabilities
to our company or any of its Restricted Subsidiaries) of any Restricted
Subsidiary at the time that such Restricted Subsidiary is designated an
Unrestricted Subsidiary, (ii) the fair market value of the assets (net
of liabilities, other than liabilities to our company or any of its
Restricted Subsidiaries) of any Unrestricted Subsidiary at the time
that such Unrestricted Subsidiary is designated a Restricted Subsidiary
shall be considered a reduction in outstanding Investments and (iii)
any property transferred to or from an Unrestricted Subsidiary shall be
valued at its fair market value at the time of such transfer.
"Issuer" means the Cayman Islands branch of the Bank or any other party
that the Board of Directors has determined does not present any material credit
risk.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including, without limitation, any conditional sale or other
title retention agreement or lease in the nature thereof, any sale with recourse
against the seller or any Affiliate of the seller, or any agreement to give any
security interest), but excluding any right of first refusal.
"Moody's" means Moody's Investor Service, Inc. and its successors.
"Net Cash Proceeds" means, (a) with respect to any Asset Sale, the proceeds
of such Asset Sale in the form of cash or cash equivalents, including payments
in respect of deferred payment obligations (to the extent corresponding to the
principal, but not interest, component thereof) when received in the form of
cash or cash equivalents (except to the extent such obligations are financed or
sold with recourse to our company or any Restricted Subsidiary) and proceeds
from the conversion of other property received when converted to cash or cash
equivalents, net of
(1) brokerage commissions and other fees and expenses (including fees and
expenses of counsel and investment bankers) related to such Asset Sale,
(2) provisions for all taxes (whether or not such taxes will actually be
paid or are payable) as a result of such Asset Sale without regard to
the consolidated results of operations of our company and its
Restricted Subsidiaries, taken as a whole,
(3) payments made to repay Indebtedness outstanding at the time of such
Asset Sale that either (A) is secured by a Lien on the property or
assets sold or (B) is required to be paid as a result of such sale, and
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(4) appropriate amounts to be provided by our company or any Restricted
Subsidiary as a reserve against any liabilities associated with such
Asset Sale, including, without limitation, pension and other post-
employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations
associated with such Asset Sale, all as determined in conformity with
GAAP and (b) with respect to any issuance or sale of Capital Stock, the
proceeds of such issuance or sale in the form of cash or cash
equivalents, including payments in respect of deferred payment
obligations (to the extent corresponding to the principal, but not
interest, component thereof) when received in the form of cash or cash
equivalents (except to the extent such obligations are financed or sold
with recourse to our company or any Restricted Subsidiary) and proceeds
from the conversion of other property received when converted to cash
or cash equivalents, net of attorney's fees, accountants' fees,
underwriters' or Placement Agent fees, discounts or commissions and
brokerage, consultant and other fees incurred in connection with such
issuance or sale and net of taxes paid or payable as a result thereof.
"Offer to Purchase" means an offer to purchase notes by our company from
the holders commenced by mailing a notice to the Trustee and each holder
stating:
(1) the covenant pursuant to which the offer is being made and that all
such notes validly tendered will be accepted for payment on a pro rata
basis;
(2) the purchase price and the date of purchase (which shall be a Business
Day no earlier than 30 days nor later than 60 days from the date such
notice is mailed) (the "Payment Date");
(3) that any such note not tendered will continue to accrue interest
pursuant to its terms;
(4) that, unless our company defaults in the payment of the purchase price,
any note accepted for payment pursuant to the Offer to Purchase shall
cease to accrue interest on and after the Payment Date;
(5) that holders electing to have such note purchased pursuant to the Offer
to Purchase will be required to surrender the note, together with the
form entitled "Option of the Holder to Elect Purchase" on the reverse
side of the note completed, to the Paying Agent at the address
specified in the notice prior to the close of business on the Business
Day immediately preceding the Payment Date;
(6) that holders will be entitled to withdraw their election if the Paying
Agent receives, not later than the close of business on the third
Business Day immediately preceding the Payment Date, a telegram,
facsimile transmission or letter setting forth the name of such holder,
the principal amount of notes delivered for purchase and a statement
that such holder is withdrawing his election to have such notes
purchased; and
(7) that holders whose notes are being purchased only in part will be
issued new notes equal in principal amount to the unpurchased portion
of the notes surrendered; provided that each note purchased and each
new note issued shall be in a principal amount of $1,000 or an integral
multiple thereof.
On the Payment Date, we will
(1) accept for payment on a pro rata basis notes or portions thereof
tendered pursuant to an Offer to Purchase;
(2) deposit with the Paying Agent money sufficient to pay the purchase
price of all notes or portions thereof so accepted; and
(3) deliver, or cause to be delivered, to the Trustee all notes or portions
thereof so accepted together with an Officers' Certificate specifying
the notes or portions thereof accepted for payment by our company. The
Paying Agent shall promptly mail to the holders of notes so accepted
payment in an amount equal to the purchase price, and the Trustee shall
promptly authenticate and mail to such holders a new note equal in
principal amount to any unpurchased portion of the note surrendered;
provided that each note purchased and each new note issued shall be in
a principal amount of $1,000 or an integral multiple thereof. The
Company will publicly announce the results of an Offer to
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Purchase as soon as practicable after the Payment Date. The Trustee
shall act as the Paying Agent for an Offer to Purchase. The Company
will comply with Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder to the extent such laws and
regulations are applicable, in the event that our company is required
to repurchase notes pursuant to an Offer to Purchase.
"Permitted Investment" means
(1) an Investment in our company or a Restricted Subsidiary or a Person
which will, upon the making of such Investment, become a Restricted
Subsidiary or be merged or consolidated with or into or transfer or
convey all or substantially all its assets to, our company or a
Restricted Subsidiary; provided that such Person's primary business is
related, ancillary or complementary to the businesses of our company
and its Restricted Subsidiaries on the date of such Investment;
(2) Temporary Cash Investments;
(3) payroll, travel and similar advances to cover matters that are expected
at the time of such advances ultimately to be treated as expenses in
accordance with GAAP;
(4) loans or advances to employees made in the ordinary course of business
in accordance with past practice of our company or its Restricted
Subsidiaries and that do not in the aggregate exceed $1 million at any
time outstanding;
(5) stock, obligations or securities received in satisfaction of judgments,
work-outs or similar arrangements;
(6) Investments, in an aggregate amount at any one time outstanding not to
exceed $30 million in Common Stock of the International
Telecommunications Satellite Organization ("Intelsat");
(7) participations in Indebtedness of any Restricted Subsidiary permitted
to be Incurred by clause (12) of the second paragraph of the
"Limitation on Indebtedness" covenant; and
(8) Investments consisting of one or more Certificates of Deposit, having
an aggregate principal amount not to exceed the aggregate principal
amount of the Promissory Notes then outstanding; provided that (i) upon
making any such Investment after the Closing Date, our company shall
deliver an Officers' Certificate to the Trustee, to the effect that
applicable law regarding rights of setoff has not changed since the
Closing Date, (ii) the Stated Maturity of each such Certificate of
Deposit shall be the same as a Promissory Note of equal principal
amount and (iii) at the time that any Investment in any Certificate of
Deposit is made our company shall deliver an Officer's Certificate to
the Trustee to the effect that (A) the Bank and the Issuer are not
under intervention, receivership or any similar arrangement or
proceeding and (B) our company does not have any reason to believe
there is a material possibility that the Bank or the Issuer may be
subject to intervention, receivership or any similar arrangement or
proceeding.
"Permitted Liens" means:
(1) Liens for taxes, assessments, governmental charges or claims that are
being contested in good faith by appropriate legal proceedings
promptly instituted and diligently conducted and for which a reserve
or other appropriate provision, if any, as shall be required in
conformity with GAAP shall have been made;
(2) statutory and common law Liens of landlords and carriers,
warehousemen, mechanics, suppliers, materialmen, repairmen or other
similar Liens arising in the ordinary course of business and with
respect to amounts not yet delinquent or being contested in good faith
by appropriate legal proceedings promptly instituted and diligently
conducted and for which a reserve or other appropriate provision, if
any, as shall be required in conformity with GAAP shall have been
made;
(3) Liens incurred or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and
other types of social security;
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(4) Liens incurred or deposits made to secure the performance of tenders,
bids, leases, statutory or regulatory obligations, bankers'
acceptances, surety and appeal bonds, contracts (other than for
Indebtedness), performance and return-of-money bonds and other
obligations of a similar nature incurred in the ordinary course of
business (exclusive of obligations for the payment of borrowed money)
and any bank's unexercised right of setoff with respect to deposits
made in the ordinary course of business of our company or any
Restricted Subsidiary;
(5) easements, rights-of-way, municipal and zoning ordinances and similar
charges, encumbrances, title defects or other irregularities that do
not materially interfere with the ordinary course of business of our
company or any of its Restricted Subsidiaries;
(6) Liens (including extensions and renewals thereof) upon real or
personal property acquired after the Closing Date; provided that (A)
such Lien is created solely for the purpose of securing Indebtedness
Incurred, in accordance with the "Limitation on Indebtedness" covenant
described below, (i) to finance the cost (including the cost of
design, development, acquisition, construction, installation,
improvement, transportation or integration) of the item of property or
assets subject thereto and such Lien is created prior to, at the time
of or within six months after the later of the acquisition, the
completion of construction or the commencement of full operation of
such property or (ii) to refinance any Indebtedness previously so
secured, (B) the principal amount of the Indebtedness secured by such
Lien does not exceed 100% of such cost and (C) any such Lien shall not
extend to or cover any property or assets other than such item of
property or assets and any improvements on such item;
(7) leases or subleases granted to others that do not materially interfere
with the ordinary course of business of our company and its Restricted
Subsidiaries, taken as a whole;
(8) Liens encumbering property or assets under construction arising from
progress or partial payments by a customer of our company or its
Restricted Subsidiaries relating to such property or assets;
(9) any interest or title of a lessor in the property subject to any
Capitalized Lease or operating lease;
(10) Liens arising from filing Uniform Commercial Code financing statements
regarding leases;
(11) Liens on property of, or on shares of Capital Stock or Indebtedness
of, any Person existing at the time such Person becomes, or becomes a
part of, any Restricted Subsidiary; provided that such Liens do not
extend to or cover any property or assets of our company or any
Restricted Subsidiary other than the property or assets acquired;
(12) Liens in favor of our company or any Restricted Subsidiary;
(13) Liens arising from the rendering of a final judgment or order against
our company or any Restricted Subsidiary that does not give rise to an
Event of Default;
(14) Liens securing reimbursement obligations with respect to letters of
credit that encumber documents and other property relating to such
letters of credit and the products and proceeds thereof;
(15) Liens in favor of customs and revenue authorities arising as a matter
of law to secure payment of customs duties in connection with the
importation of goods;
(16) Liens encumbering customary initial deposits and margin deposits, and
other Liens that are within the general parameters customary in the
industry and incurred in the ordinary course of business, in each
case, securing Indebtedness under Interest Rate Agreements and
Currency Agreements and forward contracts, options, future contracts,
futures options or similar agreements or arrangements designed solely
to protect our company or any of its Restricted Subsidiaries from
fluctuations in interest rates, currencies or the price of
commodities;
(17) Liens arising out of conditional sale, title retention, consignment or
similar arrangements for the sale of goods entered into by our company
or any of its Restricted Subsidiaries in the ordinary
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course of business in accordance with the past practices of our
company and its Restricted Subsidiaries prior to the Closing Date;
(18) Liens on or sales of receivables; and
(19) Liens that secure Indebtedness with an aggregate principal amount not
in excess of $5 million at any time outstanding.
"Restricted Subsidiary" means any Subsidiary of our company other than an
Unrestricted Subsidiary.
"Significant Subsidiary" means, at any date of determination, any
Restricted Subsidiary that, together with its Subsidiaries,
(1) for the most recent fiscal year of our company, accounted for more than
10% of the consolidated revenues of our company and its Restricted
Subsidiaries or
(2) as of the end of such fiscal year, was the owner of more than 10% of
the consolidated assets of our company and its Restricted Subsidiaries,
all as set forth on the consolidated financial statements of our
company for the fiscal year most recently filed pursuant to the
"Commission Reports and Reports to Holders" covenant.
"S&P" means Standard & Poor's Ratings Services and its successors.
"Stated Maturity" means
(1) with respect to any debt security, the date specified in such debt
security as the fixed date on which the final installment of principal
of such debt security is due and payable and
(2) with respect to any scheduled installment of principal of or interest
on any debt security, the date specified in such debt security as the
fixed date on which such installment is due and payable.
"Strategic Subordinated Indebtedness" means Indebtedness of our company
Incurred to finance the acquisition of a Person engaged in a business that is
related, ancillary or complementary to the business conducted by our company or
any of its Restricted Subsidiaries, which Indebtedness by its terms, or by the
terms of any agreement or instrument pursuant to which such Indebtedness is
Incurred,
(1) is expressly made subordinate in right of payment to the notes and
(2) provides that no payment in cash or assets of our company or any
Restricted Subsidiaries of principal, premium or interest on, or any
other payment with respect to, such Indebtedness may be made prior to
the payment in full of all of our company's obligations under the
notes; provided that such Indebtedness may provide for and be repaid at
any time from the proceeds of a capital contribution or the sale of
Capital Stock (other than Disqualified Stock) of our company after the
Incurrence of such Indebtedness.
"Subsidiary" means, with respect to any Person, any corporation,
association or other business entity of which Voting Stock representing more
than 50% of the total voting power of the outstanding Voting Stock is owned,
directly or indirectly, by such Person and one or more other Subsidiaries of
such Person.
"Temporary Cash Investment" means any of the following:
(1) direct obligations of the United States of America or any agency
thereof or obligations fully and unconditionally guaranteed by the
United States of America or any agency thereof,
(2) time deposit accounts, certificates of deposit and money market
deposits maturing within one year of the date of acquisition thereof
issued by a bank or trust company which is organized under the laws of
the United States of America, any state thereof or any foreign country
recognized by the United States of America, and which bank or trust
company has capital, surplus and undivided profits aggregating in
excess of $50 million (or the foreign currency equivalent thereof) and
has outstanding debt which is rated "A" (or such similar equivalent
rating) or higher by at least one nationally
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recognized statistical rating organization (as defined in Rule 436
under the Securities Act) or any money market fund sponsored by a
registered broker dealer or mutual fund distributor,
(3) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (1) above
entered into with a bank meeting the qualifications described in clause
(2) above,
(4) commercial paper, maturing not more than one year after the date of
acquisition, issued by a corporation (other than an Affiliate of our
company) organized and in existence under the laws of the United States
of America, any state thereof or any foreign country recognized by the
United States of America with a rating at the time as of which any
investment therein is made of "P-1" (or higher) according to Moody's or
"A-1" (or higher) according to S&P,
(5) securities with maturities of six months or less from the date of
acquisition issued or fully and unconditionally guaranteed by any
state, commonwealth or territory of the United States of America, or by
any political subdivision or taxing authority thereof, and rated at
least "A" by S&P or Moody's,
(6) certificates of deposit maturing not more than one year after the
acquisition thereof by a Restricted Subsidiary and issued by any of the
ten largest banks (based on assets as of the last December 31)
organized under the laws of the country in which the Restricted
Subsidiary that acquires such certificates of deposit is organized,
provided that such bank is not under intervention, receivership or any
similar arrangement at the time of the acquisition of such certificates
of deposit, and
(7) direct obligations of the government of Japan made to facilitate a
reduction in withholding taxes; provided that our company takes
adequate steps, in the opinion of our chief financial officer, to hedge
any currency risk associated therewith.
"Trade Payables" means, with respect to any Person, any accounts payable or
any other indebtedness or monetary obligation to trade creditors created,
assumed or Guaranteed by such Person or any of its Subsidiaries arising in the
ordinary course of business in connection with the acquisition of goods or
services and required to be paid within one year.
"Transaction Date" means, with respect to the Incurrence of any
Indebtedness by our company or any of its Restricted Subsidiaries, the date such
Indebtedness is to be Incurred and, with respect to any Restricted Payment, the
date such Restricted Payment is to be made.
"Unrestricted Subsidiary" means
(1) any Subsidiary of our company that at the time of determination shall
be designated an Unrestricted Subsidiary by the Board of Directors in
the manner provided below; and
(2) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors
may designate any Restricted Subsidiary (including any newly acquired
or newly formed Subsidiary of our company) to be an Unrestricted
Subsidiary unless such Subsidiary owns any Capital Stock of, or owns or
holds any Lien on any property of, our company or any Restricted
Subsidiary;provided that (A) any Guarantee by our company or any
Restricted Subsidiary of any Indebtedness of the Subsidiary being so
designated shall be deemed an "Incurrence" of such Indebtedness by our
company or such Restricted Subsidiary (or both, if applicable) at the
time of such designation; (B) either (I) the Subsidiary to be so
designated has total assets of $1,000 or less or (II) if such
Subsidiary has assets greater than $1,000, such designation would be
permitted under the "Limitation on Restricted Payments" covenant
described below; and (C) if applicable, the Incurrence of Indebtedness
would be permitted under the Indenture. The Board of Directors may
designate any Unrestricted Subsidiary to be a Restricted Subsidiary;
provided that immediately after giving effect to such designation (x)
our company could Incur $1.00 of additional Indebtedness under the
first paragraph of the "Limitation on Indebtedness" covenant described
below and (y) no Default or Event of Default shall have occurred and be
continuing. Any such designation by the Board of Directors shall be
evidenced to the Trustee by promptly filing with the Trustee a copy of
the Board Resolution giving effect to such
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<PAGE> 119
designation and an Officers' Certificate certifying that such
designation complied with the foregoing provisions.
"Voting Stock" means with respect to any Person, Capital Stock of any class
or kind ordinarily having the power to vote for the election of directors,
managers or other voting members of the governing body of such Person.
"Wholly Owned" means, with respect to any Subsidiary of any Person, the
ownership of all of the outstanding Capital Stock of such Subsidiary (other than
any director's qualifying shares or Investments by foreign nationals mandated by
applicable law) by such Person or one or more Wholly Owned Subsidiaries of such
Person.
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PLAN OF DISTRIBUTION
Except as described below, a broker-dealer may not participate in the
exchange offer in connection with a distribution of the new notes. Each
broker-dealer that receives new notes for its own account pursuant to the
exchange offer must acknowledge that it will deliver a prospectus in connection
with any resale of the new notes by such broker-dealer. This prospectus, as it
may be amended or supplemented from time to time, may be used by a broker-dealer
in connection with resales of new notes received for its own account in exchange
for outstanding notes where those outstanding notes were acquired as a result of
market-making activities or other trading activities. We have agreed that for a
period of 90 days after the expiration date of the exchange offer, it will make
this prospectus, as amended or supplemented, available to any broker-dealer for
use in connection with any resale subject to the conditions described under "The
Exchange Offer -- Resale of the New Notes."
We will not receive any proceeds from any sale of the notes by
broker-dealers. New notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the new notes or a combination of those methods of
resale, at market prices prevailing at the time of resale, at prices related to
the prevailing market prices, or negotiated prices. Any resale may be made
directly to purchasers or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any broker-dealer
and/or the purchasers of any new notes. Any broker or dealer that participates
in a distribution of the new notes may be deemed to be an "underwriter" within
the meaning of the Securities Act of 1933, and any profit on the resale of new
notes and any commissions or concessions received by those persons may be deemed
to be underwriting compensation under the Securities Act of 1933. The Letter of
Transmittal states that by acknowledging that it will deliver and by delivering
a prospectus a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act of 1933.
We have agreed to pay all expenses incident to the exchange offer other
than commissions or concessions of any brokers or dealers and expenses of
counsel for the holders of the new notes and will indemnify the holders of the
new notes, including any broker-dealers, against some liabilities, including
some liabilities under the Securities Act of 1933.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following general discussion summarizes certain of the principal
material United States federal income tax consequences of the exchange of the
old notes for the new notes, and the ownership and disposition of the new notes.
This discussion is a summary for general information only and does not consider
all aspects of United States federal income taxation that may be relevant to an
investor in light of that investor's particular circumstances. This discussion
deals only with notes purchased at their original offering price and held as
capital assets within the meaning of Section 1221 of the United States Internal
Revenue Code of 1986, referred to as the Code, as amended to the date hereof.
This summary does not address all of the tax consequences that may be relevant
to a holder of notes nor does it address the federal income tax consequences to
holders subject to special treatment under the United States federal income tax
laws, such as brokers or dealers in securities or currencies, certain securities
traders, tax-exempt entities, banks, thrifts, insurance companies, other
financial institutions, persons that hold notes as a position in a "straddle" or
as part of a "synthetic security," "hedging," "conversion" or other integrated
instrument, persons that have a "functional currency" other than the United
States dollar, investors in pass-through entities and certain United States
expatriates. Further, this summary does not address
- the income tax consequences to shareholders in or partners or
beneficiaries of, a holder of the notes
- the United States federal alternative minimum tax consequences of the
purchase, ownership or disposition of the notes, or
- any state, local or foreign tax consequences of the purchase, ownership,
or disposition of the notes.
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<PAGE> 121
This discussion is based upon the Code, existing and proposed regulations
thereunder, and current administrative rulings and court decisions. All of the
foregoing are subject to change, possibly on a retroactive basis, and any such
change could affect the continuing validity of this discussion.
PERSONS CONSIDERING THE EXCHANGE OFFER SHOULD CONSULT THEIR OWN TAX
ADVISORS CONCERNING THE APPLICATION OF UNITED STATES FEDERAL INCOME TAXES LAWS,
AS WELL AS THE LAWS OF ANY STATE, LOCAL, OR FOREIGN TAXING JURISDICTION.
For purposes of this discussion, the term "United States holder" means a
beneficial owner of notes that for United States federal income tax purposes is
- a citizen or resident of the United States
- a corporation or partnership created or organized under the laws of the
United States or any State thereof or the District of Columbia
- an estate the income of which is includible in its gross income for
United States federal income tax purposes without regard to its source
- a trust if a court within the United States is able to exercise primary
supervision over its administration and one or more United States persons
have the authority to control all substantial decisions of the trust
Certain United States federal income tax consequences relevant to a beneficial
owner of a note other than a United States holder, referred to herein as a
non-U.S. holder, are discussed separately below.
UNITED STATES HOLDERS
The following discussion applies to you if you are a United States holder.
Exchange Offer
You will not recognize any taxable gain or loss on an exchange of notes for
new notes pursuant to the exchange offer. You will have the same tax basis and
holding period in the new notes as you had in the notes.
Payments of Interest
Stated interest paid or accrued on the notes generally will be taxable to
you as ordinary income at the time such interest is paid or accrued in
accordance with your method of accounting for United States federal income tax
purposes.
Foreign Source
At present, we believe that we are an "80/20 company" for United States
federal income tax purposes (as defined below), and therefore that interest
income on the notes generally will be treated as foreign source income for
United States federal income tax purposes. A U.S. corporation is an 80/20
company if at least 80 percent of its gross income during an applicable testing
period is, directly or through its subsidiaries, "active foreign business
income." However, the 80% test for active foreign business income is applied on
a periodic basis, and our company's operations and business plans may change in
future years. Therefore, while at present it appears that interest income on the
notes will be treated as foreign source income, we can give no assurance
regarding future treatment. In addition, special source rules will apply to
interest paid to certain holders related to our company.
Repurchase Premium
The notes may be redeemed prior to their stated maturity under certain
circumstances at the option of our company or at your option or automatically
upon the occurrence of certain events. We believe that none of such redemption
rights or obligations are more likely than not to occur. Accordingly, under
applicable U.S.
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<PAGE> 122
Treasury regulations, our company does not intend to treat such redemption
rights or obligations as affecting the yield or tax treatment of the notes.
Sale or Redemption of the Notes
When you dispose of a note by sale, exchange or redemption, you generally
will recognize gain or loss equal to the difference, if any, between (i) the
amount realized on the disposition (other than amounts attributable to accrued
and unpaid interest) and (ii) your tax basis in the note. Your tax basis in a
note generally will equal the cost of the note reduced by any payments other
than payments of stated interest made on such note. When a note is sold,
disposed of or redeemed between interest payment dates, the portion of the
amount realized on the disposition that is attributable to interest accrued to
the date of sale must be reported as interest income by a cash method investor
and an accrual method investor that has not included the interest in income as
it accrued.
If you hold the note as a capital asset, such gain or loss generally will
constitute capital gain or loss and will be long-term capital gain or loss if
you have held such note for longer than one year. Under current law, net capital
gains of individuals may be taxed at lower rates than items of ordinary income.
