<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 31, 2000
REGISTRATION NO. 333-88389
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
IMPSAT FIBER NETWORKS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
DELAWARE 4899 52-1910372
<S> <C> <C>
(state or other jurisdiction (primary industrial (IRS Employer
of incorporation or classification code number) Identification Number)
organization)
</TABLE>
<TABLE>
<S> <C>
MAURICIO J. KLAU
IMPSAT USA, INC.
ALFEREZ PAREJA 256 (1107) 2040 NORTH DIXIE HIGHWAY
BUENOS AIRES, ARGENTINA WILTON MANORS, FLORIDA 33305
(5411) 4300-4007 (954) 779-7171
(Address, including zip code and (Name, address, including zip code,
telephone number, including area code, telephone number, including area code,
of registrant's principal executive offices) of agent for service for registrant)
</TABLE>
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Please send copies of communications to:
<TABLE>
<S> <C>
NEIL M. GOODMAN, ESQ. JAMES S. SCOTT, SR., ESQ.
ARNOLD & PORTER SHEARMAN & STERLING
555 TWELFTH STREET, N.W. 599 LEXINGTON AVENUE
WASHINGTON, D.C. 20004-1202 NEW YORK, NY 10022-4611
(202) 942-5000 (212) 848-4000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as possible after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
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TITLE OF EACH CLASS OF PROPOSED MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE(2)
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<S> <C> <C>
Common stock, $0.01 par value................... $161,000,000 $44,604
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</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457.
(2) $41,700 of this filing fee was paid on October 4, 1999 upon the initial
filing of the Registration Statement and $2,904 was paid on January 13,
2000.
------------------------
THE REGISTRANT HEREBY AMENDS THE REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
The information in this prospectus is not complete and may be changed. We
may not sell these securities until the registration statement filed with
the Securities and Exchange Commission is effective. This prospectus is
not an offer to sell these securities and we are not soliciting offers to
buy these securities in any state where the offer or sale is not
permitted.
PROSPECTUS (Subject to Completion)
Issued January 31, 2000
11,500,000 Shares
[IMPSAT LOGO]
IMPSAT Fiber Networks, Inc.
COMMON STOCK
------------------------
IMPSAT FIBER NETWORKS, INC. IS OFFERING 11,500,000 SHARES OF ITS COMMON STOCK.
THIS IS OUR INITIAL PUBLIC OFFERING AND NO PUBLIC MARKET CURRENTLY EXISTS FOR
OUR SHARES. WE ANTICIPATE THAT THE INITIAL PUBLIC OFFERING PRICE WILL BE BETWEEN
$15 AND $17 PER SHARE.
------------------------
WE HAVE APPLIED TO LIST OUR COMMON STOCK ON THE NASDAQ NATIONAL MARKET UNDER THE
SYMBOL "IMPT."
------------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 12.
------------------------
PRICE $ A SHARE
------------------------
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<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS IMPSAT
-------- ------------- -----------
<S> <C> <C> <C>
Per Share............................................ $ $ $
Total................................................ $ $ $
</TABLE>
We have granted the underwriters the right to purchase up to an additional
1,725,000 shares of common stock to cover over-allotments.
The Securities and Exchange Commission and state securities regulators have not
approved or disapproved these securities, or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
Morgan Stanley & Co. Incorporated expects to deliver the shares of common stock
to purchasers on February 4, 2000.
------------------------
MORGAN STANLEY DEAN WITTER
GOLDMAN, SACHS & CO.
SALOMON SMITH BARNEY
, 2000
<PAGE> 3
TABLE OF CONTENTS
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PAGE
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<S> <C>
Prospectus Summary.................... 6
Risk Factors.......................... 12
Use of Proceeds....................... 25
Dividend Policy....................... 25
Capitalization........................ 26
Dilution.............................. 27
Selected Consolidated Financial and
Other Data.......................... 28
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 30
Industry Overview..................... 44
Business.............................. 47
Management............................ 71
</TABLE>
<TABLE>
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PAGE
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<S> <C>
Certain Relationships and Related
Transactions........................ 79
Description of Our Indebtedness....... 83
Principal Stockholders................ 85
Description of Capital Stock.......... 87
Shares Eligible for Future Sale....... 93
Certain U.S. Tax Consequences to
Non-U.S. Holders.................... 94
Underwriters.......................... 97
Legal Matters......................... 99
Experts............................... 99
Where You Can Find More Information... 99
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
------------------------
You should rely only on the information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell shares of common stock and
seeking offers to buy shares of common stock only in jurisdictions where offers
and sales are permitted. The information contained in this prospectus is
accurate only as of the date of this prospectus, regardless of the time of
delivery of this prospectus or of any sale of the common stock. In this
prospectus, the "company," "IMPSAT," "we," "us" and "our" refer to IMPSAT Fiber
Networks, Inc. and its subsidiaries.
We have not taken any action to permit a public offering of our shares of common
stock outside the United States or to permit the possession or distribution of
this prospectus outside the United States. Persons outside the United States who
come into possession of this prospectus must inform themselves about and observe
any restrictions relating to the offering of the shares of common stock and the
distribution of this prospectus outside the United States.
Until , 2000 (25 days after commencement of this offering), all
dealers that buy, sell or trade in common stock, whether or not participating in
this offering, may be required to deliver a prospectus. This delivery
requirement is in addition to the dealers' obligation to deliver a prospectus
when acting as underwriters and with respect to their unsold allotments or
subscriptions.
------------------------
Our principal executive offices are located at Alferez Pareja 256, 1107 Buenos
Aires, Argentina and our telephone number is 011-54-11-4300-4007. Our World Wide
Web site address is www.IMPSAT.com. The information on our web site is not
incorporated by reference into this prospectus.
Our logo and certain titles and logos of our services are our trademarks. Each
trademark, trade name or service mark of any other company appearing in this
prospectus belongs to its holder. The terms VSAT(R), Dataplus(R), Teledatos(R),
Regional Teleport(R), Difusat(R), Interplus(R), Global Fax(R), Minidat(R),
Conexia(R) and Telecampus(R) are our service marks or trademarks that are
registered or otherwise protected under the laws of various jurisdictions.
3
<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 plan to
build
- our ability to implement successfully our operating strategy and to sell
capacity on our planned broadband network
- future financial performance, including growth in sales and income
The following factors, among others, could cause our actual results to
differ materially from those expressed in any forward-looking statements we
make:
- the rate of expansion of our network and/or customer base
- inaccuracies in our forecasts of customer or market demand
- loss of a customer that provides us with significant revenues
- highly competitive market conditions
- changes in or developments under laws, regulations and licensing
requirements
- changes in telecommunications technology
- currency fluctuations
- changes in economic conditions in the Latin American countries where we
operate
These factors should not be construed as exhaustive. We will not update or
revise any forward-looking statements.
------------------------
The information in this prospectus has been adjusted to reflect a 0.592 for
1 common stock share split, the conversion of 19,848 outstanding shares of our
preferred stock into 14,917,915 shares of our common stock and our redemption of
the remaining outstanding shares of our preferred stock and the additional
issuance of 2,850,000 shares, at the midpoint of the range set forth on the
cover page of this prospectus, of our common stock to British Telecommunications
plc, one of our current shareholders, which has agreed to purchase these shares
to maintain its approximate current ownership interest in us. All of the above
will occur upon the closing of this offering. The information in this prospectus
also reflects the issuance of 5,472,579 shares of our common stock to minority
shareholders in our subsidiaries in Argentina, Venezuela and Colombia in
exchange for their minority interests in those subsidiaries. Except where
indicated, the information in this prospectus does not take into account the
exercise of any of our outstanding options or the possible issuance of
additional shares of our common stock relating to the underwriters'
over-allotment option.
4
<PAGE> 5
ENFORCEABILITY OF CIVIL LIABILITIES
Although IMPSAT is a corporation organized under the laws of the State of
Delaware, our principal operations are in various Latin American countries. A
majority of our directors and officers and certain of the experts named in this
prospectus reside outside of the United States, and all or some of the portion
of the assets of our directors and officers, and substantially all of the assets
of IMPSAT, are located in Argentina, Colombia, Venezuela, Ecuador, Mexico and
Brazil. As a result, investors in our common stock may not be able to effect
service of process within the United States upon such persons or enforce against
them or against IMPSAT in U.S. courts judgments predicated upon the civil
liability provisions of the federal securities laws of the United States. There
is doubt as to enforceability in original actions in courts of each of the
foregoing Latin American jurisdictions of liabilities predicated solely on U.S.
federal securities laws and as to the enforceability in the courts in each of
those Latin American jurisdictions of judgments of U.S. courts obtained in
actions predicated upon the civil liability provisions of U.S. federal
securities laws.
MARKET DATA AND FORECASTS
This prospectus includes statistical data and forecasts concerning the
telecommunications industry that we obtained from industry publications. These
publications generally indicate that they have obtained information from sources
that they believe are reliable, but that they do not guarantee the accuracy and
completeness of the information. In particular, we do not know what rate of
general economic growth in the countries in which we operate were assumed in
preparing forecasts. Forecasts of developing industries, such as ours, are not
based upon sophisticated analysis of a substantial amount of historical data as
is the case for more mature industries. Often, interviews with corporate leaders
in developing industries, such as ours, form the basis for much statistical data
and forecasts. Thus, statistical data and forecasts for developing industries,
such as ours, are much less likely to be accurate. We also have not sought the
consent of any of these sources to refer to their data in this prospectus.
5
<PAGE> 6
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding our company, our common stock being sold in this offering
and our financial statements and notes thereto appearing elsewhere in this
prospectus.
IMPSAT
OVERVIEW
We are a leading provider of private telecommunications network and
Internet services in Latin America. We offer tailor-made, integrated data, voice
and Internet solutions, with an increasing emphasis on broadband transmission,
for national and multinational companies, financial institutions, governmental
agencies and other business customers. We also offer dedicated Internet services
to Internet service and content providers.
We have operations in Argentina, Colombia, Venezuela, Ecuador, Mexico,
Brazil and the United States and also provide our services in other countries in
Latin America. We currently provide telecommunications and Internet services
through our networks, which consist of owned fiber optic and wireless links,
teleports, earth stations and leased fiber optic and satellite links. We own and
operate 12 metropolitan area networks in some of the largest cities in Latin
America, including Buenos Aires, Bogota, Caracas and Sao Paulo.
We are building an extensive pan-Latin American broadband fiber optic
network, which will enhance the services we presently provide and significantly
increase our transmission speed and capacity. Our new network will consist of
long-haul, high capacity fiber optic backbones and metropolitan area fiber optic
and wireless links and will use advanced transmission technologies, including
dense wave division multiplexing, or DWDM, asynchronous transfer mode, or ATM,
and Internet protocol, or IP. We call this new network our Broadband Network. We
already own and operate a long-haul, fiber optic network connecting the cities
of Cali, Medellin and Bogota in Colombia over 698 route kilometers. By December
2000, we expect to have built out our Broadband Network to connect major cities
across Argentina and Brazil.
OUR COMPETITIVE STRENGTHS
We believe that we distinguish ourselves from our competitors through
several competitive strengths, including:
- strong presence in high growth telecommunications markets in Latin
America
- established and growing base of "blue chip" business customers
- early development of our extensive Broadband Network
- enduring commitment to superior customer service
- strong equity sponsors, including British Telecommunications and Morgan
Stanley Dean Witter. British Telecommunications has agreed to purchase
shares of our common stock simultaneously with this offering to maintain
its approximate current ownership share in our company
We also believe that we have differentiated ourselves from our competitors
through our proven historical operating performance. From 1992 to 1998:
- our business customer base grew from 125 customers in two countries to
1,467 customers in seven countries
- property, plant and equipment grew from $47.9 million to $330.7 million
- total consolidated revenues grew from $20.5 million to $208.1 million
- EBITDA grew from $7.9 million to $63.8 million
6
<PAGE> 7
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 Inc. 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 $297.4 million from Nortel to finance this project and to
purchase related equipment from Nortel. We have completed the installation of
more than 90% 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 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.
7
<PAGE> 8
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.
8
<PAGE> 9
THE OFFERING
Common stock offered....... 11,500,000 shares
Common stock to be
outstanding after this
offering................. 91,428,571 shares
Over-allotment option...... 1,725,000 shares
Voting rights.............. One vote per share
Use of proceeds............ We intend to use the net proceeds:
- to make capital expenditures relating to the
Broadband Network
- to redeem approximately $32.5 million of our
outstanding preferred stock
- for potential acquisitions
- for working capital and general corporate
purposes, including to fund losses
Dividend policy............ We do not intend to pay dividends on our common
stock. We plan to retain earnings, if any, for use
in the operation of our business and to fund future
growth. In addition, our indentures severely
restrict the payment of dividends. See "Description
of Our Indebtedness."
Proposed Nasdaq National
Market symbol............ IMPT
As of December 31, 1999, we had 91,428,571 shares of common stock
outstanding, as adjusted to give effect to the conversion of 19,848 outstanding
shares of preferred stock into 14,917,915 shares of common stock upon the
closing of this offering and the redemption of all remaining outstanding shares
of our preferred stock, the issuance of 2,850,000 additional shares of our
common stock to British Telecommunications simultaneously with this offering and
the issuance of 5,472,579 shares of our common stock to minority shareholders in
our subsidiaries in Argentina, Venezuela and Colombia in exchange for their
minority interests in those subsidiaries. This does not include outstanding
options to purchase 355,214, 441,650 and 393,340 shares of common stock at
exercise prices of $1.69, $8.38 and $10.47 per share, respectively. See
"Capitalization" and "Management -- Stock Option Grants."
9
<PAGE> 10
SUMMARY FINANCIAL AND OTHER DATA
The following financial data are derived from our audited consolidated
financial statements, except for the nine-month data, which are derived from our
unaudited consolidated financial statements.
Our net loss per share on a pro forma basis and our balance sheet data on
an as adjusted basis give effect to:
- the common stock split
- this offering
- the issuance of 2,850,000 additional shares of our common stock to
British Telecommunications simultaneously with this offering
- the redemption of approximately $32.5 million of our preferred stock and
the conversion of the remaining shares of our preferred stock into shares
of our common stock
- the issuance of 5,472,579 shares of our common stock to minority
shareholders in Argentina, Venezuela and Colombia in exchange for their
minority interests in those subsidiaries
as if these events had occurred at the beginning of the periods presented. The
pro forma amounts do not give effect to any interest income earned on the
proceeds of this offering pending our application of those proceeds.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------- ---------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues from services......... $ 128,393 $ 161,065 $ 208,089 $ 149,888 $ 167,129
Costs and expenses................. (110,328) (137,701) (181,219) (132,212) (230,099)
--------- --------- --------- --------- ---------
Operating income (loss)............ 18,065 23,364 26,870 17,676 (62,970)
Interest expense, net.............. (23,185) (24,272) (44,698) (30,243) (41,976)
(Income) loss attributable to
minority interest................ (1,766) (993) (2,502) (1,717) 5,603
Net loss........................... $ (8,483) $ (7,591) $ (33,987) $ (23,333) $(100,977)
========= ========= ========= ========= =========
Comprehensive loss................. $ (8,483) $ (7,591) $ (34,513) $ (23,333) $(104,523)
========= ========= ========= ========= =========
Net loss per common share, basic
and diluted...................... $ (0.18) $ (0.14) $ (0.71) $ (0.48) $ (1.89)
========= ========= ========= ========= =========
Net loss per common share, pro
forma............................ $ (0.32) $ (1.14)
========= =========
Weighted average common shares
outstanding...................... 46,773 53,594 47,983 48,811 53,453
========= ========= ========= ========= =========
Weighted average common shares
outstanding, pro forma........... 82,723 88,193
========= =========
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999
-------------------------
ACTUAL AS ADJUSTED
--------- ------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $146,078 $328,922
Property, plant and equipment, net.......................... 317,219 317,219
Total assets................................................ 599,192 862,973
Total debt.................................................. 423,198 423,198
Total long-term debt, net of current portion................ 384,113 384,113
Minority interest........................................... 6,624 --
Stockholders' equity (deficit).............................. (84,680) 331,114
</TABLE>
10
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"EBITDA" is defined as operating income plus depreciation and amortization
expense. We are presenting EBITDA because some investors use it as a measure of
a company's ability to service its debt and as a measure of operating
performance. However, EBITDA is not determined using generally accepted
accounting principles and, therefore, our EBITDA is not necessarily comparable
to EBITDA of other companies. Investors should not view EBITDA as an alternative
to cash flows calculated under generally accepted accounting principles, which
we have also presented. EBITDA is not "free cash flow," because it will be used
to pay interest expense and, if we have anything left after we pay our interest
expense, to pay taxes and make capital expenditures.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------- -------------------
1996 1997 1998 1998 1999
--------- --------- --------- -------- --------
(IN THOUSANDS, EXCEPT OTHER DATA)
<S> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
EBITDA............................... $ 44,383 $ 52,037 $ 63,816 $ 44,213 $ 25,120
Cash flow provided by (used in):
Operating activities............... 9,843 17,139 16,740 22,326 14,324
Investing activities............... (53,681) (58,080) (128,155) (96,615) (77,541)
Financing activities............... 66,517 22,485 191,523 203,753 122,820
Capital expenditures................. 53,998 56,440 109,934 84,733 74,262
OTHER DATA (AT PERIOD END):
Customers............................ 907 1,192 1,467 1,136 1,707
Satellite customer sites (VSAT and
SCPC technology only).............. 5,558 5,825 6,886 6,563 7,691
</TABLE>
11
<PAGE> 12
RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. The risks and uncertainties described below are not the
only ones facing our company. Additional risks not presently known to us or that
we currently deem immaterial may also impair our business operations.
Our business, financial condition and results of operations could be
materially adversely affected by any of the following risks. The trading price
of shares of our common stock could decline due to any of these risks, and you
might lose all or part of your investment.
This prospectus also contains forward-looking statements that involve risks
and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including the risks faced by us described below or elsewhere.
WE HAVE SUBSTANTIAL DEBT AND WE MAY LACK FINANCIAL RESOURCES TO MEET OUR
OBLIGATIONS OR SUPPORT OUR BUSINESS AND OPERATIONS
As of September 30, 1999, we had approximately $423.2 million of
indebtedness on a consolidated basis and our stockholder's equity was, as
adjusted, approximately $331.1 million. In addition, Nortel has agreed to lend
us approximately $297 million to finance the construction of the Broadband
Network in Argentina and Brazil. Subject to market conditions, we expect to
incur substantial additional indebtedness in the near and medium term to
refinance amounts to be owing under the Nortel vendor financing and for other
planned capital expenditures.
We had an annual net interest expense of approximately $44.7 million for
1998. At September 30, 1999, our ratio of debt to EBITDA for the prior four
quarters was 9.5 times. Our fixed charges exceeded our earnings by approximately
$7.1 million, $2.7 million, and $22.5 million for 1996, 1997 and 1998,
respectively. For the first nine months of 1999, our fixed charges exceeded our
earnings by $110.1 million.
Our high level of indebtedness could have important consequences for our
stockholders, 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 the market price of our common stock.
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 1998, our cash flow from operations totaled $16.7 million and
capital expenditures totaled $109.9 million. For the first nine months of 1999
our cash flow from operations totaled $14.3 million, and our capital
expenditures totaled $74.3 million. In addition, as of September 30, 1999,
approximately $39.1 million of our debt was scheduled to mature in 2000, and
approximately $384.1 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 or our subsidiaries may obtain new capital through subsequent public and
private equity and debt financings. If we incur additional indebtedness, we may
be subject to more restrictive financial covenants. If we issue public or
private equity, the ownership percentage of investors in this offering will be
diluted. We cannot assure you that additional financing will be available on
acceptable terms or at all. If unplanned expenditures arise or our estimates of
our capital requirements prove to be inaccurate, we may require additional
financing sooner than anticipated and/or require more than we currently expect.
WE HAVE NOT BEEN OPERATING VERY LONG AND HAVE A HISTORY OF INCURRING LOSSES
WHICH MAY MAKE IT DIFFICULT TO FUND OUR FUTURE OPERATIONS
We have a limited operating history. We commenced commercial operations in
1990 and have experienced rapid growth, increasing annual revenues from $8.2
million in 1991 to $208.1 million in 1998. We have, however, incurred net losses
in every year except 1994. Our historic rate of growth and expansion may not
continue. In particular, our rates of growth in Argentina and Colombia have
slowed considerably in recent periods. If we do not achieve and sustain
profitability, our ability to respond effectively to market conditions, to make
capital expenditures and to take advantage of business opportunities could be
negatively affected.
We have recorded comprehensive losses of $2.8 million in 1993, $7.4 million
in 1995, $8.5 million in 1996, $7.6 million in 1997 and $34.5 million in 1998.
In 1994, we recorded net income of $3.0 million.
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
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- hire enough qualified employees
In addition, we must perform these tasks in a timely manner, at reasonable costs
and on satisfactory terms and conditions. Failure to effectively manage our
planned expansion could have a material adverse effect on our business, growth,
financial condition, results of operations and the market price of our common
stock.
Our expansion may involve acquiring other companies or assets. These
acquisitions could divert our resources and management attention and require
integration with our existing operations. We cannot assure you that these
acquisitions will be successful. We further cannot assure you that we will be
successful or timely in developing and marketing service enhancements or new
services that respond to technological change, changes in customer requirements
and emerging industry standards.
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
- 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
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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 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.
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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 the market price of our common stock.
INTERNATIONAL TELECOMMUNICATIONS CARRIERS HAVE GREATER RESOURCES THAN WE DO
We compete with private operators of VSAT (very small aperture terminal)
networks, other satellite data transmission networks and terrestrial
telecommunications links. We also 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. AT&T Latin America will have assets in Brazil, Chile, Colombia and Peru
and is expected to expand into Argentina and 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 the market price of
our common stock.
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
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technologies which currently are not widely available in Latin America. Examples
of these technologies are space-based systems dedicated to data distribution
services, generally known as "Little-LEOs" (low earth orbit satellites) and
"Broadband" (Ka-band) systems. Furthermore, competing technologies may gain
market and commercial acceptance. If these technologies are successful, they may
provide significant long-term competition that could have a material adverse
effect on our business, results of operations and financial condition and the
market price of our common stock.
OUR EARNINGS WILL DETERIORATE IF WE CANNOT COLLECT ON OUR CUSTOMER ACCOUNTS
We provide trade credit to our customers in the normal course of business.
As of September 30, 1999, excluding two customers against whom we have commenced
legal collection actions, approximately 14% of our gross accounts receivable
were past due more than six months but less than one year and approximately 26%
were past due more than one year. Our allowance for doubtful accounts was
approximately $18.1 million (or 27.8% of gross accounts receivable) at September
30, 1999.
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 Empresa Nacional de Correos y Telegrafos S.A., the former Argentine
national postal service known as ENCOTESA. For descriptions of these matters,
see "Business -- Legal Matters."
Prior to June 30, 1998, we generally reserved an amount equal to 30% of
accounts receivable in excess of 180 days past due but less than one year, and
100% of accounts receivable in excess of 360 days past due. At the end of the
second quarter of 1998, we decided to change our policy of 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 September 30, 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 the market price of our common stock.
ECONOMIC AND POLITICAL CONDITIONS IN LATIN AMERICA POSE NUMEROUS RISKS TO OUR
OPERATIONS
Substantially all of our revenues are derived from operations in Latin
America. During 1998 and the first nine months of 1999, we derived approximately
46.7% and 47.7%, respectively, of our consolidated net revenues from services
provided by IMPSAT Argentina and approximately 27.7% and 27.5%, respectively, by
IMPSAT Colombia. We have also established operations in Venezuela, Mexico and
Ecuador, and in 1998 we began operations in Brazil. An investment in our common
stock is subject to risks of doing business in Latin America. Other than the
United States, each country where we operate has experienced political and
economic instability in recent years. Moreover, as events in the Latin American
region have demonstrated, negative economic or political developments in one
country in the region can lead to or exacerbate economic or political crises
elsewhere in the region. Furthermore, events 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
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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 the market price of our common
stock.
Argentina. While we anticipate that our business outside Argentina will
increase in the coming years, Argentina is expected to remain our most
significant market for the foreseeable future and, accordingly, developments in
Argentina are of particular importance to our future success.
The instability and volatility in the world financial markets, which began
with the crisis in the markets of Southeast Asia in 1998 and spread to Russia
and Brazil, has negatively affected the Argentine economy and financial markets.
In addition to the effects of the economic difficulties experienced in Brazil,
Argentina's largest trading partner, in the first 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 the market price of our common stock. In addition, we cannot
assure you that future uncertainties resulting from the presidential elections
will not negatively impact the Argentine economy, or that the Argentine monetary
authorities will continue to support the existing peso/dollar exchange rate.
Colombia. Colombia is our second largest market 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, a
recent offensive by FARC resulted in an estimated over 200 deaths among
Colombian armed forces, guerilla members and non-combatants. The offensive led
the Colombian government to cede effective control of certain portions of the
country to guerilla forces, order a curfew in certain regions of the country and
place the military on a heightened state of alert. We cannot assure you that
these matters, individually or cumulatively, will not materially adversely
affect our business, results of operations and financial condition and the
market price of our common stock.
Venezuela. Our operations in Venezuela, which is currently our third
largest market in terms of revenues generated, are expected to grow. The
Venezuelan government exercises significant control over the Venezuelan economy.
This control has included extensive regulation, including foreign exchange and
price controls. In the last 15 years, Venezuela has experienced periods of
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
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Venezuelan economy. Venezuela has experienced high levels of inflation during
the past decade. The general rate of inflation, as measured by the consumer
price index, was 103.2% in 1996, 37.6% in 1997 and 29.9% in 1998.
The Venezuelan economy is expected to decline by over 5% in 1999. In
addition, Venezuela 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. To date, the Constitutional Assembly has declared constitutional
emergencies and taken steps to exert authority over and replace Venezuela's
judiciary and Congress. 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
50,000 to 70,000 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 of $1 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 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 January 15, 2000, the real
traded at a rate of R$1.81 = $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 the
market price of our common stock.
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
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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 the market price of our common stock.
WE FACE REGULATORY RISKS AND UNCERTAINTY WITH RESPECT TO LOCAL LAWS AND
REGULATIONS
Our business is dependent upon the procurement and maintenance of licenses
to provide 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 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
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and our ability to provide service to our customers. Loss or disruption could
also cause one or more of our customers to terminate their contracts with us or
fail to renew their contracts. We believe that the satellite systems upon which
we depend are highly reliable. However, they have in the past and may in the
future experience material operational anomalies and failures. For example, in
April 1999, Nahuelsat's Nahuel-1 satellite failed and service to part of our
telecommunications networks was lost for approximately 12 hours.
WE ARE DEPENDENT ON KEY PERSONNEL FOR OUR FUTURE SUCCESS
Our success depends to a significant degree on members of our senior
management and certain key employees, who generally are not bound by employment
contracts with us, although Mr. Ricardo Verdaguer, our President and Chief
Executive Officer, and Mr. Roberto Vivo, our Deputy Chief Executive Officer, are
indirect holders of our stock. Our success also depends in part upon our ability
to hire and retain highly skilled and qualified operating, marketing, financial
and technical personnel. Competition for qualified employees in the
telecommunications industry is intense and, accordingly, we cannot assure you
that we will be able to hire or retain necessary personnel.
In addition, the successful implementation of our Broadband Network will
require us to recruit, hire and retain a significant number of highly skilled
employees. There may be a limited supply of qualified personnel in our countries
of operations.
WE FACE MULTIPLE RISKS ASSOCIATED WITH PROVIDING INTERNET SERVICES
We offer Internet access to Internet service and content providers and
business and governmental customers. We had $21.1 million in revenues from
Internet services in 1998 and $7.8 million in 1997. As of September 30, 1999 we
had over 102,000 dial-up Internet access retail customers and 320 dedicated
Internet access 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 February 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
21
<PAGE> 22
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 the market price of our
common stock.
OUR AFFAIRS AND BUSINESS POLICIES ARE SUBJECT TO CONTROL BY OUR PRINCIPAL
STOCKHOLDERS
We are a privately held corporation. After this offering and the
simultaneous issuance to British Telecommunications of an additional 2,850,000
shares of common stock, 46.4% of our issued and outstanding common stock will be
held by Nevasa Holdings Ltd., 18.8% by Nunsgate Limited, a wholly owned
subsidiary of British Telecommunications, and 5.1% by the Suramericana Group of
Colombia. In addition, 16.3% of our common stock will be held by certain
affiliates of Morgan Stanley Dean Witter (whom we refer to as the Morgan Stanley
investors). Nevasa Holdings is a holding company controlled by the Pescarmona
family, Mr. Verdaguer, our President and Chief Executive Officer, and Mr. Vivo,
our Deputy Chief Executive Officer. As a result of this stock ownership, these
stockholders control our affairs and business policies, including the election
of directors.
WE HAVE ANTI-TAKEOVER PROVISIONS IN OUR CERTIFICATE OF INCORPORATION AND BYLAWS
THAT MAY PRECLUDE OUR BEING ACQUIRED EVEN IF IT WOULD BENEFIT STOCKHOLDERS
Some provisions included in our certificate of incorporation and bylaws may
discourage, delay or prevent an acquisition of our company at a premium price.
These provisions will:
- authorize the issuance of "blank check" preferred stock
- prohibit cumulative voting in the election of directors
- limit the removal of directors by the stockholders to removal for cause
- require a super-majority stockholder vote to effect certain amendments to
our certificate of incorporation and bylaws
- limit the persons who may call special meetings of stockholders
- prohibit stockholder action by written consent
- establish advance notice requirements for nominations for election to our
board of directors or for proposing matters that can be acted on by
stockholders at stockholder meetings.
Our board of directors has approved the adoption of a stockholder rights
plan, which we intend to implement during the first quarter of 2000. A
stockholder rights plan would cause substantial dilution to any person or group
that attempts to acquire our company on terms not approved in advance by our
board of directors. Our stockholder rights plan and some of our employment
agreements may delay, deter or prevent someone from acquiring us in a
transaction that results in stockholders receiving a premium over the market
price for the shares of their common stock. See "Description of Capital
Stock -- Stockholder Rights Plan."
In addition, some of the governmental agencies that have regulatory
authority over us or our licensing process, including the Argentine Comision
Nacional de Comunicaciones, Brazil's Agencia Nacional de Telecomunicacoes and
the U.S. Federal Communications Commission, require prior approval of transfers
of control, including pro forma transfers of control resulting from corporate
reorganizations and assignments of regulatory authorization. These requirements
may delay, prevent or deter a change in control of our company.