Your ability to offset capital losses against ordinary income is limited. Any
gain or loss you recognize on the sale, redemption or retirement of a note
generally will be treated as income from sources within the United States or
loss allocable to income from sources within the United States for United States
federal income tax purposes.
NON-U.S. HOLDERS
The following discussion summarizes certain United States federal income
tax consequences relevant to a non-U.S. holder of a note. This discussion does
not deal with all aspects of United States federal income taxation that may be
relevant to any particular non-U.S. holder in light of that holder's personal
circumstances with respect to such holder's purchase, ownership or disposition
of the notes, including such holder holding the notes through a partnership. For
example, persons who are partners in foreign partnerships and beneficiaries of
foreign trusts or estates who are subject to United States federal income tax
because of their own status may be subject to United States federal income tax
even though the entity is not subject to such tax.
Stated Interest on the Notes
If we are an 80/20 company as described above, subject to the discussion of
backup withholding below, payments of stated interest on a note by our company
or any paying agent to a non-U.S. holder will not be subject to United States
federal income tax, including United States withholding tax, unless the holder
has an office or other fixed place of business in the United States to which the
interest is attributable and the interest is derived in the active conduct of a
banking, financing or similar business within the United States. Special rules
will apply to payments of interest to non-U.S. holders related to our company.
If we are not an 80/20 company, then under current United States federal
income tax law, and subject to the discussion of backup withholding below,
payments of stated interest on a note by our company or any paying agent to a
non-U.S. holder will not be subject to withholding of United States federal
income tax if (i) such payment is effectively connected with a trade or business
within the United States by such non-U.S. holder, or (ii) both (a) the holder
does not actually or constructively own 10 percent or more of the combined
voting power of all classes of stock of our company and is not a controlled
foreign corporation related to our company through stock ownership and (b) the
non-U.S. holder as the beneficial owner of the note, or a financial institution
holding the note on behalf of such holder, provides a statement signed under
penalties of perjury that includes its name and address and certifies (on an IRS
Form W-8BEN or a substantially similar substitute form) that the beneficial
owner of the note is a non-U.S. holder in compliance with applicable
requirements. Interest on a note that is effectively connected with the conduct
of a trade or business in the United States by a non-U.S. holder, although
exempt from the withholding tax (assuming appropriate certification is
provided), generally will be subject to graduated United States federal income
tax on a net income basis as if such amounts were earned by a United States
holder. Corporate Non-U.S. holders receiving effectively connected interest may
also be subject to an additional branch profits tax.
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Sale or Redemption of Notes
Except as described below and subject to the discussion concerning backup
withholding, a non-U.S. holder generally will not be subject to withholding of
United States federal income tax with respect to any gain realized upon the sale
or redemption of notes. Further, a non-U.S. holder generally will not be subject
to United States federal income tax with respect to any such gain unless (i) the
gain is effectively connected with a United States trade or business of such
Non-U.S. Person, (ii) subject to certain exceptions, the non-U.S. holder is an
individual who holds such notes as a capital asset and is present in the United
States for 183 days or more in the taxable year of the disposition, or (iii) the
non-U.S. holder is subject to tax pursuant to the provisions of United States
tax law applicable to certain United States expatriates.
A non-U.S. holder will not recognize any taxable gain or loss on exchange
of notes for new notes pursuant to an exchange offer. As such, an exchanging
holder will have the same tax basis and holding period in the new notes as the
holder had in the notes.
New Regulations Relating to Withholding and Information Reporting for
non-U.S. holders.
The IRS recently issued final regulations relating to withholding and
information reporting (described below) with respect to payments made to
non-U.S. holders. The regulations generally apply to payments made after
December 31, 2000. When effective, the new regulations will streamline and, in
some cases, alter the types of statements and information that must be furnished
to claim a reduced rate of withholding. The regulations also clarify the duties
of United States payors making payments to foreign persons and modify the rules
concerning withholding on payments made to non-U.S. holders through foreign
intermediaries. With some exceptions, the new regulations treat a payment to a
foreign partnership as a payment directly to the partners. It is possible that
our company and other withholding agents may request new withholding exemptions
forms from Non-United States holders in order to qualify for continued exemption
from withholding under the New Regulations when they become effective.
Non-United States holders should consult their own tax advisors to determine the
effects of the application of the new regulations to their particular
circumstances.
INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, information reporting requirements will apply to payments made
on, and proceeds from the sale of, notes held by a noncorporate investor within
the United States. In addition, payments made on, and payments of proceeds from
the sale of such notes to a non-U.S. holder made to or through the United States
office of a broker or a broker that is a United States person, a controlled
foreign corporation for United States federal income tax purposes, a foreign
person 50% or more of whose gross income is effectively connected with a United
States trade or business for a specified three-year period or (in the case of
payments made after December 31, 2000) a foreign partnership with certain
connections to the United States are subject to information reporting unless the
holder thereof certifies as to its non-U.S. status or otherwise establishes an
exemption from information reporting and backup withholding.
Payments made on, and proceeds from the sale of, notes held by a United
States holder may be subject to a "backup" withholding tax of 31% unless the
holder complies with certain identification or exemption requirements. Backup
withholding at a rate of 31% will apply to payments by our company or its agent
on notes held by non-U.S. holders and proceeds from the sale or other
disposition of such notes through certain brokers unless the non-U.S. holder
certifies to its Non-U.S. status or otherwise establishes entitlement to
exemption. A non-U.S. holder may certify to its Non-U.S. status and obtain
exemption from backup withholding by providing an IRS Form W-8BEN or a
substantially similar substitute form. Backup withholding may apply to any
payment if the broker has actual knowledge that a payee claiming non-U.S. status
is a United States holder. Any amounts so withheld will be allowed as a credit
against the holder's income tax liability, or refunded, provided the required
information is provided to the IRS.
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Non-U.S. holders of notes should consult their tax advisers regarding the
application of information reporting and backup withholding in their particular
situations, the availability of an exemption therefrom, and the procedure for
obtaining such an exemption, if available.
LEGAL MATTERS
The validity of the new notes offered hereby will be passed upon by Arnold
& Porter, Washington, D.C., U.S. counsel to IMPSAT.
EXPERTS
Our consolidated financial statements as of December 31, 1998 and 1999 and
for each of the three years in the period ended December 31, 1999 included in
this prospectus have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report appearing herein, and are included in
reliance upon the report of such firm given 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, file reports and other information with the SEC.
These reports and other information can be inspected and copied at the public
reference facilities maintained by the SEC at: Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549; 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 SEC, at Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The SEC
maintains a Web site that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the SEC.
The address of such site is http://www.sec.gov. Our common stock is quoted 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 agreed that, whether or not we are required to do so by the rules
and regulations of the SEC, for so long as the notes remain outstanding, we will
furnish to the holders of the notes and file with SEC (unless SEC will not
accept such a filing) (1) all quarterly and annual financial information that
would be required to be contained in a filing with SEC on Form 10-Q and 10-K (or
any successor forms) as if we were required to file such forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report thereon
by our certified independent accountants, and (2) all reports that would be
required to be filed with SEC on Form 8-K (or any successor form) if we were
required to file such reports in each case within the time periods set forth in
SEC's rules and regulations. In addition, for so long as any of the notes remain
outstanding, we have agreed to make available to any prospective purchaser of
the notes or beneficial owner of the notes in connection with any sale thereof
the information required by Rule 144A(d)(4) under the Securities Act.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets as of December 31, 1998 and
1999...................................................... F-3
Consolidated Statements of Operations for each of the Three
Years in the Period Ended December 31, 1999............... F-4
Consolidated Statements of Comprehensive Loss for each of
the Three Years in the Period Ended December 31, 1999..... F-5
Consolidated Statements of Stockholders' Equity (Deficit)
for each of the Three Years in the Period Ended December
31, 1999.................................................. F-6
Consolidated Statements of Cash Flows for each of the Three
Years in the Period Ended December 31, 1999............... F-7
Notes to Consolidated Financial Statements.................. F-8
</TABLE>
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<PAGE> 126
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of IMPSAT Fiber Networks, Inc.:
We have audited the accompanying consolidated balance sheets of IMPSAT
Fiber Networks, Inc. and its subsidiaries (the "Company") as of December 31,
1998 and 1999, and the related consolidated statements of operations,
comprehensive (loss) income, stockholders' equity (deficit) and of cash flows
for each of the three years in the period ended December 31, 1999. 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 auditing standards generally
accepted in the United States of America. 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,
1998 and 1999, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1999 in conformity with
accounting principles generally accepted in the United States of America.
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
Certified Public Accountants
Miami, Florida
March 17, 2000
F-2
<PAGE> 127
IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1998 1999
--------- ---------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 90,021 $ 97,507
Trade accounts receivable, net............................ 46,974 52,176
Other receivables......................................... 20,110 27,640
Prepaid expenses.......................................... 1,994 1,703
--------- ---------
Total current assets............................... 159,099 179,026
--------- ---------
BROADBAND NETWORK, Net...................................... 71,868
---------
PROPERTY, PLANT AND EQUIPMENT, Net.......................... 330,726 310,330
--------- ---------
NON-CURRENT ASSETS:
Trade account receivables, net............................ 5,143
Investments............................................... 10,708 235,925
Deferred financing costs, net............................. 10,329 8,985
Other non-current assets.................................. 11,213 22,198
--------- ---------
Total non-current assets........................... 37,393 267,108
--------- ---------
TOTAL....................................................... $ 527,218 $ 828,332
========= =========
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
CURRENT LIABILITIES:
Accounts payable -- trade................................. $ 32,416 $ 53,678
Broadband network vendor financing........................ 46,219
Short-term debt........................................... 19,262 15,670
Current portion of long-term debt......................... 21,138 23,007
Accrued liabilities....................................... 12,628 11,425
Deferred income taxes, net................................ 120 51,870
Customer advances on broadband network.................... -- 23,200
Other liabilities......................................... 12,346 18,081
--------- ---------
Total current liabilities.......................... 97,910 243,150
--------- ---------
LONG-TERM DEBT, Net......................................... 379,292 399,415
--------- ---------
OTHER LONG-TERM LIABILITIES................................. 3,446 16,406
--------- ---------
COMMITMENTS AND CONTINGENCIES (Note 15)
MINORITY INTEREST........................................... 13,071 4,985
--------- ---------
REDEEMABLE PREFERRED STOCK, Convertible, Series A, 10%,
cumulative dividend; 25,000 shares authorized, issued and
outstanding; liquidation preference $5,961 per share...... 135,018 149,035
--------- ---------
STOCKHOLDERS' (DEFICIT) EQUITY:
Common Stock $0.01 par value; 103,836,800 shares
authorized, 59,671,661 shares issued and outstanding at
December 31, 1998, and 71,605,993 shares issued and
outstanding at December 31, 1999........................ 597 716
Additional paid in capital................................ 100,196 221,013
Accumulated deficit....................................... (71,391) (202,934)
Treasury stock, 14,917,915 shares, at cost................ (125,000) (125,000)
Amount paid in excess of carrying value of assets acquired
from related party...................................... (5,395) (4,827)
Accumulated other comprehensive (loss) income............. (526) 126,373
--------- ---------
Total stockholders' (deficit) equity............... (101,519) 15,341
--------- ---------
TOTAL....................................................... $ 527,218 $ 828,332
========= =========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 128
IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT FOR LOSS PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1997 1998 1999
-------- -------- ---------
<S> <C> <C> <C>
NET REVENUES FROM SERVICES:
Network services.......................................... $134,872 $162,616 $ 172,478
Internet.................................................. 7,699 20,586 26,639
Other..................................................... 18,494 24,887 29,334
-------- -------- ---------
Total net revenues from services.................. 161,065 208,089 228,451
-------- -------- ---------
COSTS AND EXPENSES:
Direct costs:
Contracted services.................................... 16,774 20,466 26,769
Other direct costs..................................... 12,541 14,619 28,322
Leased capacity........................................ 19,230 28,660 44,750
Cost of sold equipment................................. 3,137 3,665 5,187
-------- -------- ---------
Total direct costs................................ 51,682 67,410 105,028
-------- -------- ---------
Salaries and wages........................................ 29,109 38,198 46,174
Selling, general and administrative....................... 28,237 38,665 43,364
Depreciation and amortization............................. 28,673 36,946 130,071
-------- -------- ---------
Total costs and expenses.......................... 137,701 181,219 324,637
-------- -------- ---------
Operating income (loss)........................... 23,364 26,870 (96,186)
-------- -------- ---------
OTHER INCOME (EXPENSES):
Interest expense, net..................................... (24,272) (44,698) (55,561)
Net (loss) gain on foreign exchange....................... (276) 675 (8,042)
Other (expense) income, net............................... (151) 760 15,305
-------- -------- ---------
Total other expense............................... (24,699) (43,263) (48,298)
-------- -------- ---------
LOSS BEFORE INCOME TAXES, CUMULATIVE EFFECT AND MINORITY
INTEREST.................................................. (1,335) (16,393) (144,484)
(PROVISION FOR) BENEFIT FROM INCOME TAXES................... (5,263) (3,805) 20,733
-------- -------- ---------
LOSS BEFORE CUMULATIVE EFFECT AND MINORITY INTEREST......... (6,598) (20,198) (123,751)
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE, NET
OF TAX.................................................... -- (1,269) --
(INCOME) LOSS ATTRIBUTABLE TO MINORITY
INTEREST.................................................. (993) (2,502) 6,225
-------- -------- ---------
NET LOSS BEFORE DIVIDENDS ON REDEEMABLE PREFERRED STOCK..... (7,591) (23,969) (117,526)
DIVIDENDS ON REDEEMABLE PREFERRED STOCK..................... -- (10,018) (14,017)
-------- -------- ---------
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS................ $ (7,591) $(33,987) $(131,543)
======== ======== =========
NET LOSS PER COMMON SHARE:
BASIC AND DILUTED......................................... $ (0.14) $ (0.71) $ (2.31)
======== ======== =========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES:
BASIC AND DILUTED......................................... 53,594 47,983 54,447
======== ======== =========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 129
IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1997 1998 1999
------- -------- ---------
<S> <C> <C> <C>
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS................ $(7,591) $(33,987) $(131,543)
OTHER COMPREHENSIVE LOSS, net of tax:
Foreign currency translation adjustment................... -- (526) (1,724)
Unrealized gain on available for sale investment.......... -- -- 128,623
------- -------- ---------
TOTAL............................................. -- (526) 126,899
------- -------- ---------
COMPREHENSIVE (LOSS) INCOME................................. $(7,591) $(34,513) $ (4,644)
======= ======== =========
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE> 130
IMPSAT FIBER NETWORKS, INC. 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
------------------- PAID IN ACCUMULATED TREASURY ACQUIRED FROM
SHARES STOCK CAPITAL DEFICIT(*) STOCK RELATED PARTY
----------- ----- ---------- ----------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996................ 46,030,457 $461 $ 77,290 $ (29,813)
IMPSAT Argentina exchange (43.5%)......... 13,641,204 136 22,906
Net loss for the year..................... (7,591)
----------- ---- -------- ---------
BALANCE AT DECEMBER 31, 1997................ 59,671,661 597 100,196 (37,404)
Acquisition of treasury stock............. (14,917,915) $(125,000)
Acquisition of IMPSAT Brazil (Note 2)..... $(5,679)
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................ 44,753,746 597 100,196 (71,391) (125,000) (5,395)
Dividends on redeemable preferred Stock... (14,017)
Common stock issuance..................... 11,934,332 119 120,817
Amortization of amount paid in excess of
carrying value of net assets acquired
from related party...................... 568
Unrealized gain on available for sale
investment..............................
Foreign currency translation adjustment...
Net loss for the year..................... (117,526)
----------- ---- -------- --------- --------- -------
BALANCE AT DECEMBER 31, 1999................ 56,688,078 $716 $221,013 $(202,934) $(125,000) $(4,827)
=========== ==== ======== ========= ========= =======
<CAPTION>
ACCUMULATED
OTHER
COMPREHENSIVE
(LOSS) INCOME TOTAL
-------------- ---------
<S> <C> <C>
BALANCE AT DECEMBER 31, 1996................ $ 47,938
IMPSAT Argentina exchange (43.5%)......... 23,042
Net loss for the year..................... (7,591)
---------
BALANCE AT DECEMBER 31, 1997................ 63,389
Acquisition of treasury stock............. (125,000)
Acquisition of IMPSAT Brazil (Note 2)..... (5,679)
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)
-------- ---------
BALANCE AT DECEMBER 31, 1998................ (526) (101,519)
Dividends on redeemable preferred Stock... (14,017)
Common stock issuance..................... 120,936
Amortization of amount paid in excess of
carrying value of net assets acquired
from related party...................... 568
Unrealized gain on available for sale
investment.............................. 128,623 128,623
Foreign currency translation adjustment... (1,724) (1,724)
Net loss for the year..................... (117,526)
-------- ---------
BALANCE AT DECEMBER 31, 1999................ $126,373 $ 15,341
======== =========
</TABLE>
- ------------
(*) Includes an appropriation of retained earnings amounting to $1,410, $1,622
and $1,890 in 1997, 1998 and 1999, respectively, to comply with legal
reserve requirements in Argentina.
F-6
<PAGE> 131
IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1997 1998 1999
-------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $ (7,591) $ (23,969) $(117,526)
Adjustments to reconcile net loss to net cash provided by
operating activities, net of acquisition:
Cumulative effect of a change in accounting principle... 1,269
Amortization and depreciation........................... 28,673 36,946 130,071
Deferred income tax provision (benefit)................. 4,964 (127) (23,790)
Change in minority interest............................. 993 2,502 (8,086)
Changes in assets and liabilities:
Increase in trade accounts receivable, net............ (13,627) (10,128) (5,202)
Decrease in prepaid expenses.......................... 1,671 75 291
Increase in other receivables and other non-current
assets.............................................. (4,678) (1,443) (17,679)
Increase in accounts payable -- trade................. 4,627 4,204 20,212
Increase in customer advances on broadband network.... 23,200
Increase in accrued and other liabilities............. 1,526 6,979 4,532
Increase (decrease) in other long-term liabilities.... 581 432 (2,174)
-------- --------- ---------
Net cash provided by operating activities........... 17,139 16,740 3,849
-------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of broadband network............................ (11,833)
Purchases of property, plant and equipment................ (55,028) (107,461) (97,388)
Cash paid in Mandic S.A. acquisition, net................. (8,485) (3,700)
Cash paid in IMPSAT Brazil merger......................... (5,679)
Purchases of available for sale investment................ (21,527)
(Increase) decrease in investment......................... (3,052) (6,530) 473
-------- --------- ---------
Net cash used in investing activities............... (58,080) (128,155) (133,975)
-------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payments on) borrowings from short-term debt......... 18,337 (31,358) (3,592)
Capital contribution from minority interest............... 1,537
Proceeds from long-term debt, net of deferred financing
costs................................................... 10,483 228,097 46,101
Repayments of long-term debt.............................. (7,872) (5,216) (24,109)
Proceeds from issuance of common stock, net............... 120,936
Acquisition of treasury stock............................. (125,000)
Proceeds from issuance of redeemable preferred stock...... 125,000
-------- --------- ---------
Net cash provided by financing activities........... 22,485 191,523 139,336
-------- --------- ---------
EFFECT OF EXCHANGE RATE CHANGE ON CASH AND CASH
EQUIVALENTS............................................... (526) (1,724)
-------- --------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS........ (18,456) 79,582 7,486
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.............. 28,895 10,439 90,021
-------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR.................... $ 10,439 $ 90,021 $ 97,507
======== ========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid............................................. $ 23,442 $ 45,967 $ 63,127
======== ========= =========
Foreign income taxes paid................................. $ 1,375 $ 1,901 $ 1,751
======== ========= =========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Increase in equipment in transit.......................... $ (1,412) $ (2,473) $ (1,050)
======== ========= =========
Common stock issued in exchange for an additional 44% of
IMPSAT Argentina........................................ $ 23,043
========
Accrued dividends on redeemable preferred stock........... $ 10,018 $ 14,017
========= =========
Fair value of net assets acquired in Mandic S.A.
acquisition............................................. $ 1,794
=========
Rights of way agreements.................................. $ 15,134
=========
Unrealized gain on available for sale investment, net of
tax..................................................... $ 128,623
=========
Broadband network vendor financing........................ $ 46,219
=========
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE> 132
IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF U.S. DOLLARS)
1. GENERAL
IMPSAT Fiber Networks, Inc., 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 (see Note 6), which will connect
points across Argentina and Brazil, will be completed by December 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 Brazil, Chile, Ecuador, Mexico,
Peru, and the United States.
The Company's operating subsidiaries and percentages owned by the Company
after the minority interest transactions described in Note 12 are as follows:
<TABLE>
<S> <C> <C>
Argentina Impsat S.A. 100.0%
Argentina Red Alternativa S.A. 67.0
Brazil Impsat Comunicacoes Ltda. 99.9
Chile Impsat S.A. 100.0
Colombia Impsat S.A. 100.0
Ecuador Impsatel del Ecuador S.A. 100.0
Mexico Impsat S.A. de C.V. 99.9
Peru Impsat S.A. 100.0
USA Impsat USA, Inc. 100.0
Venezuela Telecomunicaciones Impsat S.A. 100.0
</TABLE>
In addition, the Company owns International Satellite Capacity Holdings, NG
(Liechtenstein) and Filcrown International Corporation (BVI), which serve
intermediary functions to the Company and its operating subsidiaries.
2. MERGERS AND ACQUISITIONS
Impsat Brazil -- 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
$5.7 million. The purchase price for IMPSAT Brazil represented the total amount
of pre-operating and development costs and expenses incurred for IMPSAT Brazil
by Nevasa. IMPSAT Brazil was established by Nevasa and operates under a value
added telecommunications license permitting IMPSAT Brazil to lease satellite
capacity directly from EMBRATEL, Brazil's long-distance carrier, and sell
corporate private telecommunications network services (data, voice and video)
using terrestrial and satellite links to third parties. The acquisition, as is
the case for transactions among companies
F-8
<PAGE> 133
IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
under common control, has been accounted for in a manner similar to the pooling
of interests method of accounting, whereby all assets and liabilities have been
recorded at their historical carrying amounts and the acquisition was recorded
as if the transaction occurred on January 1, 1998. IMPSAT Brazil did not have
material operations in 1997 as it was in the pre-operating phase. Amounts paid
in excess of carrying value of the underlying net assets acquired were recorded
as a reduction of stockholders' deficit and are being amortized on a
straight-line basis over a period of 10 years.
Mandic S.A. -- On April 20, 1998, the Company signed a definitive agreement
to purchase a 75.1% interest in Mandic BBS Planejamento e Informatica S.A.
("Mandic S.A."), a Brazilian Internet access provider, for approximately $9.8
million. 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. On July 28, 1999, the Company acquired the
remaining 24.9% interest in Mandic S.A. for $3.7 million. The Company merged
Mandic S.A. into Impsat Brazil on October 5, 1999 and Mandic S.A. ceased
operations.
Framework Agreement with El Sitio -- On August 4, 1999, the Company entered
into a Framework Agreement with El Sitio, Inc. ("El Sitio") 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. 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.
On October 6, 1999, IMPSAT Brazil sold its retail Internet business for
$12.3 million to O Site Entretenimentos Ltda., a subsidiary of El Sitio. In
addition, on the same date, the Company acquired 1,756,677 shares of El Sitio's
8% convertible redeemable preferred stock for $12.3 million. IMPSAT Brazil
recorded a net gain on the sale of its retail Internet business of approximately
$8.9 million, which is included in other (expense) income, net, in the
accompanying 1999 statement of operations.
On November 5, 1999, IMPSAT Argentina consummated the sale of its retail
Internet business to El Sitio for $6.2 million, of which $5.3 million was
received on that date with the remainder due in 24 equal monthly installments.
Simultaneously, the Company purchased 885,480 shares of El Sitio's 8%
convertible redeemable preferred stock for $6.2 million. On November 12, 1999,
the Company acquired an additional 428,458 shares of El Sitio's 8% convertible
redeemable preferred stock for $3.0 million. IMPSAT Argentina recorded a net
gain on the sale of its retail Internet business of approximately $5.0 million,
which is included in other (expense) income, net in the accompanying 1999
statement of operations. The Company and El Sitio expect to consummate the sale
of the Company's retail Internet business in Colombia to El Sitio during April
2000.
Upon the consummation of El Sitio's initial public offering in December
1999, the shares of El Sitio's preferred stock were automatically converted into
15.4% of El Sitio's outstanding common stock.
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.
All significant intercompany transactions and balances have been eliminated.
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
F-9
<PAGE> 134
IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 fair 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 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 net revenue
from services for the years ended December 31, 1997, 1998 and 1999.
In connection with the Company's build out of the Broadband Network, the
Company has granted Global Crossing Development Co., a subsidiary of Global
Crossings Ltd. ("Global Crossing"), for a fixed advanced payment, an
indefeasible right of use ("IRU") to a portion of its broadband network capacity
(see Note 6) when the Broadband Network is completed. The Company will recognize
the revenue from the IRU ratably over the life of the IRU.
Broadband Network -- The Broadband Network is under construction. Costs in
connection with the construction, installation and expansion of the Broadband
Network are capitalized. Depreciation will be computed using the straight-line
method over the life of the rights of way for the related network. 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 Broadband Network. These capitalized agreements are being amortized over
the term of the rights of way, which range from 5 to 20 years.
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>
The operating communications equipment owned by the Company is subject to
rapid technological obsolescence. In view of these developments, the Company
decided to change the depreciable life of certain customer premises
telecommunications equipment from 10 years to 5 years effective September 30,
1999. The effect of this change in estimate totaled approximately $52.1 million
and was included in depreciation expense for 1999.
Investments -- Investments covered under the scope of Statement of
Financial Accounting Standards ("SFAS") No. 115, Accounting for Certain
Investments in Debt and Equity Securities, are classified as "available for
sale" and are carried at fair value with any unrealized gain or loss, net of
tax, being included in accumulated other comprehensive income (loss) within
stockholders' equity. All other investments are carried at cost.
The Company's investments consist of the following at December 31, 1998 and
1999:
<TABLE>
<CAPTION>
1998 1999
------- --------
<S> <C> <C>
Investment, at cost.............................. $10,708 $ 10,235
Investment, at fair value ($21,527 at cost)...... 225,690
------- --------
Total.................................. $10,708 $235,925
======= ========
</TABLE>
F-10
<PAGE> 135
IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's cost basis investment represents a less than 1% ownership in
unaffiliated entities established for the purchase and leasing of satellite
capacity time and the fair value basis investment represents the 15.4% stake in
El Sitio's outstanding common stock, see Note 2. The Company's investment in El
Sitio's common stock is subject to equity price risk. The Company has not taken
any actions to hedge this market risk exposure.
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 -- 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 $11.7 million and other acquisitions of $0.9
million are being amortized on a straight-line basis of over a period of 15
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 Company expensed the
unamortized license and permit costs as a cumulative effect of a change in
accounting principles. 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.
In connection with the merger of Mandic S.A. with IMPSAT Brazil and the
subsequent sale of its retail Internet business as described in Note 2, the
Company expensed the unamortized balance of the Mandic S.A.'s goodwill of
approximately $7.4 million. Goodwill, net is included in other non-current
assets in the accompanying consolidated balance sheets.
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, 1997, 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 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, except for IMPSAT Brazil which uses the local currency as the
functional currency and its effects are included in the stockholders' equity.
Fair Value of Financial Instruments -- The Company's financial instruments
include receivables, investment, payables, short- and long-term debt. The
Company's Senior Guaranteed Notes, Senior Notes and available for sale
investment, were valued at market closing prices at December 31, 1998 and 1999.
The fair value of all other financial instruments have been determined using
available market information and interest rates as of December 31, 1998 and
1999.
At December 31, 1998 and 1999, the fair value of the Senior Guaranteed
Notes and Senior Notes was approximately $299 million and $324 million,
respectively, compared to the carrying value of $350 million. At December 31,
1999, the fair value and carrying value of the Company's investment in El
Sitio's common stock was approximately $225.7 million. The fair value of all
other financial instruments were not materially different from their carrying
value.
F-11
<PAGE> 136
IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
Stock Split -- On January 11, 2000, the Company's Board approved a .592 to
1 reverse common stock split (see Note 12). Retroactive restatement has been
made to all share amounts to reflect the stock split.
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
outstanding under the treasury stock method.
Reclassifications -- Certain amounts in the 1997 and 1998 consolidated
financial statements have been reclassified to conform with the 1999
presentation.
New Accounting Pronouncement-- In June 1998, the Financial Accounting
Standards Board ("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. In June 1999, the FASB
issued SFAS No. 137, Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date of FASB Statement No. 133, an
amendment to SFAS No. 133. SFAS No. 137 deferred the effective date of adoption
of SFAS No. 133 to fiscal years beginning after June 15, 2000. Management has
not determined what effects, if any, the adoption of SFAS No. 133 will have on
the Company's consolidated financial statements.
4. TRADE ACCOUNTS RECEIVABLE
Trade accounts receivable, by operating subsidiaries, at December 31 are
summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
-------- --------
<S> <C> <C>
IMPSAT Argentina............................................ $ 36,378 $ 49,989
IMPSAT Colombia............................................. 8,480 6,655
IMPSAT Venezuela............................................ 4,293 7,074
IMPSAT Ecuador.............................................. 1,559 1,943
IMPSAT USA.................................................. 2,836 2,807
IMPSAT Brasil............................................... 2,963 1,791
Others...................................................... 574 1,737
-------- --------
Total............................................. 57,083 71,996
Less: allowance for doubtful accounts....................... (10,109) (19,820)
-------- --------
Trade accounts receivable, net.............................. $ 46,974 $ 52,176
======== ========
</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.
F-12
<PAGE> 137
IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The activity for the allowance for doubtful accounts for the years ended
December 31, 1997, 1998 and 1999 is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1998 1999
------ ------- -------
<S> <C> <C> <C>
Beginning balance......................................... $2,803 $ 5,933 $10,109
Provision for doubtful accounts........................... 3,269 5,312 11,232
Write-offs, net of recoveries............................. (139) (1,136) (1,521)
------ ------- -------
Ending balance............................................ $5,933 $10,109 $19,820
====== ======= =======
</TABLE>
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:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1998 1999
------- -------
<S> <C> <C>
IMPSAT Argentina............................................ $ 6,439 $13,606
IMPSAT Colombia............................................. 5,064 5,269
IMPSAT Venezuela............................................ 2,527 1,757
IMPSAT Ecuador.............................................. 835 314
IMPSAT Mexico............................................... 1,078 2,662
IMPSAT Brazil and Mandic S.A. .............................. 1,124 1,122
Others...................................................... 3,043 2,910
------- -------
Total............................................. $20,110 $27,640
======= =======
</TABLE>
6. BROADBAND NETWORK AND AGREEMENTS
Broadband network and related equipment consists of the following at
December 31, 1999:
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------
<S> <C>
Equipment and materials..................................... $ 4,018
Right of ways............................................... 15,134
-------
Total............................................. 19,152
Less: accumulated depreciation.............................. (1,318)
-------
Total............................................. 17,834
Under construction -- Broadband Network..................... 51,966
Under construction -- Global Crossing ducts................. 2,068
-------
Total............................................. $71,868
=======
</TABLE>
Nortel Networks Agreements -- On September 6, 1999, the Company executed
two turnkey agreements with Nortel Networks Inc. ("Nortel") relating to Nortel's
design and construction of segments of the Broadband Network in Argentina and
Brazil for approximately $265 million. Pursuant to these agreements, Nortel will
construct:
- 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; and
F-13
<PAGE> 138
IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
- connections in Argentina and Brazil that will integrate the Company's
networks with other providers' facilities, including submarine cable
systems, and provide the Company with access to global telecommunications
links.
In addition, 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; and
- preparation of network maintenance and operations plans and procedures.
On October 25, 1999, each of IMPSAT Argentina and IMPSAT Brazil signed
definitive agreements with affiliates of Nortel to borrow an aggregate of up to
approximately $149.1 million and $148.3 million, respectively, of long term
vendor financing. The financing, which will be disbursed over a two year period
with final maturity in 2006, will be used to finance Nortel's construction of
the segments of the Broadband Network in each of Argentina and Brazil. The
Company has agreed to guarantee the obligations of each of IMPSAT Argentina and
IMPSAT Brazil under the Nortel financing agreements.
Framework Agreement with Global Crossing -- On July 27, 1999, the Company
entered into an agreement with Global Crossing Development Co., a subsidiary of
Global Crossings Ltd. ("Global Crossing") that contemplates the Company entering
into a series of definitive agreements. As part of these arrangements, the
Company 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 the Company to
interconnect the Company's networks in Argentina and Brazil and give the Company
global international access.
On September 22, 1999, the Company entered into a definitive agreement with
Global Crossing to construct the terrestrial portion of the Global Crossing's
South American network between Las Toninas, Argentina on the Atlantic Ocean and
Valparaiso, Chile on the Pacific Ocean (the "Trans-Andean Crossing System"). The
Company commenced construction of the Trans-Andean Crossing System in September
1999. Global Crossing will pay the Company $64 million for the Company's turnkey
construction of the Trans-Andean Crossing System, as follows:
- construction of three ducts (the "Global Crossing 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 for approximately $39 million.
- licensing to Global Crossing of one duct on our Broadband Network between
the cities of Buenos Aires and Mendoza in Argentina for approximately $25
million.
During 1999, Global Crossing paid the Company $23.2 million in respect of
the ongoing construction of the Global Crossing Ducts. The Company will
accumulate all construction costs for the Global Crossing Ducts in projects
under construction and will defer all payment received from Global Crossing
until completion and deliver of the respective ducts.
F-14
<PAGE> 139
IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In addition to the Trans-Andean Crossing System, the Company 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
The Company's telehouses will contain switching, routing and other network
co-location equipment owned by the Company or lessees of space in the
telehouses. The Company will lease space in the telehouses in Buenos Aires,
Argentina and Santiago, Chile to Global Crossing for its network operations. The
Company will also expect to enter into agreements with Global Crossing to
provide maintenance of the Global Crossing's Trans-Andean Crossing System.
7. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31, consisted of:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1998 1999
--------- ---------
<S> <C> <C>
Land........................................................ $ 1,750 $ 3,985
Building and improvements................................... 29,760 31,102
Operating communications equipment.......................... 398,577 486,528
Furniture, fixtures and other equipment..................... 20,271 21,337
--------- ---------
Total............................................. 450,358 542,952
Less: accumulated depreciation.............................. (126,728) (242,706)
--------- ---------
Total............................................. 323,630 300,246
Equipment in transit........................................ 4,289 5,339
Works in process............................................ 2,807 4,745
--------- ---------
Property, plant and equipment, net.......................... $ 330,726 $ 310,330
========= =========
</TABLE>
The recap of accumulated depreciation for the years ended December 31,
1997, 1998 and 1999 is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1997 1998 1999
------- -------- --------
<S> <C> <C> <C>
Beginning balance...................................... $64,250 $ 92,255 $126,728
Depreciation expense................................... 29,665 36,027 118,834
Disposals and retirements.............................. (1,660) (1,554) (2,856)
------- -------- --------
Ending balance......................................... $92,255 $126,728 $242,706
======= ======== ========
</TABLE>
F-15
<PAGE> 140
IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. SHORT-TERM DEBT
The Company's short-term debt at December 31, is detailed as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1998 1999
------- -------
<S> <C> <C>
Short-term credit facilities, denominated in U.S. dollars;
interest rates ranging from 5.72% to 15.00%;
IMPSAT Argentina.......................................... $11,000 $10,707
IMPSAT Colombia........................................... 5,859 4,756
Others.................................................... 203
Short-term credit facilities, denominated in local
currencies; local interest rates ranging from 12.0% to
25.0%;
IMPSAT Argentina.......................................... 2,000
IMPSAT Ecuador............................................ 200 207
------- -------
Total short-term debt............................. $19,262 $15,670
======= =======
</TABLE>
The Company has historically refinanced its short term credit facilities on
an annual basis.
9. LONG-TERM DEBT
The Company's long-term debt at December 31, is detailed as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
-------- --------
<S> <C> <C>
12.125% Senior Guaranteed Notes due 2003.................... $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 $14,400 and the assignment of customer
contracts totaling approximately $4,800 Denominated in:
U.S. dollars (interest rates 8.50% -- 13.13%).......... 32,204 23,175
Local currency (interest rates 20% -- 41%)............. 6,156 15,509
IMPSAT Argentina (6.56% -- 6.75%), maturing Semiannually
through 2003, collateralized by investment............. 4,802 24,826
IMPSAT USA (8.25% -- 8.75%), mortgage and other
Collateralized debts................................... 2,066 1,731
IMPSAT Venezuela (9.00% -- 10.75%), maturing during
2001................................................... 3,508 2,383
IMPSAT Brazil (13%), maturing during 2004................. 4,718
Eximbank notes payable (7.00%), maturing semiannually
through 1999.............................................. 1,694
Other....................................................... 80
-------- --------
Total long-term debt.............................. 400,430 422,422
Less: current portion....................................... (21,138) (23,007)
-------- --------
Long-term debt, net......................................... $379,292 $399,415
======== ========
</TABLE>
F-16
<PAGE> 141
IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The scheduled maturities of long-term debt at December 31, 1999 are as
follows:
<TABLE>
<CAPTION>
FISCAL YEAR
-----------
<S> <C>
2000...................................................... $ 23,007
2001...................................................... 13,296
2002...................................................... 12,666
2003...................................................... 134,372
2004 and thereafter....................................... 239,081
--------
Total........................................... $422,422
========
</TABLE>
The Senior Guaranteed Notes, Senior Notes and some of the term notes
payable for IMPSAT Argentina, IMPSAT Brazil, 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.
On February 16, 2000, the Company issued $300 million in 13.75% Senior
Notes due 2005. The Senior Notes due 2005 contain similar covenants as the
Senior Guaranteed Notes due 2003 and the Senior Notes due 2008.
10. INCOME TAXES
The composition of the (provision for) benefit from income taxes, all of
which are for foreign taxes, for the years ended December 31, 1997, 1998 and
1999 is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Current.................................................. $ (299) $(3,932) $(3,765)
Deferred................................................. (4,964) 127 24,498
------- ------- -------
Total.......................................... $(5,263) $(3,805) $20,733
======= ======= =======
</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 approximately
$35.0 million, which begin to expire in the year 2010. Deferred taxes result
from temporary
F-17
<PAGE> 142
IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
differences in the capitalization policies of preoperating costs, depreciation
methods and net operating loss carryforwards. The composition of net deferred
tax (liability) asset at December 31 is as follows:
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Deferred tax assets:
Preoperating costs:....................................... $ 2,852 $ 1,429
Net operating loss carryforwards:
Domestic............................................... 9,249 18,127
Foreign................................................ 9,549 13,889
Allowance for doubtful accounts........................... 4,263
Property, plant and equipment............................. 11,919
Other..................................................... 86 289
-------- --------
Gross deferred tax assets................................... 21,736 49,916
-------- --------
Deferred tax liabilities:
Property, plant and equipment............................. (4,301)
Other..................................................... (197) (580)
-------- --------
Gross deferred tax liabilities.............................. (4,498) (580)
-------- --------
Less: valuation allowance................................... (17,358) (25,666)
-------- --------
Net deferred tax (liability) asset.......................... (120) 23,670
Available for sale investment............................... (75,540)
-------- --------
Net deferred tax liability.................................. $ (120) $(51,870)
======== ========
</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.
11. 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 million 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 , and to certain other investors
affiliated with Princes Gate and MSGEM (such investors along with Princes Gate
and MSGEM, the "Purchasers").
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.
F-18
<PAGE> 143
IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As part of the Company's initial public offering (see Note 12), the Company
redeemed approximately $32.5 million of the redeemable preferred stock and the
Purchasers converted their remaining preferred shares into 14,917,915 shares of
common stock.
12. STOCKHOLDERS' EQUITY
Share Purchase Agreement -- On March 11, 1999, a Share Purchase Agreement
was entered into among the Company, Nevasa and Nunsgate Limited, a wholly owned
subsidiary of British Telecommunications plc ("BT"), in which the Company agreed
to issue, sell and deliver 11,934,332 newly issued shares of common stock to BT
and Nevasa agreed to sell 2,386,867 currently owned shares of common stock to BT
for $125.0 million and $25.0 million, respectively. These transactions were
consummated on April 19, 1999.
Stock Option Plans -- In December 1998, the Company adopted the 1998 Stock
Option Plan (the "1998 Plan"), pursuant to which 4,776,016 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 compensation 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 441,650 shares at an exercise price of
$8.38 during the year ended December 31, 1998 and options for 393,340 at an
exercise price of $10.47 during the year ended December 31, 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 3. Accordingly, no compensation expense has been recognized in
the years ended December 31, 1998 and 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 the requirement of SFAS
123, the Company's net loss and comprehensive loss would have increased by
approximately $0.2 million and $0.3 million for the years ended December 31,
1998 and 1999, respectively.
On January 5, 2000, the Company's board of directors adopted the 1999 Stock
Option Plan (the "1999 Plan"), which provides for the grants to its key officers
and employees of stock options that are non- qualified for U.S. federal income
tax purposes. The terms of the 1999 Plan are otherwise identical to those of the
1998 Plan except that:
- The total number of shares of our common stock for which options may be
and were granted pursuant to the 1999 Plan is 355,214;
- The exercise price is $1.69 per share of common stock; and
- Ten percent, twenty percent, thirty percent and forty percent of the
options granted vest on each of the fourth, fifth, sixth and seventh
anniversaries, respectively, of the date of grant or upon a change of
control of the Company.
F-19
<PAGE> 144
IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The expiration date of the 1999 Plan is January 5, 2010
In connection with the stock options granted under the 1999 Plan, the
Company will record approximately $5.4 million in stockholders' equity as
deferred compensation during January 2000. The deferred compensation will be
amortized to expense over the vesting period, which commences four years after
the date of grant.
Initial Public Offering -- The Company's completed an initial public
offering ("IPO") of 11,500,000 shares of common stock on February 4, 2000. On
the same date, BT purchased 2,050,000 shares of the Company's common stock
simultaneously with this offering to maintain its approximate current ownership
share in the Company. In anticipation of the IPO, on January 11, 2000, the Board
amended and restated the articles of incorporation of the Company to change the
name of the Company to IMPSAT Fiber Networks, Inc. and authorized 300,000,000
shares of common stock, $0.01 par value, and 5,000,000 shares of "blank check"
preferred stock, $0.01 par value. In addition, the Board approved a .592 for 1
reverse common stock split (see Note 3), adopted a stockholders rights plan and
approved the issuance of 5,472,579 shares of common stock to the minority
shareholders in IMPSAT Argentina, IMPSAT Venezuela and IMPSAT Colombia in
exchange for their minority interests in those subsidiaries. The acquisition of
these minority interests will be accounted for under the purchase method.
13. OPERATING SEGMENT INFORMATION
The Company's operating segment information, by subsidiary, is as follows
for the years ended December 31, 1997, 1998 and 1999:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
TOTAL ASSETS
IMPSAT Argentina.................................... $197,820 $234,844 $269,356
IMPSAT Colombia..................................... 85,709 105,187 83,691
IMPSAT Venezuela.................................... 27,478 36,269 40,407
IMPSAT Mexico....................................... 6,199 8,640 10,991
IMPSAT Ecuador...................................... 12,991 21,262 18,951
IMPSAT USA.......................................... 5,931 15,095 17,917
IMPSAT Brazil....................................... 27,348 79,064
Parent Company, Others and eliminations............. 3,788 78,573 307,955
-------- -------- --------
CONSOLIDATED TOTAL.......................... $339,916 $527,218 $828,332
======== ======== ========
NET REVENUES FROM SERVICES
NETWORK SERVICES
IMPSAT Argentina.................................... $ 72,287 $ 80,925 $ 83,547
IMPSAT Colombia..................................... 45,453 51,930 50,920
IMPSAT Venezuela.................................... 8,739 12,699 19,769
IMPSAT Ecuador...................................... 4,845 8,251 9,964
IMPSAT USA.......................................... 5,362 8,478 8,147
IMPSAT Brazil....................................... 1,535 4,536
Other............................................... 1,568 2,969 2,785
Eliminations........................................ (3,382) (4,171) (7,190)
-------- -------- --------
CONSOLIDATED TOTAL.......................... $134,872 $162,616 $172,478
======== ======== ========
</TABLE>
F-20
<PAGE> 145
IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
INTERNET
IMPSAT Argentina.................................... $ 4,284 $ 6,084 $ 9,130
IMPSAT Colombia..................................... 2,067 2,949 2,879
IMPSAT Venezuela.................................... 134 421 1,491
IMPSAT Ecuador...................................... 721 1,836 2,986
IMPSAT USA.......................................... 1,090 4,312 6,029
IMPSAT Brazil....................................... 142 1,703
Others.............................................. 7,557 6,028
Eliminations........................................ (597) (2,715) (3,607)
-------- -------- --------
CONSOLIDATED TOTAL.......................... $ 7,699 $ 20,586 $ 26,639
======== ======== ========
OTHER
IMPSAT Argentina.................................... $ 14,371 $ 13,532 $ 17,532
IMPSAT Colombia..................................... 2,579 5,568 7,248
IMPSAT Venezuela.................................... 369 2,316 1,972
IMPSAT Ecuador...................................... 150 346 406
IMPSAT USA.......................................... 1,460 1,804 3,067
IMPSAT Brazil....................................... 2,199 2,329
Others.............................................. 208 2,199 1,450
Eliminations........................................ (643) (3,077) (4,670)
-------- -------- --------
CONSOLIDATED TOTAL.......................... $ 18,494 $ 24,887 $ 29,334
======== ======== ========
TOTAL NET REVENUE FROM SERVICES
IMPSAT Argentina.................................... $ 90,942 $100,541 $110,209
IMPSAT Colombia..................................... 50,099 60,447 61,047
IMPSAT Venezuela.................................... 9,242 15,436 23,232
IMPSAT Ecuador...................................... 5,716 10,433 13,356
IMPSAT USA.......................................... 7,912 14,594 17,243
IMPSAT Brazil....................................... 3,876 8,568
Others.............................................. 1,776 12,725 10,263
Eliminations........................................ (4,622) (9,963) (15,467)
-------- -------- --------
CONSOLIDATED TOTAL.......................... $161,065 $208,089 $228,451
======== ======== ========
OPERATING INCOME (LOSS)
IMPSAT Argentina.................................... 13,299 $ 14,779 $(40,988)
IMPSAT Colombia..................................... 20,213 21,458 (10,120)
IMPSAT Venezuela.................................... (811) 366 (2,786)
IMPSAT Mexico....................................... (1,809) (2,333) (3,222)
IMPSAT Ecuador...................................... 1,651 1,535 (2,030)
IMPSAT USA.......................................... 297 1,057 (9,710)
IMPSAT Brazil....................................... -- (7,611) (16,213)
Eliminations........................................ (9,476) (2,381) (11,117)
-------- -------- --------
CONSOLIDATED TOTAL.......................... $ 23,364 $ 26,870 $(96,186)
======== ======== ========
</TABLE>
14. 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.
F-21
<PAGE> 146
IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During the years ended December 31, 1997, 1998 and 1999, such services totaled
approximately $6.7 million, $10.1 million and $11.0 million, 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, 1997, 1998 and 1999, such
transactions totaled approximately $3.8 million, $4.3 million and $9.1 million,
respectively.
Investment banking fees amounting to $5.9 million and $4.1 million,
respectively were paid to representative affiliates of the redeemable preferred
stock shareholders during 1998 and 1999.
15. COMMITMENTS AND CONTINGENCIES
Commitments -- The Company leases satellite capacity with average annual
rental commitments of approximately $9.5 million, through the year 2003. In
addition, the Company has commitments to purchase communications equipment
amounting to approximately $28.5 million at December 31, 1999, and was not
obligated under any letters of credit at December 31, 1999.
Guarantees -- The Company is a third party guarantor of up to 75% of a $6.0
million credit facility provided to IMPSAT Venezuela by a regional development
fund. At December 31, 1999, the balance outstanding on the credit facility
amounted to approximately $2.4 million.
IMPSAT Brazil has entered into a $5.3 million term note with El Camino
Resources, which is guaranteed by the Company and IMPSAT Argentina. At December
31, 1999, the balance outstanding was approximately $4.7 million.
Litigation -- 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 for $7.3 million. The Company
had reclassified the trade account receivables from ENCOTESA to non-current
assets at the estimated net realizable value of $5.1 million as determined by
the Company's management based on the advice of local legal counsel. Although
this matter continues to be negotiated for settlement, the Company during
September 1999 estimated the net realizable value to be zero and, accordingly,
recorded an adjustment of $5.1 million, which is included within selling,
general and administrative expenses in the accompanying consolidated statement
of operations.