THERE IS NO PRIOR PUBLIC MARKET FOR OUR COMMON STOCK AND OUR STOCK PRICE MAY BE
VOLATILE
There is no public market for our common stock. An active public market for
our common stock may not develop or be sustained after this offering. The price
of our common stock is likely to change after this
22
<PAGE> 23
offering. The market price of our common stock may fluctuate significantly in
response to a number of factors (some of which are beyond our control),
including:
- variations in operating results
- changes in financial estimates by securities analysts
- changes in market valuations of telecommunications companies
- announcements by us or our competitors of significant contracts,
acquisitions, strategic partnerships, joint ventures or capital
commitments
- our success or failure to implement our Broadband Network and expansion
plans
- an adverse decision by a regulatory agency in one of our primary markets
- increases or decreases in reported holdings by insiders or mutual funds
- additions or departures of key personnel
- future sales of common stock
- stock market price and volume fluctuations
SHARES OF OUR COMMON STOCK BECOMING AVAILABLE FOR SALE COULD ADVERSELY AFFECT
THE MARKET PRICE OF OUR COMMON STOCK AND MAY IMPAIR OUR ABILITY TO RAISE CAPITAL
THROUGH THE SALE OF ADDITIONAL STOCK
The 11,500,000 shares sold in this offering will generally be freely
tradable without restriction. We will have 79,928,571 shares of our common stock
outstanding upon completion of this offering that will be "restricted
securities" as that term is defined in Rule 144 under the Securities Act.
The 14,917,915 shares of our common stock that will be held by the Morgan
Stanley investors after 19,848 shares of our preferred stock are converted upon
completion of this offering and the 42,366,878 and 17,171,199 shares of common
stock held by Nevasa Holdings and Nunsgate Limited, respectively, will be
entitled to certain registration rights. See "Shares Eligible for Future Sale."
Immediately after this offering, we also will have an additional 1,190,204
shares of common stock that are the subject of options, 44,165 of which are
exercisable and 1,146,039 of which will not then be currently exercisable. To
the extent that these options are properly exercised, the underlying shares of
common stock will be freely tradable immediately upon exercise of the options.
Our existing stockholders have executed lock-up agreements that limit their
ability to sell such common stock. These stockholders have agreed not to sell or
otherwise dispose of any shares of our common stock for a period of at least 180
days after the date of this prospectus without the prior written approval of
Morgan Stanley & Co. Incorporated. When the lock-up agreements expire, these
shares and the shares underlying the options will become eligible for sale, in
some cases subject to the volume, manner of sale and notice requirements of Rule
144. The availability of these shares may depress the market price of our common
stock. See "Shares Eligible for Future Sale."
OUR COMMON STOCK MAY BE SUBSTANTIALLY DILUTED AS A RESULT OF THE INITIAL PUBLIC
OFFERING PRICE
The initial public offering price of our common stock is substantially in
excess of the net tangible book value per share, which results in a benefit to
all of our existing stockholders. As a result, purchasers of common stock in
this offering will experience immediate and substantial dilution of $13.52 per
share (assuming an initial public offering price of $16.00 per share) of our
common stock from the public offering price. In addition, the 77,078,571 shares
of common stock outstanding and owned by the existing stockholders prior to this
offering were originally acquired at a substantially lower price per share on
average as compared to the price expected to be paid by new investors for the
11,500,000 shares of common stock offered hereby.
23
<PAGE> 24
WE DO NOT INTEND TO PAY DIVIDENDS ON OUR COMMON STOCK AND ANY FUTURE PAYMENT OF
DIVIDENDS IS LIMITED BY THE TERMS OF INDENTURES TO WHICH WE ARE A PARTY
We have never paid dividends on our common stock and do not currently
intend to pay cash dividends on our common stock. Any future decisions as to the
payment of dividends will be at the discretion of our board of directors,
subject to applicable law. Our ability to pay dividends is also limited by the
terms of indentures to which we are a party. These indentures also contain
covenants restricting our ability to make certain restricted payments, incur
additional indebtedness, make certain investments, create liens, guarantee
indebtedness, sell or acquire assets and enter into mergers or consolidations,
which may restrict our ability to expand or make acquisitions. See "Dividend
Policy."
FAILURE OF OUR COMPUTER SYSTEMS OR OF SATELLITES TO RECOGNIZE THE YEAR 2000
COULD DISRUPT OUR BUSINESS AND OPERATIONS
The year 2000 problem refers to the failure of installed computerized
systems and software products to recognize or accept four digit date entries. In
this case, systems that have date-sensitive features might, for example,
recognize a date using "00" as the year 1900 rather than the year 2000. This
problem could cause malfunctions in certain computer systems, software and
databases with respect to dates on or after January 1, 2000, unless corrected.
We face risks arising from year 2000 issues which could have a material
adverse effect on our business and the price of our common stock. For example,
we risk incurring contractual liabilities if we fail to provide services to our
customers because of the malfunctioning of a satellite due to a year 2000
problem with the satellite. Based on our testing and remediation, we believe
that our software and hardware systems are year 2000 compliant. However, we
cannot assure you that all systems will 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.
24
<PAGE> 25
USE OF PROCEEDS
We will receive net proceeds from this offering of approximately $170.2
million. This assumes that our common stock is offered at $16.00 per share, the
midpoint of the range set forth on the cover page of this prospectus, and is
after deducting underwriting discounts and commissions and the estimated
expenses of this offering. In addition, based on the same assumed offering price
of $16.00 per share, we will receive $45.1 million in net proceeds from the sale
of an additional 2,850,000 shares of our common stock to British
Telecommunications simultaneously with this offering. We intend to use the net
proceeds to make capital expenditures relating to the Broadband Network, to
redeem approximately $32.5 million of our preferred stock, for potential
acquisitions and for working capital and general corporate purposes, including
to fund losses. Pending such application, we will invest the net proceeds in
short-term liquid securities.
DIVIDEND POLICY
We have not paid any cash dividends on our common stock and we do not
intend to pay cash dividends in the foreseeable future. We plan to retain
earnings, if any, for use in the operation of our business and to fund future
growth. In addition, our indentures currently severely restrict the payment of
dividends. See "Description of Our Indebtedness."
25
<PAGE> 26
CAPITALIZATION
The following table shows our cash and cash equivalents, short-term debt
and total capitalization as of September 30, 1999:
- on an historical basis
- as adjusted to give effect to:
- the common stock split
- this offering
- the redemption of approximately $32.5 million of our preferred stock and
the conversion of the remaining shares of our preferred stock into
14,917,915 shares of our common stock
- the issuance of an additional 2,850,000 shares of common stock to
British Telecommunications simultaneously with this offering
- the issuance of 5,472,579 shares of our common stock to minority
shareholders in our subsidiaries in Argentina, Venezuela and Colombia in
exchange for their minority interests in those subsidiaries
This table should be read in conjunction with our consolidated financial
statements and the notes at the back of this prospectus.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999
-------------------------
ACTUAL AS ADJUSTED
---------- ------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
CASH AND CASH EQUIVALENTS................................... $ 146,078 $ 328,922
========= =========
SHORT-TERM DEBT:
Short-term debt........................................... $ 15,975 $ 15,975
Current portion of long-term debt......................... 23,110 23,110
--------- ---------
Total short-term debt............................. $ 39,085 $ 39,085
========= =========
LONG-TERM DEBT:
12 1/8% Senior Guaranteed Notes due 2003.................. $ 125,000 $ 125,000
12 3/8% Senior Notes due 2008............................. 225,000 225,000
Other long-term debt, net of current portion.............. 34,113 34,113
--------- ---------
Total long-term debt, net......................... 384,113 384,113
--------- ---------
MINORITY INTEREST........................................... 6,624 --
--------- ---------
REDEEMABLE, CONVERTIBLE PREFERRED STOCK..................... 145,389 --
--------- ---------
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, as adjusted)............ 716 914
Treasury stock, 14,917,915 shares, at cost................ (125,000) --
Additional paid in capital................................ 221,013 511,609
Accumulated deficit....................................... (172,368) (172,368)
Amount paid in excess of carrying value of assets acquired
from related party..................................... (4,969) (4,969)
Accumulated other comprehensive loss...................... (4,072) (4,072)
--------- ---------
Total stockholders' equity (deficit).............. (84,680) 331,114
--------- ---------
Total capitalization......................... $ 490,531 $ 754,312
========= =========
</TABLE>
26
<PAGE> 27
DILUTION
As of September 30, 1999, our pro forma net tangible book value, after
giving effect to the redemption of approximately $32.5 million of our preferred
stock and the conversion of the remaining shares of our preferred stock into
shares of our common stock and the issuance of 5,472,579 shares of our common
stock to minority shareholders in our subsidiaries in Argentina, Venezuela and
Colombia in exchange for their minority interest in those subsidiaries, was
$11.8 million, or $0.15 per share of common stock. Net tangible book value per
share represents the amount of our total tangible assets reduced by the amount
of our total liabilities, divided by the number of shares of common stock
outstanding. As of September 30, 1999, our pro forma net tangible book value, as
adjusted for the sale of 11,500,000 shares in this offering and the issuance of
an additional 2,850,000 shares of our common stock to British Telecommunications
simultaneously with this offering, each at an assumed initial public offering
price of $16.00 per share (the midpoint of the range set forth on the cover page
of this prospectus), and after deducting the estimated underwriting discounts
and commissions and other expenses, would have been approximately $2.48 per
share of common stock. This represents an immediate increase of $2.33 per share
to existing stockholders and an immediate dilution of $13.52 per share to new
investors. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $16.00
Pro Forma Net tangible book value per share as of
September 30, 1999..................................... $ 0.15
Increase in net tangible book value per share attributable
to purchases in this offering.......................... 2.33
------
Pro Forma Net tangible book value per share after this
offering............................................... 2.48
------
Dilution per share to new investors......................... $13.52
======
</TABLE>
The 77,078,571 shares of common stock outstanding and owned by our existing
stockholders prior to this offering were originally acquired at a substantially
lower price per share on average as compared to the price expected to be paid by
new investors for the 11,500,000 shares of common stock offered hereby and the
additional 2,850,000 shares of common stock to be issued to British
Telecommunications simultaneously with this offering.
At January 5, 2000, there were 1,190,204 shares of common stock subject to
outstanding options consisting of:
- 355,214 shares underlying unexercisable options with an exercise price of
$1.69 per share
- 44,165 shares underlying exercisable options and 397,485 shares
underlying unexercisable options, each with an exercise price of $8.38
per share
- 393,340 shares underlying unexercisable options with an exercise price of
$10.47 per share
As of January 5, 2000, no options were exercised. To the extent outstanding
options are exercised, there will be further dilution to new investors. See
"Capitalization," "Management -- Executive Compensation" and
"Management -- Stock Option Plans."
27
<PAGE> 28
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The following financial data are derived from our consolidated financial
statements, which have been audited by Deloitte & Touche LLP, independent
auditors, except for the nine-month data, which are derived from our unaudited
financial statements. The selected financial data set forth below should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our financial statements and notes included at
the back of this prospectus.
Our net loss per share on a pro forma basis and our balance sheet data on
an as adjusted basis give effect to:
- the common stock split
- this offering
- the redemption of approximately $32.5 million of our preferred stock and
the conversion of the remaining 19,848 shares of our preferred stock into
shares of our common stock
- the issuance of an additional 2,850,000 shares of our common stock to
British Telecommunications simultaneously with this offering
- the issuance of 5,472,579 shares of our common stock to minority
shareholders in our subsidiaries in Argentina, Venezuela and Colombia, in
exchange for their minority interests in those subsidiaries
as if these events had occurred at the beginning of the periods presented. The
pro forma amounts do not give effect to any interest income earned on the
proceeds of this offering pending application.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------------------- --------------------
1994 1995 1996 1997 1998 1998 1999
------- -------- -------- -------- -------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues from services...................... $77,679 $105,641 $128,393 $161,065 $208,089 $149,888 $ 167,129
Costs and expenses:
Variable cost of services..................... 12,770 18,818 21,494 27,333 36,369 24,274 29,975
Leased telecommunications links............... 7,734 10,973 13,925 19,230 24,507 20,343 31,248
Salaries, wages and benefits.................. 13,528 22,220 25,561 29,109 38,198 26,543 34,222
Selling, general and administrative........... 19,148 26,094 23,030 33,356 45,199 34,515 46,564
Depreciation and amortization................. 12,874 20,653 26,318 28,673 36,946 26,537 88,090
------- -------- -------- -------- -------- -------- ---------
Operating income (loss)......................... 11,625 6,883 18,065 23,364 26,870 17,676 (62,970)
Other income (expenses):
Interest expense, net......................... (8,231) (15,677) (23,185) (24,272) (44,698) (30,243) (41,976)
Net gain (loss) on foreign exchange........... 1,352 1,838 910 (276) 675 813 (9,500)
Other income (expenses), net.................. 599 511 1,035 (151) 760 485 (715)
------- -------- -------- -------- -------- -------- ---------
Income (loss) before income taxes and minority
interest...................................... 5,345 (6,445) (3,175) (1,335) (16,393) (11,269) (115,161)
Benefit from (provision for) income taxes....... 3,155 740 (3,542) (5,263) (3,805) (2,358) 18,952
------- -------- -------- -------- -------- -------- ---------
(Loss) income before cumulative effect and
minority interest............................. 8,500 (5,705) (6,717) (6,598) (20,198) (13,627) (96,209)
Cumulative effect of change in accounting
principle, net of tax......................... -- -- -- -- (1,269) (1,269) --
(Income) loss attributable to minority
interest...................................... (5,464) (1,712) (1,766) (993) (2,502) (1,717) 5,603
Dividends on redeemable preferred stock......... -- -- -- -- (10,018) (6,720) (10,371)
------- -------- -------- -------- -------- -------- ---------
Net income (loss)............................... $ 3,036 $ (7,417) $ (8,483) $ (7,591) $(33,987) $(23,333) $(100,977)
======= ======== ======== ======== ======== ======== =========
Comprehensive income (loss)..................... $ 3,036 $ (7,417) $ (8,483) $ (7,591) $(34,513) $(23,333) $(104,523)
======= ======== ======== ======== ======== ======== =========
Net income (loss) per common share, basic and
diluted....................................... $ 0.06 $ (0.16) $ (0.18) $ (0.14) $ (0.71) $ (0.48) $ (1.89)
======= ======== ======== ======== ======== ======== =========
Net loss per share, pro forma................... $ (0.32) $ (1.14)
======== =========
Weighted average common shares outstanding...... 46,773 46,773 46,773 53,594 47,983 48,811 53,453
======= ======== ======== ======== ======== ======== =========
Weighted average common shares outstanding, pro
forma......................................... 82,723 88,193
======== =========
</TABLE>
28
<PAGE> 29
<TABLE>
<CAPTION>
AS OF
AS OF DECEMBER 31, SEPTEMBER 30, 1999
----------------------------------------------------- ----------------------
1994 1995 1996 1997 1998 ACTUAL AS ADJUSTED
-------- -------- -------- -------- --------- -------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............. $ 32,135 $ 6,216 $ 28,895 $ 10,439 $ 90,021 $146,078 $328,922
Total current assets.................. 57,948 36,906 68,304 65,015 159,099 214,399 397,243
Net property, plant and equipment..... 152,909 199,701 227,086 255,422 330,726 317,219 317,219
Total assets.......................... 222,684 249,095 315,230 339,916 527,218 599,192 862,973
Total current liabilities............. 68,984 128,813 78,125 103,438 97,910 133,902 133,902
Total short-term debt and current
portion of long-term debt........... 48,047 97,510 42,874 60,375 40,400 39,085 39,085
Total long-term debt, net............. 59,437 30,200 156,230 159,677 379,292 384,113 384,113
Minority interest..................... 24,893 28,476 30,242 10,398 13,071 6,624 --
Redeemable preferred stock............ -- -- -- -- 135,018 145,389 --
Stockholders' equity (deficit)........ 62,780 55,363 46,881 63,389 (101,519) (84,680) 331,114
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------------------- -------------------
1994 1995 1996 1997 1998 1998 1999
------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT OTHER DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
EBITDA........................................... $24,499 $ 27,536 $ 44,383 $ 52,037 63,816 $ 44,213 $ 25,120
Cash flow provided by (used in):
Operating activities........................... 17,257 18,894 9,843 17,139 16,740 22,326 14,324
Investing activities........................... (87,603) (66,910) (53,681) (58,080) (128,155) (96,615) (77,541)
Financing activities........................... 93,351 22,097 66,517 22,485 191,523 203,753 122,820
Capital expenditures............................. 87,541 67,060 53,998 56,440 109,934 84,733 74,262
OTHER DATA (AT PERIOD END):
Customers........................................ 445 656 907 1,192 1,467 1,136 1,707
Satellite customer sites (VSAT and SCPC
technology only)............................... 2,196 3,336 5,558 5,825 6,886 6,563 7,691
</TABLE>
29
<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 the
market price of our common stock.
Costs and Expenses. Our costs and expenses principally include:
- variable cost of services
- leased telecommunications links (payments for leased satellite
transponder and fiber optic capacity)
- salaries, wages and benefits
30
<PAGE> 31
- selling, general and administrative expenses
- depreciation and amortization
Building the Broadband Network will decrease our payments for satellite
capacity (i.e., leased telecommunications links) 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
principal items comprising variable cost of services are installation (and
de-installation) costs, sales commissions paid to third-party sales
representatives and maintenance costs for our network infrastructure.
Installation and de-installation costs are the costs we incur when we install or
remove earth stations, microstations and other equipment from customer premises.
Installation and maintenance costs include services contracted from outside
providers. Our selling, general and administrative expenses consist principally
of:
- publicity and promotion costs
- provisions for doubtful accounts
- fees and other remuneration
- travel and entertainment
- rent
- plant services and corporate telecommunication and energy expenses
In connection with the stock options granted on January 5, 2000 under the
1999 Stock Option Plan, we will record approximately $5.1 million in 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
countries in which we operate did not have a material effect on our revenues
during 1998 and the first nine months of 1999. Given that the exchange rate is
generally set at the date of invoicing and that we in some cases experience
substantial delays in collecting receivables, we are exposed to exchange rate
risk. Furthermore, under Brazilian law, our contracts with customers in Brazil
cannot be linked to the exchange rate between the Brazilian real and the U.S.
dollar. Our expansion in Brazil will increase our exposure to exchange rate
risks.
Sale of Retail Internet Business. In August 1999, we entered into an
agreement in principle to sell our retail Internet businesses in Argentina,
Brazil and Colombia to El Sitio for approximately $21.5 million. El Sitio
provides Internet content in Latin America. We also agreed to subscribe for
$21.5 million in convertible preferred stock of El Sitio and El Sitio has agreed
to enter into a telecommunications services agreement with us to provide
services to El Sitio, including access to the U.S. Internet backbone. We
determined that retail Internet access was not one of our top priorities and was
inconsistent with our emphasis on providing telecommunications services to
businesses and governmental customers, telecommunications carriers and ISPs. The
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. The Colombia transaction is expected to close during February
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.
31
<PAGE> 32
The revenues and expenses associated with the retail Internet businesses
that we sold to El Sitio were as follows for the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
---------------- ---------------
1997 1998 1998 1999
------ ------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net revenues:
Argentina............................................... $2,634 $ 2,982 $2,298 $2,710
Colombia................................................ 1,817 2,131 1,741 1,371
Brazil.................................................. -- 6,159 4,535 5,766
------ ------- ------ ------
Total........................................... $4,451 $11,272 $8,574 $9,847
====== ======= ====== ======
Direct costs and expenses:
Argentina............................................... $1,957 $ 2,181 $1,767 $1,911
Colombia................................................ 1,274 2,014 1,506 1,449
Brazil.................................................. -- 3,792 3,713 5,276
------ ------- ------ ------
Total........................................... $3,231 $ 7,987 $6,986 $8,636
====== ======= ====== ======
</TABLE>
RESULTS OF OPERATIONS
The following financial table summarizes our results of operations:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------------------------ ------------------------------------
1996 1997 1998 1998 1999
---------------- ---------------- ---------------- ---------------- -----------------
(IN THOUSANDS AND AS A PERCENTAGE OF CONSOLIDATED REVENUES)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues from services... $128,393 100.0% $161,065 100.0% $208,089 100.0% $149,888 100.0% $ 167,129 100.0%
Variable costs of services... 21,494 16.7 27,333 17.0 36,369 17.5 24,274 16.2 29,975 17.9
Salaries, wages and
benefits................... 25,561 19.9 29,109 18.1 38,198 18.4 26,543 17.7 34,222 20.5
Leased telecommunications
links...................... 13,925 10.8 19,230 11.9 24,507 11.8 20,343 13.6 31,248 18.7
Selling, general and
administrative expenses.... 23,030 17.9 33,356 20.7 45,199 21.7 34,515 23.0 46,564 27.9
Depreciation and
amortization............... 26,318 20.5 28,673 17.8 36,946 17.8 26,537 17.7 88,090 52.7
Interest expense, net........ 23,185 18.1 24,272 15.1 44,698 21.5 30,243 20.2 41,976 25.1
Net gain (loss) on foreign
exchange................... 910 0.7 (276) (0.2) 675 0.3 813 0.5 (9,500) (5.7)
Benefit from (provision for)
income taxes............... (3,542) (2.8) (5,263) (3.3) (3,805) (1.8) (2,358) (1.6) 18,952 11.3
Comprehensive gain (loss).... (8,483) (6.6) (7,591) (4.7) (34,513) (16.6) (23,333) (15.6) (104,523) (62.5)
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1998
General. Our results of operations for the first nine months of 1999 were
not as positive as prior periods for the following principal reasons:
- recessions facing our markets in Latin America, which significantly
lowered our rate of revenue growth and caused our revenues to decrease in
the third quarter of 1999 by $1.7 million compared to the second quarter
of 1999
- the fact that we purchased too much satellite capacity because we did not
anticipate the breadth of the recession in Latin America
- competitive pricing pressures in our more mature markets (especially in
Argentina and Colombia)
- expenses of developing the Broadband Network and our Brazilian operations
(which are in a relatively early stage of development)
- an increase in our provision for doubtful accounts as a result of changes
in our provisioning policy, which we discuss further below
32
<PAGE> 33
- 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 the nine months ended September 30, 1999
totaled $167.1 million, an increase of $17.2 million, or 11.5%, from net
revenues for the same period in 1998. Recessions in most of the countries in
which we operate, and competitive pressures in Argentina and Colombia,
contributed to our lower rate of revenue growth during the third quarter of 1999
compared to prior periods. These conditions could also affect future periods.
The following table shows our revenues by operating subsidiary (including
intercompany transactions) for the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
1998 1999
------- -------
(IN THOUSANDS)
<S> <C> <C>
IMPSAT Argentina............................................ $72,868 $79,911
IMPSAT Colombia............................................. 45,457 45,980
IMPSAT Venezuela............................................ 10,687 16,777
IMPSAT Ecuador.............................................. 7,312 9,749
IMPSAT Mexico............................................... 3,439 2,528
IMPSAT Brazil............................................... 1,390 4,607
Mandic S.A.................................................. 4,535 6,519
IMPSAT USA.................................................. 10,453 12,633
</TABLE>
Our revenue growth for the first nine months of 1999 was attributable to an
overall increase in the number of customers and services we provided to them
offset, in the past, by decreasing prices. Excluding Internet and fax store and
forward customers, we had a total of 1,707 customers at September 30, 1999,
compared to 1,415 customers at September 30, 1998.
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 contract in Argentina
with Banco Bansud S.A., one of Argentina's largest private commercial banks and
one of IMPSAT Argentina's top ten customers in 1998, was terminated due to
pricing competition in April 1999. We recorded $1.6 million in net revenues from
this contract during 1998. In Colombia with Telemando E.U. (an alternative
telecommunications carrier) and Registraduria Nacional (the government elections
commission) were terminated during the third quarter of 1999. We recorded $2.1
million in net revenues from Telemando and $0.6 million in net revenues from
Registraduria Nacional during 1998. Also, in Colombia, our contracts with six
customers within the Suramericana group were renegotiated during the first
quarter of 1999. This renegotiation resulted in an approximately 24% decrease in
our prices under these contracts. Our net revenues from these six companies
totaled $2.0 million during 1998. The Suramericana group includes some of our
largest customers in Colombia.
In addition, revenue growth at IMPSAT Ecuador could decline in coming
periods due to the effects of the continuing economic and political crisis in
that country. In the first week of January 2000, the Ecuadoran government
declared a national emergency and the Ecuadoran sucre devalued approximately 40%
against the U.S. dollar. On January 21, 2000, Ecuador suffered a military coup,
which ousted Mr. Jamil Mahuad, the constitutionally elected President of
Ecuador, from office before the military junta was disbanded shortly thereafter,
with power being ceded to Mr. Gustavo Noboa, who was formerly Vice-President
under Mr. Mahuad. 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.
Revenues recorded by our Brazilian operations were negatively affected by
the devaluation of the Brazilian real against the U.S. dollar. Although IMPSAT
Brazil's expansion of its customer base (85 customers as of September 30, 1999
compared to 36 customers as of the same date in 1998) and operations
33
<PAGE> 34
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 the first
nine months of 1999 as compared to the prior period in 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$1.92 = $1.00 on
September 30, 1999.
Variable Cost of Services. Our variable cost of services for the nine
months ended September 30, 1999 totaled $30.0 million, an increase of $5.7
million, or 23.5%, compared to the same period in 1998. Of our total variable
cost of services for the nine months ending September 30, 1999, $16.4 million
related to the operations of IMPSAT Argentina and $8.8 million related to the
operations of IMPSAT Colombia. This compares to $13.7 million at IMPSAT
Argentina and $7.9 million at IMPSAT Colombia for the nine months ended
September 30, 1998. Variable costs of services for Mandic and IMPSAT Brazil,
both of which commenced operations towards the end of the second quarter of
1998, each totaled $1.5 million for the nine months ended September 30, 1999.
Variable cost of services of our subsidiaries are described prior to the
elimination of intercompany transactions.
Maintenance costs for our telecommunications network infrastructure totaled
$8.5 million, compared to $7.3 million for the corresponding period in 1998,
because we had more infrastructure.
Installation costs totaled $6.7 million, compared to $5.3 million for the
corresponding period in 1998. Installation costs at IMPSAT Argentina totaled
$3.9 million for the nine months ended September 30, 1999 as compared to $3.2
million for the corresponding period in 1998. The increase in these costs was
due in part to:
- a higher number of de-installations of VSAT microstations due to customer
cancellations and customer upgrades to SCPC technology
- private telecommunications network installations completed in the first
nine months of 1999 in connection with IMPSAT Argentina's contracts to
provide private telecommunications network services to the Government of
the Province of Buenos Aires and Banco de la Provincia de Buenos Aires
Sales commissions paid to third-party sales representatives totaled $5.7
million compared to $5.1 million for the nine months ended September 30, 1998.
Most of these commissions related to customers of IMPSAT Argentina.
In addition, royalties paid in connection with our licenses to governmental
entities increased to $1.5 million from $750,000 for the nine months ended
September 30, 1998. This increase was principally related to new
telecommunications regulations in Colombia that broadened the base of IMPSAT
Colombia's revenues upon which the royalties are levied.
Salaries, Wages and Benefits. Salaries, wages and benefits totaled $34.2
million, an increase of $7.7 million, or 29.1%, from the first nine months of
1998. The increase resulted primarily from:
- an increase in the number of employees, from 973 at September 30, 1998 to
1,133 at September 30, 1999, particularly in connection with the
commencement of operations at IMPSAT Brazil and Mandic and the
development of the Broadband Network in Argentina and Brazil
- increases in the salaries, wages and benefits of our personnel to match
market rates for personnel with the expertise we require and increases in
cost of living
IMPSAT Argentina incurred salaries, wages and benefits for the three and
nine months ended September 30, 1999 of $5.2 million and $14.5 million compared
to $4.1 million and $12.1 million for the same periods in 1998. Salaries, wages
and benefits for the first nine months of 1999 relating to the Broadband Network
totaled $0.7 million. Salaries, wages and benefits for the nine months ended
September 30, 1999 paid with respect to IMPSAT Brazil and Mandic totaled $3.2
million.
Leased Telecommunications Links Cost. Our leased telecommunication links
expenses totaled $31.2 million, which represented an increase of $10.9 million,
or 53.7%, from the corresponding period in
34
<PAGE> 35
1998. We had approximately 769 MHz of leased satellite capacity at September 30,
1999 and 560 MHz at September 30, 1998.
The expansion of our satellite capacity was primarily attributable to
contractually scheduled increases in satellite capacity to match anticipated
growth in customer demand. A portion of this increase was related to the growth
in our SCPC services compared to our VSAT services. SCPC earth stations use
larger amounts of satellite capacity than do VSAT microstations. However, we
have not needed as much satellite capacity as we contracted for, due to adverse
economic conditions in Latin America. As a result, our satellite capacity cost
as a percentage of revenues has increased substantially from prior periods.
In addition, to satisfy increasing customer demand for high bandwidth
telecommunications links, during the first nine months of 1999, we increased our
leased dedicated capacity on third-party fiber optic networks in Argentina,
spending $12.4 million compared to $8.0 million for the first nine months of
1998. Due to this need for greater fiber optic bandwidth, we expect our leased
telecommunication links expense to increase until we implement the Broadband
Network. Leased fiber optic capacity in Argentina is quite expensive due to the
very limited number of providers.
Selling, General and Administrative Expenses. We incurred SG&A expenses of
$46.6 million for the nine months ended September 30, 1999. SG&A expenses
increased $12.0 million, or 34.9%, from the nine months ended September 30,
1998. SG&A expenses at IMPSAT Argentina totaled $24.4 million, an increase of
$7.1 million, or 41.3%, from SG&A expenses incurred by IMPSAT Argentina for the
nine months ended September 30, 1998.
The increase in SG&A expenses reflects:
- the increase in our provision for doubtful accounts, discussed below
- increased SG&A expenses incurred by our two newest subsidiaries, IMPSAT
Brazil and Mandic, both of which commenced operations around the end of
the second quarter of 1998. SG&A expenses incurred by IMPSAT Brazil
totaled $4.1 million compared to $2.8 million in the corresponding period
in 1998. Mandic's SG&A expenses totaled $1.6 million compared to $1.3
million in the corresponding period in 1998.
- increased maintenance expenses for our various offices, which totaled
$3.3 million, compared to $2.6 million for the corresponding period in
1998
The increased SG&A expenses reflect growth in our operations, including the
development and implementation of the Broadband Network.