16. DEVALUATION
During 1999, the Brazilian real experienced a significant decline in value
in relation to the U.S. dollar, if compared with the prevailing exchange rates
of December 31, 1998. As a result of this devaluation, the Company recognized
approximately $8.9 million in foreign exchange losses during the year ended
December 31, 1999, which are reflected in net gain (loss) on foreign exchange in
the accompanying 1999 statement of operations.
* * * * * *
F-22
<PAGE> 147
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY TO ANY PERSON OR BY ANYONE IN ANY JURISDICTION
IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL OR TO ANY PERSON TO WHOM
IT IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Forward-Looking Statements............ 2
Summary............................... 3
Risk Factors.......................... 13
Capitalization........................ 25
Selected Consolidated Financial and
Other Data.......................... 26
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 29
Industry Overview..................... 40
Business.............................. 43
Management............................ 66
Certain Relationships and Related
Transactions........................ 73
Description of Our Indebtedness....... 76
Principal Stockholders................ 78
The Exchange Offer.................... 79
Description of the Notes.............. 85
Plan of Distribution.................. 119
Certain United States Federal Income
Tax Considerations.................. 119
Legal Matters......................... 123
Experts............................... 123
Where You Can Find More Information... 123
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
------------------------
UNTIL , 2000 (90 DAYS AFTER THE DATE OF THIS EXCHANGE OFFER), ALL
DEALERS OFFERING TRANSACTIONS IN THE NEW NOTES, WHETHER OR NOT PARTICIPATING IN
THIS EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
$300,000,000
IMPSAT FIBER NETWORKS, INC.
13 3/4 SENIOR NOTES DUE 2005
------------------------
PROSPECTUS
------------------------
, 2000
<PAGE> 148
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. 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 the Company's By-laws provides that the Company
shall indemnify its officers and directors to the fullest extent permitted by
the Delaware General Corporation Law.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<C> <S>
3.1 Amended and Restated Certificate of Incorporation of the
Company (filed on January 14, 2000 as Exhibit No. 3.1 to
IMPSAT's Amendment No. 1 to Registration Statement No.
333-88389 on Form S-1) and incorporated herein by reference.
3.2 Amended and Restated Bylaws of the Company (filed on January
14, 2000 as Exhibit No. 3.2 to IMPSAT's Amendment No. 1 to
Registration Statement No. 333-88389 on Form S-1) and
incorporated herein by reference.
4.1* Indenture for the Notes, dated as of February 16, 2000,
among the Company, The Bank of New York, as Trustee and
Banque Internationale a Luxembourg (including form of Note).
4.2* Placement Agreement dated as of February 16, 2000 among the
Company and the Initial Purchasers.
4.3* Registration Rights Agreement, dated February 16, 2000,
among the Company and the Initial Purchasers.
4.4* Form of Note (included in Exhibit 4.1).
5.1 Form of Opinion of Arnold & Porter as to the legality of the
securities being registered (including consent).
10.1 Form of Exchange Agent Agreement between the Company and The
Bank of New York as Exchange Agent.
10.2+ Turnkey Backhaul Construction and IRU Agreement between
IMPSAT Brazil and South American Crossing, Ltd. (Rio de
Janeiro), dated as of February 17, 2000.
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 Backhaul Construction and
IRU Agreement between IMPSAT Brazil and South American
Crossing, Ltd. (Sao Paolo), dated as of February 17, 2000.
12.1 Computation of ratio of earnings to fixed charges.
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).
</TABLE>
II-1
<PAGE> 149
<TABLE>
<C> <S>
24.1 Power of Attorney (included on the signature page hereto).
25.1 Statement of eligibility under the Trust Indenture Act of
1939, as amended, on Form T-1 of The Bank of New York, as
Trustee under the Indenture.
99.1 Form of Letter of Transmittal.
99.2 Form of Guaranteed Delivery.
</TABLE>
- ------------
* Previously filed as an exhibit to the Company's Annual Report on Form 10-K for
1999, filed with the Commission on March 30, 2000 and incorporated herein by
reference.
+ Confidential treatment requested as to certain portions, which portions were
omitted and filed separately with the Commission.
(b) Financial Statement Schedules
Schedule II -- 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 22. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question 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. The
undersigned registrant hereby undertakes to respond to requests for information
that is incorporated by reference into the prospectus pursuant to Item 4, 10(b),
11, or 13 of this form, within one business day of receipt of such request, and
to send the incorporated documents by first class mail or other equally prompt
means. This includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of responding to
the request. The undersigned registrant hereby undertakes to supply by means of
a post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1993;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in this
Registration Statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in this Registration Statement or any
material change to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
II-2
<PAGE> 150
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering. The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
The undersigned registrant undertakes that every prospectus (i) that is
filed pursuant to the paragraph immediately preceding, or (ii) that purports to
meet the requirements of section 10(a)(3) of the Securities Act and is used in
connection with an offering of securities subject to Rule 415, will be filed as
a part of an amendment to the registration statement and will not be used until
such amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
II-3
<PAGE> 151
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
have duly caused this 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, April 17, 2000.
IMPSAT FIBER NETWORKS, INC.
By: /s/ RICARDO A. VERDAGUER
----------------------------------
Ricardo A. Verdaguer
President and Chief Executive
Officer of IMPSAT Fiber
Networks, Inc.
Date: April 17, 2000
II-4
<PAGE> 152
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below (each, a "Signatory") constitutes and appoints Guillermo Jofre,
Guillermo V. Pardo and Jose R. Torres and Mauricio Gabriel Klau (each, an
"Agent," and collectively, "Agents") or either of them, his true and lawful
attorney-in-fact and agent, each with full power of substitution and
resubstitution, for and in his name, place and stead, in any and all capacities,
to sign this Report and any and all 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, or their or his other substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, 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 April 17, 2000
- ----------------------------------------------------- Directors of IMPSAT
Enrique M. Pescarmona Fiber Networks, Inc.
/s/ RICARDO A. VERDAGUER Director, President and April 17, 2000
- ----------------------------------------------------- Chief Executive Officer
Ricardo A. Verdaguer of IMPSAT Fiber
Networks, Inc.
/s/ GUILLERMO JOFRE Chief Financial Officer of April 17, 2000
- ----------------------------------------------------- IMPSAT Fiber Networks,
Guillermo Jofre Inc.
/s/ JOSE R. TORRES Vice President, April 17, 2000
- ----------------------------------------------------- Administration and Chief
Jose R. Torres Accounting Officer of
IMPSAT Fiber Networks,
Inc.
/s/ ROBERTO VIVO Director and Deputy Chief April 17, 2000
- ----------------------------------------------------- Executive Officer of
Roberto Vivo IMPSAT Fiber Networks,
Inc.
/s/ ALEXANDER RIVELIS Director and Vice April 17, 2000
- ----------------------------------------------------- President, Carrier's
Alexander Rivelis Carrier of IMPSAT Fiber
Networks, Inc.
/s/ LUCAS PESCARMONA Director of IMPSAT Fiber April 17, 2000
- ----------------------------------------------------- Networks, Inc.
Lucas Pescarmona
</TABLE>
II-5
<PAGE> 153
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ SOFIA PESCARMONA Director of IMPSAT Fiber April 17, 2000
- ----------------------------------------------------- Networks, Inc.
Sofia Pescarmona
Director of IMPSAT Fiber April , 2000
- ----------------------------------------------------- Networks, Inc.
Stephen R. Munger
Director of IMPSAT Fiber April , 2000
- ----------------------------------------------------- Networks, Inc.
Jeronimo Bosch
Director of IMPSAT Fiber April , 2000
- ----------------------------------------------------- Networks, Inc.
Geoffrey Almeida
Director of IMPSAT Fiber April , 2000
- ----------------------------------------------------- Networks, Inc.
John McElligott
/s/ MAURICIO GABRIEL KLAU Attorney-in-Fact April 17, 2000
- -----------------------------------------------------
Mauricio Gabriel Klau
</TABLE>
II-6
<PAGE> 154
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NO. DESCRIPTION NO.
- ------- ----------- ----
<C> <S> <C>
3.1 Amended and Restated Certificate of Incorporation of the
Company (filed on January 14, 2000 as Exhibit No. 3.1 to
IMPSAT's Amendment No. 1 to Registration Statement No.
333-88389 on Form S-1) and incorporated herein by reference.
3.2 Amended and Restated Bylaws of the Company (filed on January
14, 2000 as Exhibit No. 3.2 to IMPSAT's Amendment No. 1 to
Registration Statement No. 333-88389 on Form S-1) and
incorporated herein by reference.
4.1* Indenture for the Notes, dated as of February 16, 2000,
among the Company, The Bank of New York, as Trustee and
Banque Internationale a Luxembourg (including form of Note).
4.2* Placement Agreement dated as of February 16, 2000 among the
Company and the Initial Purchasers.
4.3* Registration Rights Agreement, dated February 16, 2000,
among the Company and the Initial Purchasers.
4.4* Form of Note (included in Exhibit 4.1).
5.1 Form of Opinion of Arnold & Porter as to the legality of the
securities being registered (including consent).
10.1 Form of Exchange Agent Agreement between the Company and The
Bank of New York as Exchange Agent.
10.2+ Turnkey Backhaul Construction and IRU Agreement between
IMPSAT Brazil and South American Crossing, Ltd. (Rio de
Janeiro), dated as of February 17, 2000.
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 Backhaul Construction and
IRU Agreement between IMPSAT Brazil and South American
Crossing, Ltd. (Sao Paolo), dated as of February 17, 2000.
12.1 Computation of ratio of earnings to fixed charges.
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).
25.1 Statement of eligibility under the Trust Indenture Act of
1939, as amended, on Form T-1 of The Bank of New York, as
Trustee under the Indenture.
99.1 Form of Letter of Transmittal
99.2 Form of Guaranteed Delivery
</TABLE>
- ------------
* Previously filed as an exhibit to the Company's Annual Report on Form
10-K for 1999, filed with the Commission on March 30, 2000, and
incorporated herein by reference.
+ Confidential treatment requested as to certain portions, which portions
were omitted and filed separately with the Commission.
II-7
<PAGE> 1
Exhibit 5.1
FORM OF ARNOLD & PORTER OPINION
[ARNOLD & PORTER LETTERHEAD]
, 2000
IMPSAT Fiber Networks, Inc.
Alferez Pareja 256
1107 Buenos Aires
ARGENTINA
Ladies and Gentlemen:
We have acted as United States counsel for IMPSAT Fiber Networks, Inc., a
Delaware corporation (the "Company"), in connection with the preparation of the
registration statement under Form S-4 (the "Registration Statement"), filed with
the Securities and Exchange of 1933, as amended (the "Act"), pursuant to which
the Company is registering $300,000,000 aggregate principal amount of 13 3/4%
Senior Notes due 2005 (the "Exchange Notes"), under an Indenture dated as of
February 16, 2000, between the Company, The Bank of New York (the "Trustee")
and Banque Internationale a Luxembourg S.A., to be issued in exchange for
$300,000,000 aggregate principal amount of 13 3/4% Senior Notes due 2005 (the
"Exchange Offer"). The terms and conditions of the Exchange Notes and the
Exchange Offer are as set forth in the Registration Statement and the
prospectus (the "Prospectus") contained therein.
In rendering the opinion expressed below, we examined the Certificate of
Incorporation of the Company and the Bylaws of the Company and the minutes of
the Board of Directors of the Company with respect to the filing of the
Registration Statement and the issuance of the Exchange Notes. We also have
examined such certificates of public officials, corporate documents and records
and other certificates and instruments, and have made such other
investigations, as we have deemed necessary in connection with the opinion set
forth herein. Furthermore, we have assumed the genuineness of all signatures,
the authenticity of all documents submitted to us as originals, and the
conformity to the originals of all documents submitted to us as copies.
This opinion is limited to the federal laws of the United States and the
laws of the State of New York, and we do not express any opinion herein
concerning the laws of any other jurisdiction.
Based upon and subject to the foregoing, we are of the opinion that the
Exchange Notes have been duly authorized by the Company and when the Exchange
Notes have been duly executed by the Company and authenticated by the Trustee
in accordance with
<PAGE> 2
IMPSAT Corporation
, 2000
Page 2
the terms of the Indenture and issued in accordance with the terms of the
Exchange Offer, the Exchange Notes will constitute valid and legally binding
obligations of the Company under the laws of the State of New York.
We are also of the opinion that the U.S. Federal income tax consequences
described under the caption "Certain United States Federal Income Tax
Considerations" in the Prospectus accurately describe the material United
States federal income tax consequences of the purchase, ownership, and
disposition of the Exchange Notes.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the headings
"Certain United States Federal Income Tax Consequences" and "Legal Matters" in
the Registration Statement. In giving the foregoing consent, we do not thereby
admit that we are in the category of persons whose consent is required under
Section 7 of the Act or the rules and regulations of the Commission thereunder.
This opinion is solely for your information and is not to be quoted in
whole or in part, summarized or otherwise referred to without or written
consent. This opinion is as of the date hereof. We disclaim any responsibility
to update or supplement this opinion to reflect any events or state of facts
which may hereafter come to our attention or any changes in statutes or
regulations or any court decisions which may hereafter occur.
Sincerely,
ARNOLD & PORTER
<PAGE> 1
Exhibit 10.1
FORM OF EXCHANGE AGENT AGREEMENT
This EXCHANGE AGENT AGREEMENT (this "Agreement") dated as of _ , 2000
between IMPSAT Fiber Networks, Inc., a Delaware corporation ("IMPSAT"), and The
Bank of New York, a banking corporation formed under the laws of the State of
New York, United States (the "Exchange Agent").
W I T N E S S E T H:
WHEREAS, IMPSAT is offering to exchange (the "Exchange Offer") all of its
outstanding 13-3/4% Senior Notes due 2005 (the "Old Notes"), of which an
aggregate of $300,000,000 in principal amount are outstanding as of the date
hereof, for an equal principal amount of newly issued 13-3/4% Senior Notes due
2005 (the "New Notes"), on the terms and in the manner set forth in the
Prospectus, dated April [ ], 2000 (the "Exchange Offer Prospectus"); and
WHEREAS, IMPSAT wishes to appoint the Exchange Agent as its agent for the
purpose of administering the Exchange Offer and the Exchange Agent wishes to
accept such appointment.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, the parties agree as follows:
1. Appointment of Exchange Agent; Performance of Duties. IMPSAT hereby
appoints the Exchange Agent as its agent for the Exchange Offer, and the
Exchange Agent accepts such appointment subject to the terms and conditions
contained in this Agreement.
2. Documents. The Exchange Agent shall establish an account with respect
to the Old Notes at the Depository Trust Company ("DTC") for purposes of the
Exchange Offer within two business days after the date of the Exchange Offer
Prospectus so that any Participant (as defined herein) may make book-entry
delivery of the Old Notes by causing DTC to transfer such Old Notes into such
account in accordance with DTC's procedures for such transfer. IMPSAT shall
provide the Exchange Agent with copies of a letter of transmittal substantially
in the form of Exhibit A attached hereto (the "Letter of Transmittal"). The
Exchange Agent shall request from DTC no later than the effective date of the
Exchange Offer a Special Security Position Listing of all participants eligible
to participate in the Exchange Offer (the "Participants") and the amount of Old
Notes beneficially owned by each such Participant; provided, however, that the
Exchange Agent shall not be responsible for any changes in the Participants or
of the beneficial ownership of the Old Notes during the Exchange Offer. The
Exchange Agent shall make copies of the Letter of Transmittal available to
Holders (as such term is defined in the Letter of Transmittal) and the
Participants upon requests directed to The Bank of New York, Corporate Trust
Administration, 101 Barclay Street, Floor 21 West, New York, New York 10286 by
registered or certified mail or by overnight courier.
<PAGE> 2
3. Exchange Agent Responsibilities. The Exchange Agent shall examine the
Letters of Transmittal (or a facsimile thereof) and other documents received by
it or ascertain that (a) each Letter of Transmittal is completed and duly
executed in accordance with the instructions therefor and (b) any other
document required by the instructions accompanying the Letters of Transmittal
is completed and duly executed in accordance with such instructions. Except as
otherwise provided in this Paragraph 3, Old Notes shall not be deemed to be
properly tendered unless all of the foregoing requirements are met prior to the
Expiration Date (as defined in the Exchange Offer Prospectus). The Exchange
Agent shall take all steps as it shall deem reasonable and appropriate to cause
the person tendering Old Notes pursuant to the Exchange Offer to correct any
defect that exists in any Letter of Transmittal or accompanying document. In
the event that the Exchange Agent is unable to cause the correction of any such
defect, the Exchange Agent shall promptly send to IMPSAT any Letter of
Transmittal or other document or copies thereof containing any defect therein,
which in its judgment would prevent acceptance thereof, together with a request
for instructions as to actions to be taken with respect thereto in accordance
with Paragraph 8(f) of this Agreement. All questions with respect to
compliance with the requirement of this Paragraph 3 will be determined by
IMPSAT, which determination shall be final and binding for the purposes of this
Agreement. IMPSAT reserves the right, if it so elects in its discretion, to
waive the failure of any delivery of Old Notes, Letter of Transmittal or other
document pursuant to the Exchange Offer to comply with any requirement of this
Paragraph 3 or of the Letter of Transmittal. IMPSAT reserves the right to
terminate or, prior to the Expiration Date, amend the Exchange Offer as
provided in the Exchange Offer Prospectus. If notified by IMPSAT of
termination of the Exchange Offer, the Exchange Agent shall promptly return all
tendered Old Notes to the tendering Holders. If notified by IMPSAT of an
amendment of the Exchange Offer, the Exchange Agent shall follow the reasonable
instruction of IMPSAT contained in such notice to the extent consistent with
this Agreement. Each day upon which the Exchange Agent receives one or more
Letters of Transmittal, the Exchange Agent shall provide IMPSAT with a written
account of the following information: (1) the number of properly tendered Old
Notes submitted that day; (2) the cumulative number of properly tendered Old
Notes submitted and not properly withdrawn through such day; (3) the number of
Old Notes covered by defective tenders submitted that day; (4) the number of
Old Notes which are submitted that day pursuant to the guaranteed delivery
procedures contained in the Letter of Transmittal; and (5) the cumulative
number of Old Notes covered by uncorrected defective tenders as of such date.
- 2 -
<PAGE> 3
4. Acceptances and Exchange.
(a) At any time after the Expiration Date (as defined in the Exchange
Offer Prospectus), upon receiving a notice from IMPSAT directing the exchange
of properly tendered Old Notes, the Exchange Agent shall, as agent of IMPSAT
and subject to all the conditions of the Exchange Offer, accept for exchange
all Old Notes properly tendered in accordance with this Agreement that are not
properly withdrawn prior to the Expiration Date (as defined in the Exchange
Offer Prospectus). Thereafter, unless notified otherwise by IMPSAT, the
Exchange Agent shall continue to accept for exchange all Old Notes that are
properly delivered to the Exchange Agent pursuant to Notices of Guaranteed
Delivery (as defined in the Exchange Offer Prospectus) but shall not accept any
other Old Notes for exchange.
(b) Following such acceptance of Old Notes, the Exchange Agent shall
promptly present all such Old Notes to the The Bank of New York, as Registrar
and Transfer Agent for the New Notes (in such capacity, the "Registrar"), with
instructions to cause such Old Notes to be marked as "canceled" in the name of
IMPSAT in the appropriate registers. The Exchange Agent promptly shall notify
the Registrar of (A) the names of the Holders on whose behalf Old Notes have
been so presented and the number of Old Notes so presented on behalf of each
and (B) the instructions for delivery of New Notes provided in the Letters of
Transmittal submitted by each such Holder. The Exchange Agent shall from time
to time request the Registrar to issue such New Notes as are required for
delivery hereunder.
5. Assignees; Signatures. If a New Note or beneficial ownership thereof
is to be delivered to, or reflected on the records of DTC as belonging to, an
assignee of the Holder or beneficial owner of the surrendered Old Notes, the
assignee of the Holder or the beneficial owner shall pay to the Exchange Agent
the amount of any transfer taxes applicable to such transfer unless
satisfactory evidence of the payment of such tax, or exception therefrom, is
submitted.
The signature (or signatures, in the case of any Old Notes owned by two or
more joint holders) on a Letter of Transmittal must correspond exactly with the
name(s) appearing on the records of the Registrar.
6. Records. The Exchange Agent shall maintain, on a continuing basis, in
addition to the information required by Paragraphs 3 and 4 hereof, a record
showing the following: (i) the names and addresses of all Holders who have
tendered Old Notes for exchange and of all Holders to whom New Notes will be or
have been issued or to whose DTC account New Notes will be or have been
credited, (ii) the face amount of Old Notes held by each such Holder, and (iii)
the face amount of Old Notes tendered by, and New Notes to be issued to, each
such Holder. Upon the request of IMPSAT, the Exchange Agent shall provide
IMPSAT with a report setting forth the information maintained pursuant to this
Paragraph 6, together with such other information as may from time to time be
reasonably requested.
- 3 -
<PAGE> 4
7. Fees. IMPSAT shall pay all reasonable out-of-pocket expenses of the
Exchange Agent for postage, stationery, printing, telephone, facsimile, telex
and other similar items (other than those specifically described below) and the
reasonable fees and disbursements of legal counsel to the Exchange Agent
incurred in rendering services hereunder at cost, pursuant to monthly invoices
from the Exchange Agent. Except with respect to Section 10 hereof, in no case,
however, unless agreed to in advance by IMPSAT, shall the payment by IMPSAT of
the fees and disbursements of legal counsel to the Exchange Agent exceed the
sum of $5,000. In addition, IMPSAT shall pay such fees as IMPSAT and the
Exchange Agent may agree in writing from time to time.
8. Limitation of Duties. As Exchange Agent hereunder the Exchange Agent:
(a) shall have no duties or obligations other than those specifically
set forth herein;
(b) will be regarded as making no representations and having no
responsibilities as to the validity, sufficiency, value or genuineness of any
Old Notes or New Notes or any Letter of Transmittal or other document deposited
with or delivered to the Exchange Agent hereunder or any signature or
endorsement in connection therewith and will not be required to and will not
make any representation as to their validity, value or genuineness;
(c) shall not be obligated to take any legal action hereunder which
might in the judgment of the Exchange Agent involve any expense or liability
unless the Exchange Agent shall have been furnished with indemnity acceptable to
it;
(d) may rely on and shall be protected in acting in good faith
reliance upon any certificate, instrument, opinion, notice, letter, telegram or
other document or security delivered to the Exchange Agent believed by it in
good faith to be genuine and to have been signed by the proper party or parties;
(e) shall not be liable for any action taken or omitted by the
Exchange Agent, or any action suffered by it to be taken or omitted, without
gross negligence, bad faith or willful misconduct on its part, by reason of or
as a result of the administration of its duties hereunder, and it may rely on
and shall be protected in acting in good faith reliance upon the written
instructions of any person believed by it in good faith to be a proper officer
or representative of IMPSAT relating to the Exchange Agent's duties hereunder;
(f) may apply to IMPSAT for written instructions with respect to any
matter arising in connection with the Exchange Agent's duties and obligations
arising under this Agreement, and the application by the Exchange Agent for
written instructions from IMPSAT may, at the option of the Exchange Agent, set
forth in writing any action proposed to be taken or omitted by the Exchange
Agent
- 4 -
<PAGE> 5
with respect to its duties or obligations under this Agreement and the date or
dates on or after which such action shall be taken, and the Exchange Agent
shall not be liable for any action taken or omitted in accordance with a
proposal included in any such application on or after the date specified
therein (which date shall not, without IMPSAT's consent, be less than five
business days after IMPSAT is deemed to have received such application) unless,
prior to taking or omitting any such action, the Exchange Agent has received
written instructions from IMPSAT in response to such application specifying the
action to be taken or omitted. The right conferred by this Paragraph 8(f)
shall be restricted by the requirement of Paragraph 3 hereof that, with respect
to defects in any Letter of Transmittal or accompanying document, the Exchange
Agent shall take such steps as it shall deem reasonable and appropriate to
correct the same before applying to IMPSAT under this Paragraph 8(f) for
instructions; and
(g) may consult counsel satisfactory to the Exchange Agent and
IMPSAT, and the opinion of such counsel shall be full and complete authorization
and protection in respect of any action taken, suffered or omitted by it
hereunder in good faith and in accordance with the opinion of such counsel.
9. Court Orders. If any property subject hereto is at any time attached,
garnished or levied upon under any court order or in case the payment,
assignment, transfer, conveyance or delivery of any such property shall be
stayed or enjoined by any court order, or in case any order, judgment or decree
shall be made or entered by any court affecting such property or any part
thereof, then and in any such event the Exchange Agent is authorized, in its
sole discretion, to rely upon and comply with any such order, writ, judgment or
decree which it is advised by legal counsel of its own choosing is binding upon
them, and, if it complies with any such order, writ, judgment or decree, it
shall not be liable to any of the parties hereto or to any other person, firm
or corporation by reason of such compliance even through such order, writ,
judgment or decree may be subsequently reversed, modified, annulled, set aside
or vacated.
10. Indemnification. IMPSAT agrees to indemnify the Exchange Agent and
hold it harmless from and against any loss, liability or expense (including
reasonable counsel fees and expenses) incurred by the Exchange Agent without
gross negligence, bad faith or willful misconduct on its part arising out of or
in connection with the administration of its duties and any action taken or
omitted to be taken hereunder and otherwise in connection with the Exchange
Offer and against any stock transfer or other tax.
11. Amendments. This Agreement may be amended only by an instrument in
writing executed by the parties hereto or their successors and assigns.
12. Reports; Notices. All reports, notices, applications (including
applications for instructions in accordance with Paragraph 8(f) hereof) and
other communications required or permitted hereunder shall be in writing and
shall be deemed given when addressed and delivered by facsimile transmission
(confirmed by telephone call), which delivery may be followed by delivery by
hand or
- 5 -
<PAGE> 6
overnight delivery service, to the address for the party set forth below or at
such other address as a party may furnish by like notice to the other parties
hereto:
If to IMPSAT:
IMPSAT Fiber Networks, Inc.
Alferez Pareja 256
1107 Buenos Aires, Argentina
Attn: Mr. Guillermo Jofre, Chief Financial Officer
Facsimile Number: (5411) 4300-4007
with a copy to:
Arnold & Porter
555 12th Street, N.W.
Washington, D.C. 20004
Attn: Neil M. Goodman, Esq.
Facsimile Number: (202) 942-5999
If to the Exchange Agent:
The Bank of New York
101 Barclay Street
Floor 21 West
New York, New York 10286
Attn: Global Finance Unit
Facsimile Number: (212) 815-4803
Delivery of a notice sent by facsimile transmission shall be deemed to be
effective 24 hours after delivery has been confirmed by telephone.
13. Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed to be an original but both of which together shall
constitute but one agreement.
14. Termination. This Agreement shall terminate on [December 31, 2000],
or on such earlier date as may be agreed in a signed writing between IMPSAT and
the Exchange Agent. Upon termination, copies of all information maintained by
the Exchange Agent for IMPSAT under this Agreement shall be delivered to IMPSAT
as soon as practicable following IMPSAT's request for such information. The
right of the Exchange Agent to be reimbursed for out-of-pocket expenses as
provided in Paragraph 7 and the indemnification provisions of Paragraph 10
hereof shall survive termination of this Agreement.
15. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
- 6 -
<PAGE> 7
IN WITNESS WHEREOF, IMPSAT Fiber Networks, Inc. and The Bank of New York
have duly executed this Agreement as of the date first set forth above.
IMPSAT FIBER NETWORKS, INC.
By: _____________________________
Name: Guillermo Jofre
Title: Chief Financial Officer
THE BANK OF NEW YORK
By: _____________________________
Name: Thomas Tabor
Title Assistant Vice President
- 7 -
<PAGE> 1
EXHIBIT 10.2
TURNKEY BACKHAUL CONSTRUCTION
AND IRU AGREEMENT (BRAZIL--RIO DE JANEIRO)
BETWEEN
IMPSAT COMUNICACOES LTDA.,
A BRAZIL CORPORATION
AND
SOUTH AMERICAN CROSSING LTD.,
A BERMUDA CORPORATION
FEBRUARY 17, 2000
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE 1 DEFINITIONS........................................................2
ARTICLE 2 PROVISION OF THE BACKHAUL SYSTEM AND GRANT OF IRU..................9
ARTICLE 3 CONSIDERATION......................................................9
ARTICLE 4 CONSTRUCTION OF THE BACKHAUL SYSTEM...............................12
ARTICLE 5 ACCEPTANCE AND TESTING............................................15
ARTICLE 6 CHANGE ORDERS.....................................................17
ARTICLE 7 TERM..............................................................18
ARTICLE 8 OPERATIONS........................................................19
ARTICLE 9 PERMITS; RELOCATIONS..............................................19
ARTICLE 10 USE OF THE SEGMENTS...............................................21
ARTICLE 11 INDEMNIFICATION...................................................22
ARTICLE 12 LIABILITY; WARRANTY...............................................23
ARTICLE 13 INSURANCE.........................................................26
ARTICLE 14 FEES AND OTHER GOVERNMENTAL IMPOSITIONS...........................28
ARTICLE 15 NOTICES...........................................................32
ARTICLE 16 CONFIDENTIALITY...................................................33
ARTICLE 17 TERMINATION FOR DEFAULT...........................................34
ARTICLE 18 FOREIGN CORRUPT PRACTICES ACT.....................................38
ARTICLE 19 TERMINATION OF TERM...............................................39
ARTICLE 20 FORCE MAJEURE.....................................................39
ARTICLE 21 TERMINATION FOR FORCE MAJEURE.....................................41
ARTICLE 22 DISPUTE RESOLUTION................................................43
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE 23 ASSIGNMENT, SUBCONTRACTORS AND DARK FIBER TRANSFERS......................44
ARTICLE 24 GUARANTOR................................................................46
ARTICLE 25 REPRESENTATIONS, WARRANTIES AND ACKNOWLEDGMENTS..........................46
ARTICLE 26 TITLE AND RISK OF LOSS...................................................47
ARTICLE 27 INTELLECTUAL PROPERTY....................................................48
ARTICLE 28 INFRINGEMENT.............................................................49
ARTICLE 29 MAINTENANCE AND REPAIR OF THE BACKHAUL SYSTEM............................49
ARTICLE 30 GENERAL..................................................................51
</TABLE>
Exhibits
Exhibit 1A Backhaul Route Map
Exhibit 1B Description and Composition of Route
Exhibit 2A Technical Specifications for Outside Plant
Exhibit 2B Technical Specifications for Fiber Optic Cable
Exhibit 2C Technical Specifications for Duct System
Exhibit 3 Acceptance Tests
Exhibit 4 Associated Properties
Exhibit 5 Billing Schedule
Exhibit 6 As Built Templates
Exhibit 7 Early Completion Bonus
Exhibit 8 Project Management Reports
Exhibit 9 Plan of Work
Exhibit 10 Maintenance Services
Exhibit A Form of Guaranty
Exhibit B Form of Payment Escrow Agreement
Exhibit C Form of Payment Certificate
Exhibit D Approved Subcontractors
Exhibit E Form of Completion Bond
Exhibit F Excluded Taxes
Exhibit G Contract Taxes
-ii-
<PAGE> 4
TURNKEY BACKHAUL CONSTRUCTION AND IRU AGREEMENT
(BRAZIL--RIO DE JANEIRO)
THIS TURNKEY BACKHAUL CONSTRUCTION AND IRU AGREEMENT
(BRAZIL--RIO DE JANEIRO) (this "Agreement") is made and entered into as of
February __, 2000 by and between IMPSAT COMUNICACOES LTDA., a Brazil corporation
("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, SAC desires to develop, operate, maintain, own and
sell, and lease or otherwise dispose of capacity on, a terrestrial fiber optic
network (as more fully defined herein, the "Backhaul System") comprising the
backhaul from its cable landing station in Estrada Dos Bendeirantes No. 12178,
Rio de Janeiro, Brazil to a point-of-presence telehouse in Avenida Pedro Segundo
No. 329, Sao Cristovao, Rio de Janeiro, Brazil, for the purpose of conducting
international telecommunications traffic to and from such telehouse and to and
from the Network;
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 Backhaul System set forth below the caption
"New Construction" in Exhibit 1B (the "Owned Segments") and wishes to engage
IMPSAT to construct the Owned Ducts and the Owned Associated Properties;
WHEREAS, SAC desires to acquire from IMPSAT, and IMPSAT desires
to provide to SAC, an IRU to (i) *[ ] and, along the Subway IRU Segments,
*[ ] (the "IRU Duct" and, together with the Owned Ducts, the "Ducts") along
the Segments of the Backhaul System set forth below the caption "IRU" in Exhibit
1B (the "IRU Segments") and (ii) the rights-of way, easements, way leaves and/or
other real property rights held by IMPSAT along the IRU Segments necessary for
the use of the IRU Duct and the Cable (as defined herein) to provide
telecommunications services;
WHEREAS, SAC desires to purchase from IMPSAT and own, and IMPSAT desires
to provide to SAC and install in the Ducts, a Lucent Truewave RS fiber
* CONFIDENTIAL TREATMENT REQUEST - Confidential portion has been omitted and
filed separately with the Commission.
<PAGE> 5
optic cable containing 48 fibers (the "Cable"), which will be armored in the
Subway IRU Segments; 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
1.1 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 3.
"Acceptance Testing" has the meaning set forth in Section 5.01.
"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, the Associated Properties
and the Cable in order for SAC to own or acquire an IRU in (as the case
may be), operate and maintain the Backhaul System.
"Additional Amount" has the meaning set forth in Section
14.01(f).
"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 Owned Associated Properties
and the IRU Associated Properties.
"Backhaul System" means the fiber optic cable routes as
described in Exhibits 1A and 1B.
- 2 -
<PAGE> 6
"Billing Schedule" means the payment and milestone schedule set
forth in Exhibit 5.
"Bond" has the meaning set forth in Section 4.15.
"Cable" has the meaning set forth in the recitals.
"Certificate of Final Acceptance" means a certificate issued by
SAC in accordance with Section 5.05 to IMPSAT certifying that the
Backhaul System 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
the Backhaul System 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 the Backhaul System is Ready for Provisional
Acceptance and has passed all Acceptance Testing.
"Contract Country" means Brazil or any political subdivisions
thereof or taxing authorities therein.
"Contract Taxes" has the meaning set forth in Section 14.01(a).
"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 the Backhaul System
is Ready for Provisional Acceptance or Ready for Final Acceptance, as
the case may be, 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, the Associated
Properties and the Cable, including without limitation Exhibits 1
through 10 hereof.
- 3 -
<PAGE> 7
"Design Specifications" means the design specifications set
forth in Exhibits 2A through 2C.
"Dispute Account" has the meaning set forth in Section
3.06(b)(i).
"Dollars" or "U.S.$" means United States dollars.
"Downpayment" has the meaning set forth in Section 3.01.
"Ducts" has the meaning set forth in the recitals.
"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
(including minimum and alternative minimum Taxes measured by any
items of Tax preference), including, without limitation, any Tax
listed in Exhibit F, but in each case excluding ICMS, ISS and
other 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 the Backhaul System);
(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, valued added tax 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.
"Fee" has the meaning set forth in Section 3.01.
"Final Commissioning Report" means a written report from IMPSAT
(a) demonstrating that the Backhaul System 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)
"As Builts" and other customary documentation with respect to each
Segment (prepared in accordance with the requirements set forth in
Exhibit 6), and (iii) all other information related to the Work
hereunder reasonably requested by SAC.
"Guarantor" means IMPSAT Fiber Networks Inc., a Delaware
corporation and the ultimate parent company of IMPSAT.
- 4 -
<PAGE> 8
"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.
"ICMS" means the Brazilian state value-added tax or any similar
tax.
"IMPSAT System" means the telecommunications system of IMPSAT
along the IRU Segments and other rights associated with the property and
equipment utilized in IMPSAT's telecommunications system along the IRU
Segments.
"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).
"IRU" means (a) with respect to the IRU Duct, 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 tangible and intangible
property needed for the use of the IRU Duct and the Cable to provide
fiber optic telecommunications services along the IRU Segments as
contemplated in the Design Specifications including, but not limited to,
all Permits with respect to the IRU Segments (specifically excluding any
electronic or optronic equipment) and will include the properties and
locations described in Exhibit 4.
"IRU Duct" has the meaning set forth in the recitals.
"IRU Segments" has the meaning set forth in the recitals.
"ITP" means the Binding Instruction to Proceed, dated as of
December 16, 1999, between SAC and the Guarantor.
"ISS" means the Brazilian municipal tax on services or any
similar tax.
"Keep-well Letter" means the Keep-well letter, dated the date
hereof, from Global Crossing Holdings Ltd. to IMPSAT.
"Liquidated Damages" means amounts of damages payable due to
delay in accordance with Section 4.04.
- 5 -
<PAGE> 9
"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 Country.
"Notice of Termination" has the meaning set forth in Section
20.05.
"Maintenance Services" has the meaning set forth in Section
29.01.
"MTTR" has the meaning set forth in Section 17.02(b).
"Owned Associated Properties" means the tangible and intangible
property needed for the use of the Owned Ducts and the Cable to provide
fiber optic telecommunications services along the Owned Segments as
contemplated by the Design Specifications, including, but not limited
to, all Permits with respect to the Owned Segments (specifically
excluding any electronic or optronic equipment) and will include the
properties and locations described in Exhibit 4.
"Owned Ducts" has the meaning set forth in the recitals.
"Owned Segments" has the meaning set forth in the recitals.
"Payment Escrow Agent" means the escrow agent under the Payment
Escrow Agreement, and its successors in such capacity.
"Payment Escrow Agreement" has the meaning set forth in Section
3.06(b)(i).
"Permits" means all 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 the Backhaul
System, provided that Permits shall not include (a) any of the foregoing
(i) relating to the ownership, operation and maintenance by SAC of the
Owned Segments and not necessary until after the Backhaul System 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
the Backhaul System or (b) any telecommunications licenses required to
be held by SAC and issued by the Agencia Nacional de Telecomunicacoes
(ANATEL) of Brazil. Permits include all of the foregoing whether
required to be obtained from governmental entities or private parties.
- 6 -
<PAGE> 10
"Proprietary Information" has the meaning set forth in Section
16.01.
"Punch List" has the meaning set forth in Section 5.04(a).
"Ready for Final Acceptance" means, with respect to the Backhaul
System, that:
(i) the Backhaul System has been completed in
accordance with the Design Specifications,
(ii) all Acceptance Testing of the Backhaul System
has been successfully completed,
(iii) SAC has received the Final Commissioning Report
for the Backhaul System; and
(iv) all Deficiencies noted in the Certificate of
Provisional Acceptance for the Backhaul System have been
corrected, including, without limitation, the Punch List.
"Ready for Provisional Acceptance" means, with respect to the
Backhaul System, that:
(i) the Backhaul System is complete, except for a Punch
List, agreed to between IMPSAT and SAC, listing the items of the
Work not yet completed, provided, that the Backhaul System is
complete in all material respects, and such incomplete portion
of the Work will not (a) materially impair SAC's ability to
install and operate equipment therein in the manner intended and
(b) during its completion, unreasonably impair SAC's ability to
install and operate equipment therein in the manner intended. At
the sole discretion of SAC, the Punch List may contain items not
meeting the standards of clauses (a) and/or (b) above,
(ii) the results of Acceptance Testing of the
Backhaul System demonstrate that the Backhaul System has
satisfied the Acceptance Criteria; and
(iii) except as included in the Punch List, all
Permits are obtained and in effect for the Backhaul System, and
IMPSAT has provided to SAC copies thereof.
"Recurring Service Charge" has the meaning set forth in Section
29.02(a).
"Retesting" has the meaning set forth in Section 5.03.
- 7 -
<PAGE> 11
"Route" means the routes of the Backhaul System described in
Exhibit 1A.
"Scheduled RFS Date" means, with respect to the Backhaul System,
*[ ], as such date may be extended for and during the period of
any delay described in Article 20, pursuant to a Change Order or
otherwise under this Agreement or by agreement of the parties.
"Segment" means each of the segments of the Backhaul System
identified on Exhibits 1A and 1B.
"Subcontractors" has the meaning set forth in Section 23.05.
"Subway IRU Segment" means any portion of an IRU Segment located
along a subway system and designated "metro" or "Metro" in Exhibit 1B.
"Supplies" means any and all materials, plant, machinery,
equipment, hardware and items supplied by IMPSAT under this Agreement.
"Tax" means any tax, duty, levy, charge or custom (including,
without limitation, any sales or use tax, ICMS, ISS 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).
"Underlying Rights Requirements" has the meaning set forth in
Section 10.01.
"Warranty Period" has the meaning set forth in Section 12.03.
"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 the Backhaul System in accordance with the terms hereof until
the Backhaul System is Ready for Final Acceptance, including without
limitation, designating, coordinating and obtaining all Permits. The
term "Work" shall include, without limitation, all work performed by
IMPSAT pursuant to the ITP and any work so performed shall be deemed to
have
* CONFIDENTIAL TREATMENT REQUEST - Confidential portion has been omitted and
filed separately with the Commission.
- 8 -
<PAGE> 12
been performed pursuant to, and subject to the terms and conditions of,
this Agreement.
"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.
1.2 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 BACKHAUL SYSTEM AND GRANT OF IRU
2.1 In consideration of the Fee, IMPSAT hereby agrees (a) to
construct the Owned Ducts and the Owned Associated Properties, to construct the
IRU Duct and the IRU Associated Properties and to provide and install the Cable
in the Ducts and the Subway IRU Segments on a turnkey, fixed-price, date-certain
basis, meeting the Acceptance Criteria on or before the Scheduled RFS Date for
the Backhaul System and (b) to grant to SAC an IRU for the Term in the IRU Duct
and the IRU Associated Properties, all in accordance with the terms hereof. On
the Date of Provisional Acceptance with respect to the Backhaul System, 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 each Segment within the Backhaul System.
2.2 The Owned 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 IRU Duct and the portion of
the Cable installed therein will be located within facilities, and operated
pursuant to Permits, that are shared with IMPSAT or other telecommunications
providers.
2.3 The Segments included in this Agreement are set forth in
more detail in Exhibits 1A and 1B.
ARTICLE 3
CONSIDERATION
3.1 In consideration for the construction of the Ducts and
the Associated Properties, the provision and installation of the Cable and the
grant of the IRU hereunder by IMPSAT to SAC, SAC agrees to pay to IMPSAT a fixed
fee (the "Fee") of
- 9 -
<PAGE> 13
U.S.$ *[ ], payable in accordance with the Billing Schedule. Promptly
after the execution of this Agreement, SAC shall pay to IMPSAT an initial
payment of $*[ ], representing a downpayment in respect of the Fee (the
"Downpayment"). Amounts paid by SAC under the ITP shall be considered to be
included in the Fee and shall be credited to the Downpayment. IMPSAT shall
present the invoice in respect of the Downpayment to and in the name of any
entity designated by SAC.
3.2 Subject to Article 14 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 Permits, construction costs, and any other costs incurred or
assumed by IMPSAT in obtaining, constructing or conveying the Backhaul System to
SAC with all required Permits. IMPSAT acknowledges and agrees that this
Agreement is a fixed-price contract and, subject to Article 20, explicitly
assumes the risk of any cost overruns beyond its budgeted amount or unexpected
costs or expenses.
3.3 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.
3.4 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.
3.5 (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 ICMS and ISS documentation and shall have a certificate in the form
of Exhibit C 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.
* CONFIDENTIAL TREATMENT REQUEST - Confidential portion has been omitted and
filed separately with the Commission.
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<PAGE> 14
(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.
360 North Crescent Drive
Beverly Hills, CA 90210
Facsimile: 310-281-4942
Attn: Dale Miller
3.6 (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 B 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").
(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.
* CONFIDENTIAL TREATMENT REQUEST - Confidential portion has been omitted and
filed separately with the Commission.
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<PAGE> 15
(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 THE BACKHAUL SYSTEM
4.1 IMPSAT shall design and construct on a turnkey basis the
Owned Ducts and the Owned Associated Properties, shall construct on a turnkey
basis the IRU Duct and the IRU Associated Properties and shall provide and
install on a turnkey basis the Cable, all in accordance with the Design
Specifications, industry standards and practices and applicable Permits.
4.2 The IRU with respect to the IRU Duct and the IRU
Associated Properties shall include for SAC (and its suppliers and agents) a
right to access the IRU Duct and the IRU Associated Properties upon prior
authorization, not to be unreasonably withheld, to 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 IRU Duct.
4.3 IMPSAT shall complete the construction and satisfactory
Acceptance Testing of the Backhaul System by the Scheduled RFS Date.
4.4 The parties agree that damages for delay are difficult
to calculate and therefore agree that, if the Date of Provisional Acceptance of
the Backhaul System does not occur by the Scheduled RFS Date due to a failure of
IMPSAT to fulfill its obligations hereunder, IMPSAT shall pay Liquidated Damages
to SAC at a rate of U.S.$ *[ ] per day of delay, for up to 100 days of
delay, and not to exceed U.S.$*[ ] in the aggregate. Any such damages
shall be payable in Dollars. Liquidated Damages and SAC's rights to terminate
under Article 17 shall be SAC's sole remedies for any delay in the performance
of IMPSAT's obligation to deliver the Backhaul System hereunder.
* CONFIDENTIAL TREATMENT REQUEST - Confidential portion has been omitted and
filed separately with the Commission.
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<PAGE> 16
4.5 If the Date of Provisional Acceptance of the Backhaul
System occurs prior to the Scheduled RFS Date, SAC shall pay an early completion
bonus to IMPSAT in accordance with Exhibit 7, not to exceed U.S.$*[ ] in
the aggregate. Any such bonus shall be payable in Dollars.
4.6 IMPSAT shall provide SAC with access to inspect the
construction and testing of the Backhaul System 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, Permits, drawings and specifications generated, obtained or
acquired by IMPSAT in performing its duties under this Agreement that are
reasonably requested by SAC and, 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.
4.7 IMPSAT shall construct the Backhaul System in accordance
with the Acceptance Criteria.
4.8 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 Permits, including
without limitation Permits with respect to the IRU Segments, 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.
4.9 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 for the exportation and importation of goods
and, where necessary, for their transit through another country.
4.10 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.
* CONFIDENTIAL TREATMENT REQUEST - Confidential portion has been omitted and
filed separately with the Commission.
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<PAGE> 17
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.
4.11 Subject to Article 20, IMPSAT assumes the risk of
conditions on the 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.
4.12 IMPSAT shall be permitted, with the consent of SAC (not
to be unreasonably withheld), to make changes to the Route, if necessary for
operational reasons, without additional cost to SAC. Any changes to the Route
requested by SAC shall be treated as a Change Order. Any changes to any aspect
of the Work due to changes in the Route requested by IMPSAT pursuant to this
Section (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.
4.13 IMPSAT shall provide to SAC, on the first day of each
month, a construction progress report in accordance with Exhibit 8 containing
the following information: (i) scheduled and forecasted completion dates for all
Segments and Associated Properties, (ii) kilometers of duct installed, fiber
cable installed and fiber spliced, (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, IMPSAT will provide to SAC weekly
reports in form and substance (via electronic mail or otherwise) satisfactory to
the parties.
4.14 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.
4.15 In order to receive payment of the amount otherwise due
on the Date of Provisional Acceptance of the Backhaul System in accordance with
Exhibit 5, IMPSAT shall deliver to SAC a completion bond in the amount of
U.S.$*[ ], substantially in the form of Exhibit E hereto (the "Bond"),
issued by an entity reasonably acceptable to SAC. The Bond shall be maintained
by IMPSAT until, and released by SAC on, the Date of Final Acceptance of the
Backhaul System.
* CONFIDENTIAL TREATMENT REQUEST - Confidential portion has been omitted and
filed separately with the Commission.
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<PAGE> 18
ARTICLE 5
ACCEPTANCE AND TESTING
5.1 Overview.
Acceptance testing shall be conducted for the Backhaul System
pursuant to the provisions of this Article 5 ("Acceptance Testing").
5.2 Acceptance Testing.
(a) Acceptance Testing shall be performed by IMPSAT in
accordance with Exhibit 3. 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 Specifications 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 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 the Backhaul
System, SAC agrees to allow IMPSAT access to all Segments of the Backhaul System
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 the
Backhaul System.
(c) Once the Backhaul System is Ready for Provisional
Acceptance, SAC shall issue a Certificate of Provisional Acceptance.
(d) Once the Backhaul System 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
the Backhaul System will occur by the Scheduled RFS Date.
5.3 Notice of Acceptance or Rejection.
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<PAGE> 19
(a) Within *[ ] days 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 Backhaul System in its existing
condition and a written explanation of reasons for rejection.
If SAC fails to respond with such notification within *[ ]
days, then the Date of Provisional Acceptance of the Backhaul
System shall be deemed to be the date occurring *[ ] days
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 the Backhaul System 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.