We recorded a provision for doubtful accounts of $14.7 million compared to
$6.3 million for the same period in 1998. At September 30, 1999, excluding
amounts owed by two large former customers (ENCOTESA, the former Argentine
national postal service that was privatized in 1997, and IBM de Argentina) that
are the subject of litigation, approximately 14% 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. See "Business -- Legal
Matters" for a description of these litigations.
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 September 30, 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
35
<PAGE> 36
affected by the recession in that country during the first nine months of 1999.
IMPSAT Argentina's average days outstanding for net trade receivables due was 86
days at September 30, 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 49 days at September 30, 1998.
Depreciation and Amortization. Our depreciation and amortization expenses
for the nine months ended September 30, 1999 totaled $88.1 million, an increase
of $61.6 million, or 232.0%, from the nine months ended September 30, 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 $42.0 million. This
consists of interest expense of $47.1 million and interest income of $5.1
million. Our net interest expense increased $11.7 million, or 38.8%, from net
interest expense for the nine months ended September 30, 1998.
The increase in our net interest expense reflects higher average
outstanding indebtedness in the first nine months of 1999 compared to the first
nine months of 1998 as a result of our issuance in June 1998 of $225 million
principal amount of 12 3/8% Senior Notes due 2008. For the first nine months of
1999, the average interest rate on our indebtedness was 11.9%, compared to an
average interest rate of 13.6% for the first nine months of 1998. Our total
indebtedness as of September 30, 1999 was $423.2 million, as compared to $431.9
million as of September 30, 1998. We anticipate that interest expense will
increase in the future based on expected increased levels of borrowing
associated with our development of the Broadband Network, including the two
financing agreements that we recently signed with Nortel for a total of up to
$297.4 million to construct the Broadband Network in Argentina and Brazil. See
"-- Liquidity and Capital Resources."
Net Loss on Foreign Exchange. We recorded a net loss on foreign exchange of
$9.5 million, compared to a net gain of $0.8 million for the corresponding
period in 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 $19.0 million compared to a
provision for income taxes of $2.4 million for the corresponding period in 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 in the third quarter of 1999 with respect
to some of our customer premises telecommunications equipment.
Comprehensive Loss. For the nine months ended September 30, 1999, we
incurred a comprehensive loss of $104.5 million, compared to a comprehensive
loss of $23.3 million for the nine months ended September 30, 1998. In addition
to the items described in the preceding paragraphs, the principal reasons for
the increase in our comprehensive loss as compared to prior periods related to:
- accrued dividends of $10.4 million on our preferred stock, compared to
$6.7 million during the first nine months of 1998
- the foreign currency translation adjustment loss of $3.5 million for the
first nine months of 1999 related to the effect of the devaluation of the
real on the stated carrying value of IMPSAT Brazil's and Mandic's
property, plant and equipment.
36
<PAGE> 37
1998 COMPARED TO 1997
Revenues. Revenues for 1998 totaled $208.1 million, compared to $161.1
million for 1997, representing a $47.0 million increase from revenues for 1997.
The following table shows our revenues by operating subsidiary for 1998 and
1997:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1997 1998
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
IMPSAT Argentina............................................ $90,790 $98,145
IMPSAT Colombia............................................. 49,513 59,903
IMPSAT Venezuela............................................ 8,607 14,865
IMPSAT Ecuador.............................................. 5,514 9,817
IMPSAT Mexico............................................... 1,427 4,344
IMPSAT Brazil............................................... -- 3,646
Mandic...................................................... -- 8,246
IMPSAT USA.................................................. 5,018 9,123
</TABLE>
The increase in IMPSAT Argentina's revenues in 1998 was primarily
attributable to increased revenues from Internet services, as described below.
Excluding customers of our Internet and our fax store and forward services,
we had a total of 1,467 customers at December 31, 1998, compared to 1,192
customers at December 31, 1997. During 1998, we commenced our operations in
Brazil. At December 31, 1998, IMPSAT Brazil had a total of 48 customers,
compared to 21 customers at the end of the second quarter of 1998.
Our net revenues in 1998 increased principally from growth in services
other than our VSAT based service offerings. For a description of our service
offerings, see "Business -- Existing Network Infrastructure." Revenues from VSAT
services during 1998 totaled $56.7 million, a decrease of $0.7 million, or 1.2%,
from 1997. As a percentage of our net revenues, revenues from VSAT services
declined to 27.3% for 1998 from 35.7% in 1997, reflecting downward pressure on
the prices for our VSAT services. Revenues from Dataplus services for 1998
totaled $45.7 million, an increase of $8.1 million, or 21.6%, from 1997.
In addition, our revenues from newer service offerings such as Internet and
Minidat increased significantly during 1998. Internet service revenues totaled
$21.1 million in 1998, as compared to $7.9 million for 1997. At December 31,
1998, we had in excess of 79,000 retail Internet customers and 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 $6.3 million, an
increase of $1.8 million, or 41.4%, from 1997. Revenues from Minidat services
for 1998 totaled $2.3 million compared to revenues of $17,000 in 1997. At
December 31, 1998, we had installed 763 Minidat microstations compared to
installations of 119 Minidat microstations at December 31, 1997.
In 1998, competitive pressures, including lower pricing, resulted in
relatively flat revenues from Argentina's non-value-added service offerings.
IMPSAT Argentina's revenues from VSAT and Dataplus services for 1998 totaled
$37.6 million and $23.5 million, respectively, an increase of $1.7 million, or
4.7%, and a decrease of $0.1 million, or 0.6%, from 1997.
As part of net revenues, we recorded revenues of $4.7 million from certain
equipment sales in 1998 and $3.1 million in 1997.
Variable Cost of Services. Our variable cost of services totaled $36.4
million, an increase of $9.0 million, or 33.1%, from 1997. Of total variable
cost of services for 1998, $17.9 million related to the operations of IMPSAT
Argentina and $8.2 million related to IMPSAT Colombia (compared to $14.6 million
at IMPSAT Argentina and $7.3 million at IMPSAT Colombia in 1997).
In 1998, our maintenance costs totaled $10.3 million, an increase of $0.1
million from 1997.
37
<PAGE> 38
In 1998, our installation costs totaled $7.6 million compared to $4.7
million in 1997.
Sales commissions paid to third party sales representatives totaled $6.8
million, compared to $5.7 million in 1997. Sales commissions increased in 1998
as a result of new private telecommunications network services contracts that we
obtained in 1998 through the use of third-party sales representatives.
In addition, we incurred costs of equipment sold of $3.7 million, compared
to $3.1 million in 1997.
Salaries, Wages and Benefits. Salaries, wages and benefits totaled $38.2
million, an increase of $9.1 million, or 31.2%, from 1997. We increased the
salaries, wages and benefits of our personnel to match market rates and
increases in 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, wages and benefits paid
with respect to IMPSAT Brazil and Mandic for 1998 totaled $3.6 million and $1.1
million, respectively. We maintained a total of 1,029 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, wages and benefits for 1998 relating to the Broadband Network totaled
$0.5 million.
Leased Telecommunications Links Cost. Our satellite lease payments totaled
$24.5 million, an increase of $5.3 million, or 27.4%, from 1997. IMPSAT
Argentina's satellite lease payments totaled $10.6 million, an increase of $1.0
million, or 10.6%, from 1997. We had approximately 792.5 MHz of leased satellite
capacity at December 31, 1998 and approximately 412.6 MHz at December 31, 1997.
The expansion of our satellite capacity was primarily attributable to
contractually scheduled increases in satellite capacity to match anticipated
growth in the total number of Dataplus earth stations which, because of their
greater transmission capacity and bandwidth requirements compared to VSAT, use
larger amounts of satellite capacity.
Selling, General and Administrative Expenses. We incurred SG&A expenses of
$45.2 million, an increase of $11.8 million, or 35.5%, compared to 1997. This
increase was principally due to the increase in our provision for doubtful
accounts discussed below and SG&A expenses incurred by our two new subsidiaries,
IMPSAT Brazil and Mandic.
SG&A expenses at IMPSAT Argentina totaled $20.4 million, a decrease of $0.5
million, or 2.6%, compared to 1997. SG&A expenses at IMPSAT Brazil and Mandic
for 1998 totaled $5.6 million and $2.2 million, respectively. We also incurred
SG&A expenses of $1.9 million in 1998 in connection with the Broadband Network.
On a company-wide basis, we recorded a provision for doubtful accounts of
$5.3 million, compared to $3.3 million in 1997, as a result of payment arrears
experienced by certain customers in Argentina, Colombia and Ecuador and our
change in policy for provisioning doubtful accounts. Of this amount, IMPSAT
Argentina recorded a provision for doubtful accounts of $3.5 million, in
comparison to a provision of $2.7 million in 1997. For more information
regarding this change, see "Risk Factors -- Our revenues will deteriorate if we
cannot collect on our customer accounts."
Our provision for doubtful accounts in 1998 included a provision of $0.6
million relating to amounts owed to IMPSAT Argentina by VideoCable
Comunicaciones S.A. (also known as VCC) under a contract pursuant to which VCC
had agreed to market IMPSAT Argentina's Internet access service to VCC's
customers. The VCC agreement was terminated on July 2, 1998. In February 1999,
we entered into an agreement with VCC for the payment by VCC of $1.0 million of
the total $1.6 million amount outstanding under this terminated contract.
Compared to 1997, the increase in our SG&A expenses also reflected a 141%
increase in entertainment, advertising and promotion costs to $7.0 million
compared to $2.9 million in 1997 relating to:
- our expansion of operations into Brazil
- promotion campaigns for our newer services, including Internet, Conexia
(electronic HMO benefit verification) and Telecampus (video conference
distance learning)
38
<PAGE> 39
- consultant fees relating to our exploration of a new public image
- related travel and entertainment expenses
In addition, the increase in our SG&A expenses reflected increased expenses for
legal, tax and consultancy advice ($7.1 million compared to $5.2 million for
1997) with respect to the financing and expansion of our operations, including
the acquisitions of IMPSAT Brazil and Mandic and the development of plans for
the Broadband Network.
Depreciation and Amortization. Our depreciation and amortization expense
totaled $36.9 million, representing an increase of $8.3 million, or 28.9%,
compared to 1997.
Interest Expense, Net. Our net interest expense totaled $44.7 million,
consisting of interest expense of $49.4 million and interest income of $4.7
million. Net interest expense for 1998 increased $20.4 million, or 84.2%, from
1997. The increase in net interest expense was primarily attributable to our
increased indebtedness, which increased from $220.1 million as of December 31,
1997 to $419.7 million as of December 31, 1998. This increased indebtedness
related primarily to our 12 3/8% note offering in June 1998. The average
interest rate on our indebtedness for 1998 was 14.0%, compared to 11.9% for
1997.
Provision for Income Taxes. We recorded a provision for income taxes of
$3.8 million, compared to $5.3 million for 1997. IMPSAT Argentina did not record
a provision for income taxes in 1998, compared to $3.2 million for 1997. This
reduction was attributable to carry-forward losses of Resis S.A., a wholly owned
subsidiary of the company that was merged into IMPSAT Argentina in November
1998, that IMPSAT Argentina used to offset its income tax liability in 1998.
Comprehensive Loss. We incurred a comprehensive loss of $34.5 million, an
increase of $26.9 million, compared to 1997. The principal reasons for the
increase were:
- the increase in our provision for doubtful accounts
- increased interest expense attributable to our increased indebtedness as
a result of our 12 3/8% note offering
- the incurrence of a comprehensive loss of $7.6 million by IMPSAT Brazil
in 1998
- the effect of accrued dividends of $10.0 million on the preferred stock
during 1998
1997 COMPARED TO 1996
Revenues. Revenues for 1997 totaled $161.1 million compared to $128.4
million for 1996, representing an increase of $32.7 million or 25.4%, from
revenues in 1996. The following table shows our revenues by operating subsidiary
for 1997 and 1996:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
1996 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
IMPSAT Argentina............................................ $85,148 $90,790
IMPSAT Colombia............................................. 35,278 49,513
IMPSAT Venezuela............................................ 4,496 8,607
IMPSAT Ecuador.............................................. 2,802 5,514
IMPSAT Mexico............................................... 198 1,427
IMPSAT USA.................................................. 471 5,018
</TABLE>
As part of its revenues during 1997, IMPSAT Argentina recorded revenues of
$2.2 million from certain equipment sales. The significant growth in IMPSAT
USA's revenues during 1997 was principally due to short-term, non-recurring
contracts entered into in 1997. Approximately 41% of IMPSAT USA's revenues for
1997 were derived from these short-term contracts.
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<PAGE> 40
Variable Cost of Services. Our variable cost of services totaled $27.3
million, an increase of $5.8 million, or 27.2%, from 1996. Of our total variable
cost of services for 1997, $14.6 million related to the operations of IMPSAT
Argentina and $7.3 million related to the operations of IMPSAT Colombia. This
compared to variable cost of services of $14.7 million at IMPSAT Argentina and
$5.6 million at IMPSAT Colombia for 1996.
Our maintenance costs totaled $12.5 million, representing a $4.0 million
increase from 1996. This increase was primarily attributable to the increased
level and amount of our telecommunications infrastructure in service as our
operations grew and expanded over time.
Maintenance costs for IMPSAT USA totaled $1.4 million, compared to $0.5
million in 1996. IMPSAT USA's maintenance costs for 1997 included fees paid to
third-party carriers to terminate the last mile of certain private
telecommunications network links provided by IMPSAT USA to some of its
customers. Maintenance costs in 1997 for other subsidiaries included:
- $5.8 million for IMPSAT Argentina, an increase of $1.3 million from 1996
- $4.5 million for IMPSAT Colombia, an increase of $1.2 million from 1996
Installation costs totaled $4.7 million compared to $2.2 million for 1996.
Sales commissions paid to third-party sales representatives totaled $5.9
million, compared to $8.9 million in 1996. The overwhelming amount of these
sales commissions were paid by IMPSAT Argentina, whose sales commissions totaled
$5.2 million compared to $8.3 million in 1996. We incurred lower sales
commissions for 1997 primarily because of the renegotiation of some of the
agreements with third-party sales representatives for lower commissions.
Commissions were also reduced as a result of the renegotiation of underlying
contracts with customers, which resulted in reduced sales bases underlying
contractually due commissions. For example, in the second quarter of 1997, the
renegotiation and reduction of services provided by IMPSAT Argentina to BNA
resulted in a reduction in the revenues from these services and a concomitant
reduction in related sales commissions to the third-party sales representatives
contracted with respect to these agreements.
In addition, we incurred costs of equipment sold of $2.8 million. We did
not incur any such costs during 1996. The cost of equipment sold during 1997
related to revenues recorded by IMPSAT Argentina and IMPSAT USA during the third
quarter of 1997 of $2.2 million and $0.9 million, respectively, as a result of
certain equipment sales.
Leased Telecommunications Links Cost. Our satellite lease payments totaled
$19.2 million, an increase of $5.3 million from 1996, primarily attributable to
an increase in the amount of capacity leased. We had approximately 253.0 MHz of
leased satellite capacity as of December 31, 1996 and 412.6 MHz as of December
31, 1997.
Salaries, Wages and Benefits. Salaries, wages and benefits totaled $29.1
million, an increase of $3.5 million, or 13.9%, from 1996. We increased the
salaries, wages and benefits of our personnel to match market rates and
increases in cost of living.
IMPSAT Argentina incurred $15.8 million in salaries, wages and benefits
costs, unchanged from 1996. In Colombia, salaries, wages and benefits costs
totaled $6.3 million, an increase of $1.3 million from 1996. The appreciation of
the Colombian peso against the U.S. dollar during 1997 resulted in an increase
in U.S. dollar terms in salaries, wages and benefits paid to employees of IMPSAT
Colombia during that period. Salaries, wages and benefits for our other
subsidiaries increased by varying amounts totaling $2.4 million from 1996. At
December 31, 1997, we had 669 employees compared to 650 employees at December
31, 1996.
Selling, General and Administrative Expenses. We incurred SG&A expenses of
$33.4 million, an increase of $10.3 million from 1996. This increase was
primarily attributable to an increase in SG&A expenses incurred by IMPSAT
Argentina and IMPSAT Colombia.
SG&A expenses at IMPSAT Argentina totaled $20.9 million, an increase of
$7.7 million from 1996. This increase was attributable in part to the creation
of a $2.5 million provision for doubtful accounts relating to
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<PAGE> 41
services invoiced to ENCOTESA. In addition, we increased our allowance for
doubtful accounts from $2.8 million at December 31, 1996 to $5.9 million at
December 31, 1997 as a result of payment arrears experienced by a number of
customers in Argentina. Our policy during 1997 was to reserve 30% for accounts
receivable in excess of 180 days but less than one year, and 100% for all
accounts receivable in excess of 360 days. In 1997, we provisioned $1.2 million
with respect to the IBM de Argentina receivable. As a percentage of total
revenues, our provision for doubtful accounts increased from 1.3% of total
revenues in 1996 to 3.5% of total revenues in 1997.
The increase in SG&A expenses in 1997 was also attributable to legal and
tax advice and other fees and expenses of $4.7 million, an increase of $1.1
million from 1996. These 1997 expenses were related to:
- legal fees incurred in connection with the legal proceeding commenced
against ENCOTESA described in "Business -- Legal Matters"
- our ongoing financing activities
- the conduct of preliminary feasibility assessments of the expansion of
our operations into Brazil
Depreciation and Amortization. Our depreciation and amortization expense
totaled $28.6 million, representing an increase of $2.4 million, or 9.0%, from
1996. In 1997, we adopted an improved inventory control system which enhanced
our ability to more accurately track and depreciate our equipment in service.
Interest Expense, Net. Our net interest expense totaled $24.3 million,
consisting of interest expense of $25.5 million and interest income of $1.3
million. Net interest expense increased $1.1 million, or 4.7%, from 1996. This
increase reflected primarily our increased indebtedness, which increased from
$199.1 million at December 31, 1996 to $220.1 million at December 31, 1997. The
average interest rate on our indebtedness was 11.9%, compared to 15.4% for 1996.
Provision for Income Taxes. We recorded a provision for income taxes of
$5.3 million, compared to $3.5 million for 1996.
- IMPSAT Argentina recorded a provision for income taxes for $3.2 million,
compared to $4.0 million in 1996
- IMPSAT Colombia recorded a provision for income taxes of $1.8 million,
compared to $1.5 million for 1996
- IMPSAT Venezuela recorded a provision for income taxes of $0.8 million,
compared to a credit of $1.7 million in 1996
Comprehensive Loss. We incurred a comprehensive loss of $7.6 million, a
decrease of $0.9 million, or 10.5%, from $8.5 million in 1996. IMPSAT Argentina
recorded a net loss of $3.2 million, compared to a net loss of $0.9 million for
1996. IMPSAT Colombia recorded net income of $8.4 million, an increase of $6.2
million compared to IMPSAT Colombia's net income for 1996.
LIQUIDITY AND CAPITAL RESOURCES
We will continue to make significant capital expenditures in the next
several years in connection with the Broadband Network, the further development
of our operations in Brazil and new customer accounts (for which we install our
equipment on customer premises). We also have, and will continue to have,
substantial interest expense.
At September 30, 1999, we had total cash and cash equivalents of $146.1
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
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<PAGE> 42
- 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"
Our budget contemplates that we will need approximately $350 million during
the period from September 30, 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 will 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 $23 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.
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), during the last
quarter of 1999 through the end of 2000, and significant amounts thereafter.
Subject to market conditions, we expect that we will incur substantial
additional indebtedness in the near and medium term to refinance amounts to be
borrowed from Nortel and Lucent and for the acquisition of additional capital
expenditures.
In the nine months ended September 30, 1999, our operating activities
generated $14.3 million compared with $22.3 million generated during the same
period in 1998. Financing activities, principally our issuance of common stock
to a subsidiary of British Telecommunications in April 1999, provided $122.8
million in net cash for the nine months ended September 30, 1999, compared with
$203.8 million for the nine months ended September 30, 1998, principally related
to our issuance of 12 3/8% notes in June 1998. During the nine months ended
September 30, 1999, we used $77.5 million (net) for investing activities,
compared to $96.6 million for the nine months ended September 30, 1998. We had a
cash balance of $146.1 million as of September 30, 1999.
At September 30, 1999, we had leased satellite capacity with annual rental
commitments of approximately $26.0 million through the year 2003. In addition,
we had commitments to purchase telecommunications equipment amounting to
approximately $14.6 million.
YEAR 2000
The year 2000 problem refers to the failure of installed computerized
systems and software products to recognize or accept four digit date entries. In
this case, systems that have date-sensitive features might, for example,
recognize a date using "00" as the year 1900 rather than the year 2000. This
problem could cause malfunctions in certain computer systems, software and
databases with respect to dates on or after January 1, 2000, unless corrected.
Our equipment and operational systems were reviewed and, where required,
detailed plans have been 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.
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<PAGE> 43
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
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Telecommunications Services to demonopolize their telecommunications industry
within varying time frames that began in February 1998.
Argentina's telecommunications sector was privatized in 1990 when Empresa
Nacional de Telecomunicaciones, the then state-owned entity, was split into two
regional monopolies. The Argentine government 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
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be 0.8% of the population of the Latin American markets in which we
operate for 1997 and is forecast to reach approximately 4% by 2002. From
1993 to 1998, available data indicates that the number of Internet hosts
based in the Latin American markets in which we operate increased from
approximately 7,500 to over 340,000.
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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<PAGE> 47
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.
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 as large
government entities such as BNA and the Government of the Province of
Buenos Aires. This
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<PAGE> 48
customer base has grown from 125 in 1992 to 1,467 in 1998. We intend to
continue to grow with our customers as they expand into other Latin
American countries and as they increase use of bandwidth-intensive
services.
- 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. In March 1998, the Morgan Stanley investors
purchased 100% of our outstanding preferred stock, and, in April 1999,
British Telecommunications invested in our common stock. The Morgan
Stanley investors and British Telecommunications have each appointed two
members to our board of directors. Immediately after this offering and
the simultaneous issuance to British Telecommunications of an additional
2,850,000 shares of our common stock, the Morgan Stanley investors will
own approximately 16.3% and British Telecommunications will own
approximately 18.8% 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 1998:
- our business customer base grew from 125 customers in two countries to
1,467 customers in seven countries
- property, plant and equipment grew from $47.9 million to $330.7 million
- total consolidated revenues grew from $20.5 million to $208.1 million
- EBITDA grew from $7.9 million to $63.8 million
BUSINESS STRATEGY
We intend to maintain and enhance our market leadership position by:
- EXPANDING AND ENHANCING OUR SERVICE OFFERINGS THROUGH OUR BROADBAND
NETWORK. We are developing and implementing new service offerings that
include high-speed Internet access, intranet and extranet service,
e-commerce and other high-bandwidth broadband telecommunications
services. We also plan to take advantage of other revenue opportunities
that we expect to continue to develop as a result of deregulation,
including domestic long-distance and international switched voice
telecommunications
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<PAGE> 49
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.
- 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
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- offer Latin American companies more efficient access to the U.S. Internet
backbone
- continue to provide consistent, high quality service by keeping our
customer traffic on our networks
When fully developed and implemented, our Latin American "information
highway" will provide a proprietary fiber optic link among the major cities in
the Latin American countries that we serve, thereby complementing our existing
fiber optic, satellite and wireless networks. Upon completion, we expect that
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
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- network infrastructure and configuration planning and engineering
- formulation of network quality and performance specifications
- compilation of network testing procedures and protocols
- preparation of network maintenance and operations plans and procedures
On October 25, 1999 we signed agreements with Nortel to borrow up to $297.4
million from Nortel to finance this project and to purchase related equipment
from Nortel. We have completed the installation of more than 90% 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 will purchase from Global Crossing
indefeasible rights of use of capacity valued at not less than $46 million on
any of Global Crossing's fiber optic cable networks worldwide. These rights
should enable us to interconnect our networks 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.
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- Internet protocol technologies, which will enable us to offer Internet,
intranet, extranet and voice services and virtual private data networks.
- Asynchronous Transfer Mode technology, which will allow us to provide low
latency switching services and support for multiple telecommunications
protocols, including traditional time division multiplexing (TDM), frame
relay and Internet protocol.
THE IMPSAT SOLUTION
Our comprehensive telecommunications solutions consist of any combination
of our service offerings and will consist of services which we intend to offer
following the completion of the Broadband Network in 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.
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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.
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 September 30, 1999, we had 4,476 VSAT
microstations installed in Latin America.
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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 September 30, 1999,
we had a total of 765 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 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 September 30, 1999, we had a total of 1,186
Dataplus earth stations and 371 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
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telecommunication system. We provide these services under the Teledatos brand
name. The following diagram illustrates the configuration of an IMPSAT
metropolitan area network:
[CHART OF METROPOLITAN AREA NETWORK]
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 September 30, 1999, there were a total of 7,632 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.
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
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network. The teleport transmits the information to the VSAT receptors via
satellite. At September 30, 1999, we had installed 373 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. Our agreement with Global Crossing provides, among other
things, for our purchase of indefeasible rights of use of capacity valued at not
less than $46 million on any of Global Crossing's undersea digital fiber optic
cable systems (and associated terrestrial capacity) worldwide, including Global
Crossing's South American network. Global Crossing's South American network,
which is currently under development, is an 18,000 km undersea and terrestrial
fiber optic network that will encircle that continent. We have agreed to
construct the terrestrial portion of the South American network pursuant to a
turnkey construction agreement 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 September 30, 1999, we had a total
available leased capacity of 769 MHz, 718 MHz of which we are using in the
following manner:
- a total of 365 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 40 MHz,
which expires in 2008
- 66 MHz of capacity on Brasilsat, which expires in 2002
- 113 MHz of capacity on Nahuelsat's Nahuel-1 satellite, which expires
between January 2002 and August 2003
- 63 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)
- 65 MHz of capacity on PanAmSat's PAS-5 satellite, which expires between
the end of 2003 and January 2009
- 5 MHz of capacity on Mexico's Solidaridad-II satellite, which expires in
January 2002
Our lease payments for satellite capacity totaled approximately $24.5
million in 1998 and $25.6 million during the first nine months of 1999.
We will contract for additional leased satellite capacity as business
requires. A portion of our satellite capacity is leased by our wholly owned
subsidiary, International Satellite Capacity Holding, NG. This subsidiary's
principal function is to lease private satellite capacity from satellite
carriers and then sublease this
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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 1,707 corporate customers in seven countries
at September 30, 1999. Larger entities, which often have significant needs for
reliable, cost-effective data transmissions and other telecommunications
services, were the first to use our customized telecommunications services. As a
result, a significant portion of our revenues has been derived from our largest
customers. In addition, because of our relatively short operating history
outside of Argentina and 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 17.3% of our revenues in 1998 and approximately 18.1% in 1997.
Our ten largest customers as of December 31, 1998 were:
- the Government of the Province of Buenos Aires
- BNA, a state-owned bank and the largest bank in Argentina, with over 500
branches throughout Argentina
- Banco de Galicia y Buenos Aires, a private bank with more than 180
branches in Argentina
- YPF/Repsol, an integrated oil company that is one of the largest
companies in Argentina
- BanColombia S.A., a private bank headquartered in Bogota, Colombia and
the largest commercial bank in Colombia
- Integrated Services International, a telecommunications services company
based in the United States
- Perez Companc S.A., an Argentine energy conglomerate
- SECAB, the administrator of government funds for Colombia's National
Learning Service
- The Mercer Management Group, Inc., a management consulting firm based in
the United States
- Concasa, one of Colombia's largest savings and loan corporations
The following table shows our customer concentration by country as of the
dates indicated. Totals presented do not include customers from our Internet
service and fax, store and forward service.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF SEPTEMBER 30,
----------------------------- -----------------------------
COUNTRY 1997 1998 1998 1999
- ------- ------------- ------------- ------------- -------------
(NUMBER OF CUSTOMERS AND PERCENTAGE OF TOTAL)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Argentina........................ 439 36.8% 490 33.4% 484 34.6% 660 38.7%
Colombia......................... 524 44.0 602 41.0 573 41.0 571 33.5
Venezuela........................ 102 8.5 140 9.5 123 8.8 180 10.5
Ecuador.......................... 96 8.1 134 9.1 133 9.5 144 8.4
Mexico........................... 16 1.3 28 1.9 26 1.9 28 1.6
USA.............................. 15 1.3 25 1.7 23 1.6 39 2.3
Brazil........................... -- -- 48 3.4 36 2.6 85 5.0
----- ----- ----- ----- ----- ----- ----- -----
Total.................. 1,192 100.0% 1,467 100.0% 1,398 100.0% 1,707 100.0%
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
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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 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.
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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 such as COMSAT Corp. and local data transmission
providers. Many of these competitors also operate VSAT systems. We believe that
we are able to compete successfully in data transmission services because we
offer a broad array of services and provide high quality, custom-designed
services that are tailored to meet the specific needs of each customer. Among
our competitors in this category are a number of new market entrants, including:
- Diginet, 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
- NetStream, an established fiber optic network service provider that AT&T
recently agreed to acquire 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, global alliances have been formed by major
telecommunications carriers as deregulation in Latin America and elsewhere opens
new market opportunities. For example, Spain's Telefonica and MCI WorldCom have
announced the formation of an alliance to cooperate in Latin America and
elsewhere, through joint ventures and equity holdings in each other's
subsidiaries. We believe that increasing competition will significantly affect
our pricing policies. We cannot assure you that competition
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from these alliances will not adversely affect our financial condition or
results of operations. See "Risk Factors -- We face significant competition in
Latin America." The competition we face in each of our countries of operation is
described in the "-- Description of Country Operations" section below.
Furthermore, we cannot assure you that competing technologies will not
become available that will negatively affect our position, although we believe
that we have the flexibility to act quickly to take advantage of any significant
technological development. For example, new technologies such as ADSL can
significantly enhance the speed of traditional copper lines. These technologies
could enable our PTO competitors to offer customers new high speed services
without undergoing the expense of replacing their existing twisted-pair copper
networks. This, in turn, could negate our last mile advantage. Our private
telecommunications services could also face future competition from entities
using or proposing to use new or emerging voice and data 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 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,
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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 September 30, 1999, we employed a total of 1,133 persons, of whom 322
were employed by IMPSAT Argentina and 225 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 and
into new countries, including as a result of our development of the Broadband
Network. We do not have any long-term employment contracts with any of our
employees, including management, and none of our employees are members of any
union. We believe that our relations with our employees are good.
LEGAL MATTERS
We are involved in or subject to various litigation and legal proceedings
incidental to the normal conduct of our business, including with respect to
regulatory matters.
Prior to 1998, our fourth largest customer in Argentina was ENCOTESA, the
Argentine official postal service. In September 1997, the official postal
service in Argentina was privatized and its operations were succeeded to by
Correo Argentino S.A., the entity formed by a private consortium to acquire and
operate the Argentine postal system. In accordance with the privatization
structure, neither IMPSAT Argentina's accounts receivable nor the contract with
ENCOTESA were assumed by Correo Argentino, and the obligations under IMPSAT
Argentina's contracts with ENCOTESA were retained by the Argentine Government.
In November 1996, IMPSAT Argentina filed suit against ENCOTESA for amounts due
under IMPSAT Argentina's contracts with ENCOTESA totaling $5.6 million, plus
interest from the date of invoice. On December 27, 1996, ENCOTESA filed its
reply to IMPSAT Argentina's claim. The court has not yet ruled upon IMPSAT
Argentina's claim against ENCOTESA. IMPSAT Argentina has held and continues to
hold discussions and negotiations with the Argentine Government regarding the
settlement and payment of the amounts claimed against ENCOTESA. IMPSAT
Argentina, based on the advice of its Argentine counsel, had reclassified its
trade accounts receivable under the ENCOTESA receivables as noncurrent assets at
their estimated net realizable value. At September 30, 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 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. The payment of the receivable by BNA to IBM
de Argentina is subject to the approval of the Supreme Court of Argentina, which
is adjudicating an audit of the procedures used by BNA in awarding the contract.
On December 14, 1998, IMPSAT Argentina filed suit against IBM de Argentina for
amounts due and arising under IMPSAT Argentina's contract with IBM de Argentina
totaling $2.2 million, plus interest from the date of invoice.
DESCRIPTION OF COUNTRY OPERATIONS
The following are brief descriptions of certain specific matters relating
to the operations of our subsidiaries in Argentina, Venezuela, Colombia,
Ecuador, the United States, Brazil and Mexico.
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IMPSAT ARGENTINA
IMPSAT Argentina, our first subsidiary, was established in 1988 and began
commercial operations in 1990. We own a 95.2% equity interest in IMPSAT
Argentina. We have reached an agreement with Credit Suisse, the owner of the
4.8% minority interest in IMPSAT Argentina, to exchange that interest for
770,786 shares of our common stock.
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 September 30,
1999, we had installed approximately 2,715 VSAT microstations and 539 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 September 30, 1999, IMPSAT Argentina had 660 customers. Financial
institution customers provided approximately 37.0% of IMPSAT Argentina's
revenues during 1998. The second largest sector of IMPSAT Argentina's customer
base consists of industrial and manufacturing companies, which represented
approximately 29.2% of its revenues during 1998. IMPSAT Argentina's largest
customers during 1998 included:
- Gobierno de la Provincia de Buenos Aires (6.0% of IMPSAT Argentina's 1998
revenues)
- BNA (5.0% of IMPSAT Argentina's 1998 revenues)
- Banco de Galicia y Buenos Aires (4.7% of IMPSAT Argentina's 1998
revenues)
- YPF/Repsol (4.3% of IMPSAT Argentina's 1998 revenues)
Revenues from IMPSAT Argentina's top ten customers accounted for
approximately 31.1% of IMPSAT Argentina's revenues during 1998 and approximately
30.3% for the first nine months of 1999.
IMPSAT Argentina is a leader in data transmission services in Argentina and
estimates that in 1998 it had over 37% market share based on revenues. Our
principal competitors in Argentina include Telecom Soluciones, Advance
Telecomunicaciones and COMSAT Argentina S.A., a wholly owned subsidiary of
COMSAT.
In May 1999, IMPSAT Argentina entered into a distribution agreement and a
supply agreement with Concert 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
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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 74.2% equity
interest in IMPSAT Colombia. Other principal stockholders of IMPSAT Colombia are
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 together hold a 24.6% equity interest in IMPSAT Colombia. We
have reached an agreement with the Suramericana Group to exchange their 24.6%
minority interest in IMPSAT Colombia for shares of our common stock. Sindicato
Antioqueno, formed in Medellin, Colombia in the mid-1970s, is a group of over
100 financial services, food, textile and apparel, construction and real estate
companies related through cross-ownerships and interlocking directorates. Member
companies of the Sindicato Antioqueno include BanColombia, the largest
commercial bank in Colombia; Cementos Argos, Colombia's largest cement
manufacturer; and Nacional de Chocolates, one of Colombia's largest food
processing firms. We refer to Suramericana de Seguros, Suramericana de
Capitalizacion and all other entities affiliated with the Sindicato Antioqueno
as the Suramericana Group.
We provide our portfolio of services in Colombia through fiber optic,
wireless and satellite networks. Our principal transmission facilities in
Colombia include the teleport and Teledatos network in Bogota and regional
teleports and Teledatos networks located in Medellin, Cali and Barranquilla. Our
Teledatos network in Bogota is provided through a joint venture with ETB, the
Colombian PTO that provides local telephone service in the Bogota region. Under
the terms of the joint venture, ETB provides the fiber optic infrastructure for
the network, while IMPSAT Colombia provides multiplexing equipment and terminal
equipment on customer premises, controls and monitors the network, provides
technical support and sells network services to customers. We also own and
operate a 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 September 30, 1999, IMPSAT Colombia had approximately 983 VSAT
microstations and
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351 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 September 30, 1999, IMPSAT Colombia had 571 customers. Financial
institutions provided approximately 48% of IMPSAT Colombia's revenues for 1998.
The second largest sector of IMPSAT Colombia's customer base is composed of
manufacturing companies (including oil companies) which provided approximately
27% of IMPSAT Colombia's revenues for 1998. IMPSAT Colombia's largest customers
during 1998 included:
- BanColombia
- SECAB, the administrator of government funds for Colombia's National
Learning Service
- Concasa, a savings and loan corporation
- Corporacion Nacional de Ahorro y Vivienda, one of Colombia's largest
financial institutions and a member of the Suramericana Group
- Banco de la Republica, the central bank of Colombia
- Bancafe, a large financial institution
Revenues from IMPSAT Colombia's top ten customers accounted for
approximately 30% of IMPSAT Colombia's revenues for 1998 and approximately 29.3%
for the first nine months of 1999.
In March 1999, we signed an eight-year agreement with the Ardila Lulle
Organization, the fourth largest conglomerate in Colombia. Ardila Lulle's
businesses are in industries such as bottling, textiles and media. We 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 September 30, 1999, we believe that we were a leader in terms of market
share in Colombia in VSAT and data transmission services. Our principal
competitors in Colombia are:
- Telecom Colombia, a state owned PTO
- Colomsat, S.A., a privately owned provider of facsimile, data and voice
transmission services
- Telegan, a provider of VSAT services 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.
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
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- in November 1997, an authorization to use satellite capacity on Intelsat
satellites
- in August 1998, a license that permits it to operate as a national
telecommunications carrier for a term of ten years
The licenses and authorizations may be renewed so long as IMPSAT Colombia
complies with the terms and conditions of the licenses and authorizations and
any applicable laws and regulations. The licenses and authorizations permit
IMPSAT Colombia to engage in digital voice, data and video transmission
services, the provision of value added services such as fax store and forward
and electronic mail and Internet access services, and authorizes use by IMPSAT
Colombia of radio frequencies and satellite links in Colombia necessary to
provide such services. IMPSAT Colombia is prohibited by the terms of the
licenses and authorizations from connecting to the Colombian public
telecommunications network for purposes of reselling voice communications.
IMPSAT Colombia is required to pay taxes in an amount equal to 3% of its
gross revenues, less payments to terrestrial telecommunications providers, to
the Ministry of Communications.
IMPSAT VENEZUELA
IMPSAT Venezuela began operations in January 1993. We hold a 75% equity
interest in IMPSAT Venezuela and the remaining 25% is held by the Suramericana
Group. We have reached an agreement with the Suramericana Group to exchange
their 25% minority interest in IMPSAT Venezuela for shares of our common stock.
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 September 30, 1999 we had 621 VSAT microstations and 135 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 September 30, 1999, IMPSAT Venezuela had 180 customers. IMPSAT
Venezuela's largest customers are generally large national and multinational
corporations. IMPSAT Venezuela's largest customers during 1998 included:
- Banco Mercantil SAICA, one of Venezuela's largest commercial banks
- Reacciun, a national academic telecommunications network
- Cadenas de Tiendas Venezolanas, S.A., one of Venezuela's largest retail
department stores and supermarket chains
- Corporacion Andina de Fomento, a multilateral development bank
- Nabisco de Venezuela C.A., a subsidiary of multinational food and tobacco
conglomerate RJR Nabisco Holdings Corp.
- Instituto Nacional de Hipodromos, a horse racing track
- Compania Occidental de Hidrocarburos, Inc., a subsidiary of Occidental
Petroleum Corp.
Revenues from IMPSAT Venezuela's top ten customers accounted for
approximately 52% of IMPSAT Venezuela's revenues for 1998 and approximately
56.0% for the first nine months of 1999.
Banco Mercantil, which has more than 300 agencies throughout the country
and 15 agencies abroad, is one of the largest banks in Venezuela. Banco
Mercantil became IMPSAT Venezuela's customer in 1994 when it contracted for
three Interplus links. Since then, Banco Mercantil has steadily expanded the
quantity and
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range of private telecommunications network services it contracts from us. The
services we currently provide to Banco Mercantil represent monthly revenues of
approximately $152,000. In May 1999, after a competitive bidding process, IMPSAT
Venezuela was selected to provide the outsourcing of almost all of the private
telecommunications network needs of Banco Mercantil. Participants in this
bidding process included CANTV and Bantel, two of IMPSAT Venezuela's principal
competitors. We expect to complete our implementation of the Banco Mercantil
network during the second quarter of 2000. Our projection of the monthly revenue
of this new contract upon its full implementation is approximately $440,000.
IMPSAT Venezuela estimates that it had approximately 21% market share in
data transmission services based on revenues during 1998. Our principal
competitors in Venezuela include Compania Anonima Nacional de Telefonos de
Venezuela (CANTV), the Venezuelan PTO which is operated by a consortium led by
GTE Corporation; MCI WorldCom, which provides, data transmission and value-added
services; T-Data, the data transmission and Internet services division of
Telcel, one of Venezuela's two cellular telephone providers; and Bantel, which
provides data and voice transmission services.
The Venezuelan telecommunications industry is regulated by CONATEL, which
is under the jurisdiction of the Ministry of 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 1998 and the first nine months of 1999, this stipulated portion
of its gross revenues represented approximately 47.4% and 45.7%, respectively,
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.
As of September 30, 1999, IMPSAT Ecuador had approximately 144 customers.
Industrial and commercial companies provided approximately 54%, and governmental
entities and banks and financial institutions provided approximately 46% of
IMPSAT Ecuador's revenues for 1998.
At December 31, 1998, IMPSAT Ecuador's largest customers included Banco del
Pichincha, one of the largest Ecuadoran banks; Aduanas, the Ecuadoran customs
agency; Diners Club del Ecuador, a leading credit card company and Banco la
Previsora, another of Ecuador's largest banks. In addition, we provide
international telecommunications services for the regional PTO located in the
city of Cuenca. Revenues from
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IMPSAT Ecuador's top ten customers accounted for approximately 40% of its
revenues for 1998 and approximately 38.5% for the first nine months of 1999.
We believe that we are a leading provider of data transmission services in
Ecuador with a 46% market share based on revenues for 1998. Our principal
competitors in Ecuador include:
- Andinatel and Pacifictel, Ecuadoran state-owned PTOs
- Suratel, S.A., which provides national and international SCPC and voice
services
- Consorcio Ecuatoriano de Telecomunicaciones S.A., which provides national
and international SCPC services and cellular telephony
- Ram Telecom Telecomunicaciones S.A., which provides national SCPC
services
The telecommunications industry in Ecuador is regulated by the Consejo
Nacional de Telecomunicaciones and the Secretaria Nacional de Telecomunicaciones
and is under the control and supervision of the Superintendencia de
Telecomunicaciones.
In June 1994, IMPSAT Ecuador obtained a 15-year license to provide data,
voice and video transmission services so long as it does not use the installed
networks owned by the Ecuadoran PTOs or any other company granted a monopoly for
the provision of fixed telephony services. The license authorizes the
installation, operation and exploitation by IMPSAT Ecuador of a satellite system
to offer national and international information transmission services, including
the construction of two teleports (in Quito and Guayaquil), VSAT microstations
and Dataplus earth stations. IMPSAT Ecuador is required to pay an annual fee
equal to 6% of certain of its revenues, which historically has represented
approximately half of IMPSAT Ecuador's revenues.
In March 1998, Secretaria Nacional de Telecomunicaciones granted IMPSAT
Ecuador a ten-year renewable license to provide value-added services. Included
in the value-added services that IMPSAT Ecuador may offer are Internet services.
IMPSAT USA
Our wholly owned subsidiary, IMPSAT USA, began offering international
private line services between Latin America and North America in February 1996.
IMPSAT USA operates an owned teleport in Wilton Manors, Florida and has
leased teleport facilities in New Jersey.
IMPSAT USA targets corporate, ISP and telecommunications carrier customers.
IMPSAT USA's corporate sales efforts focus on providing multinational
corporations with extensive voice and data telecommunications needs, which are
the primary end-users in the U.S./Latin American market for international
private-line services. IMPSAT USA offers Internet services to Latin American
ISPs and its telecommunications carrier services are provided to international
long-distance carriers. As of September 30, 1999, IMPSAT USA was providing
services to 39 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 that include CMET (Chile),
Metrocall (Panama), T-Net (Venezuela), Netsys (Honduras) and Inter Red
(Colombia).
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As part of its telecommunications carrier services, IMPSAT USA provides MCI
Global Resources, Inc. with circuits from Florida to MCI WorldCom customer
locations in Honduras and Colombia.
IMPSAT USA expects intense competition in the market for international
private line services between the United States and Latin America. This
competition is expected to come primarily from the large long-distance carriers
(AT&T, MCI WorldCom and Sprint) and Latin American PTOs, as well as from
alternative regional carriers. We believe IMPSAT USA can compete effectively by
offering better end-to-end customer service and quality assurance in Latin
America through its regional knowledge and in-country contacts using IMPSAT
sister companies.
The Federal Communications Commission exercises exclusive U.S. jurisdiction
over all facilities and services of telecommunications carriers to the extent
they are used for interstate or international communications. In 1995, IMPSAT
USA received authorization from the FCC to provide facilities-based
telecommunications services, including switched voice and data and private line
services, between the United States and various international points using
certain international satellite facilities. In connection with these services,
IMPSAT USA is also authorized to lease and operate any necessary U.S. connecting
facilities.
In 1997, the FCC authorized IMPSAT USA to resell telecommunications
services of other international carriers between the United States and various
international points and to operate as an international, facilities-based resale
carrier.
IMPSAT BRAZIL
IMPSAT Brazil was established to apply for a value-added telecommunications
license in Brazil and to develop this business in Brazil. We have a 99.9%
ownership interest in IMPSAT Brazil. IMPSAT Brazil is headquartered in Sao Paulo
and has offices in Rio de Janeiro, Curitiba, Belo Horizonte and Brasilia.
We provide our portfolio of services using satellite capacity subleased
from Embratel. Last mile solutions in metropolitan areas are anticipated
initially to be delivered through wireless and fiber optic links leased from
local PTOs. IMPSAT Brazil operates its network through two teleports located in
Sao Paulo and Curitiba. A teleport is currently under development in Rio de
Janeiro, and we may construct additional teleports in other Brazilian cities.
Our operations in Brazil use the C-bands and Ku-bands on Brazilsat, PanAmSat,
Intelsat and Nahuel satellites.
At September 30, 1999, IMPSAT Brazil had a total of 85 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.
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
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- NetStream, a fiber optic network service provider that AT&T recently
agreed to acquire 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, value-added services may not be
provided in Brazil without prior governmental authorization. In January 1998,
ANATEL granted IMPSAT Brazil a ten-year license to 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.
As of September 30, 1999, IMPSAT Mexico had 28 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.
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<PAGE> 70
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. The holders of
our preferred stock have had, since the issuance thereof, the right to vote as a
separate class to elect two directors. Mr. Stephen Munger and Mr. Jeronimo Bosch
serve in this capacity. In connection with our $125 million equity offering to
Nunsgate Limited, a wholly owned subsidiary of British Telecommunications,
British Telecommunications has the right to elect two of our directors. Mr.
Geoffrey Almeida and Mr. John McElligott serve in this capacity.
Our president is elected at our annual meeting of stockholders. The other
officers are elected at the annual meetings of our board of directors. All
officers hold office until their successors are elected and qualified, or until
their earlier death, resignation or removal. No family relationship exists among
any of the directors or executive officers, except that Lucas Pescarmona and
Sofia Pescarmona, both directors of our company, are the children of Enrique M.
Pescarmona, the Chairman of our board of directors.
Set forth below are the names, ages and positions of directors and
executive officers as of 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
Marcelo Girotti............................ 34 President of IMPSAT Argentina
Mariano Torre Gomez........................ 48 President of IMPSAT Colombia
Mauricio Ceballos.......................... 35 President of IMPSAT Venezuela
Heliodoro Londono.......................... 42 President of IMPSAT Mexico
Rodolfo Arroyo............................. 39 President of IMPSAT Ecuador
Mauricio G. Klau........................... 36 President of IMPSAT USA
Daniel V. Hourquescos...................... 47 President of IMPSAT Brazil
</TABLE>
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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
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 served in a number of management positions with IMPSA from 1976 to
1988, including as manager of the contracts and construction department and
manager of the commercial department. Mr. Verdaguer is also a Director of El
Sitio, Inc. an Internet content provider.
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
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department. He became a Principal in 1990 and a Managing Director in 1993. Mr.
Munger has been a member of the board of directors of Destia Communications,
Inc. since November 1997 and 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, 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.
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Jaime Vinocur has been our Vice President, Project Execution since
September 1998. Previously, Mr. Vinocur held several managerial positions,
including Senior Project Manager, at Techint, a leading Argentine construction
company. During his 26 year tenure at Techint, Mr. Vinocur acquired extensive
experience in the deployment of infrastructure for utility and
telecommunications companies.
Marcelo Girotti has been President of IMPSAT Argentina since August 1998.
Mr. Girotti joined IMPSAT Argentina in 1992 where he has held several managerial
positions, including Business Manager of the Interior Unit from 1992 to 1996,
Manager of Special Accounts from 1996 to 1997 and Business Manager of the
value-added unit from 1997 to 1998.
Mariano Torre Gomez has been President of IMPSAT Colombia since July 1999.
Mr. Torre was President of IMPSAT Venezuela from April 1997 to July 1999. Mr.
Torre has served in a variety of positions involving engineering, production,
planning, business development and new markets for companies in the Pescarmona
group over a period of 17 years. Mr. Torre was President of IMPSAT Ecuador for
two years prior to his transfer to IMPSAT Venezuela. Before that, Mr. Torre
served four years at IMPSAT Argentina in the commercial and new licenses
departments.
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.
Rodolfo Arroyo has been President of IMPSAT Ecuador since March 1997, after
joining IMPSAT Ecuador as a general manager in April 1996. From the end of 1991
until April 1996, Mr. Arroyo was employed in several different capacities at
IMPSAT Colombia, including Vice President, planning and control and vice
president, operations. Prior to joining IMPSAT, Mr. Arroyo was a projects
manager at IMPSA from July 1988 until December 1991.
Mauricio Gabriel Klau has been President of IMPSAT USA since November 1998.
Mr. Klau was president of IMPSAT Mexico from June 1997 to November 1998. Mr.
Klau has also held several positions within IMPSAT Argentina and IMPSAT Mexico
since he first joined the company in 1990.
Daniel V. Hourquescos has been President of IMPSAT Brazil since March 1997.
Since 1990, Mr. Horquescos has held several positions in IMPSAT, including
General Manager of IMPSAT Argentina from March 1993 to April 1995. Prior to
joining IMPSAT Argentina, Mr. Hourquescos served as Director of Information
Services of Direccion General Impositiva, the former Argentine governmental
agency charged with the collection of taxes.
COMMITTEES OF THE BOARD OF DIRECTORS
On December 21, 1998, we established a stock option committee. The stock
option committee 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 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
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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 the directors
nominated by the Morgan Stanley investors and Nunsgate Limited for any expenses
incurred by them in connection with their services as directors.
EXECUTIVE COMPENSATION
Summary Compensation Table. The following tables set forth the compensation
paid or accrued to our chief executive officer and each of our four other most
highly compensated executive officers receiving compensation in excess of
$100,000 per year during each of the three years presented. No bonuses were paid
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 --(2) 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(2) (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
The following table provides information on option exercises in 1999 by the
each of the executive officers named in the summary compensation table above and
the value of those officers' unexercised options as of December 31, 1999. As our
stock is not publicly traded, a readily ascertainable market value is not
available. For purposes of this table, "exercise" means an employee's
acquisition of shares of common stock pursuant to stock option grants,
"exercisable" means options to purchase shares of common stock that are subject
to exercise and "unexercisable" means all other options to purchase shares of
common stock. No options were exercised during 1999. To calculate value of
unexercised in-the-money options at fiscal year end, we used the initial public
offering price of $14 per share, which is the midpoint of the range set forth on
the cover page of this prospectus per share minus the per share exercise price,
multiplied by the number of shares issuable upon exercise.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
ACQUIRED OPTIONS AT FISCAL YEAR-END FISCAL YEAR-END
ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Enrique M. Pescarmona......... -- -- 5,920 100,644 $ 33,270 $ 565,619
Ricardo A. Verdaguer.......... -- -- 5,920 100,644 33,270 565,619
Roberto Vivo.................. -- -- 4,736 80,515 26,616 452,494
Hector Alonso................. -- -- 3,437 58,370 19,316 328,039
Daniel Hourquescos............ -- -- 1,895 32,206 10,650 180,998
</TABLE>
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
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<PAGE> 77
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
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 of which this prospectus is a part. 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 Princes Gate's designee to 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 1998, we paid commissions to
Morgan Stanley in connection with their placement of our $225 million of 12 3/8%
notes. The Morgan Stanley investors have informed us that they plan to exercise
their rights to convert 19,848 shares of preferred stock into 14,917,915 shares
of our common stock upon the closing of this offering. The 14,917,915 shares of
common stock that will be held by the Morgan Stanley investors when their shares
of our preferred stock are converted upon completion of this offering will be
entitled to certain registration rights. See "Underwriters." We plan to use a
portion of the proceeds of this offering to redeem the shares of our preferred
stock remaining outstanding after the Morgan Stanley investors exercise their
conversion rights. See "Use of Proceeds."
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<PAGE> 78
Pursuant to the terms of the Securityholders Agreement between Nevasa
Holdings and the Morgan Stanley investors dated as of March 19, 1998, for so
long as any Morgan Stanley investors beneficially own a majority of the shares
of our preferred stock outstanding on their date of issuance, any material
amendment or change of the compensation arrangements of our chief executive
officer, chief financial officer, deputy chief executive officer or chief
operating officer must be approved by the designees of the Morgan Stanley
investors to our board of directors. Upon the conversion of the shares of
preferred stock upon the closing of the offering, the Morgan Stanley investors
will no longer have this approval right.
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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<PAGE> 79
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 a 15.4% 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 1998 and the first
nine months of 1999 to:
- companies in which CORIM or members of the Pescarmona family have an
interest totaled approximately $2.1 million
- El Sitio subsidiaries totaled approximately $416,000
- companies affiliated with the Suramericana Group totaled approximately
$15.8 million
We hold a 74.2% equity interest in IMPSAT Colombia, and the Suramericana
Group holds a 24.6% equity interest in IMPSAT Colombia. The Suramericana Group
also holds a 25% equity interest in IMPSAT Venezuela. We have reached an
agreement with the Suramericana Group to exchange their minority interests in
these subsidiaries for an aggregate of 4,624,714 shares of our common stock.
The following is a description of our most significant transactions with
entities affiliated with CORIM, the Suramericana Group and El Sitio during 1998
and the first nine months of 1999. Although we believe that transactions with
our affiliates are generally conducted on an arm's length basis, conflicts of
interest are inherent in these transactions.
CORIM
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 1998 and the first nine months of 1999 totaled approximately
$332,000. During the same period, IMPSA provided services to IMPSAT
Argentina totaling approximately $217,000.
- TCA, a company controlled by CORIM and IMPSA. TCA produces wire harnesses
for automobile electrical systems and coil springs for automobile
suspension systems in Argentina and Brazil. Telecommunications services
provided to TCA during 1998 and the first nine months of 1999 totaled
approximately $148,800.
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<PAGE> 80
- Buenos Aires al Pacifico San Martin S.A. (BAPSA), a company controlled by
CORIM and IMPSA prior to its sale to an unaffiliated group in May 1999.
BAPSA operates the San Martin Railway between Buenos Aires and the Cuyo
region in central-western Argentina and provides cargo transportation
services along the San Martin Railway. Telecommunications services
provided to BAPSA during 1998 and the first nine months of 1999 totaled
approximately $842,000.
- 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 1998 and the first nine months of 1999 totaled
approximately $610,000. 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
$757,000.
SURAMERICANA GROUP
Representatives of the Suramericana Group serve as directors of IMPSAT
Colombia and IMPSAT Venezuela. During 1998 and the first three quarters of 1999,
the total amount of telecommunications services rendered to the Suramericana
Group totaled approximately $15.0 million, the most significant of which were as
follows:
<TABLE>
<CAPTION>
VALUE OF
SERVICES
-----------------
<S> <C>
Suramericana de Seguros (insurance)......................... $1,302,000
Corporacion Financiera Nacional y Suramericana S.A.
(Corfinsura) (finance).................................... 337,000
Susalud (health services)................................... 142,000
Sufinanciamiento (finance).................................. 303,000
Proteccion (pension fund)................................... 479,000
Suleasing (finance)......................................... 178,000
Corporacion Nacional de Ahorro y Vivienda (finance)......... 4,149
Suvalor (insurance)......................................... 275,000
Industrias Noel (food products)............................. 729,000
Acerias Paz del Rio (steel works)........................... 176,000
Suratep (insurance)......................................... 148,000
Sodexho Pass (food service)................................. 258,000
Almacenes Exito (food products)............................. 321,000
BanColombia (finance)....................................... 5,285,000
</TABLE>
During 1998 and the first nine months of 1999, IMPSAT Venezuela provided
telecommunications services to several companies within the Suramericana Group,
including Industrias Alimenticias Noel de Venezuela S.A. and Industrias
Alimenticias Hermo de Venezuela S.A., which totaled approximately $134,000, and
to Cadena de Tiendas Venezolanas S.A., which totaled approximately $1.4 million.
Corfinsura and BanColombia are creditors of IMPSAT Colombia. As of
September 30, 1999, IMPSAT Colombia was indebted to Corfinsura in the amount of
approximately $7.5 million and to BanColombia in the amount of approximately
$14.0 million. The total interest paid for 1998 and the first nine months of
1999 was approximately $6.0 million.
Suramericana de Seguros acts from time to time as an insurance broker and
an insurer for IMPSAT Colombia. IMPSAT Colombia paid premiums to Suramericana de
Seguros totaling approximately $860,000 in 1998 and the first nine months of
1999.
Certain other companies within the Suramericana Group, including Suleasing,
provide financial leasing services to IMPSAT Colombia. Our total indebtedness to
Suleasing as of September 30, 1999 was approximately $1.4 million and the total
interest paid in 1998 and the first nine months of 1999 was approximately
$566,000.
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<PAGE> 81
Other payments made by IMPSAT Colombia to companies of Suramericana Group
in 1998 and the first nine months of 1999 included: payments of approximately
$583,000 to Proteccion for pension fund services; Susalud, had total payments of
approximately $338,000 for health benefit services and payments of approximately
$451,000 to Sodexho Pass for employee luncheon services.
EL SITIO
We provide telecommunications services to El Sitio. During 1998 and the
first nine months of 1999, the total value of telecommunications services we
rendered to El Sitio was approximately $416,000. During the same period, El
Sitio charged us $110,000 for advertising services on their Web pages.
On August 4, 1999, we entered into an agreement with El Sitio for the sale
of our retail Internet businesses in Argentina, Brazil and Colombia for
approximately $21.5 million and our purchase of shares of El Sitio's 8%
convertible redeemable preferred stock for $21.5 million. 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 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 February 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 preferred stock was convertible into 25% of our common stock on the
date of issuance. The following are some of the principal features of the
preferred stock:
- cumulative dividends at the rate of 10% per annum, compounded quarterly
and, with certain exceptions, payable in kind
- mandatorily redeemable in cash by us at maturity (ten years after
issuance), plus accrued and unpaid dividends
- callable by us under certain circumstances, in whole, at 100% of the
principal amount, plus accrued and unpaid dividends
- convertible into our common stock at any time at the option of the
holders (including upon a call by us), at a specified conversion rate,
subject to certain antidilution rights
- the right by Morgan Stanley investors holding a majority of the shares of
preferred stock initially issued to appoint two directors to our board of
directors as well as to immediately appoint half of the members of our
board of directors upon the occurrence of certain specified events
- the right by directors appointed by the Morgan Stanley investors to a
veto over certain major corporate actions
Conversion of Preferred Stock. The Morgan Stanley investors have informed
us that they plan to exercise their rights to convert 19,848 shares of our
preferred stock into 14,917,915 shares of our common stock upon the closing of
this offering. We plan to use a portion of the proceeds of this offering to
redeem the shares of our preferred stock remaining outstanding after the Morgan
Stanley investors exercise their conversion rights. See "Use of Proceeds." Upon
the closing of this offering, the Morgan Stanley investors will be entitled to
certain rights with respect to the shares of common stock issuable upon the
conversion of the
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<PAGE> 82
preferred stock. Some of the principal rights the Morgan Stanley investors will
retain as holders of our common stock include the right to:
- request that we sell their shares of our common stock in a public
offering registered under the Securities Act, subject to certain
conditions
- 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
- one nominee to our board of directors and the right to have Nevasa
Holdings vote for that nominee
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 British Telecommunications for $25
million. These transactions were consummated on April 19, 1999.
We are a party to a shareholders agreement with Nevasa Holdings and British
Telecommunications dated as of March 10, 1999, a copy of which has been filed as
an exhibit to the registration statement of which this prospectus is a part.