(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 *[ ] days 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.
5.4 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
* CONFIDENTIAL TREATMENT REQUEST - Confidential portion has been omitted and
filed separately with the Commission.
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<PAGE> 20
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
Backhaul System as IMPSAT needs to correct such Deficiencies and complete the
Work. IMPSAT shall give SAC reasonable notice of its requirement for such
access.
5.5 Final Acceptance
(a) Within *[ ] days 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 *[ ] day period, then the Date of Final Acceptance of the
Backhaul System shall be deemed to be the date occurring *[ ] days 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 the Backhaul System is Ready for Final
Acceptance in accordance with this Article 5.
5.6 Title and Risk of Loss
(a) Upon the issuance of a Certificate of Provisional
Acceptance by SAC in accordance with this Agreement, title to, or an IRU for the
Term in, each Segment of the Backhaul System, 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 23.03. 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, SAC shall assume the risk of
loss in respect of all parts of such Segment and (without limiting the
provisions of Article 29) responsibility for its maintenance. IMPSAT will be
allowed access to such Segment as provided in Section 5.02(b).
ARTICLE 6
CHANGE ORDERS
6.1 Either party may request, during construction of the
Owned Segments, by written order, a change order (a "Change Order") requiring
additions or alterations to, deviations or deductions from the Owned 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
* CONFIDENTIAL TREATMENT REQUEST - Confidential portion has been omitted and
filed separately with the Commission.
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<PAGE> 21
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, the Scheduled
RFS Date, any warranties, the Acceptance Criteria or the Design Specifications.
6.2 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.
6.3 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 Owned 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.
ARTICLE 7
TERM
7.1 (a) The grant of the IRU hereunder in an IRU Segment
shall become effective on the first day when both (i) the Date of Provisional
Acceptance of the Backhaul System has occurred and (ii) IMPSAT has received
payment in full of the Fee with respect to such IRU Segment in accordance with
Article 3. Such grant shall extend for a period ending *[ ] years after
the Date of Provisional Acceptance of the Backhaul System; provided, however,
that in the case of a Subway IRU Segment, such grant shall extend until
*[ ].
(b) Not later than one year before the expiration of the
term of a Subway IRU Segment referred to in Section 7.01(a), IMPSAT shall use
its reasonable best efforts to present to SAC for its consideration a written
proposal to renew the IRU hereunder in the IRU Duct and the IRU Associated
Properties along such Subway IRU Segment until the date that is *[ ] years
after the Date of Provisional Acceptance of the Backhaul System. Upon SAC's
acceptance of such a proposal, the parties shall negotiate in good faith the
terms and conditions upon which the IRU hereunder in such IRU Duct and IRU
Associated Properties shall be renewed.
(c) Not later than *[ ] years after the Date of
Provisional Acceptance of the Backhaul System (or upon any earlier termination
of the
* CONFIDENTIAL TREATMENT REQUEST - Confidential portion has been omitted and
filed separately with the Commission.
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<PAGE> 22
IRU referred to therein except for default on the part of SAC), IMPSAT shall use
its reasonable best efforts to present to SAC for its consideration a written
proposal to renew the IRU hereunder for a period equal to the least of (i) the
remaining useful life of the IRU Duct and the IRU Associated Properties, (ii)
the period during which IMPSAT shall be entitled, and continues, to use the
IMPSAT System and (iii) the remaining period until the date that is *[ ]
years after the Date of Provisional Acceptance of the Backhaul System.
(d) 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 IRU Duct and the 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.
(e) The IRU periods set forth in the preceding paragraphs
(a), (b) and (c) shall, collectively with respect to the IRU to which they
apply, be referred to as the "Term."
7.2 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 IRU Duct and the IRU Associated Properties subject
to the IRU hereunder.
ARTICLE 8
OPERATIONS
8.1 SAC acknowledges and agrees that IMPSAT is not obligated
to supply to SAC any opto-electronics or electronics or optical or electrical
equipment with respect to the Backhaul System, 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.
ARTICLE 9
PERMITS; RELOCATIONS
9.1 Upon written request of IMPSAT, SAC shall reasonably
cooperate with and assist IMPSAT to obtain all Permits, to the extent that SAC's
cooperation and assistance are necessary for IMPSAT to expeditiously and
cost-efficiently obtain such Permits. SAC agrees to respond reasonably promptly
to any
* CONFIDENTIAL TREATMENT REQUEST - Confidential portion has been omitted and
filed separately with the Commission.
- 19 -
<PAGE> 23
such request from IMPSAT. Further, SAC agrees that it will not impede or
interfere with IMPSAT's abilities to perform its obligations hereunder. Upon
notice from IMPSAT with respect to a Permit or receipt by SAC of a copy of a
Permit, SAC shall fulfill all conditions of such Permit and perform all
responsibilities thereunder, except to the extent that such conditions or
responsibilities are those of IMPSAT hereunder. IMPSAT will inform SAC as to any
such conditions or responsibilities that are not ordinary and routine (based on
industry standards). SAC (and its representatives and legal counsel) may, at its
sole option, participate with IMPSAT 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 IMPSAT's obligations under this Agreement with
respect to obtaining all Permits and shall not, by itself, be deemed to impede
or interfere with the performance by IMPSAT of such obligations.
9.2 IMPSAT shall have the responsibility for obtaining, at
IMPSAT's sole cost and expense, all Permits (on SAC's behalf with the respect to
the Owned Segments). IMPSAT will cause all Permits with respect to the Owned
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 Owned Segment must be transferred to SAC pursuant
to this Agreement. 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 Permit fees and other costs and expenses due with
respect to any Permit after the Date of Provisional Acceptance of the Backhaul
System (except for any of the foregoing assignment or issuance fees that are to
be paid by IMPSAT); provided, however, that *[ ] , IMPSAT shall not
arrange for any Permit which requires by its terms as of the Date of
Provisional Acceptance aggregate payments in excess of $*[ ] to be made by
SAC or made after the Backhaul System is Ready for Provisional Acceptance.
9.3 Within 30 days after the date of execution of this
Agreement, IMPSAT will prepare and deliver to SAC a detailed list of 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 Permit requirements. Such list, as updated from time to
time, shall set forth the projected dates of filing for such Permits and an
estimate of when such Permits are expected to be obtained. Without limiting
IMPSAT's liabilities in respect of Section 9.02, IMPSAT shall have no liability
in respect of the accuracy of the information furnished under this Section 9.03,
except in the case of gross negligence or willful misconduct.
9.4 With respect to Permits relating to ownership, operation
and maintenance of an IRU Segment, IMPSAT shall either require that the initial
stated term of each such 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
* CONFIDENTIAL TREATMENT REQUEST - Confidential portion has been omitted and
filed separately with the Commission.
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<PAGE> 24
of any such 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 the Fee
includes the 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 Permits shall be for the sole account of IMPSAT.
9.5 If, after the Date of Provisional Acceptance with
respect to the Backhaul System, (i) IMPSAT is required by a third party with
legal authority to so require or by the loss of a Permit to relocate any portion
of an IRU Segment located within the Backhaul System, including any of the
facilities used or required in providing the IRU in such 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 such IRU Segment and (c) IMPSAT
shall have obtained SAC's prior consent to such relocation and the manner in
which such relocation shall be effected (not to be unreasonably withheld).
9.6 In the case of any relocation under Section 9.05
required by a third party with the power to so require (not due to any violation
of law or term of a Permit by IMPSAT), SAC shall reimburse IMPSAT for SAC's
proportionate share of the reasonable costs of relocation of any portion of an
IRU Segment relocated under Section 9.05.
9.7 If IMPSAT determines in its sole discretion to effect a
relocation under Section 9.05, IMPSAT shall be solely responsible for the costs
associated with such relocation.
9.8 Upon SAC's written request, IMPSAT shall deliver to SAC
updated As-Builts (prepared in accordance with the requirements set forth in
Exhibit 6) with respect to each IRU Segment relocated under Section 9.05 within
sixty (60) days following the completion of such relocation.
ARTICLE 10
USE OF THE SEGMENTS
10.1 The requirements, restrictions, and/or limitations upon
SAC's right to use the IRU Duct 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."
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<PAGE> 25
10.2 SAC shall use the IRU Duct and the IRU Associated
Properties in compliance with and subject to the Underlying Rights Requirements
and all applicable government codes, ordinances, laws, rules and regulations.
10.3 Subject to the provisions of Article 23 and this Article
10, SAC may use the Ducts and the Associated Properties to provide fiber optic
telecommunications services and to sell capacity, Owned Ducts and dark fiber, to
other persons and as a portion of the Network. SAC agrees and acknowledges that
it has no right to use any of the ducts, other than the IRU Duct, included in
the IRU Segments. SAC shall keep any and all parts of the IMPSAT System along
the IRU Segments free from any liens, rights or claims of any third party
attributable to SAC, and IMPSAT shall keep SAC's property in the IRU Duct and
the IRU Associated Properties free from any liens, rights or claims of any third
party attributable to IMPSAT, except as provided in Section 23.03. Nothing
contained in this paragraph shall limit SAC's right to subject its own property
and equipment in the IRU Duct and the IRU Associated Properties to any liens,
rights or claims of any third party.
10.4 SAC shall not use, or permit to be used, the Backhaul
System 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 IRU Segments 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 10.04.
10.5 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 11
INDEMNIFICATION
11.1 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 any
applicable regulatory authority; and (iii) third
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<PAGE> 26
party claims in respect of acts or omissions by SAC, in each case within its
reasonable control.
11.2 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 Owned 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 IRU Duct and the IRU
Associated Properties) and any equipment located therein.
ARTICLE 12
LIABILITY; WARRANTY
12.1 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 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.
12.2 EXCEPT TO THE EXTENT SET FORTH IN THE NEXT SUCCEEDING
SENTENCE AND IN SECTION 17.05, IMPSAT'S MAXIMUM AGGREGATE LIABILITY TO SAC
HEREUNDER, WHETHER ARISING UNDER TORT, CONTRACT OR ANY OTHER LEGAL OR EQUITABLE
THEORY, SHALL
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<PAGE> 27
NOT EXCEED *[ ] OF THE FEE. THE FOREGOING LIMITATION SHALL NOT APPLY TO
CLAIMS FOR GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.
12.3 IMPSAT warrants that the Work in each Segment will
trictly comply with the Design Specifications and that the entire Backhaul
System, 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 System
(the "Warranty Period").
(a) During the Warranty Period, IMPSAT shall make good, by
repair or replacement, at its sole option, any defects in the Backhaul System,
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 the Backhaul System 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 the Backhaul System or substitute equipment of later
or comparable design, provided the changes, modifications, or substitutions
under normal and proper use do not cause the Backhaul System to fail to meet the
Acceptance Criteria. In the event IMPSAT fails to make the repair pursuant to
this Article 12, to provide Maintenance Services pursuant to Article 29 or to
make reasonable efforts to minimize the period that the Backhaul System 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 12 or Article 29.
(c) IMPSAT shall use reasonable efforts to minimize the
period of time that any Segment or the Backhaul System is out of service for
testing and repair. SAC agrees to cooperate with IMPSAT to facilitate IMPSAT's
repair activity.
(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 the Backhaul
System and shall supply all necessary repair materials.
* CONFIDENTIAL TREATMENT REQUEST - Confidential portion has been omitted and
filed separately with the Commission.
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<PAGE> 28
(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.
12.4 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.
12.5 In addition to the warranties provided to SAC pursuant
to Section 12.03, IMPSAT shall (i) *[ ] (ii) provide SAC with copies of
all manufacturer's, vendor's, contractor's or other warranties applicable to
the Ducts and the Cable 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 of the Backhaul System, (iv) *[ ]
assign all such warranties with respect to the Ducts and the Cable to SAC on or
prior to the Date of Provisional Acceptance of the Backhaul System, 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.
12.6 The warranties provided above in Sections 12.03 and
12.05 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 of the Backhaul System) 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 the Backhaul System) third parties (other than IMPSAT or its agents).
12.7 THE FOREGOING WARRANTIES ARE EXCLUSIVE AND ARE IN LIEU
OF ALL OTHER EXPRESS AND IMPLIED WARRANTIES
* CONFIDENTIAL TREATMENT REQUEST - Confidential portion has been omitted and
filed separately with the Commission.
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<PAGE> 29
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 THE BACKHAUL SYSTEM 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 17 HEREOF.
ARTICLE 13
INSURANCE
13.1 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 U.S.$*[ ] 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 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.$*[ ] for the loss
or damage to property resulting from any one accident;
(c) workers' compensation insurance or similar statutory
workers' coverage in amounts required by applicable law and employers'
liability insurance with a limit of at least U.S.$*[ ] 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 the Backhaul System to maintain insurance in
the types and amounts as would be obtained by a prudent person to
provide
* CONFIDENTIAL TREATMENT REQUEST - Confidential portion has been omitted and
filed separately with the Commission.
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<PAGE> 30
adequate protection against loss. In all circumstances, IMPSAT shall
require its Subcontractors to carry a minimum of U.S.$*[ ] in
commercial general liability coverage.
13.2 Following the date on which the transfer of an IRU and
risk of loss to any IRU Segment shall have passed to SAC, and throughout the
remaining Term of this Agreement with respect to such IRU Segment, each party
shall procure and maintain in force, at its own expense:
(a) not less than U.S.$*[ ] 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.$*[ ] for the loss or damage
to property resulting from any one accident;
(c) workers' compensation insurance or similar statutory
workers' coverage in amounts required by applicable law and employers'
liability insurance with a limit of at least U.S.$*[ ] 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.
13.3 Both parties expressly acknowledge that a party shall be
deemed to be in compliance with the provisions of this Article 13 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 Article 13. Such insurance
* CONFIDENTIAL TREATMENT REQUEST - Confidential portion has been omitted and
filed separately with the Commission.
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<PAGE> 31
certificates shall provide for at least *[ ] days' prior written notice of
cancellation or material change to the other party.
13.4 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 *[ ] days' 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.
13.5 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 14
FEES AND OTHER GOVERNMENTAL IMPOSITIONS
14.1 The provisions of this Section 14.01 shall apply only
with respect to the construction phase of the Backhaul System and the payment of
the Recurring Service Charge pursuant to Article 29.
(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 Excluded Taxes (any such Taxes (other
than Excluded Taxes) including, without limitation, any Tax listed in Exhibit G,
are hereinafter referred to as "Contract Taxes"). IMPSAT shall be responsible
for any Excluded Tax incurred by IMPSAT.
(b) SAC will be ultimately responsible for the payment of
all Contract Taxes (including, without limitation, Contract Taxes that are ICMS
and ISS 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 Contract Taxes paid by IMPSAT, IMPSAT shall submit payment on
SAC's behalf, and IMPSAT will be reimbursed by SAC.
* CONFIDENTIAL TREATMENT REQUEST - Confidential portion has been omitted and
filed separately with the Commission.
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<PAGE> 32
(c) IMPSAT agrees to use commercially reasonable efforts,
including, without limitation, by registering for ICMS and ISS and any
applicable sales and services 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 Contract
Taxes, whether in the manufacture of the Supplies or related to the importation
or location or installation 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 Contract Taxes (including the
provision of applicable certifications and forms) and to obtain any available
refunds of 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 14.01(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 of the
Backhaul System, IMPSAT shall provide evidence of having made all payments for
Taxes included in the Fee and the Recurring Service Charge, other than ICMS and
ISS due on payments of the Fee and the Recurring Service Charge made on or after
the Date of Provisional Acceptance of the Backhaul System, 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 the 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 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
- 29 -
<PAGE> 33
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 Contract Tax as to which SAC has paid an additional amount pursuant
to Section 14.01(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 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
14.01(f) above, or if, as a result of SAC's payment of such additional amounts,
IMPSAT or any other subsidiary of the Guarantor, 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 14.01(f) above with respect to the 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.
14.2 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, or
gross or net income, due to their respective assets, properties or ownership or
use of the Backhaul System and/or the IMPSAT System.
14.3 To the extent ICMS or ISS applies to all or any part of
the purchase of, or acquisition of an IRU in, the Backhaul System 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 ICMS and ISS authorities.
14.4 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 the Backhaul
System and (b) share such Taxes according to their respective interests in the
IMPSAT System, 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 14.04 through 14.10.
- 30 -
<PAGE> 34
14.5 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 Backhaul System 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
the Backhaul System and the performance of the Work shall be governed by Section
14.01.
14.6 Except as to Taxes described in Section 14.05(b),
following the Date of Provisional Acceptance of the Backhaul System, IMPSAT
shall timely pay any and all Taxes imposed upon or with respect to the IMPSAT
System to the extent such Taxes may not feasibly be separately assessed or
imposed upon or against the respective ownership interests of IMPSAT and SAC in
the IMPSAT System (after a reasonable and good faith effort by IMPSAT to procure
such separate assessment); provided that, upon receipt of a notice of any such
Tax, IMPSAT shall promptly notify SAC of such Tax and following payment of such
Tax by IMPSAT, SAC shall promptly reimburse IMPSAT 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 SAC's share will be one-third of the Taxes assessed or
imposed.
14.7 Notwithstanding any provision herein to the contrary,
IMPSAT shall have the right to contest any Tax described in Section 14.06 above
(including by non-payment of such Tax), subject, however, to reasonable and
appropriate consultation with SAC, which hereby agrees to cooperate with IMPSAT
in such contest. The out-of-pocket costs and expenses (including reasonable
attorneys' fees) incurred by IMPSAT in any such contest shall be shared by
IMPSAT and SAC 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 14.07 shall be divided
between IMPSAT and SAC in the same proportion as to which such refunded or
credited Taxes were borne by IMPSAT and SAC. In any such event, IMPSAT shall
provide timely notice of such challenge to SAC.
14.8 Except as to Taxes described in Section 14.05(b),
following the Date of Provisional Acceptance of the Backhaul System, IMPSAT and
SAC, 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 and/or
an IRU Segment, or (b) which have been separately assessed or imposed upon the
respective ownership interest of such party in the IMPSAT System and/or an IRU
Segment.
- 31 -
<PAGE> 35
14.9 With respect to any Taxes relating to the IMPSAT System
which are imposed upon both IMPSAT and SAC (or both of their respective
interests therein), IMPSAT, 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 SAC, which hereby agrees to cooperate with IMPSAT
in any such contest.
14.10 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.
ARTICLE 15
NOTICES
15.1 All notices and communications concerning this Agreement
shall be in writing and addressed to the other party as follows:
If to IMPSAT:
IMPSAT Comunicacoes Ltda.
Av. Eng. Luis Carlos Berrini, 550
11(o) e 10(o) andar (parte)
Sao Paulo, Brazil
Fax: 011-5511-5506-8399
Attention: Daniel Vicente Hourquescos
with a copy to:
IMPSAT Fiber Networks Inc.
Alferez Pareja 256 (1107)
Buenos Aires, Argentina
Fax: 011-54-114-307-1525
Attention: Alexander Rivelis
with a copy to:
Latham & Watkins
1001 Pennsylvania Ave., N.W.
Suite 1300
Washington, D.C. 20004
Attention: Gary M. Epstein
If to SAC:
South American Crossing Ltd.
c/o Global Crossing Ltd.
360 North Crescent Drive
- 32 -
<PAGE> 36
Beverly Hills, CA 90210
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.
15.2 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.
ARTICLE 16
CONFIDENTIALITY
16.1 (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.
16.2 The foregoing provisions of Section 16.01 shall not
apply to any Proprietary Information which (a) becomes publicly available other
than through
- 33 -
<PAGE> 37
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) 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.
16.3 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.
16.4 Notwithstanding Sections 16.01 and 16.02, 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.
16.5 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.
16.6 The provisions of this Article 16 shall survive for two
years after expiration or termination of this Agreement.
ARTICLE 17
TERMINATION FOR DEFAULT
17.1 (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, 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
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<PAGE> 38
unpaid for a period of *[ ] days 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 *[ ] days 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 *[ ] day period; 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 *[ ]
days; and provided further, that no cure period shall be available to SAC for
any breach of Article 18.
(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 *[ ] days; 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 29 and
not the IRU hereunder of the IRU Duct and the IRU Associated Properties) and/or
(b) subject to the limitations of Section 12.01, pursue the remedies
specifically provided in this Agreement or otherwise available at law or in
equity.
* CONFIDENTIAL TREATMENT REQUEST - Confidential portion has been omitted and
filed separately with the Commission.
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<PAGE> 39
(e) If this Agreement is terminated by IMPSAT as provided in
this Section 17.01, SAC shall pay, in addition to any other damages payable
pursuant to Section 17.06 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 21.01 (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.
17.2 (a) With respect to its obligation to complete the
construction, installation and satisfactory Acceptance Testing of the Backhaul
System by the Scheduled RFS Date pursuant to Section 4.03, IMPSAT shall be in
default under this Agreement if the Date of Provisional Acceptance of the
Backhaul System has not occurred within *[ ] days after the Scheduled RFS
Date (a "Delivery Default").
(b) With respect to its obligation to achieve the Corrective
Maintenance Mean Time to Repair ("MTTR") in accordance with Exhibit 10, SAC
shall have the right to terminate this Agreement if IMPSAT fails to achieve the
MTTR *[ ].
(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 *[ ] days 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 *[ ] day period; 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 *[ ] days, and provided further, that no cure period
shall be available to IMPSAT for any breach of Article 18.
(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,
* CONFIDENTIAL TREATMENT REQUEST - Confidential portion has been omitted and
filed separately with the Commission.
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<PAGE> 40
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 *[ ] days; 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 29 and
related provisions), and/or (b) subject to the limitations of Article 12, 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 an 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 the Backhaul
System.
(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 Backhaul
System, SAC shall have the right to receive from IMPSAT a pro rata refund of an
amount equal to U.S.$*[ ] based upon the remaining portion of the Term of
the IRU of the IRU Duct and the IRU Associated Properties in effect immediately
prior to such termination.
17.3 If this Agreement is terminated by SAC as a result of a
Delivery Default, SAC, in addition to any other rights provided in this Article,
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 Ducts, Cable 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.
* CONFIDENTIAL TREATMENT REQUEST - Confidential portion has been omitted and
filed separately with the Commission.
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<PAGE> 41
17.4 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 17.06 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.
17.5 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 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.
17.6 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.
ARTICLE 18
FOREIGN CORRUPT PRACTICES ACT
18.1 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.
18.2 In the event that it is established in an arbitration
pursuant to Article 22 or in any criminal proceeding that a party has breached
the provisions of this
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<PAGE> 42
Article 18, the other party shall have the right to terminate this Agreement
pursuant to Section 17.01(b) or 17.02(c), as the case may be.
18.3 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 19
TERMINATION OF TERM
19.1 This Agreement automatically shall terminate upon the
expiration of the Term pursuant to Article 7 or termination pursuant to Article
17.
19.2 Upon the expiration or termination of this Agreement
with respect to an IRU Segment, the IRU with respect to such Segment shall
immediately terminate and all rights of SAC to use the IMPSAT System, the IRU
Duct and the 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, SAC shall remove all of SAC's
equipment and other SAC property from such Segment and any related IMPSAT
facilities at SAC's sole cost, under IMPSAT's supervision, provided that, in the
case of a Subway IRU Segment, no such removal shall be required unless otherwise
required by the relevant governmental authority. SAC shall repair such Segment
to its original condition before the installation of such equipment and
property, provided that, in the case of a Subway IRU Segment, no such repair
shall be required unless otherwise required by the relevant governmental
authority.
19.3 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 18 or (b) pursuant to Article 11, Article 12,
Article 14 or Article 16 herein, which Articles shall survive the expiration or
termination hereof.
ARTICLE 20
FORCE MAJEURE
20.1 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
- 39 -
<PAGE> 43
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 *[ ] years) 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
*[ ] days of unworkable weather (unless any such day occurs during the
*[ ] days immediately preceding the then Scheduled RFS Date for the
Backhaul System), (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 Permit to SAC.
20.2 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.
20.3 Each party shall inform the other party promptly with
written notification, and in all cases within *[ ] days of discovery and
knowledge, of any occurrence covered 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.
20.4 Within *[ ] days after receipt of such a notice
from either party, the other party may provide a written response.
20.5 If a Force Majeure (except pursuant to Section 5.02(a))
continues for a total of *[ ] days, either party may terminate this
Agreement by written notice to the other (such notice, a "Notice of
Termination") and
* CONFIDENTIAL TREATMENT REQUEST - Confidential portion has been omitted and
filed separately with the Commission.
- 40 -
<PAGE> 44
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 21 shall
apply to such termination.