Pursuant to the terms of this shareholders agreement, as long as British
Telecommunications owns 15% of our outstanding common stock (as determined on a
fully-diluted basis) and subject to certain conditions, British
Telecommunications has the right to appoint two members of our board of
directors. Nevasa Holdings has agreed to vote for the two British
Telecommunications' nominees to our board of directors so long as British
Telecommunications owns 15% of our outstanding common stock.
As long as British Telecommunications owns 10% of our outstanding common
stock (as determined on a fully-diluted basis) and subject to certain
conditions, British Telecommunications has the right to:
- consult with management on matters relating to us
- inspect our books and records
- inspect our properties and operations
As long as British Telecommunications owns 5% of our outstanding common
stock (as determined on a fully-diluted basis), British Telecommunications has
the right to:
- request that we sell shares of common stock in a public offering
registered under the Securities Act, subject to certain conditions
- include common stock held by British Telecommunications in a public
offering of our common stock registered under the Securities Act, subject
to certain conditions
- nominate one member to our board of directors and to have Nevasa Holdings
vote for that nominee
British Telecommunications has agreed to vote for Nevasa Holdings' nominees
to our board of directors for so long as Nevasa Holdings is obligated to vote
for British Telecommunications' nominees to our board of directors.
British Telecommunications has agreed to purchase from us an additional
2,850,000 shares of our common stock simultaneously with this offering to
maintain its approximate current ownership share in us.
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<PAGE> 83
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 semi-annually in
cash on January 15 and July 15 of each year. The 12 1/8% notes have the benefit
of a guarantee issued on a senior unsecured basis by IMPSAT Argentina.
In June 1998, we completed our offering of our $225 million principal
amount of 12 3/8% Senior Notes due 2008, of which an aggregate of $225 million
in principal amount is outstanding as of the date of this prospectus. The
12 3/8% notes bear interest at the rate of 12 3/8% per annum payable
semi-annually in cash on June 15 and December 15 of each year.
The indentures under which our notes were issued contain a number of
covenants which, among other things:
- restrict our ability to consolidate, merge or sell all or substantially
all of our assets
- create restrictions on the ability of our restricted subsidiaries to make
certain payments, issue or sell stock of certain subsidiaries, and enter
into transactions with stockholders or affiliates
These indentures also restrict our and our restricted subsidiaries' ability
to:
- incur additional indebtedness
- create liens
- engage in sale-leaseback transactions
- make restricted payments
- sell assets
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 and for
purchases of equipment to be used in the Broadband Network. A copy of IMPSAT
Argentina's vendor financing agreement with Nortel is filed as an exhibit to the
registration statement of which this prospectus is a part.
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.
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
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<PAGE> 84
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 shareholders
- 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 December 31, 1999
by:
- each person who owned of record, or was known to own beneficially, more
than five percent of any class of our capital stock
- each director
- each executive officer
- all directors and executive officers as a group
Except as otherwise indicated, each person listed in the table has informed
us that they have sole voting and investment power with respect to their shares
of our capital stock and record and beneficial ownership with respect to their
shares of our capital stock. The number of shares beneficially owned is
determined on an as-converted basis, assuming the conversion of all issued and
outstanding shares of our preferred stock into common stock. As of December 31,
1999, each share of our preferred stock was convertible into 711.5 shares of our
common stock, or a total of 17,786,311 shares of common stock. The number of
shares beneficially owned after this offering includes the issuance of an
additional 2,850,000 shares of common stock to Nunsgate Limited simultaneously
with this offering.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
THIS OFFERING THIS OFFERING
----------------------------- -----------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT
- ------------------------------------ ------------------- ------- ------------------- -------
<S> <C> <C> <C> <C>
COMMON STOCK
Beneficial Owners of more than 5%
Nevasa Holdings Ltd.(1)............... 42,366,879 56.9% 42,443,957 46.4%
Princes Gate Investors II, L.P.(2).... 14,229,049 19.1 11,934,332 13.0
Morgan Stanley Global Emerging Markets
Private Investment Fund, L.P.(3).... 3,557,262 4.8 2,983,583 3.3
Nunsgate Limited(4)................... 14,321,199 19.2 17,171,199 18.8
Suramericana Group(5)................. -- -- 4,624,714 5.1
Directors and Executive Officers(1)
Enrique Pescarmona(6)................. 42,372,799 56.9 42,449,878 46.4
Ricardo Verdaguer(1)(7)............... 5,920 * 5,920 *
Roberto Vivo(1)(7).................... 4,736 * 4,736 *
Alexander Rivelis(7).................. 1,895 * 1,895 *
Hector Alonso(7)...................... 3,437 * 3,437 *
Daniel Hourquescos(7)................. 1,895 * 1,895 *
All Directors and Officers as a Group
(24 persons)(1)..................... 42,406,315 56.9 42,483,394 46.4
PREFERRED STOCK
Beneficial Owners of more than 5%
Princes Gate Investors II, L.P.(8).... 20,000 80.0% -- --
Morgan Stanley Global Emerging Markets
Private Investment Fund, L.P.(9).... 5,000 20.0 -- --
Directors and Executive
Officers(8)(9)...................... -- -- -- --
All Directors and Officers as a Group
(24 persons)(8)(9).................. -- -- -- --
</TABLE>
- ------------
(*) Less than 1%
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(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.
Mr. Alexander Rivelis, who own a less than 1% minority interest in IMPSAT
Colombia has agreed to transfer that minority interest to our company in
exchange for 77,079 shares of our common stock. Mr. Rivelis also has
agreed simultaneously to transfer his shares of our common stock to Nevasa
Holdings in exchange for an interest in the capital stock of Nevasa
Holdings.
(2) Determined on an as-converted basis, assuming the conversion of 20,000
shares of preferred stock, which were convertible into shares of common
stock on December 31, 1999, 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.
(3) Determined on an as-converted basis, assuming the conversion of 5,000 shares
of preferred stock, which were convertible into shares of common stock on
December 31, 1999, owned by MSGEM and Morgan Stanley Global Emerging Markets
Private Investors, L.P. over which MSGEM has sole voting power.
(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 42,366,879 shares of our common stock owned by Nevasa Holdings, of
which Mr. Pescarmona may be deemed to be the beneficial owner because he
controls CORIM, which owns 82.5% of the voting stock of Nevasa Holdings and
5,920 shares of common stock issuable under options that are presently
exercisable.
(7) These shares of common stock are issuable under options that are presently
exercisable.
(8) These shares of preferred stock include 2,857 shares owned by certain
affiliates of Princes Gate over which Princes Gate has sole voting and
dispositive power. Mr. Stephen Munger, who is the Co-Chairman of the
Investment Committee of Princes Gate and Princes Gate's designee to our
board of directors, disclaims voting or dispositive power over the shares of
preferred stock owned by Princes Gate and its affiliates.
(9) These shares of preferred stock include 4,712 shares owned by MSGEM and 288
shares owned by Morgan Stanley Global Emerging Markets Private Investors,
L.P. MSGEM, which is a subsidiary of Morgan Stanley, manages the investment
in, and has sole voting power over, the shares of preferred stock owned by
each person comprising the MSGEM Fund. The business address of each of such
persons is c/o Morgan Stanley Global Emerging Markets Private Investment
Fund, L.P., 1221 Avenue of the Americas, 33rd Floor, New York, NY 10020. Mr.
Jeronimo Bosch who is an associate at Morgan Stanley Dean Witter Private
Equity and MSGEM's designee to our board of directors, disclaims voting or
dispositive power over the shares of preferred stock owned by MSGEM.
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DESCRIPTION OF CAPITAL STOCK
The following summary information is qualified in its entirety by the
provisions of our certificate of incorporation and bylaws, copies of which have
been filed as exhibits to the Registration Statement of which this prospectus is
a part. See "Where You Can Find More Information."
Upon completion of this offering, our authorized capital stock will consist
of 300,000,000 shares of common stock, par value $0.01 per share, of which
91,428,571 shares of common stock will be issued and outstanding. Prior to this
offering, there were 56,680,078 shares of common stock outstanding held by two
persons.
Prior to this offering, there has been no public market for our common
stock. See "Risk Factors -- There is no prior public market for our common stock
and our stock price may be volatile."
COMMON STOCK
Voting Rights. Our certificate of incorporation will provide that holders
of our common stock are entitled to one vote per share held of record on all
matters submitted to a vote of stockholders. Our principal stockholders have
entered into a shareholders' agreement that governs the voting of the common
stock held by them.
Dividends. Each holder of common stock on the applicable record date is
entitled to receive dividends if, as and when declared by our board of
directors. Under Delaware law, a corporation may declare and pay dividends out
of surplus, or if there is no surplus, out of net profits for the fiscal year in
which the dividend is declared and/or the preceding year. No dividends may be
declared, however, if the capital of the corporation has been diminished by
depreciation in the value of its property, losses or otherwise to an amount less
than the aggregate amount of capital represented by any issued and outstanding
stock having a preference on the distribution of assets.
Other Rights. Our stockholders have no preemptive or other rights to
subscribe for additional shares. All holders of our common stock are entitled to
share equally on a share-for-share basis in any assets available for
distribution to stockholders on our liquidation, dissolution or winding up. No
shares of our common stock are subject to conversion, redemption or a sinking
fund. All outstanding shares of our common stock are, and the common stock to be
outstanding upon completion of this offering will be, fully paid and
nonassessable.
Transfer Agent and Registrar. The transfer agent and registrar for our
common stock is The Bank of New York.
PREFERRED STOCK
Our board of directors has the authority to issue 5,000,000 shares of
preferred stock in one or more series and to fix rights, preferences, privileges
and restrictions thereof, including dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares constituting any series or the designation
of such series, without further vote or action by the stockholders. The issuance
of shares of preferred stock (and the board's ability to do so) may have the
effect of delaying, deferring or preventing a change in control of IMPSAT
without further action by the stockholders and may adversely affect the voting
and other rights of the holders of common stock.
OUR CERTIFICATE OF INCORPORATION AND BYLAWS
Some of the provisions of our certificate of incorporation and bylaws
summarized below may be deemed to have an anti-takeover effect and may delay,
defer or prevent a tender offer or takeover attempt that a stockholder might
consider in its best interest, including an attempt that might result in the
receipt of a premium over the market price for the shares held by stockholders.
Our amended bylaws contain provisions requiring that advance notice be
delivered to us of any business to be brought by a stockholder before an annual
or special meeting of stockholders and providing for certain procedures to be
followed by stockholders in nominating persons for election to our board of
directors.
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Generally, these advance notice provisions require that the stockholder must
give written notice to the secretary of our company in the case of an annual
meeting:
- not less than 45 days nor more than 100 days before the first anniversary
of the date on which the company first mailed its proxy materials for the
preceding year's annual meeting of stockholders
- advanced or delayed by more than 30 days from the preceding year's annual
meeting of stockholders, not less than 90 days prior to the scheduled
date of the annual meeting or, if later, 10 days after the first public
announcement of the date of the meeting
- not less than 90 days, or, if later, 10 days after the first public
announcement of the date of the special meeting, nor more than 120 days
prior to the scheduled date of the special meeting
The notice must set forth specific information regarding the stockholder
giving the notice and each director nominee or other business proposed by the
stockholder, as applicable, as provided in our bylaws. Generally, only business
set forth in the notice for a special meeting of stockholders may be conducted
at a special meeting.
Except as provided in a securityholders agreement dated as of March 19,
1998 and a shareholders agreement dated as of March 10, 1999, our bylaws provide
that special meetings of stockholders may be called only by the Chairman of the
board of directors or pursuant to a resolution adopted by a majority of the
board of directors, but may not be called by stockholders.
In accordance with our restated certificate of incorporation, our amended
bylaws provide that except as provided in the securityholders agreement dated as
of March 19, 1998 and the shareholders agreement dated as of March 10, 1999, the
number of directors shall be fixed from time to time exclusively pursuant to a
resolution adopted by a majority of the board of directors.
Our certificate of incorporation provides for a classified board of
directors, consisting of three classes. Each class will hold office until the
third annual stockholders meeting for election of directors following the most
recent election of that class, except that the initial terms of the three
classes expire in 2001, 2002 and 2003.
Subject to the rights of the Morgan Stanley investors and British
Telecommunications to elect and remove directors under specified circumstances,
a director of our company may be removed only for cause by an affirmative vote
of the holders of at least a majority of the voting power of all of our
outstanding shares generally entitled to vote in the election of directors,
voting together as a single class. Vacancies on our board may only be filled by
the affirmative vote of a majority of the remaining directors.
Our restated certificate of incorporation provides that upon the closing of
this offering, stockholders may not act by written consent in lieu of a meeting.
In general, our restated certificate of incorporation may be altered or
repealed and new certificate of incorporation adopted by the holders of a
majority of the voting stock or by a majority of the board of directors.
However, certain provisions, including those relating to the number of directors
constituting the board of directors, the limitation of actions by stockholders
taken by written consent, the calling of special stockholder meetings, other
stockholder actions and proposals and certain matters related to our board, may
be amended only by the affirmative vote of the holders of at least 80% of the
total voting stock.
We are a Delaware corporation and subject to Section 203 of the Delaware
General Corporate Law, or DGCL. Section 203 of the DGCL prohibits a publicly
held Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the time a
stockholder became an interested stockholder unless, as described below, certain
conditions are satisfied. See
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"-- Limitations on Changes of Control of Our Company" below. The prohibitions in
Section 203 of the DGCL do not apply if the following occur:
- prior to the time the stockholder became an interested stockholder, our
board of directors approved either the business combination or the
transaction which resulted in the stockholder becoming an interested
stockholder
- upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of our company outstanding at the time the
transaction commenced
- at or subsequent to the time the stockholder became an interested
stockholder, the business combination is approved by our board of
directors and authorized by the affirmative vote of at least 66 2/3% of
the outstanding voting stock that is not owned by the interested
stockholder
Under Section 203 of the DGCL, a "business combination" includes the
following:
- any merger or consolidation of our company with the interested
stockholder
- any sale, lease, exchange or other disposition, except proportionately as
a stockholder of our company, to or with the interested stockholder of
assets of our company having an aggregate market value equal to 10% or
more of either the aggregate market value of all the assets of our
company or the aggregate market value of all the outstanding stock of our
company
- certain transactions resulting in the issuance or transfer by our company
of our stock to the interested stockholder
- certain transactions involving our company which have the effect of
increasing the proportionate share of the stock of any class or series of
our company which is owned by the interested stockholder
- certain transactions in which the interested stockholder receives
financial benefits provided by us
Under Section 203 of the DGCL, an "interested stockholder" generally is one
of the following:
- any person that owns 15% or more of the outstanding voting stock of our
company
- any person that is an affiliate or associate of our company and was the
owner of 15% or more of the outstanding voting stock of our company at
any time within the three-year period prior to the date on which it is
sought to be determined whether that person is an interested stockholder
- the affiliates or associates of that person
Because Nevasa, the Morgan Stanley investors and British Telecommunications
each will own more than 15% of our voting stock prior to the time that we become
a public company and upon completion of the equity offering, Section 203 of the
DGCL by its terms is currently not applicable to business combinations with
Nevasa, the Morgan Stanley investors or British Telecommunications although
Nevasa, the Morgan Stanley investors and British Telecommunications each own 15%
or more of our outstanding stock. If any other person acquires 15% or more of
our outstanding stock, that person will be subject to the provisions of Section
203 of the DGCL.
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LIMITATIONS ON CHANGES OF CONTROL OF OUR COMPANY
The provisions of our certificate of incorporation and by-laws described
above, as well as the stockholder rights plan, the concentration of our common
stock ownership and the provisions of Section 203 of the DGCL, could have the
following effects, among others:
- delaying, deferring or preventing a change in control
- delaying, deferring or preventing the removal of existing management
- deterring potential acquirers from making a tender offer to purchase our
common stock at a premium
- limiting any opportunity of our stockholders to realize premiums over
prevailing market prices of our common stock in connection with offers by
potential acquirers
STOCKHOLDER RIGHTS PLAN
On January 12, 2000, our board of directors adopted a stockholders rights
plan. We will issue one right with each share of common stock that we issue
between the record date and the earliest of the distribution date described
below, the date the rights are redeemed or the date the rights expire. After the
distribution date, we will issue one right with each common share we issue upon
the exercise of stock options or under any employee plan or arrangement or upon
the exercise, conversion or exchange of other securities that were outstanding
before the distribution date, until the date the rights are either redeemed or
expire. Each right entitles the registered holder to purchase one one-hundredth
of a share of series B preferred stock at a price per one one-hundredth of a
preferred share to be determined by our board of directors prior to our
implementation of the rights plan, which will occur after the closing of this
offering. The following is a description of the terms of the rights that we
expect will be contained in a rights agreement between us and the rights agent.
Exercisability and duration of rights. The rights are not exercisable
until the distribution date described below. The rights will expire on the tenth
anniversary of our implementation of the rights plan, unless the expiration date
is extended or unless the rights are earlier redeemed or exchanged, in each
case, as described below.
Evidence and transfer of rights. Until the distribution date:
- the rights will be evidenced by the common stock certificates and will be
transferred only with the common stock certificates
- new common stock certificates issued after the implementation of the
rights plan will contain a notation incorporating the rights agreement by
reference
- the surrender for transfer of any certificates for common stock
outstanding will also constitute the transfer of the rights associated
with the common stock represented by such certificate.
After the distribution date, separate certificates representing the rights
will be mailed to record holders of our common stock on the distribution date
and the separate certificates alone will evidence the rights.
Triggering of rights. The rights became exercisable after the lapse of
either:
- ten business days following a public announcement or disclosure that a
person or group of affiliated or associated persons, or an acquiring
person, has acquired beneficial ownership of 20% or more of the
outstanding shares of our common stock
- ten business days following the announcement of an intention to make a
tender offer or exchange offer the consummation of which would result in
a person or group becoming an acquiring person.
- ten business days after the board of directors declares a person or group
to be an adverse person under the rights plan, based on a determination
that the person or group has become the beneficial owner of 10% or more
of the outstanding shares of our common and that such beneficial
ownership is not in the best interests of our company and its
stockholders
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The earlier of those dates is called the distribution date.
The term "acquiring person" would not include our company, our
subsidiaries, or any of our employee benefit plans. The following persons are
exempted as acquiring persons under the rights plan:
- Nevasa Holdings and its affiliates, irrespective of their beneficial
ownership of our common stock
- the Morgan Stanley investors and its affiliates, so long as their
beneficial ownership of our common stock does not exceed 21% (other than
through certain underwriter or broker-dealer activities)
- Nunsgate Limited and its affiliates, so long as their beneficial
ownership of our common stock does not exceed 25% or so long as Nunsgate
Limited and its affiliates do not acquire more than 30% of the
outstanding shares of our common stock held by persons other than Nevasa
Holdings, Nunsgate Limited, the Morgan Stanley investors, Credit Suisse
and the Suramericana Group
Adjustments for stock splits or other transactions. The purchase price
payable and the number of preferred shares or other securities or property
issuable upon exercise of the rights will be adjusted from time to time to
prevent dilution in the event of a stock dividend on, or a subdivision,
combination or reclassification of, the preferred shares, or other similar
events.
Terms of preferred shares. The preferred shares' dividend, liquidation and
voting rights will be such that the value of the one one-hundredth interest in a
preferred share purchasable upon exercise of each right should approximate the
value of one share of common stock.
Rights could purchase shares of common stock at a discount. If any person
or group becomes an acquiring or adverse person, each holder of a right, other
than the acquiring person, will have the right to receive upon exercise that
number of shares of common stock having a market value of two times the exercise
price of the right unless the event causing the person or group to become an
acquiring person is a merger, acquisition or other business combination
described in the next paragraph. If we do not have a sufficient amount of
authorized common stock to satisfy the obligation to issue shares of common
stock, we must deliver upon payment of the exercise price of a right an amount
of cash or other securities equivalent in value to the shares of common stock
issuable upon exercise of a right.
In the event that any person or group becomes an acquiring person and:
- we merge into or engage in certain other business combination
transactions with an acquiring person, or
- 50% or more of our consolidated assets or earning power are sold to an
acquiring person,
each holder of a right, other than the acquiring person, will have the right to
receive that number of shares of common stock of the acquiring company which
will have a market value of two times the exercise price of the right.
Following the occurrence of any of the triggering events set forth in the
preceding paragraphs, all rights that are, or (under certain circumstances
specified in the rights agreement) were, beneficially owned by any acquiring
person or adverse person will be null and void. Additionally, rights are not
exercisable following the occurrence of any of the triggering events until such
time as the rights are no longer redeemable by us as set forth below.
The board may redeem the rights. At any time prior to and until ten
business days after a person or group becomes an acquiring or adverse person,
our board of directors may redeem all, but not some, of the rights at a price of
$0.01 per right. The right to exercise the rights terminates immediately when
they are redeemed and the only right of the holders of rights after that time
will be to receive the redemption price.
The board may amend the rights. Prior to the distribution date, the terms
of the rights may be amended by a resolution of the board of directors without
the consent of the holders of the rights. However, from and after such time as
any person or group becomes an acquiring or adverse person, no amendment may
adversely affect the interests of the holders of the rights other than an
acquiring or adverse person.
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Holders of unexercised rights do not have privileges of a
stockholder. Until a right is exercised, the holder will have no rights as a
stockholder of our company, including, without limitation, the right to vote or
to receive dividends.
Reasons for stockholder rights plan. The rights in the proposed
stockholder rights plan are designed to protect and maximize the value of our
outstanding equity interests in our company in the event of an unsolicited
attempt by an acquirer to take over IMPSAT, in a manner or on terms not approved
by the board of directors. Issuance of the rights would not in any way weaken
our financial strength or interfere with our business plans. The issuance of the
rights themselves would have no dilutive effect, would not affect reported
earnings per share and should not be taxable to us or to our stockholders. Our
board of directors believes that the rights would represent a sound and
reasonable means of addressing the complex issues of corporate policy created by
the current takeover environment. However, when implemented, the proposed rights
plan and the rights issued under the plan could have the effect of rendering
more difficult or discouraging an acquisition of IMPSAT deemed undesirable by
the board of directors. The rights may cause substantial dilution to a person or
group that attempts to acquire IMPSAT on terms or in a manner not approved by
our board of directors.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering we will have 91,428,571 shares of common
stock outstanding. Of this amount, the shares offered hereby will be available
for immediate sale in the public market as of the date hereof. An additional
355,241 shares, 441,650 shares and 395,340 shares of our common stock are
issuable upon the exercise of outstanding options under our stock option plan at
exercise prices of $1.69, $8.38 and $10.47, respectively. Of this amount, 44,165
options are presently exercisable.
In addition, after this offering we believe that we will have greater
flexibility in consummating acquisitions and/or strategic alliances and may use
shares of our common stock as an alternative form of consideration in such
transactions.
We, along with our directors and executive officers and our existing
stockholders, have agreed pursuant to the underwriting agreement and other
agreements that we will not sell any common stock without the prior consent of
Morgan Stanley & Co. Incorporated for a period of 180 days from the date of this
prospectus. Approximately 79,972,736 additional shares will be available for
sale following the expiration of the 180-day lockup period. Morgan Stanley & Co.
Incorporated has exempted from this obligation 2,834,288 shares of our common
stock held by Nevasa Holdings which have been pledged by Nevasa Holdings to a
financial institution to secure a $25 million loan to an affiliate of Nevasa.
The outstanding shares of common stock not issued in connection with this
offering are available for sale in the public market, subject to the 180-day
lockup period and compliance with the requirements of Rule 144. In general,
under Rule 144 as currently in effect, a person (or persons whose shares are
aggregated) who has beneficially owned shares for at least one year is entitled
to sell, within any three-month period, a number of shares that does not exceed
the greater of:
- 1% of the then outstanding shares of common stock
- the average weekly trading volume during the four calendar weeks
preceding the sale, subject to the filing of a Form 144 with respect to
the sale
A person (or persons whose shares are aggregated) who is not deemed to have
been our affiliate at any time during the 90 days immediately preceding the sale
who has beneficially owned his or her shares for at least two years is entitled
to sell such shares pursuant to Rule 144(k) without regard to the foregoing
volume limitations. Persons deemed to be affiliates must always sell pursuant to
the volume limitations under Rule 144, even after the applicable holding periods
have been satisfied. We are unable to estimate the number of shares that will be
sold under Rule 144 since this will depend on the market price for our common
stock, the personal circumstances of the sellers and other factors.
We intend to file a registration statement on Form S-8 under the Securities
Act to register shares of common stock reserved for issuance under our stock
option plan, thus permitting the resale of these shares by nonaffiliates in the
public market without restriction under the Securities Act. We intend to
register these shares on Form S-8.
The 14,917,915 shares of our common stock that will be held by the Morgan
Stanley investors after 19,848 shares of our preferred stock are converted upon
completion of this offering and the 42,366,878 and 17,171,199 shares of common
stock held by Nevasa Holdings and British Telecommunications, respectively, will
be entitled to certain registration rights. These shares of common stock that
will be entitled to registration rights are referred to by us as the Registrable
Shares. If we propose to register any of our securities under the Securities
Act, the holders of the Registrable Shares will be entitled to notice thereof,
and subject to restrictions, to include their Registrable Shares in the
registration. In addition, immediately following the consummation of this
offering, the Morgan Stanley investors, Nevasa Holdings and British
Telecommunications may make demands that we file a registration statement under
the Securities Act, subject to conditions and limitations.
Sales of a substantial number of shares of common stock after this offering
(or the perception that they might occur) could adversely affect the market
price of our common stock and could impair our ability to raise capital through
the sale of additional equity securities. See "Risks Factors -- Shares of our
common stock becoming available for sale could adversely affect the market price
of our common stock and may impair the ability to raise capital through the sale
of additional stock."
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CERTAIN U.S. TAX CONSEQUENCES TO NON-U.S. HOLDERS
GENERAL
The following is a general discussion of U.S. federal income and estate tax
consequences of the ownership and disposition of our common stock that may be
relevant to you if you are a non-U.S. holder. For purposes of this summary, a
non-U.S. holder is a beneficial owner of our common stock that is, for U.S.
federal income tax purposes:
- a nonresident alien individual
- a foreign corporation
- a foreign estate or trust or
- a foreign partnership
This discussion does not address all aspects of U.S. federal income and
estate taxation that may be relevant to you in light of your particular
circumstances and does not address any foreign, state or local tax consequences.
Furthermore, this discussion is based on provisions of the Internal Revenue
Code, Treasury regulations and administrative and judicial interpretations as of
the date of this prospectus. All of these are subject to change, possibly with
retroactive effect, or different interpretations. If you are considering buying
our common stock you should consult your own tax advisor about current and
possible future tax consequences of holding and disposing of our common stock in
your particular situation.
DISTRIBUTIONS
At present, we do not anticipate paying dividends. If we do pay
distributions on our common stock, such distributions generally will constitute
dividends for U.S. federal income tax purposes to the extent paid from our
current or accumulated earnings and profits, as determined under U.S. federal
income tax principles. To the extent our distributions exceed our current or
accumulated earnings and profits, the distributions will constitute a return of
capital that is applied against and will reduce your basis in our common stock
(but not below zero), and then will be treated as gain from the sale of the
stock. Unless we are an 80/20 company, as described below, dividends paid to you
that are not effectively connected with your United States trade or business or,
if a tax treaty applies, are not attributable to a permanent establishment that
you maintain in the United States will (to the extent paid out of earnings and
profits) be subject to U.S. withholding tax at a 30 percent rate or, if a tax
treaty applies, a lower rate specified by the treaty. To receive a reduced
treaty rate, you must furnish to us or our paying agent a duly completed Form
1001 or Form W-8BEN (or substitute form) certifying to your qualification for a
lower rate.
An exception from withholding exists if at least 80 percent of the gross
income derived by a corporation during the applicable testing period qualifies
as "active foreign business income," either directly or through the
corporation's subsidiaries (an 80/20 company). If we are an 80/20 company, the
proportion of our dividends equal to our total gross income from foreign sources
over our total gross income will be exempt from the 30 percent withholding tax.
We believe that we qualify as an 80/20 company. However, the 80 percent test for
active foreign business income is applied on a periodic basis, and our
operations and business plans may change in subsequent taxable years. Therefore,
we cannot assure you that we will remain an 80/20 company and that this
exception from withholding will remain available.
Subject to the discussion regarding 80/20 companies above, withholding is
generally imposed on the gross amount of a distribution, regardless of whether
we have sufficient earnings and profits to cause the distribution to be a
dividend for U.S. federal income tax purposes. However, withholding on
distributions made after December 31, 2000 may be on less than the gross amount
of the distribution if the distribution exceeds a reasonable estimate we make of
our accumulated and current earnings and profits.
Dividends that are effectively connected with your conduct of a trade or
business within the United States or, if a tax treaty applies, are attributable
to your U.S. permanent establishment, are exempt from U.S. federal
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withholding tax, provided that you furnish to us or our paying agent a duly
completed Form 4224 or Form W-8ECI (or substitute form) certifying the
exemption. However, dividends exempt from U.S. withholding because they are
effectively connected or they are attributable to a U.S. permanent establishment
are subject to U.S. federal income tax on a net income basis at the regular
graduated U.S. federal income tax rates. Any such effectively connected
dividends received by a foreign corporation may, under certain circumstances, be
subject to an additional "branch profits tax" at a 30 percent rate or a lower
rate specified by an applicable income tax treaty.
Under current U.S. Treasury regulations, dividends paid before January 1,
2001 to an address outside the United States are presumed to be paid to a
resident of the country of address for purposes of the withholding discussed
above and for purposes of determining the applicability of a tax treaty rate.
However, U.S. Treasury regulations applicable to dividends paid after December
31, 2000 eliminate this presumption, subject to certain transition rules.
For dividends paid after December 31, 2000, you generally will be subject
to U.S. backup withholding tax at a 31 percent rate under the backup withholding
rules described below, rather than at a 30 percent rate or a reduced rate under
an income tax treaty, as described above, unless you comply with certain
Internal Revenue Service certification procedures (in general, by providing a
duly completed Form W-8BEN) or, in the case of payments made outside the United
States with respect to an offshore account, certain IRS documentary evidence
procedures. Further, to claim the benefit of a reduced rate of withholding under
a tax treaty for dividends paid after December 31, 2000, you must comply with
certain modified IRS certification requirements. Special rules also apply to
dividend payments made after December 31, 2000 to foreign intermediaries, U.S.
or foreign wholly owned entities that are disregarded for U.S. federal income
tax purposes and entities that are treated as fiscally transparent in the United
States, the applicable income tax treaty jurisdiction, or both. You should
consult your own tax advisor concerning the effect, if any, of the rules
affecting post-December 31, 2000 dividends on your possible investment in our
common stock.
You may obtain a refund of any excess amounts withheld by filing an
appropriate claim for refund along with the required information with the IRS.
GAIN ON DISPOSITION OF COMMON STOCK
You generally will not be subject to U.S. federal income tax with respect
to gain you recognize on a sale or other disposition of our common stock unless
one of the following applies:
- The gain is effectively connected with your trade or business in the
United States and, if a tax treaty applies, the gain is attributable to
your U.S. permanent establishment. In this case, you will, unless an
applicable treaty provides otherwise, be taxed on your net gain derived
from the sale at regular graduated U.S. federal income tax rates. If you
are a foreign corporation, you may be subject to an additional branch
profits tax equal to 30 percent of your effectively connected earnings
and profits within the meaning of the Internal Revenue Code for the
taxable year, as adjusted for certain items, unless you qualify for a
lower rate under an applicable income tax treaty and duly demonstrate
such qualification.
- You are an individual, you hold our common stock as a capital asset, you
are present in the United States for 183 or more days in the taxable year
of the disposition, and certain other conditions are met. In this case,
you will be subject to a flat 30 percent tax on the gain derived from the
sale, which may be offset by certain U.S. capital losses.
- We are or have been a "U.S. real property holding corporation" for U.S.
federal income tax purposes at any time during the shorter of the
five-year period ending on the date of the disposition or the period
during which you held our common stock. We believe that we never have
been and are not a U.S. real property holding corporation for U.S.
federal income tax purposes. Although we consider it unlikely based on
our current business plans and operations, we may or may not become a
U.S. real property holding corporation. Even if we were to become a U.S.
real property holding corporation, any gain you recognize still would not
be subject to U.S. federal income tax if our common stock were considered
to
95
<PAGE> 96
be "regularly traded on an established securities market" and you did not
own, actually or constructively, at any time during the shorter of the
periods described above, more than five percent of a class of our common
stock.
FEDERAL ESTATE TAX
If you are an individual, common stock you hold at the time of your death
will be included in your gross estate for U.S. federal estate tax purposes,
unless an applicable estate tax treaty provides otherwise.
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
Under U.S. Treasury regulations, we must report annually to the IRS and to
you the amount of dividends paid to you and the tax withheld with respect to
such dividends. These information reporting requirements apply even if
withholding was not required because the dividends were effectively connected
dividends or withholding was reduced by an applicable income tax treaty.
Pursuant to an applicable tax treaty, information may also be made available to
the tax authorities in the country in which you reside.
U.S. federal backup withholding generally is a withholding tax imposed at
the rate of 31 percent on certain payments to persons that fail to furnish
certain required information. Backup withholding generally will not apply to
dividends paid before January 1, 2001 to non-U.S. holders. See the discussion
under "Distribution" above for rules regarding reporting requirements to avoid
backup withholding on dividends paid after December 31, 2000.
As a general matter, information reporting and backup withholding will not
apply to a payment by or through a foreign office of a foreign broker of the
proceeds of a sale of our common stock effected outside the United States.
However, information reporting requirements, but not backup withholding, will
apply to a payment by or through a foreign office of a broker of the proceeds of
a sale of our common stock effected outside the United States if that broker:
- is a U.S. person for U.S. federal income tax purposes
- is a foreign person that derives 50 percent or more of its gross income
for certain periods from the conduct of a trade or business in the United
States
- is a "controlled foreign corporation" as defined in the Internal Revenue
Code or
- is a foreign partnership with certain U.S. connections (for payments made
after December 31, 2000)
Information reporting requirements will not apply in the above cases if the
broker has documentary evidence in its records that the holder is a non-U.S.
holder and certain conditions are met or the holder otherwise establishes an
exemption.
Payment by or through a U.S. office of a broker of the proceeds of a sale
of our common stock is subject to both backup withholding and information
reporting unless you certify to the payor in the manner required as to your
status as a non-U.S. holder under penalties of perjury or otherwise establish an
exemption.
Amounts withheld under the backup withholding rules do not constitute a
separate U.S. federal income tax. Rather, any amounts withheld under the backup
withholding rules will be refunded or allowed as a credit against your U.S.
federal income tax liability, if any, provided the required information or
appropriate claim for refund is filed with the IRS.
THE FOREGOING DISCUSSION IS A SUMMARY OF CERTAIN U.S. FEDERAL INCOME AND
ESTATE TAX CONSEQUENCES TO YOU OF THE OWNERSHIP, SALE OR OTHER DISPOSITION OF
OUR COMMON STOCK. YOU ARE URGED TO CONSULT YOUR OWN TAX ADVISOR WITH RESPECT TO
THE PARTICULAR TAX CONSEQUENCES TO YOU OF OWNERSHIP AND DISPOSITION OF OUR
COMMON STOCK, INCLUDING THE EFFECT OF ANY STATE, LOCAL, FOREIGN OR OTHER TAX
LAWS.
96
<PAGE> 97
UNDERWRITERS
Under the terms and subject to the conditions contained in an underwriting
agreement dated the date hereof, the underwriters named below, for whom Morgan
Stanley & Co. Incorporated, Goldman, Sachs & Co. and Salomon Smith Barney Inc.
are acting as representatives, have severally agreed to purchase, and IMPSAT has
agreed to sell to them, severally, the respective number of shares of common
stock shown opposite the names of the underwriters below:
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
- ---- ----------
<S> <C>
Morgan Stanley & Co. Incorporated...........................
Goldman, Sachs & Co. .......................................
Salomon Smith Barney Inc....................................
----------
Total..................................................... 11,500,000
==========
</TABLE>
The underwriters are offering the shares of common stock subject to their
acceptance of the shares from IMPSAT and subject to prior sale. The underwriting
agreement provides that the obligations of the several underwriters to pay for
and accept delivery of the shares of common stock offered hereby are subject to
the approval of certain legal matters by their counsel and to certain other
conditions. The underwriters are obligated to take and pay for all of the shares
of common stock offered hereby if any of these shares are taken.
All shares of common stock to be purchased by the underwriters under the
underwriting agreement are referred to herein as the "shares."
The underwriters initially propose to offer part of the shares of common
stock directly to the public at the public offering price set forth on the cover
page hereof and part to certain dealers at a price that represents a concession
not in excess of $ a share under the public offering price. Any underwriter
may allow, and such dealers may reallow, a concession not in excess of $ a
share to other underwriters or to certain dealers. After the initial offering of
the shares of common stock, the offering price and other selling terms may from
time to time be varied by the representatives.
IMPSAT has granted to the underwriters an option, exercisable for 30 days
from the date of this prospectus, to purchase up to an aggregate of 1,725,000
additional shares of common stock at the public offering price set forth on the
cover page hereof, less underwriting discounts and commissions. The underwriters
may exercise this option solely for the purpose of covering over-allotments, if
any, made in connection with the offering of the shares of common stock offered
hereby. To the extent this option is exercised, each underwriter will become
obligated, subject to certain conditions, to purchase approximately the same
percentage of such additional shares of common stock as the number set forth
next to the underwriter's name in the preceding table bears to the total number
of shares of common stock set forth next to the names of all underwriters in the
preceding table. If the underwriters' option is exercised in full, the total
price to the public would be $ million, the total underwriters'
discounts and commissions would be $ and total proceeds to IMPSAT would be
$ .
The underwriters have informed IMPSAT that they do not intend sales to
discretionary accounts to exceed five percent of the total number of shares of
common stock offered by them.
97
<PAGE> 98
Each of IMPSAT and the directors, executive officers and existing
stockholders of IMPSAT have agreed that, without the prior written consent of
Morgan Stanley & Co. Incorporated on behalf of the underwriters, it will not,
during the period ending 180 days after the date of this prospectus:
- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend or otherwise transfer or dispose of,
directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock or
- enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the
common stock
whether any such transaction described above is to be settled by delivery of
common stock or such other securities, in cash or otherwise.
The restrictions described in the previous paragraph do not apply to:
- the sale of shares to the underwriters
- the issuance by IMPSAT of shares of common stock upon the exercise of an
option or a warrant or the conversion of a security outstanding on the
date of this prospectus of which the underwriters have been advised in
writing or
- transactions by any person other than IMPSAT relating to shares of common
stock or other securities acquired in open market transactions after the
completion of this offering
- 2,834,288 shares of our common stock held by Nevasa Holdings which have
been pledged to a financial institution to secure a $25 million loan to
an affiliate of Nevasa
In order to facilitate this offering, the underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
common stock. Specifically, the underwriters may over-allot in connection with
this offering, creating a short position in the common stock for their own
account. In addition, to cover over-allotments or to stabilize the price of the
common stock, the underwriters may bid for, and purchase, shares of common stock
in the open market. Finally, the underwriting syndicate may reclaim selling
concessions allowed to an underwriter or a dealer for distributing shares of
common stock in this offering, if the syndicate repurchases previously
distributed common stock in transactions to cover syndicate short positions, in
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price of the common stock above independent market
levels. The underwriters are not required to engage in these activities, and may
end any of these activities at any time.
IMPSAT and the underwriters have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act. Upon
consummation of this offering, affiliates of Morgan Stanley & Co. Incorporated
will own approximately 16.3% of the outstanding shares of common stock of
IMPSAT.
At IMPSAT's request, the underwriters will reserve up to 1,837,500 shares
of common stock to be issued by IMPSAT and offered hereby for sale, at the
initial offering price, to directors, officers, employees, business associates
and related persons of IMPSAT, some of whom will agree to hold their shares for
at least 180 days after the date of this prospectus. This directed share program
will be administered by Morgan Stanley & Co. Incorporated. The number of shares
of common stock available for sale to the general public will be reduced to the
extent these persons purchase reserved shares. Any reserved shares that are not
so purchased will be offered by the underwriters to the general public on the
same basis as the other shares offered hereby.
From time to time, Morgan Stanley & Co. Incorporated has provided, and
continues to provide, investment banking services to IMPSAT for which they have
received customary fees and commissions.
The 2,850,000 additional shares of common stock to be issued to British
Telecommunications simultaneously with this offering are being sold directly by
us and not by or through the underwriters or pursuant to the underwriting
agreement.
98
<PAGE> 99
PRICING OF THIS OFFERING
Prior to this offering, there has been no public market for the common
stock. The initial public offering price will be determined by negotiations
between IMPSAT and the representatives. Among the factors to be considered in
determining the initial public offering price will be the future prospects of
IMPSAT and its industry in general, sales, earnings and certain other financial
and operating information of IMPSAT in recent periods, and the price-earnings
ratios, price-sales ratios, market prices of securities and certain financial
and operating information of companies engaged in activities similar to those of
IMPSAT. The estimated initial public offering price range set forth on the cover
page of this preliminary prospectus is subject to change as a result of market
conditions and other factors.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon by
Arnold & Porter, Washington, D.C., counsel to IMPSAT. Certain legal matters will
be passed upon for the underwriters by Shearman & Sterling, New York, New York.
EXPERTS
The consolidated financial statements as of December 31, 1997 and 1998 and
for each of the three years in the period ended December 31, 1998 included in
this prospectus have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report appearing herein, and is included in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Securities Act,
and, in accordance therewith, 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. We have applied to list our
common stock on the Nasdaq National Market, and upon our listing with Nasdaq
such reports, proxy and information statements and other information also can be
inspected at the office of Nasdaq Operations, 1735 K Street, N.W., Washington,
D.C. 20006.
We have filed with the SEC a Registration Statement on Form S-1 under the
Securities Act with respect to the common stock offered hereby. This prospectus
does not contain all of the information set forth in the Registration Statement
and the exhibits and schedules to the Registration Statement. For further
information with respect to IMPSAT and the common stock offered hereby,
reference is made to the Registration Statement and the exhibits and the
schedules filed as part of the Registration Statement. Statements contained in
this prospectus concerning the contents of any contract or any other document to
which this prospectus refers are not necessarily complete. Each such statement
is qualified in all respects to any underlying contract or document filed as an
exhibit to the Registration Statement. The Registration Statement, including
exhibits and schedules thereto, may be inspected without charge at the SEC's
principal office in Washington, D.C., and copies of all or any part thereof may
be obtained from such office after payment of fees prescribed by the SEC.
99
<PAGE> 100
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets as of December 31, 1997 and 1998
and as of September 30, 1999.............................. F-3
Consolidated Statements of Operations for each of the Three
Years in the Period Ended December 31, 1998 and for the
Nine Months Ended September 30, 1998 and 1999............. F-4
Consolidated Statements of Comprehensive Loss for each of
the Three Years in the Period Ended December 31, 1998 and
for the Nine Months Ended September 30, 1998 and 1999..... F-5
Consolidated Statements of Stockholders' Equity (Deficit)
for each of the Three Years in the Period Ended December
31, 1998 and for the Nine Months Ended September 30,
1999...................................................... F-6
Consolidated Statements of Cash Flows for each of the Three
Years in the Period Ended December 31, 1998 and for the
Nine Months Ended September 30, 1998 and 1999............. F-7
Notes to Consolidated Financial Statements.................. F-8
</TABLE>
F-1
<PAGE> 101
INDEPENDENT AUDITORS' REPORT
To the Shareholders of IMPSAT Corporation:
We have audited the accompanying consolidated balance sheets of IMPSAT
Corporation and its subsidiaries (the "Company") as of December 31, 1997 and
1998, and the related consolidated statements of operations, comprehensive loss,
stockholders' equity (deficit) and of cash flows for each of the three years in
the period ended December 31, 1998. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company at December 31,
1997 and 1998, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1998 in conformity with
generally accepted accounting principles.
As discussed in Note 3 to the consolidated financial statements, the
Company changed its method of accounting for license and permit costs in 1998.
Deloitte & Touche LLP
Certified Public Accountants
Miami, Florida
March 12, 1999
F-2
<PAGE> 102
IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1997 1998 1999
-------- --------- -------------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 10,439 $ 90,021 $ 146,078
Trade accounts receivable, net............................ 36,596 46,974 46,949
Other receivables......................................... 15,583 20,110 20,120
Prepaid expenses.......................................... 2,397 1,994 1,252
-------- --------- ---------
Total current assets............................... 65,015 159,099 214,399
-------- --------- ---------
PROPERTY, PLANT AND EQUIPMENT, Net.......................... 255,422 330,726 317,219
-------- --------- ---------
NON-CURRENT ASSETS:
Trade account receivables, net............................ 5,143 5,143 --
Investment................................................ 4,178 10,708 10,287
Deferred financing costs, net............................. 4,044 10,329 9,359
Deferred income taxes, net................................ 17,875
Intangible assets, net.................................... 2,003 7,920 22,992
Other non-current assets.................................. 4,111 3,293 7,061
-------- --------- ---------
Total non-current assets........................... 19,479 37,393 67,574
-------- --------- ---------
TOTAL....................................................... $339,916 $ 527,218 $ 599,192
======== ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable -- trade................................. $ 25,289 $ 32,416 $ 40,061
Short-term debt........................................... 50,189 19,262 15,975
Current portion of long-term debt......................... 10,186 21,138 23,110
Accrued liabilities....................................... 8,878 12,628 13,288
Deferred income taxes, net................................ 247 120 --
Customer advances on construction project................. -- -- 22,736
Other liabilities......................................... 8,649 12,346 18,732
-------- --------- ---------
Total current liabilities.......................... 103,438 97,910 133,902
-------- --------- ---------
LONG-TERM DEBT, Net......................................... 159,677 379,292 384,113
-------- --------- ---------
OTHER LONG-TERM LIABILITIES................................. 3,014 3,446 13,844
-------- --------- ---------
COMMITMENTS AND CONTINGENCIES (Note 14)
MINORITY INTEREST........................................... 10,398 13,071 6,624
-------- --------- ---------
REDEEMABLE PREFERRED STOCK, Convertible, Series A, 10%,
cumulative dividend; 25,000 shares authorized, issued and
outstanding; liquidation preference $5,816 per share...... -- 135,018 145,389
-------- --------- ---------
STOCKHOLDERS' EQUITY (DEFICIT):
Common Stock $0.01 par value; 103,836,800 shares
authorized; 59,671,661 shares issued and outstanding at
December 31, 1997 and 1998, and 71,605,993 shares issued
and outstanding at September 30, 1999................... 597 597 716
Additional paid in capital................................ 100,196 100,196 221,013
Accumulated deficit....................................... (37,404) (71,391) (172,368)
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) (4,969)
Accumulated other comprehensive loss...................... -- (526) (4,072)
-------- --------- ---------
Total stockholders' equity (deficit)............... 63,389 (101,519) (84,680)
-------- --------- ---------
TOTAL....................................................... $339,916 $ 527,218 $ 599,192
======== ========= =========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 103
IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT FOR LOSS PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------- ---------------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET REVENUES FROM SERVICES................... $128,393 $161,065 $208,089 $149,888 $ 167,129
-------- -------- -------- -------- ---------
COST AND EXPENSES:
Variable cost of services.................. 21,494 27,333 36,369 24,274 29,975
Leased telecommunications links............ 13,925 19,230 24,507 20,343 31,248
Salaries, wages and benefits............... 25,561 29,109 38,198 26,543 34,222
Selling, general and administrative........ 23,030 33,356 45,199 34,515 46,564
Depreciation and amortization.............. 26,318 28,673 36,946 26,537 88,090
-------- -------- -------- -------- ---------
Total cost and expenses............. 110,328 137,701 181,219 132,212 230,099
-------- -------- -------- -------- ---------
Operating income (loss)............. 18,065 23,364 26,870 17,676 (62,970)
-------- -------- -------- -------- ---------
OTHER INCOME (EXPENSES):
Interest expense, net...................... (23,185) (24,272) (44,698) (30,243) (41,976)
Net gain (loss) on foreign exchange........ 910 (276) 675 813 (9,500)
Other income (expense), net................ 1,035 (151) 760 485 (715)
-------- -------- -------- -------- ---------
Total other expense................. (21,240) (24,699) (43,263) (28,945) (52,191)
-------- -------- -------- -------- ---------
LOSS BEFORE INCOME TAXES, CUMULATIVE EFFECT
AND MINORITY INTEREST...................... (3,175) (1,335) (16,393) (11,269) (115,161)
(PROVISION FOR) BENEFIT FROM INCOME TAXES.... (3,542) (5,263) (3,805) (2,358) 18,952
-------- -------- -------- -------- ---------
LOSS BEFORE CUMULATIVE EFFECT AND MINORITY
INTEREST................................... (6,717) (6,598) (20,198) (13,627) (96,209)
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING
PRINCIPLE, NET OF TAX...................... -- -- (1,269) (1,269) --
(INCOME) LOSS ATTRIBUTABLE TO MINORITY
INTEREST................................... (1,766) (993) (2,502) (1,717) 5,603
-------- -------- -------- -------- ---------
NET LOSS BEFORE DIVIDENDS ON REDEEMABLE
PREFERRED STOCK............................ (8,483) (7,591) (23,969) (16,613) (90,606)
DIVIDENDS ON REDEEMABLE PREFERRED STOCK...... -- -- (10,018) (6,720) (10,371)
-------- -------- -------- -------- ---------
NET LOSS ATTRIBUTABLE TO COMMON
SHAREHOLDERS............................... $ (8,483) $ (7,591) $(33,987) $(23,333) $(100,977)
======== ======== ======== ======== =========
NET LOSS PER COMMON SHARE:
BASIC AND DILUTED.......................... $ (0.18) $ (0.14) $ (0.71) $ (0.48) $ (1.89)
======== ======== ======== ======== =========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES:
BASIC AND DILUTED.......................... 46,773 53,594 47,983 48,811 53,453
======== ======== ======== ======== =========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 104
IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------- --------------------
1996 1997 1998 1997 1998
------- ------- -------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET LOSS................................. $(8,483) $(7,591) $(33,987) $(23,333) $(100,977)
OTHER COMPREHENSIVE LOSS, net of tax:
Foreign currency translation
adjustment.......................... -- -- (526) -- (3,546)
------- ------- -------- -------- ---------
Comprehensive loss....................... $(8,483) $(7,591) $(34,513) $(23,333) $(104,523)
======= ======= ======== ======== =========
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE> 105
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
------------------- IMPSAT PAID IN ACCUMULATED TREASURY ACQUIRED FROM
SHARES STOCK ARGENTINA CAPITAL DEFICIT(*) STOCK RELATED PARTY
----------- ----- --------- ---------- ----------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995............... 30,371,422 $304 $ 13,360 $ 50,997 $ (8,240)
IMPSAT Argentina exchange (51%).......... 15,659,035 157 (13,360) 26,293 (13,090)
Net loss for the year.................... (8,483)
----------- ---- -------- -------- ---------
BALANCE AT DECEMBER 31, 1996............... 46,030,457 461 77,290 (29,813)
IMPSAT Argentina exchange (43.5%) 13,641,204 136 22,906
Additional capitalization IMPSAT Colombia
and IMPSAT Venezuela...................
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)
Change in minority interest, primarily
related to the acquisition of Mandic
S.A. (Note 2)..........................
Dividends on redeemable preferred stock.... (10,018)
Amortization of amount paid in excess of
carrying value of net assets acquired
from related party....................... 284
Foreign currency translation adjustment....
Net loss for the year...................... (23,969)
----------- ---- -------- -------- --------- --------- -------
BALANCE AT DECEMBER 31, 1998............... 44,753,746 597 100,196 (71,391) (125,000) (5,395)
Dividends on redeemable preferred
stock.................................. (10,371)
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..................... 426
Foreign currency translation
adjustment.............................
Acquisition of 24.9% of Mandic S.A. .....
Net loss for the period.................. (90,606)
----------- ---- -------- -------- --------- --------- -------
BALANCE AT SEPTEMBER 30, 1999
(unaudited).............................. 56,688,078 $716 $ -- $221,013 $(172,368) $(125,000) $(4,969)
=========== ==== ======== ======== ========= ========= =======
<CAPTION>
ACCUMULATED
OTHER
COMPREHENSIVE MINORITY
LOSS TOTAL INTEREST
------------- --------- --------
<S> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995............... $ 56,421 $ 28,495
IMPSAT Argentina exchange (51%)..........
Net loss for the year.................... (8,483) 1,766
--------- --------
BALANCE AT DECEMBER 31, 1996............... 47,938 30,261
IMPSAT Argentina exchange (43.5%) 23,042 (22,393)
Additional capitalization IMPSAT Colombia
and IMPSAT Venezuela................... 1,537
Net loss for the year.................... (7,591) 993
--------- --------
BALANCE AT DECEMBER 31, 1997............... 63,389 10,398
Acquisition of treasury stock............ (125,000)
Acquisition of IMPSAT Brazil (Note 2).... (5,679)
Change in minority interest, primarily
related to the acquisition of Mandic
S.A. (Note 2).......................... 171
Dividends on redeemable preferred stock.... (10,018)
Amortization of amount paid in excess of
carrying value of net assets acquired
from related party....................... 284
Foreign currency translation adjustment.... $ (526) (526)
Net loss for the year...................... (23,969) 2,502
------- --------- --------
BALANCE AT DECEMBER 31, 1998............... (526) (101,519) 13,071
Dividends on redeemable preferred
stock.................................. (10,371)
Common stock issuance.................... 120,936
Amortization of amount paid in excess of
Carrying value of net assets acquired
from related party..................... 426
Foreign currency translation
adjustment............................. (3,546) (3,546)
Acquisition of 24.9% of Mandic S.A. ..... (844)
Net loss for the period.................. (90,606) (5,603)
------- --------- --------
BALANCE AT SEPTEMBER 30, 1999
(unaudited).............................. $(4,072) $ (84,680) $ 6,624
======= ========= ========
</TABLE>
- ------------
(*) Includes an appropriation of retained earnings amounting to $1,254, $1,410
and $1,622 in 1996, 1997 and 1998, respectively, to comply with legal
reserve requirements in Argentina.
F-6
<PAGE> 106
IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- --------------------
1996 1997 1998 1998 1999
-------- -------- --------- --------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $ (8,483) $ (7,591) $ (23,969) $ (16,613) $(90,606)
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 1,269
Amortization and depreciation........................... 26,318 28,673 36,946 26,537 88,090
Deferred income tax provision (benefit)................. 3,012 4,964 (127) (765) (17,995)
Change in minority interest............................. 1,766 993 2,502 1,363 (6,447)
Changes in assets and liabilities:
(Increase) decrease in trade accounts receivable,
net................................................. (6,525) (13,627) (10,128) (2,510) 25
(Increase) decrease in prepaid expenses............... (1,406) 1,671 75 (700) 742
(Increase) decrease in other receivables and other
non-current assets.................................. (6,647) (4,678) (1,443) (1,474) 1,856
(Decrease) increase in accounts payable -- trade...... (41) 4,627 4,204 2,716 9,475
Increase in customer advances on construction
project............................................. 22,736
Increase in accrued and other liabilities............. 4,340 1,526 6,979 11,317 7,046
(Decrease) increase in other long-term liabilities.... (2,491) 581 432 1,186 (598)
-------- -------- --------- --------- --------
Net cash provided by operating activities........... 9,843 17,139 16,740 22,326 14,324
-------- -------- --------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment................ (53,648) (55,028) (107,461) (79,368) (74,262)
Cash paid in Mandic S.A. acquisition, net................. (8,485) (6,307) (3,700)
Cash paid in IMPSAT Brazil merger......................... (5,679) (5,100)
(Increase) decrease in investment......................... (3,052) (6,530) (5,840) 421
Capitalized license and permit costs...................... (33)
-------- -------- --------- --------- --------
Net cash used in investing activities............... (53,681) (58,080) (128,155) (96,615) (77,541)
-------- -------- --------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payments on) borrowings from short-term debt......... (28,483) 18,337 (31,358) (16,253) (3,287)
Capital contribution from minority interest............... 1,537
Proceeds from long-term debt, net of deferred financing
costs................................................... 132,888 10,483 228,097 247,184 26,924
Repayments of long-term debt.............................. (37,888) (7,872) (5,216) (27,178) (21,753)
Proceeds from issuance of common stock, net............... 120,936
Acquisition of treasury stock............................. (125,000) (125,000)
Proceeds from issuance of redeemable preferred stock...... 125,000 125,000
-------- -------- --------- --------- --------
Net cash provided by financing activities........... 66,517 22,485 191,523 203,753 122,820
-------- -------- --------- --------- --------
EFFECT OF EXCHANGE RATE CHANGE ON CASH AND CASH
EQUIVALENTS............................................... (526) (3,546)
-------- -------- --------- --------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 22,679 (18,456) 79,582 129,464 56,057
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 6,216 28,895 10,439 10,439 90,021
-------- -------- --------- --------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 28,895 $ 10,439 $ 90,021 $ 139,903 $146,078
======== ======== ========= ========= ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid............................................. $ 19,413 $ 23,442 $ 45,967 $ 30,078 $ 44,787
======== ======== ========= ========= ========
Foreign income taxes paid................................. $ 1,015 $ 1,375 $ 1,901 $ 1,155
======== ======== ========= ========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
(Increase) decrease in equipment in transit............... $ (350) $ (1,412) $ (2,473) $ (5,365) $ 1,830
======== ======== ========= ========= ========
Common stock issued in exchange for an additional 51% and
44% of IMPSAT Argentina, respectively................... $ 26,450 $ 23,043
======== ========
Accrued dividends on redeemable preferred stock........... $ 10,018 $ 6,720 $ 10,371
========= ========= ========
Fair value of net assets acquired in Mandic S.A.
acquisition............................................. $ 1,794 $ 1,300
========= =========
Capitalized rights-of-way agreements...................... $ 12,618
========
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE> 107
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, 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 Mexico, Ecuador, Peru (inactive),
United States, Brazil and Chile.
The Company's operating subsidiaries and percentages owned by the Company
(See Note 15) 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 Chile S.A. 100.0
Colombia Impsat S.A. 100.0
Ecuador Impsatel del Ecuador S.A. 100.0
Venezuela Telecomunicaciones Impsat S.A. 100.0
Mexico Impsat S.A. de C.V. 99.9
USA Impsat USA, Inc. 100.0
</TABLE>
In addition, the Company owns International Satellite Capacity Holdings, NG
(Liechtenstein) and Filcrown International Corporation (BVI), which serve
intermediary functions to the Company and its operating subsidiaries.
2. MERGERS AND ACQUISITIONS
On June 1, 1998, the Company acquired from Nevasa Holdings Limited
("Nevasa"), the Company's parent, 99.9% of the capital stock of IMPSAT
Comunicacoes Ltda. ("IMPSAT Brazil"), a Brazilian company, for approximately
$5,700. The purchase price for IMPSAT Brazil represented the total amount of
pre-operating and development costs and expenses incurred for IMPSAT Brazil by
Nevasa. IMPSAT Brazil was established by Nevasa and operates under a value added
telecommunications license permitting IMPSAT Brazil to lease satellite capacity
directly from EMBRATEL, Brazil's long-distance carrier, and sell corporate
private telecommunications network services (data, voice and video) using
terrestrial and satellite links to third parties. The acquisition, as is the
case for transactions among companies under common control, has been accounted
for in a manner similar to the pooling of interests method of accounting,
whereby all assets
F-8
<PAGE> 108
IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
On April 20, 1998, the Company signed a definitive agreement to purchase a
75.1% interest in Mandic BBS Planejamento e Informatica S.A. ("Mandic S.A."), a
Brazilian internet access provider, for approximately $9,800. The remaining
24.9% will be owned by Mr. Aleksander Mandic, the founder, and current president
of Mandic S.A. The initial stage of the acquisition of Mandic S.A., pursuant to
which the Company acquired a 58.5% interest, was consummated on May 29, 1998,
and the remaining 16.6% interest was acquired during November 1998. The
acquisition was accounted for as a purchase.
The purchase price was allocated as follows:
<TABLE>
<S> <C>
Estimated fair value of net assets acquired................ $1,794
Goodwill................................................... 7,991
------
Purchase price............................................. $9,785
======
</TABLE>
On July 28, 1999, the Company acquired the remaining 24.9% interest in
Mandic S.A. for $3,700.
The Company merged Mandic S.A. into Impsat Brazil on October 5, 1999 and
Mandic S.A. ceased operations, see Note 15.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation -- The financial statements are presented on a
consolidated basis and include the accounts of the Company and its subsidiaries.
IMPSAT Argentina has been consolidated on the basis of its fiscal year-end,
November 30. Effective December 31, 1997, IMPSAT Argentina changed its fiscal
year to December 31. All significant intercompany transactions and balances have
been eliminated.