20.6 Every *[ ] days 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.
20.7 Force Majeure shall not excuse the late payment of
money.
ARTICLE 21
TERMINATION FOR FORCE MAJEURE
21.1 After the delivery of a Notice of Termination with
respect to an Owned Segment pursuant to Section 20.05, and except as otherwise
directed by SAC, IMPSAT shall:
(a) Stop Work under this Agreement with respect to such
Owned 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 Owned 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 Owned 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 Owned
Segment;
(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
* CONFIDENTIAL TREATMENT REQUEST - Confidential portion has been omitted and
filed separately with the Commission.
- 41 -
<PAGE> 45
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 21.01(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.
21.2 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.
21.3 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 Owned Segment plus, for Work or Supplies
which have been done or provided with respect to such Owned 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 Owned Segment under the
contracts and orders, as provided in Section 21.01(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
- 42 -
<PAGE> 46
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 and
disposition of property proper to this Agreement.
21.4 In arriving at the amount due to IMPSAT under this
Article 21, 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 21, and not otherwise recovered by or credited to SAC
shall be deducted.
21.5 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 21, such excess shall be refunded, upon
demand, by IMPSAT.
21.6 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 22
DISPUTE RESOLUTION
22.1 The parties shall endeavor to settle amicably by mutual
discussions any disputes, differences, or claims whatsoever related to this
Agreement.
22.2 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.
- 43 -
<PAGE> 47
ARTICLE 23
ASSIGNMENT, SUBCONTRACTORS AND DARK FIBER TRANSFERS
23.1 Except as provided in this Article, neither party shall
assign this Agreement or any right or interest under this Agreement, nor
delegate any work or obligation to be performed under this Agreement (an
"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 SAC or an
Affiliate of a competitor of IMPSAT or SAC or an uncreditworthy party).
23.2 IMPSAT 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 IMPSAT by way of a merger, consolidation or sale of assets or
(b) an Affiliate of IMPSAT; provided that (i) in the case of any assignment or
delegation pursuant to this Section 23.02, such assignee or delegee shall assume
in writing all liabilities, warranties, representations and obligations of
IMPSAT 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. IMPSAT shall give SAC written notice 30
days prior to any assignment or delegation by it. IMPSAT shall remain jointly
and severally liable with any such assignee or delegee.
23.3 (a) SAC acknowledges and agrees that IMPSAT may grant
security interests of any kind in and/or collaterally assign its rights with
respect to the IMPSAT System, the IRU Duct, the IRU Associated Properties, the
Permits along an 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 IMPSAT 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 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 under this Agreement, within such cure
period as may be available to IMPSAT 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 IMPSAT
hereunder shall be bound by the terms of this Agreement to the same extent and
in the same manner as IMPSAT.
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<PAGE> 48
(c) Any secured party shall be deemed an intended third
party beneficiary of this Section 23.03. This Section 23.03 shall be
self-operative and no further instrument shall be required by any security
agreement, mortgage or other document reflecting the security interest to make
this Section 23.03 effective.
23.4 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 the Backhaul System have been transferred or (b) an Affiliate
of SAC; provided (i) that in the case of any assignment or delegation pursuant
to this Section 23.04, 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 the Backhaul System 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 the Backhaul System, together with rights in
the accompanying Owned Ducts, IRU Duct, Owned Associated Properties and IRU
Associated Properties. SAC may further assign its rights and delegate its
obligations under Article 29 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 29.
23.5 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 D hereto, IMPSAT shall obtain approval
thereof from SAC, which approval will not be unreasonably withheld, provided,
however, that no such approval shall be required with respect to Subcontractors
which perform services or provide materials for consideration less of than
U.S.$50,000.00. 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.
23.6 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
- 45 -
<PAGE> 49
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.
23.7 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 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.
23.8 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, the Backhaul System or any part thereof.
23.9 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.
23.10 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 24
GUARANTOR
24.1 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 25
REPRESENTATIONS, WARRANTIES AND ACKNOWLEDGMENTS
25.1 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
- 46 -
<PAGE> 50
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 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, 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.
ARTICLE 26
TITLE AND RISK OF LOSS
26.1 Title to all upplies 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 17 or Article 21, 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 Section
17.02(d), full payment shall not be required prior to the transfer of title),
that title to the equipment, materials and Supplies with respect to the Owned
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.
26.2 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.
- 47 -
<PAGE> 51
ARTICLE 27
INTELLECTUAL PROPERTY
27.1 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 developed by IMPSAT (or such other party) for
purposes of using and operating the Backhaul System, 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 Materials are
personal and non-transferable, except that SAC may assign or transfer such
licenses to an Affiliate or to any entity succeeding to SAC's entire interest in
the Backhaul System as a result of reorganization or restructuring of SAC or in
the event of a change of control of SAC.
- 48 -
<PAGE> 52
ARTICLE 28
INFRINGEMENT
28.1 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 the Backhaul System 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.
28.2 IMPSAT will not settle any suit for infringement as to
which it is obliged to defend SAC as provided in Section 28.01 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 the Backhaul
System 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.
28.3 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 28.01. 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.
28.4 If all or any portion of the Backhaul System 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 the Backhaul System, the affected portion thereof, or any such
material, part or equipment without interruption for SAC; or (ii) replace or
modify the Backhaul System, the affected portion thereof, or any material, part
or equipment so that it becomes non-infringing while continuing to meet the
Acceptance Criteria.
ARTICLE 29
MAINTENANCE AND REPAIR OF THE BACKHAUL SYSTEM
29.1 Beginning on the Date of Provisional Acceptance of the
Backhaul System, IMPSAT shall provide the maintenance services set forth in
Exhibit 10 (the "Maintenance Services") with respect to the Backhaul System. The
Backhaul
- 49 -
<PAGE> 53
System shall be maintained throughout the Term in accordance with the procedures
set forth in Exhibit 10 and the Design Specifications.
29.2 (a) SAC agrees to pay to IMPSAT an annual amount of
U.S.$*[ ] for the Maintenance Services (the "Recurring Service Charge").
The Recurring Service Charge shall be payable in advance in quarterly
installments within *[ ] following the commencement of each calendar
quarter after the Date of Provisional Acceptance of the Backhaul System. If the
Date of Provisional Acceptance of the Backhaul System 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 for the Backhaul System
shall be reviewed and agreed on each second anniversary of the Date of
Provisional Acceptance of the Backhaul System to account for inflationary
effects.
29.3 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 10.
29.4 *[ ].
29.5 IMPSAT shall be responsible for preventive maintenance
in respect of the Backhaul System in accordance with Exhibit 10.
29.6 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.
29.7 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
* CONFIDENTIAL TREATMENT REQUEST - Confidential portion has been omitted and
filed separately with the Commission.
- 50 -
<PAGE> 54
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. *[ ]
ARTICLE 30
GENERAL
30.1 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.
30.2 This Agreement shall be governed by and construed in
accordance with the law of the State of New York, United States of America.
30.3 (a) 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.
(b) 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.
(c) This Agreement has been fully negotiated between and
jointly drafted by the parties.
(d) 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.
30.4 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
* CONFIDENTIAL TREATMENT REQUEST - Confidential portion has been omitted and
filed separately with the Commission.
- 51 -
<PAGE> 55
instrument in writing executed by a duly authorized representative of each party
and delivered to the party relying on the writing.
30.5 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, 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.
30.6 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. The parties further
agree that if any provision contained herein is, to any extent, held invalid or
unenforceable in any respect under the laws governing this Agreement, they shall
take any actions necessary to render the remaining provisions of this Agreement
valid and enforceable to the fullest extent permitted by law and, to the extent
necessary, shall amend or otherwise modify this Agreement to replace any
provision contained herein which is held invalid or unenforceable with a valid
and enforceable provision giving effect to the intent of the parties.
30.7 This Agreement may be executed in one or more
counterparts, all of which taken together shall constitute one and the same
instrument.
30.8 Within ninety (90) days after the date hereof, this
Agreement shall be officially translated into the Portuguese language by SAC and
properly notarized consistent with Brazilian law, and the Portuguese translation
of this Agreement shall be re-executed by the parties hereto. In the event this
Agreement must be presented to any Brazilian judicial or administrative
authority, the Portuguese translation shall govern with respect to matters to be
decided by such authority.
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.
- 52 -
<PAGE> 56
IMPSAT COMUNICACOES LTDA.,
a Brazil corporation
By:
---------------------------------
Name:
Title:
- 53 -
<PAGE> 57
SOUTH AMERICAN CROSSING LTD.,
a Bermuda corporation
By:
---------------------------------
Name:
Title:
- 54 -
<PAGE> 1
EXHIBIT 12.1
<TABLE>
<CAPTION>
RATIO OF EARNINGS TO FIXED CHARGES
YEARS ENDED DECEMBER 31,
-------------------------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
COMPUTATION OF EARNINGS:
Registrant's total earnings (loss)
before fixed charge additions ....... $ (9,635) $ (7,105) $ (2,720)
--------- --------- ---------
COMPUTATION OF FIXED CHARGES:
Interest .............................. 16,518 25,170 25,959
--------- --------- ---------
Total earnings (loss) and fixed charges $ 6,803 $ 18,069 $ 23,239
--------- --------- ---------
Ratio of earnings to fixed charges ....
Deficiency of Earnings to fixed charges $ (9,635) $ (7,105) $ (2,720)
--------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
RATIO OF EARNINGS TO FIXED CHARGES
YEARS ENDED DECEMBER 31,
-------------------------------------------------
PRO FORMA
---------
1998 1999 1999
---- ---- ----
<S> <C> <C> <C>
COMPUTATION OF EARNINGS:
Registrant's total earnings (loss)
before fixed charge additions ....... $ (22,514) $(159,386) $(195,526)
--------- --------- ---------
COMPUTATION OF FIXED CHARGES:
Interest .............................. 49,384 63,200 95,019
--------- --------- ---------
Total earnings (loss) and fixed charges $ 26,870 $ (96,186) $(100,507)
--------- --------- ---------
Ratio of earnings to fixed charges .... 14.29x 23.15x
Deficiency of Earnings to fixed charges $ (22,514) $(159,386) $(195,526)
--------- --------- ---------
</TABLE>
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of IMPSAT Fiber
Networks, Inc. on Form S-4 of our report dated March 17, 2000, appearing in the
Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in
such Prospectus.
DELOITTE & TOUCHE LLP
Certified Public Accountants
Miami, Florida
April 17, 2000
<PAGE> 1
EXHIBIT 25.1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF
A TRUSTEE PURSUANT TO SECTION 305(B)(2). . .
THE BANK OF NEW YORK
(Exact Name of Trustee as Specified in its Charter)
NEW YORK 13-5160382
(State of Incorporation (I.R.S. Employer
if not a National Bank) Identification No.)
48 WALL STREET, NEW YORK, N.Y 10286
(Address of Principal Executive Offices) (Zip Code)
IMPSAT FIBER NETWORKS, INC.
(Exact Name of Obligor as Specified in its Charter)
DELAWARE 52-1910372
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
ALFEREZ PAREJA 256
(1107) BUENOS AIRES, ARGENTINA NOT APPLICABLE
(Address of Principal Executive Offices) (Zip Code)
13 3/4 % SENIOR NOTES DUE 2005
(TITLE OF THE INDENTURE SECURITIES)
<PAGE> 2
1. GENERAL INFORMATION. Furnish the following information as to the
Trustee:
(a) Name and address of each examining or supervising authority to
which it is subject.
<TABLE>
<CAPTION>
Name Address__________
<S> <C>
Superintendent of Banks of the 2 Rector Street, New
State of New York York, NY 10006 and
Albany, NY 12203
Federal Reserve Bank of New York 33 Liberty Plaza,
New York, NY 10045
Federal Deposit Insurance 550 17th Street, N.W.
Corporation Washington, D.C. 20429
New York Clearing House
Association New York, New York 1005
</TABLE>
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
2. AFFILIATIONS WITH OBLIGOR.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None. (See Note on page 4.)
16. LIST OF EXHIBITS.
Exhibits identified in parentheses below, on file with the Commission, are
incorporated herein by reference as an exhibit hereto, pursuant to Rule
7a-29 under the Trust Indenture Act of 1939 and Rule 24 of the
Commission's Rules of Practice.
1. A copy of the Organization Certificate of The Bank of New York
(formerly Irving Trust Company) as now in effect, which contains
the authority to commence business and a grant of powers to
exercise corporate trust powers. (Exhibit 1 to
2
<PAGE> 3
Amendment No. 1 to Form T-1, filed with Registration Statement
No. 33-6215, Exhibits 1a and 1b to Form T-1 filed with
Registration Statement No. 33-21672 and Exhibit 1 to Form T-1
filed with Registration Statement No. 33-29637.)
4. A copy of the existing By-Laws of the Trustee. (Exhibit 4 to Form
T-1 filed with Registration Statement No. 33-31019.)
6. The consent of the Trustee required by section 321(b) of the Act.
7. A copy of the latest report of condition of the Trustee published
pursuant to law or to the requirements of its supervising or
examining authority.
3
<PAGE> 4
NOTE
Inasmuch as this Form T-1 is being filed prior to the ascertainment by the
Trustee of all facts on which to base a responsive answer to Item 2, the answer
to said Item is based on incomplete information.
Item 2 may, however, be considered as correct unless amended by an
amendment to this Form T-1.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939 the
Trustee, The Bank of New York, a corporation organized and existing under the
laws of the State of New York, has duly caused this statement of eligibility to
be signed on its behalf by the undersigned, thereunto duly authorized, all in
The City of New York, and State of New York, on the 6th day of April 2000.
THE BANK OF NEW YORK
By /s/ Thomas Tabor
------------------------
Assistant Vice President
4
<PAGE> 5
Exhibit 6
CONSENT OF TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture Act
of 1939 in connection with the proposed issue of 13 3/4 % Senior Notes due
2005 by IMPSAT Fiber Networks, Inc., we hereby consent that reports of
examinations by Federal, State, Territorial, or District authorities may be
furnished by such authorities to the Securities and Exchange Commission upon
request therefor.
THE BANK OF NEW YORK
By /s/ Thomas Tabor
--------------------------
Assistant Vice President
Dated: April 6, 2000
5
<PAGE> 1
EXHIBIT 99.1
IMPSAT FIBER NETWORKS, INC.
LETTER OF TRANSMITTAL
OFFER TO EXCHANGE
ALL OUTSTANDING 13 3/4% SENIOR NOTES DUE 2005
FOR
13 3/4% SENIOR NOTES DUE 2005, WHICH HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED,
PURSUANT TO THE PROSPECTUS DATED APRIL [ ], 2000
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME, ON
[ ] UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY BE
WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
- --------------------------------------------------------------------------------
THE BANK OF NEW YORK, EXCHANGE AGENT
<TABLE>
<S> <C> <C>
BY MAIL, HAND OR BY REGISTERED OR
OVERNIGHT DELIVERY: CERTIFIED MAIL: BY FACSIMILE:
THE BANK OF NEW YORK THE BANK OF NEW YORK (212) 571-3080 OR
101 BARCLAY STREET 101 BARCLAY STREET (212) 815-6339
NEW YORK, NEW YORK 10286 NEW YORK, NEW YORK
ATTENTION: SECURITIES 10286
PROCESSING WINDOW, CORPORATE TRUST
GROUND LEVEL OPERATIONS
REORGANIZATION, 7E ATTENTION: SANTINO CONFIRM BY TELEPHONE:
GINOCCHIETTI (212) 815-2742
</TABLE>
DELIVERYOF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE, OR TRANSMISSION OF INSTRUCTIONS OTHER THAN
AS SET FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY.
The undersigned acknowledges that he or she has received and reviewed the
Prospectus, dated April [ ], 2000 (the "Prospectus"), of IMPSAT Fiber Networks,
Inc., a Delaware corporation (the "Company"), and this Letter of Transmittal
(the "Letter"), which together constitute the Company's offer (the "Exchange
Offer") to exchange an aggregate principal amount of up to $300,000,000 of the
Company's 13 3/4 % Senior Notes Due 2005 (the "New Notes"), which have been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
pursuant to a Registration Statement of which the Prospectus is part, for a like
principal amount of the issued and outstanding 13 3/4% Senior Notes Due 2005
(the "Old Notes") of the Company from the registered holders (the "Holders")
thereof.
For each Old Note accepted for exchange, the Holder of such Old Note will
receive a New Note having a principal amount equal to that of the surrendered
Old Note. Accordingly, registered holders of New Notes on the relevant record
date for the first interest payment date following the consummation of the
Exchange Offer will receive interest accruing from the most recent date to which
interest has been paid or, if no interest has been paid, from February 15, 2000.
Old Notes accepted for exchange will cease to accrue interest from and after the
date of consummation of the Exchange Offer. Holders whose Old Notes are accepted
for exchange will not receive any payment in respect of accrued interest on such
Old Notes otherwise payable on any interest payment date the record date for
which occurs on or after consummation of the Exchange Offer.
<PAGE> 2
This Letter is to be completed by a Holder of Old Notes either if
certificates are to be forwarded herewith or if a tender of certificates for Old
Notes, if available, is to be made by book-entry transfer to the account
maintained by the Exchange Agent at The Depository Trust Company (the
"Book-Entry Transfer Facility") pursuant to the procedures set forth in "The
Exchange Offer -- Book-Entry Transfer" section of the Prospectus. Holders of Old
Notes whose certificates are not immediately available, or who are unable to
deliver their certificates or confirmation of the book-entry tender of their Old
Notes into the Exchange Agent's account at the Book-Entry Transfer Facility (a
"Book-Entry Confirmation") and all other documents required by this Letter to
the Exchange Agent on or prior to the Expiration Date, must tender their Old
Notes according to the guaranteed delivery procedures set forth in "The Exchange
Offer -- Guaranteed Delivery Procedures" section of the Prospectus. See
Instruction 1. Delivery of documents to the Book-Entry Transfer Facility does
not constitute delivery to the Exchange Agent.
THE UNDERSIGNED HAS COMPLETED THE APPROPRIATE BOXES BELOW AND SIGNED THIS LETTER
TO INDICATE THE ACTION THE UNDERSIGNED DESIRES TO TAKE WITH RESPECT TO THE
EXCHANGE OFFER.
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OLD NOTES" BELOW
AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED THE OLD NOTES AS SET
FORTH IN SUCH BOX BELOW.
List below the Old Notes to which this Letter relates. If the space
provided below is inadequate, the certificate numbers and principal amount of
Old Notes should be listed on a separate signed schedule affixed hereto.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL CAREFULLY BEFORE COMPLETING THE
BOX.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
DESCRIPTION OF OLD NOTES DELIVERED
- --------------------------------------------------------------------------------
AGGREGATE
PRINCIPAL
AMOUNT
NAME(S) AND ADDRESS OF REPRESENTED PRINCIPAL
REGISTERED HOLDERS (PLEASE CERTIFICATE BY AMOUNT
FILL IN, IF BLANK) NUMBER(S)* CERTIFICATE(S) TENDERED**
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
$ $
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TOTALS............$ $
-------------------------------------------------
</TABLE>
* Need not be completed if Old Notes are being tendered by book-entry
transfer.
** Unless indicated in the column labeled "Principal Amount Tendered," any
tendering Holder of Old Notes will be deemed to have tendered the entire
aggregate principal amount represented by the column labeled "Aggregate
Principal Amount Represented by Certificates(s)."
<PAGE> 3
The minimum permitted tender is $1,000 in principal amount of Old Notes.
All other tenders must be in integral multiples of $1,000.
[ ] CHECK HERE IF TENDERED OLD NOTES ARE ENCLOSED HEREWITH.
[ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH
DEPOSITORY TRUST COMPANY ("DTC") AND COMPLETE THE FOLLOWING (FOR USE BY
ELIGIBLE INSTITUTIONS (AS HEREINAFTER DEFINED) ONLY):
Name of Tendering Institution
------------------------------------------
Account Number ____________________ Transaction Code Number _________
[ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY ENCLOSED HEREWITH AND COMPLETE THE FOLLOWING
(FOR USE BY ELIGIBLE INSTITUTIONS ONLY):
Name(s) of Registered Holder(s)
--------------------------------
Date of Execution of Notice of Guaranteed Delivery
-----------------------
Window Ticket Number (if available)
--------------------------------
Name of Institution Which Guaranteed Delivery
-----------------------------
Account Number (If Delivered by Book-Entry Transfer)
----------------------
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE ADDITIONAL
COPIES OF THE PROSPECTUS AND ANY AMENDMENTS OR SUPPLEMENTS THERETO.
(UNLESS OTHERWISE SPECIFIED, 10 ADDITIONAL COPIES WILL BE FURNISHED.)
NAME
------------------------------------------------------------------------
ADDRESS
------------------------------------------------------------------------
------------------------------------------------------------------------
<PAGE> 4
- ------------------------------------ -------------------------------------
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 4, 5 AND 6) (SEE INSTRUCTIONS 4, 5 AND 6)
To be completed ONLY (i) if To be completed ONLY if
certificates for Old Notes not certificates for Old Notes not
tendered, or New Notes issued in tendered, or New Notes issued in
exchange for Old Notes accepted for exchange for Old Notes accepted for
exchange, are to be issued in the name exchange, are to be sent to someone
of someone other than the undersigned, other than the undersigned, or to the
or (ii) if Old Notes tendered by undersigned at an address other than
book-entry transfer which are not that shown above.
exchanged are to be returned by credit
to an account maintained at Depository
Trust Company ("DTC").
Name: Name:
------------------------------- ------------------------------------
(Please Type or Print) (Please Type or Print)
Address: Address:
---------------------------- ----------------------------
- ------------------------------------ -------------------------------------
(Zip Code) (Zip Code)
Credit Old Notes not exchanged -------------------------------------
and delivered by book-entry transfer (Tax Identification or Social
to the Book-Entry Transfer Facility Security No.)
account set forth below.
- ------------------------------------
(DTC Account Number)
- ---------------------------------------- -------------------------------------
<PAGE> 5
PLEASE READ ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the aggregate principal amount of Old
Notes indicated below. Subject to, and effective upon, the acceptance for
exchange of the Old Notes tendered hereby, the undersigned hereby sells, assigns
and transfers to, or upon the order of, the Company all right, title and
interest in and to such Old Notes as are being tendered hereby. The undersigned
hereby irrevocably constitutes and appoints the Exchange Agent as its agent and
attorney-in-fact (with full knowledge that the Exchange Agent also acts as the
agent of the Company) with respect to the tendered Old Notes with full power of
substitution to (i) deliver certificates for such Old Notes, or transfer
ownership of such Old Notes on the account books maintained by DTC, to the
Company and deliver all accompanying evidences of transfer and authenticity to,
or upon the order of, the Company and (ii) present such Old Notes for transfer
on the books of the Company and receive all benefits and otherwise exercise all
rights of beneficial ownership of such Old Notes, all in accordance with the
terms of the Exchange Offer. The power of attorney granted in this paragraph
shall be deemed irrevocable and coupled with an interest.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer the Old Notes
tendered hereby and that the Company will acquire good and unencumbered title
thereto, free and clear of all liens, restrictions, charges and encumbrances and
not subject to any adverse claim when the same are accepted by the Company. The
undersigned hereby further represents that any New Notes acquired in exchange
for Old Notes tendered hereby will have been acquired in the ordinary course of
business of the person receiving such New Notes, whether or not such person is
the undersigned, that neither the Holder of such Old Notes nor any such other
person has an arrangement or understanding with any person to participate in the
distribution of such New Notes and that neither the Holder of such Old Notes nor
any such other person is an "affiliate," as defined in Rule 405 under the
Securities Act, of the Company.