Interim Financial Information -- The unaudited consolidated statements as
of September 30, 1999 and for the nine months ended September 30, 1998 and 1999
have been prepared on the same basis as the audited consolidated financial
statements. In the opinion of management, such unaudited consolidated financial
statements include all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the results for such periods. The
operating results for the nine-month period ended September 30, 1999 are not
necessarily indicative of the operating results to be expected for the full
fiscal year for any future period.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents -- Cash and cash equivalents are highly liquid
investments, including short-term investments and time deposits with maturities
of three months or less at the time of purchase. Cash equivalents and short-term
investments are stated at cost, which approximates 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 an engineering fee, an
installation charge and a monthly fee based on the quantity and type of
equipment installed. The fees stipulated in the contracts are generally
denominated in U.S. dollars equivalents. Services
F-9
<PAGE> 109
IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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, 1996, 1997 and
1998 and for the nine months ended September 30, 1998 and 1999.
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 at September 30, 1999. The
effect of this change in estimate totaled approximately $52,100 and was
accounted for prospectively.
Investment -- Investment represents a less than 1.0% ownership interest (at
December 31, 1997 and 1998, and September 30, 1999, respectively) by the Company
in unaffiliated entities established for the purchase and leasing of satellite
capacity time and are accounted for under the cost method.
Deferred Financing Costs -- Debt issuance costs and transaction fees, which
are associated with the issuance of the Company's 12 1/8% Senior Guaranteed
Notes due 2003 (the "Senior Guaranteed Notes") and the 12 3/8% Senior Notes due
2008 (the "Senior Notes") are being amortized (and charged to interest expense)
over the term of the related notes on a method which approximates the level
yield method.
Intangible Assets -- Intangible assets include license and permit costs (in
1997), goodwill (in 1998 and 1999) and capitalized rights-of-way agreements (in
1999). License and permit costs, such as legal costs, regulatory fees and
application costs incurred to obtain and make functional the operating licenses
in each respective country in the amount of approximately $3,700, were
capitalized and were being amortized on the straight-line basis over periods not
to exceed ten years. In connection with the early adoption of the American
Institute of Certified Public Accountants' Statement of Position 98-5, Reporting
on the Costs of Start-Up Activities, as of January 1, 1998, the unamortized
license and permit costs were expensed as a cumulative effect of a change in
accounting principles. Goodwill, representing the excess of the purchase price
over the estimated fair value of the net assets acquired of Mandic S.A. (see
Note 2) of approximately $11,691 and other acquisitions of $900 are being
amortized on a straight-line basis of over a period of 15 years. Capitalized
rights-of-way agreements represent the fees paid and the net present value of
fees to be paid per signed agreements entered into for obtaining rights-of-way
and other permits for the planned Broadband Network. These capitalized
agreements are being amortized over the term of the rights-of-way, which range
from 5 to 20 years. The Company reviews the carrying value of goodwill on an
ongoing basis. If such review indicates that these values may not be
recoverable, the Company's carrying value will be reduced to its estimated fair
value.
Long-Lived Assets -- Long-lived assets are reviewed on an ongoing basis for
impairment based on comparison of carrying value against undiscounted future
cash flows. If an impairment is identified, the assets carrying amount is
adjusted to fair value. No such adjustments were recorded for the years ended
December 31, 1996, 1997, and 1998 and for the nine months ended September 30,
1998 and 1999.
Income Taxes -- Deferred income taxes result from temporary differences in
the recognition of expenses for tax and financial reporting purposes and are
accounted for in accordance with Financial Accounting Standards Board ("FASB")
Statement of Financial Accounting Standards No. 109 ("SFAS No. 109"), Accounting
for Income Taxes, which requires the liability method of computing deferred
income taxes. Under the liability method, deferred taxes are adjusted for tax
rate changes as they occur.
F-10
<PAGE> 110
IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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 fair
value of such financial instruments have been determined using available market
information and interest rates as of December 31, 1997 and 1998 and September
30, 1999.
At December 31, 1998 and September 30, 1999, the fair value of the Senior
Guaranteed Notes and Senior Notes was approximately $299,000 and $324,000,
respectively, compared to the carrying value of $350,000. At December 31, 1997,
the fair value of the Senior Guaranteed Notes was approximately $129,000
compared to the carrying value of $125,000. The fair value of all other
financial instruments were not materially different from their carrying value.
Stock-Based Compensation -- SFAS No. 123, Accounting for Stock-Based
Compensation, encourages, but does not require, companies to record compensation
cost for stock-based employee and non-employee members of the Board of Directors
(the "Board") compensation plans at fair value. The Company has chosen to
continue to account for stock-based compensation to employees and non-employee
members of the Board using the intrinsic value method as prescribed by
Accounting Principles Board Opinion ("APB") No. 25, Accounting for Stock Issued
to Employees, and related interpretations. Accordingly, compensation cost for
stock options issued to employees and non-employee members of the Board are
measured as the excess, if any, of the fair value of the Company's stock at the
date of grant over the amount an employee or non-employee member of the Board
must pay for the stock.
Stock Split -- On January 11, 2000, the Company's Board approved a .592 to
1 reverse common stock split (see Note 15). 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 1996 and 1997 consolidated
financial statements have been reclassified to conform with the 1998
presentation.
New Accounting Pronouncements -- In June 1997, the FASB issued SFAS No.
130, Reporting Comprehensive Income. SFAS No. 130 requires that all components
of comprehensive income be reported on one of the following: (1) the statement
of income; (2) the statement of changes in stockholders' equity; or (3) a
separate statement of comprehensive income. Comprehensive income is comprised of
net income and all changes to stockholders' equity, except those due to
investments by owners (changes in paid-in capital) and distributions to owners
(dividends). SFAS No. 130 was adopted as of January 1, 1998.
In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of
an Enterprise and Related Information. SFAS No. 131 changes the way public
companies report information about segments of their business in their annual
financial statements and requires them to report selected segment information in
their quarterly reports issued to shareholders. SFAS No. 131 also requires
entity-wide disclosures about the products and services an entity provides, the
foreign countries in which it holds assets and reports revenues, and its major
customers. SFAS No. 131 was adopted as of January 1, 1998.
In March 1998, the American Institute of Certified Public Accountants
issues Statement of Position 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use ("SOP 98-1"). SOP 98-1 provides guidance
for capitalizing and expensing the costs of computer software developed or
F-11
<PAGE> 111
IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
obtained for internal use. SOP 98-1 is effective for financial statements for
fiscal year beginning after December 15, 1998. Management does not expect the
adoption of SOP 98-1 to have a significant impact on the Company's financial
statements.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments, and Hedging Activities. Among other provisions, SFAS No. 133
establishes accounting and reporting standards for derivative instruments and
for hedging activities. It also requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. SFAS No. 133 is effective
for financial statements for fiscal years beginning after July 1, 2000.
Management has not determined what effects, if any, the adoption of SFAS No. 133
will have on the Company's financial statements.
4. TRADE ACCOUNTS RECEIVABLE
Trade accounts receivable, by operating subsidiaries, at December 31 and
September 30 are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ SEPTEMBER 30
1997 1998 1999
------- -------- -------------
<S> <C> <C> <C>
IMPSAT Argentina.......................................... $27,531 $ 36,378 $ 44,441
IMPSAT Colombia........................................... 10,102 8,480 7,917
IMPSAT Venezuela.......................................... 2,202 4,293 6,055
IMPSAT Ecuador............................................ 990 1,559 2,154
IMPSAT USA................................................ 1,359 2,836 1,460
IMPSAT Brasil and Mandic S.A.............................. 2,963 1,602
Others.................................................... 345 574 1,370
------- -------- --------
Total........................................... 42,529 57,083 64,999
Less: allowance for doubtful accounts..................... (5,933) (10,109) (18,050)
------- -------- --------
Trade accounts receivable, net............................ $36,596 $ 46,974 $ 46,949
======= ======== ========
</TABLE>
The Company's subsidiaries provide trade credit to their customers in the
normal course of business. The collection of a substantial portion of the trade
receivables are susceptible to changes in the Latin American economies and
political climates. Prior to extending credit, the customers' financial history
is analyzed.
The activity for the allowance for doubtful accounts for the years ended
December 31, 1996, 1997 and 1998 and for the nine months ended September 30,
1999 is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- SEPTEMBER 30,
1996 1997 1998 1999
------ ------ ------- -------------
<S> <C> <C> <C> <C>
Beginning balance.................................. $1,130 $2,803 $ 5,933 $10,109
Provision for doubtful accounts.................... 1,673 3,269 5,312 14,660
Write-offs, net of recoveries...................... (139) (1,136) (6,719)
------ ------ ------- -------
Ending balance..................................... $2,803 $5,933 $10,109 $18,050
====== ====== ======= =======
</TABLE>
F-12
<PAGE> 112
IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. OTHER RECEIVABLES
Other receivables consist primarily of refunds or credits pending from
local governments for taxes other than income, advances to suppliers, and other
miscellaneous amounts due to the Company and its operating subsidiaries as
follows at December 31, and September 30:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- SEPTEMBER 30,
1997 1998 1999
------- ------- -------------
<S> <C> <C> <C>
IMPSAT Argentina................................... $ 4,753 $ 6,439 $ 6,528
IMPSAT Colombia.................................... 4,460 5,064 4,733
IMPSAT Venezuela................................... 2,133 2,527 1,523
IMPSAT Ecuador..................................... 548 835 485
IMPSAT Mexico...................................... 2,133 1,078 2,437
IMPSAT Brazil and Mandic S.A....................... 1,124 2,708
Others............................................. 1,556 3,043 1,706
------- ------- -------
Total.................................... $15,583 $20,110 $20,120
======= ======= =======
</TABLE>
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31, and September 30 consisted
of:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1997 1998 1999
-------- --------- -------------
<S> <C> <C> <C>
Land............................................ $ 1,478 $ 1,750 $ 3,819
Building and improvements....................... 23,312 29,760 28,145
Operating communications equipment.............. 301,525 398,577 467,207
Furniture, fixtures and other equipment......... 14,503 20,271 19,185
-------- --------- ---------
Total................................. 340,818 450,358 518,356
Less: accumulated depreciation.................. (92,255) (126,728) (211,430)
-------- --------- ---------
Total................................. 248,563 323,630 306,926
Equipment in transit............................ 6,525 4,289 2,459
Projects in process (Broadband Network in
1999)......................................... 334 2,807 7,834
-------- --------- ---------
Property, plant and equipment, net.............. $255,422 $ 330,726 $ 317,219
======== ========= =========
</TABLE>
The recap of accumulated depreciation for the years ended December 31,
1996, 1997 and 1998 and for the nine months ended September 30, 1999 is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------- SEPTEMBER 30,
1996 1997 1998 1999
------- ------- -------- -------------
<S> <C> <C> <C> <C>
Beginning balance............................... $47,155 $64,250 $ 92,255 $126,728
Depreciation expense............................ 25,913 29,665 36,027 85,939
Disposals and retirements....................... (8,818) (1,660) (1,554) (1,237)
------- ------- -------- --------
Ending balance.................................. $64,250 $92,255 $126,728 $211,430
======= ======= ======== ========
</TABLE>
F-13
<PAGE> 113
IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. SHORT-TERM DEBT
The Company's short-term debt at December 31, and September 30, is detailed
as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- SEPTEMBER 30,
1997 1998 1999
------- ------- -------------
<S> <C> <C> <C>
Commercial paper (7.55% to 8.33%)................... $25,000
Short-term credit facilities, denominated in U.S.
dollars; interest rates ranging from 5.72% to
15.00%;
IMPSAT Argentina.................................. 15,850 $11,000 $10,240
IMPSAT Colombia................................... 5,414 5,859 422
IMPSAT Venezuela.................................. 1,714
IMPSAT Ecuador.................................... 992 186
Others............................................ 203 719
Short-term credit facilities, denominated in local
currencies; local interest rates ranging from
12.0% to 25.0%;
IMPSAT Argentina.................................. 2,000
IMPSAT Colombia................................... 4,408
IMPSAT Ecuador.................................... 200
IMPSAT Venezuela.................................. 1,219
------- ------- -------
Total short-term debt..................... $50,189 $19,262 $15,975
======= ======= =======
</TABLE>
The Company has historically refinanced its short term credit facilities on
an annual basis.
F-14
<PAGE> 114
IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. LONG-TERM DEBT
The Company's long-term debt at December 31, and September 30, is detailed
as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- SEPTEMBER 30,
1997 1998 1999
-------- -------- -------------
<S> <C> <C> <C>
12.125% Senior Guaranteed Notes due 2003................. $125,000 $125,000 $125,000
12.375% Senior Notes due 2008............................ 225,000 225,000
Term notes payable:
IMPSAT Colombia; with maturities through 2002
collateralized by equipment with a carrying value of
approximately $14,000 and the assignment of customer
contracts totalling approximately $12,000
denominated in:
U.S. dollars (interest rates 8.50% -- 13.13%)....... 27,111 32,204 25,435
Local currency (interest rates 20% -- 41%).......... 6,380 6,156 12,533
IMPSAT Argentina (6.56% -- 6.75%), maturing
semiannually through 2003, collateralized by
investment.......................................... 2,435 4,802 4,184
IMPSAT USA (8.25% -- 8.75%), mortgage and other
collateralized debts................................ 2,066 1,811
IMPSAT Venezuela (9.00% -- 10.75%), maturing during
2001................................................ 5,550 3,508 1,683
IMPSAT Brazil (12.69%), maturing during 2004........... 3,854
Eximbank notes payable (7.00%), maturing semiannually
through 1999 and 2004.................................. 3,387 1,694 7,723
-------- -------- --------
Total long-term debt........................... 169,863 400,430 407,223
Less: current portion.................................... (10,186) (21,138) (23,110)
-------- -------- --------
Long-term debt, net...................................... $159,677 $379,292 $384,113
======== ======== ========
</TABLE>
The scheduled maturities of long-term debt at December 31, 1998 are as
follows:
<TABLE>
<CAPTION>
FISCAL YEAR
- -----------
<S> <C>
1999..................................................... $ 21,138
2000..................................................... 19,613
2001..................................................... 5,541
2002..................................................... 3,029
2003 and thereafter...................................... 351,109
--------
Total.......................................... $400,430
========
</TABLE>
The Senior Guaranteed Notes, Senior Notes and some of the term notes
payable for IMPSAT Colombia and IMPSAT Venezuela contain certain covenants
requiring certain financial ratios, limiting the incurrence of additional
indebtedness and capital expenditures, and restricting the ability to pay
dividends.
F-15
<PAGE> 115
IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. INCOME TAXES
The components of the (provision for) benefit from income taxes, all of
which are for foreign taxes, for the years ended December 31, 1996, 1997 and
1998 and for the nine months ended September 30, 1998 and 1999 is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
--------------------------- -----------------
1996 1997 1998 1998 1999
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Current.............................. $ (530) $ (299) $(3,932) $(3,123) $ (974)
Deferred............................. (3,012) (4,964) 127 765 19,926
------- ------- ------- ------- -------
Total...................... $(3,542) $(5,263) $(3,805) $(2,358) $18,952
======= ======= ======= ======= =======
</TABLE>
The foreign statutory tax rates range from 20% to 35% depending on the
particular country. There is no provision or benefit for U.S. income taxes, as
the Company has net operating loss carryforwards in the amount of $24,235, which
begin to expire in the year 2010. Deferred taxes result from temporary
differences in the capitalization policies of preoperating costs and net
operating loss carryforwards. The composition of net deferred tax liability at
December 31 is as follows:
<TABLE>
<CAPTION>
1997 1998
------- --------
<S> <C> <C>
Deferred tax assets:
Preoperating costs:
IMPSAT Colombia........................................ $ 1,698 $ 1,787
IMPSAT Venezuela....................................... 1,380 1,065
IMPSAT Ecuador......................................... 58
Net operating loss carryforwards:
IMPSAT Brazil.......................................... 2,576
IMPSAT Venezuela....................................... 4,048 3,604
IMPSAT Mexico.......................................... 2,487 3,369
IMPSAT Ecuador......................................... 876
Company and IMPSAT USA................................. 2,745 9,249
Other:
IMPSAT Colombia........................................ 139 23
IMPSAT Mexico.......................................... 54 63
------- --------
Gross deferred tax assets................................... 13,485 21,736
------- --------
Deferred tax liabilities:
IMPSAT Argentina.......................................... (4,301) (4,301)
IMPSAT Colombia........................................... (389)
IMPSAT Mexico............................................. (293) (197)
------- --------
Gross deferred tax liabilities.............................. (4,983) (4,498)
------- --------
Less: valuation allowance................................... (8,749) (17,358)
------- --------
Net deferred tax liability.................................. $ (247) $ (120)
======= ========
</TABLE>
As there is no assurance that the Company will generate sufficient earnings
to utilize its available tax assets, a valuation allowance has been established
to offset deferred tax assets.
F-16
<PAGE> 116
IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. REDEEMABLE PREFERRED STOCK
On March 19, 1998, the Company redeemed 25% of its outstanding common stock
previously held by STET International Netherlands NV (the "STET Shares") with
the proceeds of a substantially concurrent issuance and sale of $125,000 of the
Company's Series A Convertible Preferred Stock (the "Series A Preferred Stock").
The Series A Preferred Stock was offered and sold to Princes Gate Investors II,
L.P. ("Princes Gate") and Morgan Stanley Global Emerging Markets Private
Investment Fund, L.P. ("MSGEM"), two private equity funds that are affiliates of
Morgan Stanley Dean Witter & Co., and to certain other investors affiliated with
Princes Gate and MSGEM (such investors along with Princes Gate and MSGEM, the
"Purchasers"). The Series A Preferred Stock was convertible at September 30,
1999 into 20.6% of the Common Stock of the Company.
The following are some of the principal features of the Series A Preferred
Stock: (a) cumulative dividends at the rate of 10% per annum, compounded
quarterly and, with certain exceptions, payable in kind; (b) mandatorily
redeemable in cash by the Company at maturity (ten years after issuance) plus
accrued and unpaid dividends; (c) callable under certain circumstances by the
Company, in whole, at 100% of the principal amount, plus accrued and unpaid
dividends; (d) convertible into common stock of the Company at any time at the
option of the Purchasers (including upon a call by the Company), at a specified
conversion rate subject to certain antidilution rights; (e) the right by
Purchasers holding a certain minimum number of outstanding Series A Preferred
Stock to appoint two directors to the Company's Board of Directors as well as to
immediately appoint half of the members of the Company's Board of Directors upon
the occurrence of certain specified events; and (f) the right by Directors
appointed by the Purchasers holding a certain minimum number of outstanding
Series A Preferred Stock, to a veto over certain major corporate actions.
11. STOCK OPTION PLAN
In December 1998, the Company adopted the 1998 Stock Option Plan (the "1998
Plan"), pursuant to which 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 nine months ended September 30, 1999. These
options vest on each of the first, second and third anniversaries of the date of
grant, as to 10%, 30%, and 30%, respectively, of the granted shares. On the
fourth anniversary of the date of grant, the option vests as to the remainder of
the granted shares.
The Company applies APB No. 25 and related interpretations in accounting
for its stock options plan to employees and non-employee members of the Board as
described in Note 1. Accordingly, no compensation expense has been recognized in
the year ended December 31, 1998 and the nine months ended September 30, 1999
related to this plan.
For purposes of the following pro forma disclosures, the fair value of the
options granted in 1998 and 1999 was estimated using the minimum value method
prescribed by SFAS No. 123 for nonpublic entities with the following
assumptions: no dividend yields; no volatility; risk-free interest rate of 7.0%;
and an expected term of
F-17
<PAGE> 117
IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 $225 and $231
for the year ended December 31, 1998 and the nine months ended September 30,
1999, respectively.
12. OPERATING SEGMENT INFORMATION
The Company's operating segment information, by subsidiary (eliminating
intercompany transactions), is as follows as of and for the years ended December
31, 1996, 1997 and 1998 and for the nine months ended September 30, 1998 and
1999:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------------------ -------------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
TOTAL ASSETS
IMPSAT Argentina.............. $177,952 $197,820 $234,844 $221,033 $226,743
IMPSAT Colombia............... 70,501 85,709 105,187 100,069 92,733
IMPSAT Venezuela.............. 23,718 27,478 36,269 34,230 38,426
IMPSAT Mexico................. 7,043 6,199 8,640 10,244 10,424
IMPSAT Ecuador................ 9,795 12,991 21,262 20,573 21,839
IMPSAT USA.................... 997 5,931 15,095 12,812 16,750
IMPSAT Brazil................. 27,348 16,731 55,473
Parent Company and Others..... 25,224 3,788 78,573 138,622 136,804
-------- -------- -------- -------- --------
CONSOLIDATED TOTAL.... $315,230 $339,916 $527,218 $554,314 $599,192
======== ======== ======== ======== ========
NET REVENUES FROM SERVICES
SATELLITE BASED VSAT TECHNOLOGY
IMPSAT Argentina.............. $ 37,473 $ 33,022 $ 37,653 $ 29,101 $ 31,361
IMPSAT Colombia............... 15,950 17,458 13,491 12,386 9,221
IMPSAT Venezuela.............. 1,514 2,623 4,318 3,235 6,958
IMPSAT Mexico................. 16 65 184 121 204
IMPSAT Ecuador................ 1,159 1,467 1,624 1,223 1,310
IMPSAT USA.................... -- 32
IMPSAT Brazil................. 469 244 1,399
-------- -------- -------- -------- --------
CONSOLIDATED TOTAL.... $ 56,112 $ 54,635 $ 57,739 $ 46,310 $ 50,485
======== ======== ======== ======== ========
SCPC TECHNOLOGY
IMPSAT Argentina.............. $ 31,232 $ 31,638 $ 26,078 $ 18,918 $ 19,119
IMPSAT Colombia............... 11,416 15,336 22,058 15,842 19,429
IMPSAT Venezuela.............. 2,694 5,041 6,938 4,826 5,988
IMPSAT Mexico................. 182 1,321 2,951 2,094 1,678
IMPSAT Ecuador................ 1,511 2,967 5,433 3,674 4,932
IMPSAT USA.................... 471 3,547 6,536 5,427 4,385
IMPSAT Brazil................. 1,019 482 1,500
-------- -------- -------- -------- --------
CONSOLIDATED TOTAL.... $ 47,506 $ 59,850 $ 71,013 $ 51,263 $ 57,031
======== ======== ======== ======== ========
</TABLE>
F-18
<PAGE> 118
IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------------------ -------------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
TERRESTRIAL BASED
IMPSAT Argentina.............. $ 5,432 $ 7,123 $ 16,389 $ 12,009 $ 13,714
IMPSAT Colombia............... 5,416 12,073 15,696 11,555 8,910
IMPSAT Venezuela.............. 212 443 837 530 1,041
IMPSAT Mexico................. 9 64 47 92
IMPSAT Ecuador................ 17 209 604 422 919
IMPSAT Brazil................. 46 26 134
-------- -------- -------- -------- --------
CONSOLIDATED TOTAL.... $ 11,077 $ 19,857 $ 33,636 $ 24,589 $ 24,810
======== ======== ======== ======== ========
VALUE ADDED
IMPSAT Argentina.............. $ 11,011 $ 19,007 $ 18,025 $ 11,991 $ 12,717
IMPSAT Colombia............... 2,496 4,646 8,658 5,303 7,234
IMPSAT Venezuela.............. 76 500 2,772 1,684 2,130
IMPSAT Mexico................. 32 1,145 1,077 195
IMPSAT Ecuador................ 115 871 2,156 1,454 2,320
IMPSAT USA.................... 1,471 2,587 1,220 2,410
IMPSAT Brazil................. 2,112 462 1,278
Parent Company and Others..... 196 8,246 4,535 6,519
-------- -------- -------- -------- --------
CONSOLIDATED TOTAL.... $ 13,698 $ 26,723 $ 45,701 $ 27,726 $ 34,803
======== ======== ======== ======== ========
TOTAL
IMPSAT Argentina.............. $ 85,148 $ 90,790 $ 98,145 $ 72,019 $ 76,911
IMPSAT Colombia............... 35,278 49,513 59,903 45,086 44,794
IMPSAT Venezuela.............. 4,496 8,607 14,865 10,275 16,117
IMPSAT Mexico................. 198 1,427 4,344 3,339 2,169
IMPSAT Ecuador................ 2,802 5,514 9,817 6,773 9,481
IMPSAT USA.................... 471 5,018 9,123 6,647 6,827
IMPSAT Brazil................. 3,646 1,214 4,311
Parent Company and Others..... 196 8,246 4,535 6,519
-------- -------- -------- -------- --------
CONSOLIDATED TOTAL.... $128,393 $161,065 $208,089 $149,888 $167,129
======== ======== ======== ======== ========
OPERATING INCOME (LOSS)
IMPSAT Argentina.............. $ 14,459 13,299 $ 14,779 $ 14,022 $(32,164)
IMPSAT Colombia............... 14,256 20,213 21,458 18,562 (3,434)
IMPSAT Venezuela.............. (731) (811) 366 1,334 (1,662)
IMPSAT Mexico................. (1,759) (1,809) (2,333) (1,194) (3,017)
IMPSAT Ecuador................ 82 1,651 1,535 2,225 256
IMPSAT USA.................... (325) 297 1,057 698 (293)
IMPSAT Brazil................. -- -- (7,611) (4,297) (11,889)
Parent Company and Others..... (7,917) (9,476) (2,381) (13,674) (10,767)
-------- -------- -------- -------- --------
CONSOLIDATED TOTAL.... $ 18,065 $ 23,364 $ 26,870 $ 17,676 $(62,970)
======== ======== ======== ======== ========
</TABLE>
13. RELATED PARTY TRANSACTIONS
The Company in the normal course of its business provides
telecommunications network services to affiliates of its majority stockholder
and to affiliates of the minority stockholders of certain of its subsidiaries.
During the years ended December 31, 1996, 1997 and 1998, such services totaled
approximately $1,800,
F-19
<PAGE> 119
IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$6,700 and $10,080, respectively. In addition, the Company also enters into
transactions with such affiliates, which primarily include financial
(borrowings), insurance, and employee benefits services. During the years ended
December 31, 1996, 1997 and 1998, such transactions totaled approximately $856,
$3,755 and $4,256, respectively.
Investment banking fees amounting to $5,900 were paid to representative
affiliates of the redeemable preferred stock shareholders during 1998.
14. COMMITMENTS AND CONTINGENCIES
The Company leases satellite capacity with average annual rental
commitments of approximately $26,000, through the year 2003. In addition, the
Company has commitments to purchase communications equipment amounting to
approximately $6,833 and $14,600 at December 31, 1998 and September 30, 1999,
respectively, and was obligated under letter of credits amounting to
approximately $69 at December 31, 1998.
The Company is a third party guarantor of up to 75% of a $6,000 credit
facility provided to IMPSAT Venezuela by a regional development fund. At
December 31, 1998 and September 30, 1999, the balance outstanding on the credit
facility amounted to approximately $3,500 and $1,700, respectively.
IMPSAT Brazil has entered into a $3,900 term note with El Camino Resources,
which is guaranteed by the Company and IMPSAT Argentina.
During May 1997, the Company and IMPSAT Argentina entered into a three
party arrangement with a financial institution whereby $60,000 was borrowed by
the subsidiary and concurrently a like amount certificate of deposit was placed
at the financial institution by the Company. The arrangements establish a right
of setoff and, accordingly, the amounts have been netted for purposes of the
consolidated financial statement presentation. The arrangements expired in
October 1999.
The Company is involved in or subject to various litigation and legal
proceedings incidental to the normal conduct of its business. Whenever
justified, the Company expects to vigorously prosecute or defend such claims,
although there can be no assurance that the Company will ultimately prevail with
respect to any such matters.
In November 1996, IMPSAT Argentina filed suit against one of its customers,
ENCOTESA, for amounts due and arising under IMPSAT Argentina's contracts with
ENCOTESA, the Argentine national postal service for $7,300. In 1996, the Company
reclassified the trade account receivables from ENCOTESA to non-current assets
at the estimated net realizable value of $5,143 as determined by the Company's
management based on the advice of local legal counsel. At September 30, 1999,
the Company had estimated the net realizable value to be zero and, accordingly,
recorded an adjustment of $5,143, which is included within selling, general and
administrative expenses in the accompanying consolidated statement of
operations.
15. SUBSEQUENT EVENTS
Devaluations -- The Brazilian Central Bank introduced changes in the
exchange policies by the end of the second week of January 1999. These changes
eliminated the exchange range whereby the fluctuation margin of the Brazilian
real in relation to the United States dollar was managed, allowing the market to
freely negotiate the rate of exchange. The Brazilian real has experienced a
significant decline in value in relation to the United States dollar, if
compared with the prevailing exchange rates of December 31, 1998. As a result of
this devaluation, the Company has recorded approximately $11,226 in foreign
exchange losses during the nine-month period ended September 30, 1999, which are
reflected in net gain (loss) on foreign exchange in the accompanying statement
of operations. The Company continues to operate in Brazil and therefore has
exposure to further currency exchange risk.
F-20
<PAGE> 120
IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In the first week of January 2000, the Ecuadoran government declared a
national emergency and the Ecuadoran sucre devalued approximately 40% against
the U.S. dollar. The effect on the Company is yet to be determined. On January
21, 2000, Ecuador suffered a military coup, which ousted Mr. Jamil Mahuad, the
constitutionally elected President of Ecuador, from office before the military
junta was disbanded shortly thereafter, with power being ceded to Mr. Gustavo
Noboa, who was formerly Vice-President under Mr. Mahuad.
Common Stock -- In connection with the Share Purchase Agreement described
below, the Board amended and restated the articles of incorporation of the
Company, increasing the authorized shares of common stock from 150,000,000 to
175,400,000.
Share Purchase Agreement -- On March 11, 1999, a Share Purchase Agreement
was entered into among the Company, Nevassa and Nunsgate Limited, a wholly owned
subsidiary of British Telecommunications plc ("BT"), in which the Company agreed
to issue, sell and deliver 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 $125,000 and $25,000, respectively. These transactions were consummated on
April 19, 1999.
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 $265,000. 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
- 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
- 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 Networks to borrow an aggregate
of up to approximately $149,000 and $148,300, 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
F-21
<PAGE> 121
IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$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 $64,000 for the Company's turnkey
construction of the Trans-Andean Crossing System, which includes:
- 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
During September 1999, Global Crossing paid the Company $23,200 in respect
of the ongoing construction of the Trans-Andean Crossing System.
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.