The undersigned also acknowledges that this Exchange Offer is being made
in reliance on interpretations by the staff of the Securities and Exchange
Commission (the "SEC"), as set forth in no-action letters issued to third
parties, that the New Notes issued pursuant to the Exchange Offer in exchange
for the Old Notes may be offered for resale, resold and otherwise transferred by
Holders thereof (other than any such Holder which is an "affiliate" of the
Company within the meaning of Rule 405 under the Securities Act), without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such New Notes are acquired in the ordinary course
of such Holders' business and such Holders have no arrangement with any person
to participate in a distribution of such New Notes. However, the SEC has not
considered the Exchange Offer in the context of a no-action letter and there can
be no assurance that the staff of the SEC would make a similar determination
with respect to the Exchange Offer as in other circumstances. If the undersigned
is not a broker-dealer, the undersigned represents that it is not engaged in,
and does not intend to engage in, a distribution of New Notes and has no
arrangement or understanding to participate in a distribution of New Notes. If
any Holder is an affiliate of the Company, is engaged in or intends to engage
in, or has any arrangement or understanding with any person to participate in, a
distribution of the New Notes to be acquired pursuant to the Exchange Offer,
such Holder (i) could not rely on the applicable interpretations of the staff of
the SEC and (ii) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction. If
the undersigned is a broker-dealer that will receive New Notes for its own
account pursuant to
<PAGE> 6
the Exchange Offer, it represents that the Old Notes to be exchanged for the New
Notes were acquired by it as a result of market-making activities or other
trading activities and acknowledges that it will deliver a prospectus in
connection with any resale of such New Notes; however, by so acknowledging and
by delivering a prospectus, the undersigned will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Company to be necessary or desirable to complete the
sale, assignment and transfer of the Old Notes tendered hereby. All authority
conferred or agreed to be conferred in this Letter and every obligation of the
undersigned hereunder shall be binding upon the successors, assigns, heirs,
executors, administrators, trustees in bankruptcy and legal representatives of
the undersigned and shall not be affected by, and shall survive, the death or
incapacity of the undersigned. This tender may be withdrawn only in accordance
with the procedures set forth in "The Exchange Offer --Withdrawal Rights"
section of the Prospectus.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, please issue the New Notes (and, if applicable, substitute
certificates representing Old Notes for any Old Notes not exchanged) in the name
of the undersigned or, in the case of a book-entry delivery of Old Notes, please
credit the account indicated above maintained at the Book-Entry Transfer
Facility. Similarly, unless otherwise indicated under the box entitled "Special
Delivery Instructions" below, please send the New Notes (and, if applicable,
substitute certificates representing Old Notes for any Old Notes not exchanged)
to the undersigned at the address shown above in the box entitled "Description
of Old Notes."
<PAGE> 7
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS ALONG
WITH ACCOMPANYING SUBSTITUTE FORM W-9)
Dated: , 2000
------------------------
X Date
-------------------------------------------------- -----------------
X Date
-------------------------------------------------- -----------------
Signature(s) of Owner(s)
Area Code and Telephone Number:
---------------------------
If a holder is tendering any Old Notes, this letter must be signed by the
registered holder(s) as the name(s) appear(s) on the certificate(s) for the Old
Notes or by any person(s) authorized to become registered holder(s) by
endorsements and documents transmitted herewith. If signature is by a trustee,
executor, administrator, guardian, officer or other person acting in a fiduciary
or representative capacity, please set forth full title. See Instruction 3.
Name:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Please Type or Print)
Capacity (full title):
---------------------------------------------------------
Address:
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Including Zip Code)
Telephone:
----------------------------------------------------------------------
SIGNATURE GUARANTEE (IF REQUIRED BY INSTRUCTION 3)
Signature(s) Guaranteed by an Eligible Institution:
-----------------------------
(Authorized Signature)
- --------------------------------------------------------------------------------
(Title)
- --------------------------------------------------------------------------------
(Name and Firm)
Dated: , 2000
----------------------------------------------------------------
<PAGE> 8
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER AND NOTES; GUARANTEED DELIVERY PROCEDURES. This
Letter is to be completed by holders of Old Notes either if certificates are to
be forwarded herewith or if tenders are to be made pursuant to the procedures
for delivery by book-entry transfer set forth in "The Exchange Offer
- --Book-Entry Transfer" section of the Prospectus. Certificates for all
physically tendered Old Notes, or Book-Entry Confirmation, as the case may be,
as well as a properly completed and duly executed Letter (or manually signed
facsimile hereof) and any other documents required by this Letter, must be
received by the Exchange Agent at the address set forth herein on or prior to
the Expiration Date, or the tendering holder must comply with the guaranteed
delivery procedures set forth below. Old Notes tendered hereby must be in
denominations of principal amount of $1,000 and any integral multiple thereof.
Holders whose certificates for Old Notes are not immediately available or
who cannot deliver their certificates and all other required documents to the
Exchange Agent on or prior to the Expiration Date, or who cannot complete the
procedure for book-entry transfer on a timely basis, may tender their Old Notes
pursuant to the guaranteed delivery procedures set forth in "The Exchange Offer
- --Guaranteed Delivery Procedures" section of the Prospectus. Pursuant to such
procedures, (i) such tender must be made through an Eligible Institution; (ii)
on or prior to 5:00 p.m., New York City time, on the Expiration Date, the
Exchange Agent must receive from such Eligible Institution a properly completed
and duly executed Letter (or a facsimile thereof) and Notice of Guaranteed
Delivery, substantially in the form provided by the Company (by telegram, telex,
facsimile transmission, mail or hand delivery), setting forth the name and
address of the holder of Old Notes and the amount of Old Notes tendered stating
that the tender is being made thereby and guaranteeing that within three New
York Stock Exchange ("NYSE") trading days after the date of execution of the
Notice of Guaranteed Delivery, the certificates for all physically tendered Old
Notes, in proper form for transfer, or a Book-Entry Confirmation, as the case
may be, and any other documents required by this Letter will be deposited by the
Eligible Institution with the Exchange Agent; and (iii) the certificates for all
physically tendered Old Notes, in proper form for transfer, or Book-Entry
Confirmation, as the case may be, and all other documents required by this
Letter, are deposited by the Eligible Institution within three NYSE trading days
after the date of execution of the Notice of Guaranteed Delivery.
The method of delivery of this Letter, the Old Notes and all other
required documents is at the election and risk of the tendering holders, but the
delivery will be deemed made only when actually received or confirmed by the
Exchange Agent. If Old Notes are sent by mail, it is suggested that the mailing
be registered mail, properly insured, with return receipt requested, and made
sufficiently in advance of the Expiration Date to permit delivery to the
Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration Date.
Only a holder of Old Notes may tender such Old Notes in the Exchange
Offer. Any beneficial holder of Old Notes who is not the registered holder and
who wishes to tender should arrange with the registered holder to execute and
deliver this Letter of Transmittal on his behalf or must, prior to completing
and executing this Letter of Transmittal and delivering his Old Notes, either
make appropriate arrangements to register ownership of the Old Notes in such
holder's name or obtain a properly completed bond power from the registered
holder.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Old Notes and withdrawal of tendered Old Notes
will be determined by the Company in
<PAGE> 9
its sole discretion, which determination will be final and binding. The Company
reserves the absolute right to reject any and all Old Notes not properly
tendered or any Old Notes the Company's acceptance of which would, in the
opinion of counsel for the Company, be unlawful. The Company also reserves the
right to waive any irregularities or conditions of tender as to particular Old
Notes. The Company's interpretation of the terms and conditions of the Exchange
Offer (including the instructions in this Letter of Transmittal) shall be final
and binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Old Notes must be cured within such time as the
Company shall determine. Neither the Company, the Exchange Agent nor any other
person shall be under any duty to give notification of defects or irregularities
with respect to tenders of Old Notes, nor shall any of them incur any liability
for failure to give such notification. Tenders of Old Notes will not be deemed
to have been made until such defects or irregularities have been cured or
waived. Any Old Notes received by the Exchange Agent that are not properly
tendered and as to which the defects or irregularities have not been cured or
waived will be returned by the Exchange Agent to the tendering holders of Old
Notes, unless otherwise provided in this Letter of Transmittal, as soon as
practicable following the Expiration Date.
See "The Exchange Offer" section of the Prospectus.
2. PARTIAL TENDERS (NOT APPLICABLE TO NOTEHOLDERS WHO TENDER BY BOOK-ENTRY
TRANSFER). If less than all of the Old Notes evidenced by a submitted
certificate are to be tendered, the tendering holder(s) should fill in the
aggregate principal amount of Old Notes to be tendered in the box above entitled
"Description of Old Notes -- Principal Amount Tendered." A reissued certificate
representing the balance of nontendered Old Notes will be sent to such tendering
holder, unless otherwise provided in the appropriate box of this Letter,
promptly after the Expiration Date. All of the Old Notes delivered to the
Exchange Agent will be deemed to have been tendered unless otherwise indicated.
3. SIGNATURES ON THIS LETTER, BOND POWERS AND ENDORSEMENTS, GUARANTEE OF
SIGNATURES. If this Letter is signed by the registered holder of the Old Notes
tendered hereby, the signature must correspond exactly with the name as written
on the face of the certificates without any change whatsoever.
If any tendered Old Notes are owned of record by two or more joint owners,
all of such owners must sign this Letter.
If any tendered Old Notes are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many separate
copies of this Letter as there are different registrations of certificates.
When this Letter is signed by the registered holder or holders of the Old
Notes specified herein and tendered hereby, no endorsements of certificates or
separate bond powers are required. If, however, the New Notes are to be issued,
or any untendered Old Notes are to be reissued, to a person other than the
registered holder, then endorsements of any certificates transmitted hereby or
separate bond powers are required. Signatures on such certificate(s) must be
guaranteed by an Eligible Institution.
If this Letter is signed by a person other than the registered holder or
holders of any certificate(s) specified herein, such certificate(s) must be
endorsed or accompanied by appropriate bond powers, in either case signed
exactly as the name or names of the registered holder or
<PAGE> 10
holders appear(s) on the certificate(s) and signatures on such certificate(s)
must be guaranteed by an Eligible Institution.
If this Letter or any certificates or bond powers are signed by trustees,
executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and, unless waived by the Company,
proper evidence satisfactory to the Company of their authority to so act must be
submitted.
Endorsements on certificates for Old Notes or signatures on bond powers
required by this Instruction 3 must be guaranteed by a financial institution
(including most banks, savings and loan associations and brokerage houses) that
is a participant in the Securities Transfer Agents Medallion Program, the New
York Stock Exchange Medallion Signature Program or the Stock Exchanges Medallion
Program (each, an "Eligible Institution").
Signatures on this Letter need not be guaranteed by an Eligible
Institution, provided the Old Notes are tendered: (i) by a registered holder of
Old Notes who has not completed the box entitled "Special Issuance Instructions"
or "Special Delivery Instructions" on this Letter, or (ii) for the account of an
Eligible Institution.
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. Tendering holders of Old Notes
should indicate in the applicable box the name and address to which New Notes
issued pursuant to the Exchange Offer and/or substitute certificates evidencing
Old Notes not exchanged are to be issued or sent, if different from the name or
address of the person signing this Letter. In the case of issuance in a
different name, the employer identification or social security number of the
person named must also be indicated. Noteholders tendering Old Notes by
book-entry transfer may request that Old Notes not exchanged be credited to such
account maintained at the Book-Entry Transfer Facility as such noteholder may
designate hereon. If no such instructions are given, such Old Notes not
exchanged will be returned to the name and address of the person signing this
Letter.
5. TRANSFER TAXES. The Company will pay all transfer taxes, if any, applicable
to the transfer of Old Notes to it or its order pursuant to the Exchange Offer.
If, however, New Notes and/or substitute Old Notes not exchanged are to be
delivered to, or are to be registered or issued in the name of, any person other
than the registered holder of the Old Notes tendered hereby, or if tendered Old
Notes are registered in the name of any person other than the person signing
this Letter, or if a transfer tax is imposed for any reason other than the
transfer of Old Notes to the Company or its order pursuant to the Exchange
Offer, the amount of any such transfer taxes (whether imposed on the registered
holder or any other persons) will be payable by the tendering holder. If
satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted herewith, the amount of such transfer taxes will be billed to such
tendering holder and the Exchange Agent will retain possession of an amount of
New Notes with a face amount equal to the amount of such transfer taxes due by
such tendering holder pending receipt by the Exchange Agent of the amount of
such taxes.
Except as provided in this Instruction 5, it will not be necessary for
transfer tax stamps to be affixed to the Old Notes specified in this Letter.
6. WAIVER OF CONDITIONS. The Company reserves the absolute right to waive
satisfaction of any or all conditions enumerated in the Prospectus.
<PAGE> 11
7. NO CONDITIONAL TENDERS. No alternative, conditional, irregular or
contingent tenders will be accepted. All tendering holders of Old Notes, by
execution of this Letter, shall waive any right to receive notice of the
acceptance of their Old Notes for exchange.
Although the Company intends to notify holders of defects or
irregularities with respect to tenders of Old Notes, neither the Company, the
Exchange Agent nor any other person shall incur any liability for failure to
give any such notice.
8. MUTILATED, LOST, STOLEN OR DESTROYED OLD NOTES. Any holder whose Old Notes
have been mutilated, lost, stolen or destroyed should contact the Exchange Agent
at the address indicated above for further instructions.
9. WITHDRAWAL OF TENDERS. Tenders of Old Notes may be withdrawn at any time
prior to 5:00 p.m., New York City time, on the Expiration Date.
For a withdrawal of a tender of Old Notes to be effective, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth above prior to 5:00 p.m., New York City time, on
the Expiration Date. Any such notice of withdrawal must (i) specify the name of
the person having deposited the Old Notes to be withdrawn (the "Depositor"),
(ii) identify the Old Notes to be withdrawn (including the certificate number or
numbers and principal amount of such Old Notes), (iii) be signed by the holder
in the same manner as the original signature on this Letter (including any
required signature guarantees) or be accompanied by documents of transfer
sufficient to have the trustee under the Indenture (as defined in the
Prospectus) register the transfer of such Old Notes into the name of the person
withdrawing the tender and (iv) specify the name in which any such Old Notes are
to be registered, if different from that of the Depositor. All questions as to
the validity, form and eligibility (including time of receipt) of such notices
will be determined by the Company, whose determination shall be final and
binding on all parties. Any Old Notes so withdrawn will be deemed not to have
been validly tendered for exchange for purposes of the Exchange Offer. Any Old
Notes that have been tendered for exchange but which are not exchanged for any
reason will be returned to the holder thereof without cost to such holder as
soon as practicable after withdrawal, rejection of tender or termination of the
Exchange Offer. Properly withdrawn Old Notes may be retendered by following the
procedures described above at any time on or prior to 5:00 p.m., New York City
time, on the Expiration Date.
10. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions relating to the
procedure for tendering, as well as requests for additional copies of the
Prospectus, this Letter and other related documents may be directed to the
Exchange Agent, at the address and telephone number indicated above.
11. IMPORTANT TAX INFORMATION. Under current federal income tax law, a holder of
New Notes is required to provide the Company (as payor) with such holder's
correct taxpayer identification number ("TIN") on Substitute Form W-9 or
otherwise establish a basis for exemption from backup withholding to prevent
backup withholding on any New Notes delivered pursuant to the Exchange Offer and
any payments received in respect of the New Notes. If a holder of New Notes is
an individual, the TIN is such holder's social security number. If the Company
is not provided with the correct TIN, a holder of New Notes may be subject to a
$50 penalty imposed by the Internal Revenue Service, and payments made with
respect to New Notes purchased in the Exchange Offer may be subject to backup
withholding. Accordingly, each prospective holder of New Notes to be issued
pursuant to Special Issuance Instructions should
<PAGE> 12
complete the attached Substitute Form W-9. The Substitute Form W-9 need not be
completed if the box entitled Special Issuance Instructions has not been
completed.
Certain holders of New Notes (including, among others, all corporations
and certain foreign individuals) are not subject to these backup withholding and
reporting requirements. Exempt prospective holders of New Notes should indicate
their exempt status on Substitute Form W-9. A foreign individual may qualify as
an exempt recipient by submitting to the Company, through the Exchange Agent, a
properly completed Internal Revenue Service Form W-8 (which the Exchange Agent
will provide upon request) signed under penalty of perjury, attesting to the
holder's exempt status. See the enclosed Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9 for additional
instructions.
If backup withholding applies, the Company is required to withhold 31% of
any payment made to the holder of New Notes or other payee. Backup withholding
is not an additional federal income tax. Rather, the federal income tax
liability of persons subject to backup withholding will be reduced by the amount
of tax withheld. If withholding results in an overpayment of taxes, a refund may
be obtained from the Internal Revenue Service.
To prevent backup withholding on any New Notes delivered pursuant to the
Exchange Offer and any payments received in respect of the New Notes, each
prospective holder of New Notes to be issued pursuant to Special Issuance
Instructions should provide the Company, through the Exchange Agent, with
either: (i) such prospective holder's correct TIN by completing the form below,
certifying that the TIN provided on Substitute Form W-9 is correct (or that such
prospective holder is awaiting a TIN) and that (A) such prospective holder has
not been notified by the Internal Revenue Service that he or she is subject to
backup withholding as a result of a failure to report all interest or dividends
or (B) the Internal Revenue Service has notified such prospective holder that he
or she is no longer subject to backup withholding; or (ii) an adequate basis for
exemption.
The prospective holder of New Notes to be issued pursuant to Special
Issuance Instructions is required to give the Exchange Agent the TIN (e.g.,
social security number or employer identification number) of the prospective
record owner of the New Notes. If the New Notes will be held in more than one
name or are not held in the name of the actual owner, consult the enclosed
Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9 for additional guidance regarding which number to report.
To prevent backup withholding, each tendering holder of Old Notes must
provide its correct TIN by completing the Substitute Form W-9 set forth below,
certifying that the TIN provided is correct (or that such holder is awaiting a
TIN) and that (i) the holder is exempt from backup withholding, or (ii) the
holder has not been notified by the Internal Revenue Service that such holder is
subject to backup withholding as a result of a failure to report all interest or
dividends or (iii) the Internal Revenue Service has notified the holder that
such holder is no longer subject to backup withholding. If the tendering holder
of Old Notes is a nonresident alien or foreign entity not subject to backup
withholding, such holder must give the Company a completed Form W-8, Certificate
of Foreign Status. These forms may be obtained from the Exchange Agent. If the
Old Notes are in more than one name or are not in the name of the actual owner,
such holder should consult the W-9 Guidelines for information on which TIN to
report. If such holder does not have a TIN, such holder should consult the W-9
Guidelines for instructions on applying for a TIN, check the box in Part 2 of
the Substitute Form W-9 and write "applied for" in lieu of its TIN. Note:
Checking this box and writing "applied for" on the form means that such holder
has already applied for a TIN or that such holder intends to apply for one in
the near
<PAGE> 13
future. If such holder does not provide its TIN to the Company within 60 days,
backup withholding will begin and continue until such holder furnishes its TIN
to the Company.
<PAGE> 14
TO BE COMPLETED BY ALL TENDERING HOLDERS
(SEE INSTRUCTION 5)
PAYOR'S NAME: IMPSAT FIBER NETWORKS, INC.
<TABLE>
<S> <C> <C>
------------------------
SUBSTITUTE PART 1 - PLEASE PROVIDE TIN:
FORM W-9 YOUR TIN IN THE BOX AT (Social Security Number or
RIGHT AND CERTIFY BY Employer Identification
Department of the Treasury SIGNING AND DATING BELOW. Number)
Internal Revenue Service
TIN Applied for [ ]
------------------------
PART 2 - CERTIFICATION - UNDER PENALTIES OF PERJURY,
I CERTIFY THAT:
(1) The number shown on this form is my correct
Taxpayer Identification Number (or I am waiting
for a number to be issued to me);
(2) I am not subject to backup withholding either
because: (a) I am exempt from backup
withholding, or (b) I have not been notified by
the Internal Revenue Service (the "IRS") that I
am subject to backup withholding as a result of
a failure to report all interest or dividends,
or (c) the IRS has notified me that I am no
longer subject to backup withholding; and
(3) any other information provided on this form is
true and correct.
Signature: Date:
-------------------- --------
You must cross out item (2) of the above certification if you have been notified
by the IRS that you are subject to backup withholding because of underreporting
of interest or dividends on your tax return and you have not been notified by
the IRS that you are no longer subject to backup withholding.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 2 OF
SUBSTITUTE FORM W-9
- -------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or (b)
I intend to mail or deliver an application in the near future. I understand that
if I do not provide a taxpayer identification number by the time of the
exchange, 31 percent of all reportable payments made to me thereafter will be
withheld until I provide a number.
- ------------------------------------------------------------------------------
Signature Date
- ------------------------------------------------------------------------------
</TABLE>
<PAGE> 1
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY FOR IMPSAT FIBER NETWORKS, INC.
This form or one substantially equivalent hereto must be used to accept
the Exchange Offer of IMPSAT Fiber Networks, Inc. (the "Company") made pursuant
to the Prospectus, dated April [ ], 2000 (the "Prospectus"), if certificates for
the outstanding 13 3/4 % Senior Guaranteed Notes Due 2005 of the Company (the
"Old Notes") are not immediately available or if the procedure for book-entry
transfer cannot be completed on a timely basis or time will not permit all
required documents to reach the Exchange Agent prior to 5:00 p.m., New York City
time, on the Expiration Date of the Exchange Offer. Such form may be delivered
or transmitted by telegram, telex, facsimile transmission, mail or hand delivery
to The Bank of New York ("Exchange Agent") as set forth below. In addition, in
order to utilize the guaranteed delivery procedure to tender Old Notes pursuant
to the Exchange Offer, a completed, signed and dated Letter of Transmittal (or
facsimile thereof) must also be received by the Exchange Agent prior to 5:00
p.m., New York City time, on the Expiration Date. Capitalized terms not defined
herein are defined in the Prospectus.
THE BANK OF NEW YORK, EXCHANGE AGENT
BY MAIL, HAND OR BY REGISTERED OR
OVERNIGHT DELIVERY: CERTIFIED MAIL: BY FACSIMILE:
THE BANK OF NEW YORK THE BANK OF NEW YORK
101 BARCLAY STREET 101 BARCLAY STREET
NEW YORK, NEW YORK 10286 NEW YORK, NEW YORK (212) 571-3080 OR
ATTENTION: 10286 (212) 815-6339
SECURITIES CORPORATE TRUST
PROCESSING WINDOW, OPERATIONS CONFIRM BY
GROUND LEVEL ATTENTION: SANTINO TELEPHONE:
REORGANIZATION, 7E GINOCCHIETTI (212) 815-2742
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE,
OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE,
WILL NOT CONSTITUTE A VALID DELIVERY.
Ladies and Gentlemen:
Upon the terms and conditions set forth in the Prospectus and the accompanying
Letter of Transmittal, the undersigned hereby tenders to the Company the
principal amount of Old Notes set forth below, pursuant to the guaranteed
delivery procedure described in "The Exchange Offer -- Guaranteed Delivery
Procedures" section of the Prospectus.
If Old Notes will be delivered to
Depository Trust Company, provide
Principal Amount of Old Notes Tendered: account number:
$
- --------------------------------------- ---------------------------------------
Total Principal Amount Represented by
Certificate Nos. (if available): Certificate(s):
$
- --------------------------------------- ---------------------------------------
All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of the undersigned and every obligation of the undersigned
hereunder shall be binding upon the heirs, personal representatives, successors
and assigns of the undersigned.
<PAGE> 2
PLEASE SIGN HERE
X Date
-------------------------------------------------- -------------------
X Date
-------------------------------------------------- -------------------
Signature(s) of Owner(s) or Authorized Signatory
Area Code and Telephone Number:
-----------------------
Must be signed by the holder(s) of Old Notes as their name(s) appear(s)
on certificates for Old Notes or on a security position listing, or by person(s)
authorized to become registered holder(s) by endorsement and documents
transmitted with this Notice of Guaranteed Delivery. If signature is by a
trustee, executor, administrator, guardian, attorney-in-fact, officer or other
person acting in a fiduciary or representative capacity, such person must set
forth his or her full title below. If Old Notes will be delivered by book-entry
transfer to The Depository Trust Company, provide account number.
Please print name(s) and address(es)
Name(s):
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Capacity:
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Address(es):
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Account Number:
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GUARANTEE
The undersigned, a financial institution (including most banks, savings
and loan associations and brokerage houses) that is a participant in the
Securities Transfer Agents Medallion Program, the New York Stock Exchange
Medallion Signature Program or the Stock Exchanges Medallion Program, hereby
guarantees that the undersigned will deliver to the Exchange Agent the
certificates representing the Old Notes being tendered hereby or confirmation of
book-entry transfer of such Old Notes into the Exchange Agent's account at The
Depository Trust Company, in proper form for transfer, together with any other
documents required by the Letter of Transmittal within three New York Stock
Exchange trading days after the Expiration Date.
Name of Firm:
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Address:
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<PAGE> 3
Area Code & Telephone No.:
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Authorized Signature
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Name (Please Type or Print)
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Title
- --------------------------------------------
Dated
NOTE: DO NOT SEND CERTIFICATES OF OLD NOTES WITH THIS FORM. CERTIFICATES OF OLD
NOTES SHOULD BE SENT ONLY WITH A COPY OF THE PREVIOUSLY EXECUTED LETTER OF
TRANSMITTAL.