Framework Agreement with El Sitio -- On August 4, 1999, the Company entered
into a Framework Agreement with El Sitio, Inc. for the sale of the Company's
retail Internet businesses in Argentina, Brazil and Colombia for approximately
$21,500 and the purchase of shares of El Sitio's 8% convertible redeemable
preferred stock for $21,500. 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. In connection
with these transactions, El Sitio will enter into telecommunications services
agreements with IMPSAT Argentina, IMPSAT Brazil and IMPSAT Columbia under which
these entities will provide El Sitio with telecommunication networks to access
the Internet backbone. El Sitio, a British Virgin Islands corporation, is an
Internet content and Internet service provider headquartered in Argentina that
has other offices in Brazil, Mexico, Uruguay and the United States. The Company
has classified and will account for its investment in El Sitio's common stock as
"available for sale" securities in accordance with SFAS No. 115, Accounting for
Certain Investments in Debt and Equity Securities.
In anticipation of the Brazil transaction contemplated by the El Sitio
Framework Agreement, the Company merged Mandic S.A. into IMPSAT Brazil on
October 5, 1999, and Mandic S.A. ceased operations. On October 6, 1999, IMPSAT
Brazil sold the retail internet business acquired in the Mandic S.A. merger 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 $12,300.
F-22
<PAGE> 122
IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On November 5, 1999, IMPSAT Argentina consummated the sale of its retail
Internet businesses to El Sitio for $6,200, of which $5,300 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 $3,000. The Company and El Sitio expect to consummate the sale of the
Company's retail internet business in Colombia to El Sitio during February 2000.
New Stock Option Plan -- On January 5, 2000, the Company's board of
directors adopted the 1999 stock option 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 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 each of the fourth, fifth, sixth and seventh
anniversaries, respectively, of the date of grant or upon a change of
control of the Company
The expiration date of the 1999 stock option plan is January 5, 2010
Initial Public Offering -- The Company's Board has authorized the filing of
a registration statement relating to an initial public offering ("IPO") of
11,500,000 shares of common stock. In addition, British Telecommunications has
agreed to purchase shares of the Company's common stock simultaneously with this
offering to maintain its approximate current ownership share in the Company. In
connection with 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.
The Purchasers of the redeemable preferred stock have informed the Company
that they will covert their preferred shares into 14,917,915 common stock at the
closing of the IPO and the Company will use a portion of the proceeds from the
IPO to redeem the remaining shares of its preferred stock.
* * * * * *
F-23
<PAGE> 123
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses (other than underwriting
compensation) expected to be incurred by us in connection with this offering.
All of these amounts (other than the SEC Registration Fee and NASD filing fee)
are estimated.
<TABLE>
<S> <C>
Registration Fee........................................ $ 44,604
NASD Filing Fee......................................... 16,600
Nasdaq National Market Listing Fee...................... 43,125
Legal Services.......................................... 600,000
Printing and Engraving.................................. 150,000
Accounting Fees......................................... 200,000
Blue Sky Fees and Expenses.............................. 10,000
Miscellaneous........................................... 545,671
----------
Total......................................... $1,610,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify any persons, including directors and officers, who are
(or are threatened to be made) parties to any threatened, pending or completed
legal action, suit or proceeding (whether civil, criminal, administrative or
investigative) by reason of their being directors or officers of the
corporation. The indemnity may include expenses, attorneys' fees, judgments,
fines and amounts paid in settlement, provided such sums were actually and
reasonably incurred in connection with such action, suit or proceeding and
provided the director or officer acted in good faith and in a manner he
reasonably believed to be in or not opposed to the corporation's best interests
and, in the case of criminal proceedings, provided he had no reasonable cause to
believe that his conduct was unlawful. The corporation may indemnify directors
and officers in a derivative action (in which suit is brought by a stockholder
on behalf of the corporation) under the same conditions, except that no
indemnification is permitted without judicial approval if the director or
officer is adjudged liable to the corporation. If the director or officer is
successful on the merits or otherwise in defense of any actions referred to
above, the corporation must indemnify him against the expenses and attorneys'
fees he actually and reasonably incurred.
Article VII Section 1 of our by-laws provides that we shall indemnify our
officers and directors to the fullest extent permitted by the Delaware General
Corporation Law.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On March 19, 1998, the Morgan Stanley investors purchased 25,000 shares of
our Series A preferred stock. On April 19, 1999, we sold 20,158,528 newly issued
shares of its common stock to Nunsgate Limited. These transactions were effected
without the securities sold being registered under the Securities Act, in
reliance upon the exemption provided by Section 4(2) of the Securities Act for
transactions not involving a public offering.
We have agreed to issue 5,472,579 shares of our common stock to minority
shareholders in our subsidiaries in Argentina, Venezuela and Colombia in
exchange for their minority interests in those subsidiaries. These transactions
will be effected without the securities being registered under the Securities
Act, in reliance upon the exemption provided by Regulation S under the
Securities Act.
II-1
<PAGE> 124
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits. The exhibits listed on the Exhibit Index of this Registration
Statement (numbered in accordance with Item 601 of Regulation S-K) are filed
herewith, or, as noted, have been previously filed, will be filed by amendment,
or are incorporated herein by reference to other filings.
(b) Financial Statement Schedules. All schedules for which provision is
made in the applicable accounting regulations of the Commission are omitted
because they are not applicable, or the information is included in the financial
statements included herein.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes as follows:
(1) The undersigned will provide to the underwriters at the closing
specified in the underwriting agreement certificates in such denominations
and registered in such names as required by the underwriters to permit
prompt delivery to each purchaser.
(2) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance on Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it is declared effective.
(3) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities a that time shall be
the initial bona fide offering thereof.
(4) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the provisions described in Item 14,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
II-2
<PAGE> 125
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment to the registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the city of Buenos
Aires in the Republic of Argentina, January 28, 2000.
IMPSAT FIBER NETWORKS, INC.
By: /s/ RICARDO A. VERDAGUER
----------------------------------
Ricardo A. Verdaguer
President and Chief Executive
Officer of IMPSAT Fiber
Networks, Inc.
Date: January 28, 2000
II-3
<PAGE> 126
POWER OF ATTORNEY
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933 THIS AMENDMENT
NO. 2 TO 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/ * Chairman of the Board of January 28, 2000
- ----------------------------------------------------- Directors of IMPSAT
Enrique M. Pescarmona Fiber Networks, Inc.
/s/ RICARDO A. VERDAGUER Director, President and January 28, 2000
- ----------------------------------------------------- Chief Executive Officer
Ricardo A. Verdaguer of IMPSAT Fiber
Networks, Inc.
/s/ GUILLERMO JOFRE Chief Financial Officer of January 28, 2000
- ----------------------------------------------------- IMPSAT Fiber Networks,
Guillermo Jofre Inc.
/s/ JOSE R. TORRES Vice President, January 28, 2000
- ----------------------------------------------------- Administration and Chief
Jose R. Torres Accounting Officer of
IMPSAT Fiber Networks,
Inc.
/s/ * Director, Deputy Chief January 28, 2000
- ----------------------------------------------------- Executive Officer and
Roberto Vivo Vice President,
Marketing of IMPSAT
Fiber Networks, Inc.
/s/ * Director and Vice January 28, 2000
- ----------------------------------------------------- President, International
Alexander Rivelis Development of IMPSAT
Fiber Networks, Inc.
/s/ * Director of IMPSAT Fiber January 28, 2000
- ----------------------------------------------------- Networks, Inc.
Lucas Pescarmona
/s/ * Director of IMPSAT Fiber January 28, 2000
- ----------------------------------------------------- Networks, Inc.
Sofia Pescarmona
/s/ * Director of IMPSAT Fiber January 28, 2000
- ----------------------------------------------------- Networks, Inc.
Jeronimo Bosch
/s/ * Director of IMPSAT Fiber January 28, 2000
- ----------------------------------------------------- Networks, Inc.
Stephen R. Munger
</TABLE>
II-4
<PAGE> 127
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
Director of IMPSAT Fiber January 28, 2000
- ----------------------------------------------------- Networks, Inc.
Geoffrey Almeida
Director of IMPSAT Fiber January 28, 2000
- ----------------------------------------------------- Networks, Inc.
John McElligott
*By: /s/ GUILLERMO JOFRE
---------------------------------------
Guillermo Jofre
Attorney in Fact
</TABLE>
II-5
<PAGE> 128
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NO.
- ------- ----------- ----
<C> <S> <C>
1.1** -- Form Underwriting Agreement among the Company, Morgan
Stanley & Co., Inc., Goldman, Sachs & Co. and Salomon
Smith Barney, Inc.
3.1** -- Amended and Restated Certificate of Incorporation of the
Company
3.2** -- Amended and Restated Bylaws of the Company
4.1* -- Securityholders Agreement dated as of March 19, 1998,
among Nevasa Holdings, the Morgan Stanley investors and
certain other parties
4.2** -- Shareholders Agreement dated as of March 10, 1999
4.3** -- Specimen Stock Certificate
5.1 -- Opinion of Arnold & Porter as to the legality of the
securities being registered (including consent)
9.1** -- 1999 Stock Option Plan
10.1+** -- Global Crossing Framework Agreement
10.2+** -- Turnkey Project Agreement between IMPSAT Argentina and
Nortel
In accordance with Instruction 2 to Item 601 of Regulation
S-K, the following agreement was not filed as an exhibit
because it is substantially identical in all material
respects to Exhibit 10.2: Turnkey Project Agreement
between IMPSAT Brazil and Nortel
10.3+** -- TAC Turnkey Construction and IRU Agreement among IMPSAT
Argentina, IMPSAT Chile and South American Crossing Ltd.
10.4** -- Financing Agreement between IMPSAT Argentina and Nortel
In accordance with Instruction 2 to Item 601 of Regulation
S-K, the following agreement was not filed as an exhibit
because it is substantially identical in all material
respects to Exhibit 10.4: Vendor Financing Agreement
between IMPSAT Brazil and Nortel
10.5 -- Form of Subscription Agreement between the Company and
Nunsgate Limited
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 5.1 hereto)
24.1** -- Power of Attorney (included on the signature page hereto)
27.1** -- Financial Data Schedule
</TABLE>
- ------------
* Previously filed as an exhibit to the Company's Annual Report on Form 10-K
for 1997, filed with the Commission on April 15, 1998, and incorporated
herein by reference.
** Previously filed.
+ Confidential treatment requested as to certain portions, which portions
were omitted and filed separately with the Commission.
<PAGE> 1
EXHIBIT 5.1
January 28, 2000
Board of Directors
IMPSAT Fiber Networks, Inc.
Alferez Pareja 256 (1107)
Buenos Aires
Argentina
Ladies and Gentlemen:
We are acting as counsel to IMPSAT Fiber Networks, Inc., a Delaware
corporation (the "Company"), in connection with the Company's filing with the
Securities and Exchange Commission pursuant to the Securities Act of 1933, as
amended (the "1933 Act"), of a registration statement on Form S-1 (the
"Registration Statement") relating to the proposed initial public offering by
the Company of 11,500,000 shares (13,225,000 shares if the Underwriter's
over-allotment option is fully exercised) (the "Shares") of the Company's
common stock, par value $.001 per share. This opinion is furnished to you at
your request to enable you to fulfill the requirements of Item 601(b)(5) of
Regulation S-K, 17 C.F.R. (S) 229.601(b)(5), in connection with the
Registration Statement.
For purposes of this opinion, we have examined such corporate records
of the Company, including executed copies of the Registration Statement and
Amendment No. 1 thereto, the Company's Amended and Restated Certificate of
Incorporation, the Company's Amended and Restated Bylaws, resolutions of the
Company's Board of Directors (including resolutions relating to the issuance and
sale of the Shares and arrangements in connection therewith) and the proposed
form of underwriting agreement by and among the Company and Morgan Stanley & Co.
Incorporated, Goldman, Sachs & Co., and Salomon Smith Barney Inc., filed as
Exhibit 1 to the Registration Statement (the "Underwriting Agreement"), and such
other documents as we deem necessary for rendering the opinion hereafter
expressed.
In our examination of the aforesaid documents, we assumed the
genuineness of all signatures, the legal capacity of all natural persons, the
accuracy and completeness of all documents submitted to us, the authenticity of
all original documents and the conformity to authentic original documents of all
documents submitted to us as copies (including telecopies). We also have assumed
the accuracy, completeness and authenticity of statements of fact on which we
are relying and have made no independent investigations
<PAGE> 2
IMPSAT Fiber Networks, Inc.
January 28, 2000
Page 2
thereof. This opinion is given, and all statements herein are made, in the
context of the foregoing.
This opinion is based as to matters of law solely on the General
Corporation Law of the State of Delaware. We express no opinion herein as to any
other laws, statutes, regulations or ordinances.
Based upon, subject to and limited by the foregoing, we are of the
opinion that following (i) final action of the pricing committee of the Board of
Directors of the Company approving the price of the Shares and (ii) the issuance
and sale of the Shares pursuant to the terms of the Underwriting Agreement, the
Shares will be validly issued, fully paid and nonassessable under the General
Corporation Law of the State of Delaware.
We assume no obligation to advise you of any changes in the foregoing
subsequent to the delivery of this opinion. We hereby consent to the filing of
this opinion as Exhibit 5 to the Registration Statement and to the reference to
this firm under the caption "Legal Matters" in the prospectus constituting a
part of the Registration Statement. In giving this consent, we do not thereby
admit that we are an "expert" within the meaning of the 1933 Act.
Sincerely,
/s/ ARNOLD & PORTER
Arnold & Porter
<PAGE> 1
EXHIBIT 10.5
SUBSCRIPTION AGREEMENT
dated as of
January 31, 2000
between
IMPSAT FIBER NETWORKS INC.
and
NUNSGATE LIMITED
<PAGE> 2
SUBSCRIPTION AGREEMENT
SUBSCRIPTION AGREEMENT, dated as of January 31, 2000, between IMPSAT
Fiber Networks, Inc., a Delaware corporation (the "Issuer") and Nunsgate
Limited, a wholly owned Subsidiary of British Telecommunications plc, (the
"Purchaser").
WHEREAS, the Issuer desires to issue, sell and deliver to the
Purchaser 2,850,000 shares of Common Stock, par value $0.01 per share (the
"Shares"), upon the terms and conditions set forth in this Agreement;
WHEREAS, the Purchaser desires to subscribe for the Shares from the
Issuer upon the terms and conditions set forth in this Agreement; and
WHEREAS, on the Closing Date, for good and valuable consideration,
the Issuer shall issue to the Purchaser the Shares upon the terms and conditions
set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants, promises
and agreements herein contained, the parties hereto do hereby bind themselves
and agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions.
(a) In addition to terms defined elsewhere herein, the following
terms, as used herein, have the following meanings:
"Affiliate" has the meaning assigned to such term by Rule 144 under
the Securities Act.
"Business Day" means any day that is not a Saturday, a Sunday or
other day on which banks are required or authorized by Law to be closed in the
City of New York.
"Bylaws" means the Bylaws of the Issuer in effect as of the date
hereof.
"Charter" means the Certificate of Incorporation of the Issuer in
effect as of the date hereof.
<PAGE> 3
"Common Stock" means the common stock, par value $0.01 per share, of
the Issuer.
"Governmental Authority" means any United States federal, state or
local or any foreign government, governmental, regulatory or administrative
authority, agency or commission or any court, tribunal, or judicial or arbitral
body.
"Governmental Authorization" shall mean any approval, authorization,
permit, order, consent, exemption or license or any other action of or by, or
notice to or filing or registration with any agencies, departments, ministries,
authorities, statutory or public corporations or other statutory bodies, now
existing or hereinafter created of the United States, the United Kingdom or the
Republic of Argentina, or of any state, municipality or other political
subdivision thereof.
"Law" means any United States federal, state, local or foreign
statute, law, ordinance, regulation, rule, code, order or other requirement or
rule of law.
"Material Adverse Change" means a material adverse change, or any
event, occurrence, state of circumstances or facts or development involving a
prospective material adverse change, in the business, operations, assets,
condition (financial or otherwise), results of operations, properties, assets,
value or prospects of the Issuer and its Subsidiaries taken as a whole.
"Material Adverse Effect" means a material adverse effect, or any
event, occurrence, state of circumstances or facts or development involving a
prospective material adverse effect, on the business, operations, assets,
condition (financial or otherwise), results of operations, properties, assets,
value or prospects of any specified Person.
"Initial Public Offering" means the Issuer's initial public offering
of 11,500,000 shares of Common Stock.
"Person" means an individual, partnership, corporation, business
trust, joint stock company, limited liability company, unincorporated
association, joint venture or any other entity or organization, whether or not a
legal entity, including, without limitation, a government or political
subdivision or an agency or instrumentality thereof.
"Prospectus" means the prospectus that forms part of the
Registration Statement.
"Purchase Price" means the U.S. dollar amount equal to the product
of (i) the number of shares of Common Stock comprising the Shares and (ii) the
price per share of Common Stock offered to the public initially pursuant to the
Initial Public Offering.
"Regulation D" means Regulation D under the Securities Act.
2
<PAGE> 4
"Registration Statement" means the Issuer's registration statement
on Form S-1 filed with the Securities and Exchange Commission (file no.
333-88389) relating to the Common Stock to be issued in the Initial Public
Offering, as amended or supplemented at the time it becomes effective.
"Securities Act" means the U.S. Securities Act of 1933, as amended
from time to time, or any successor statute.
"Securityholders Agreement" means the Securityholders Agreement,
dated as of March 19, 1998, among the Issuer, Nevasa Holdings Ltd., Princes Gate
Investors II, L.P., Morgan Stanley Global Emerging Markets Private Investment
Fund, L.P., and certain other parties thereto.
"Shareholders Agreement" means the Shareholders Agreement dated as
of March 10, 1999 among the Issuer, the Purchaser and Nevasa Holdings Ltd.
"Subsidiary" means, with respect to any Person, any other Person of
which more than fifty percent (50%) of (i) the economic interest in the assets,
earnings or cash flow or (ii) the total voting power of shares of capital stock
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof, is at the time owned or
controlled, directly or indirectly, by such Person or one or more of the other
Subsidiaries of such Person or a combination thereof.
"Underwriter" means each Person identified in the Prospectus as an
underwriter in connection with the Initial Public Offering.
(b) Each of the following terms is defined in the Section opposite
such term:
<TABLE>
<CAPTION>
Term Section
- ---- -------
<S> <C>
Closing 2.03
Closing Date 2.03
Damages 7.03
Environmental Laws 3.17
Indemnified Persons 7.03
Intellectual Property Rights 3.23
Issuer Recitals
Issuer Indemnified Person 7.03
Purchaser Recitals
Purchaser Indemnified Person 7.03
Shares Recitals
</TABLE>
3
<PAGE> 5
ARTICLE II
ISSUANCE AND TRANSFER OF SHARES
SECTION 2.01. Issuance and Transfer of Shares.
Subject to the terms and conditions set forth in this Agreement,
upon the Closing (as defined in Section 2.03 below), (i) the Issuer shall issue,
sell and deliver to the Purchaser certificates evidencing the Shares and full
and complete right, title and interest in and to all of the Shares free and
clear of all claims, liens, charges, encumbrances or rights of third parties of
any nature whatsoever, and (ii) the Purchaser shall subscribe for, receive and
accept the Shares.
SECTION 2.02. Consideration for the Shares.
The aggregate consideration for the Shares shall be the Purchase
Price, which shall be payable in accordance with Section 2.03 below.
SECTION 2.03. The Closing.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, the consummation of the transactions contemplated by this Agreement
(the "Closing") shall take place at the offices of Arnold & Porter, 399 Park
Avenue, New York, New York 10022, at 10:00 a.m. on February 4, 2000, or on such
other date and at such other location as the Issuer and the Purchaser shall
agree. The date and time of the Closing are referred to herein as the "Closing
Date."
(b) At the Closing, the Purchaser shall pay and deliver the Purchase
Price to the Issuer in U.S. dollars by wire transfer, or by such other method
mutually agreeable to the parties, of immediately available funds to such bank
account designated in writing by the Issuer.
(c) At the Closing, the Purchaser shall receive one or more duly
executed share certificates in definitive form, registered in the name of the
Purchaser, evidencing the Shares being issued to the Purchaser hereunder.
(d) In the event that the Closing shall not have occurred by
February 11, 2000, the Issuer or the Purchaser shall be entitled to terminate
this Agreement by written notice to the other party hereto without any liability
to the other party hereto, except to the extent that the failure to consummate
the transactions contemplated arises out of or results from the failure of the
party seeking to terminate this Agreement to perform or observe the covenants
and agreements of such party set forth herein.
4
<PAGE> 6
ARTICLE III
REPRESENTATIONS AND WARRANTIES RELATING TO THE ISSUER
The Issuer represents and warrants to the Purchaser as follows:
SECTION 3.01. Organization, Standing, Etc.
(a) The Issuer has been duly incorporated, is validly existing as a
corporation in good standing under the Laws of the jurisdiction of its
incorporation, has the corporate power and authority to own its property and to
conduct its business as described in the Prospectus and is duly qualified to
transact business and is in good standing in each jurisdiction in which the
conduct of its business or its ownership or leasing of property requires such
qualification, except to the extent that the failure to be so qualified or be in
good standing would not have a Material Adverse Effect on the Issuer and its
Subsidiaries taken as a whole. All of the shares of capital stock of the
Issuer's Subsidiaries owned by the Issuer have been duly and validly authorized
and issued, are fully paid and non-assessable and are owned by the Issuer, free
and clear of all liens, encumbrances, equities or claims.
(b) Each Subsidiary of the Issuer has been duly incorporated, is
validly existing under the Laws of the jurisdiction of its incorporation, has
the corporate power and authority to own its property and to conduct its
business as described in the Prospectus and is duly qualified to transact
business in each jurisdiction in which the conduct of its business or its
ownership or leasing of property requires such qualification, except to the
extent that the failure to be so qualified would not have a Material Adverse
Effect on such Subsidiary. IMPSAT S.A. ("IMPSAT Argentina") is a 95.2% owned
Subsidiary of the Issuer, IMPSAT S.A. ("IMPSAT Colombia") is a 74.2% owned
Subsidiary of the Issuer, Impsatel del Ecuador S.A. is a wholly owned Subsidiary
of the Issuer, IMPSAT S.A. de C.V. is a 99.9% owned Subsidiary of the Issuer,
Telecomunicaciones IMPSAT S.A. ("IMPSAT Venezuela") is a 75% owned Subsidiary of
the Issuer, and IMPSAT Comunicacoes Ltda. is a 99.9% owned Subsidiary of the
Issuer. As of the Closing Date, IMPSAT Argentina, IMPSAT Colombia and IMPSAT
Venezuela will each be a wholly owned Subsidiary of the Issuer, and the Issuer's
ownership interest in its other Subsidiaries as identified in the preceding
sentence will be unchanged.
SECTION 3.02. Registration Statement and Prospectus.
(a) The Registration Statement, as amended or supplemented, if
applicable, as of the date hereof does not and, when it becomes effective, will
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading.
5
<PAGE> 7
(b) The Prospectus does not contain and, as amended or supplemented,
if applicable, will not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading, except that the
representations and warranties set forth in this paragraph do not apply to
statements or omissions in the Registration Statement or the Prospectus, both,
as amended or supplemented, if applicable, based upon information relating to
any furnished to the Issuer in writing by such Underwriter expressly for use
therein.
SECTION 3.03. Authorization; Capitalization; Non-Contravention.
(a) This Agreement has been duly authorized, executed and
delivered by the Issuer.
(b) The authorized, issued and outstanding capital stock of the
Issuer conforms to the description thereof contained in the Prospectus. The
shares of Common Stock outstanding prior to the issuance of the Shares have been
duly authorized and are validly issued, fully paid and nonassessable. The Shares
have been duly authorized and, when issued and delivered in accordance with the
terms of this Agreement, will be validly issued, fully paid and nonassessable,
and the issuance of such Shares will not be subject to any preemptive or similar
rights.
(c) The execution and delivery by the Issuer of, and the performance
by the Issuer of its obligations under, this Agreement will not contravene any
provision of applicable Law, the Charter or Bylaws of the Issuer, as amended to
date, any agreement or other instrument binding upon the Issuer or any of its
Subsidiaries that is material to the Issuer and its Subsidiaries, taken as a
whole (except to the extent that any such contravention would not have a
Material Adverse Effect on the Issuer and its Subsidiaries, taken as a whole),
or any judgment, order or decree of any governmental body, agency or court
having jurisdiction over the Issuer or any Subsidiary; and no consent, approval,
authorization or order of, or qualification with, any governmental body or
agency is required for the performance by the Issuer of its obligations under
this Agreement, except for any consents, approvals, authorizations, orders or
qualifications, the failure to obtain which would not have a Material Adverse
Effect on the ability of the Issuer to perform its obligations under this
Agreement.
SECTION 3.04. Binding Effect. Except as limited by applicable
bankruptcy, insolvency, reorganization, moratorium and similar Laws affecting
the enforcement of creditors' rights generally, this Agreement constitutes a
valid and binding agreement of the Issuer, enforceable against the Issuer in
accordance with its terms.
SECTION 3.05. Registration Rights. Except as disclosed in the
Registration Statement and the Prospectus, there are no contracts, agreements or
understandings between the Issuer and any Person granting such Person the right
to require the Issuer to file a registration statement under the Securities Act
with respect to any securities of the
6
<PAGE> 8
Issuer or to require the Issuer to include such securities with the Shares
registered pursuant to the Registration Statement (or any such right has been
waived).
SECTION 3.06. Litigation, Proceedings. There are no legal or
governmental proceedings pending or, to the knowledge of the Issuer, threatened
to which the Issuer or any of its Subsidiaries is a party or to which any of the
properties of the Issuer or any of its Subsidiaries is subject that are required
to be described in the Registration Statement or the Prospectus and are not so
described, or any statutes, regulations, contracts or other documents that are
required to be described in the Registration Statement or the Prospectus or to
be filed as exhibits to the Registration Statement that are not described or
filed as required, except to the extent that such proceeding, statute,
regulation, contract or other document is not reasonably likely to have a
Material Adverse Effect on the Issuer and its Subsidiaries, taken as a whole.
SECTION 3.07. Disclosure.
(a) The Issuer has provided the Purchaser with all the information
available to it that the Purchaser has requested for determining whether to
purchase the Shares. Neither this Agreement nor any other written statements or
certificates made or delivered by the Issuer to the Purchaser in connection
herewith contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements herein and therein not
misleading.
SECTION 3.08. Offerings. Assuming the accuracy of the representations
of the Purchaser set forth in Section 4.06 hereof, the offer and transfer of the
Shares to the Purchaser as contemplated by this Agreement are, and would be,
exempt from the registration requirements of the Securities Act.
SECTION 3.09. Investment Company. The Issuer is not, and after
giving effect to the sale and issuance of the Shares will not be, required to
register as an "investment company" under the Investment Company Act of 1940, as
amended.
SECTION 3.10. Solicitation; Access to Information. No form of general
solicitation or general advertising was used by the Issuer or, to the Issuer's
knowledge, any other Person acting on its behalf, in respect of the Shares or in
connection with the offer and sale of the Shares.
SECTION 3.11. Absence of Certain Changes. There has not occurred
any Material Adverse Change not set forth in the Prospectus (exclusive of any
amendments or supplements thereto subsequent to the date of this Agreement).
SECTION 3.12. Properties. The Issuer and its Subsidiaries have good and
marketable title in fee simple to all real property and good title to all
personal property owned by them which is material to the business of the Issuer
and its Subsidiaries, taken as a whole, in each case free and clear of all
liens, encumbrances and defects except such as are described in the Prospectus
or such as do not materially affect the value of such
7
<PAGE> 9
property and do not materially interfere with the use made and proposed to be
made of such property by the Issuer and its Subsidiaries; and any real property
and buildings held under lease by the Issuer and its Subsidiaries are held by
them under valid, subsisting and enforceable leases with such exceptions as are
not material and do not materially interfere with the use made and proposed to
be made of such property and buildings by the Issuer and its Subsidiaries, in
each case except as described in the Prospectus.
SECTION 3.13. Internal Controls. The Issuer and each of its
Subsidiaries keep accurate books and records reflecting their assets and
maintain a system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in accordance with
management's general or specific authorizations; (ii) transactions are recorded
as necessary to permit preparation of consolidated financial statements in
conformity with generally accepted accounting principles and to maintain asset
accountability; (iii) access to assets is permitted only in accordance with
management's general or specific authorization; and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
SECTION 3.14. Employees. No material labor dispute with the employees
of the Issuer or any of its Subsidiaries exists, except as described in or
contemplated by the Prospectus, or, to the knowledge of the Issuer, is imminent;
and the Issuer is not aware of any existing, threatened or imminent labor
disturbance by the employees of any of its principal suppliers, manufacturers or
contractors that could have a Material Adverse Effect on the Issuer and its
Subsidiaries, taken as a whole.
SECTION 3.15. No Undisclosed Material Liabilities. Subsequent to the
respective dates as of which information is given in the Registration Statement
and the Prospectus, the Issuer and its Subsidiaries have not incurred any
material liability or obligation, direct or contingent, nor entered into any
material transaction not in the ordinary course of business.
SECTION 3.16. Intellectual Property. The Issuer and its Subsidiaries
own or possess, or can acquire on reasonable terms, all material patents, patent
rights, licenses, inventions, copyrights, know-how (including trade secrets and
other unpatented and/or unpatentable proprietary or confidential information,
systems or procedures), trademarks, service marks and trade names currently
employed by them in connection with the business now operated by them, and,
except as described in the Prospectus, neither the Issuer nor any of its
Subsidiaries has received any notice of infringement of or conflict with
asserted rights of others with respect to any of the foregoing which, singly or
in the aggregate, if the subject of an unfavorable decision, ruling or finding,
would have a Material Adverse Effect on the Issuer and its Subsidiaries, taken
as a whole.
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SECTION 3.17. Environmental Compliance.
(a) The Issuer and its Subsidiaries (i) are in compliance with any
and all applicable Laws relating to the protection of human health and safety,
the environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), (ii) have received all permits, licenses or
other approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval, except where such
noncompliance with Environmental Laws, failure to receive required permits,
licenses or other approvals or failure to comply with the terms and conditions
of such permits, licenses or approvals would not, singly or in the aggregate,
have a Material Adverse Effect on the Issuer and its Subsidiaries, taken as a
whole.
(b) There are no costs or liabilities associated with Environmental
Laws (including, without limitation, any capital or operating expenditures
required for cleanup, closure of properties or compliance with Environmental
Laws or any permit, license or approval, any related constraints on operating
activities and any potential liabilities to third parties) which would, singly
or in the aggregate, have a Material Adverse Effect on the Issuer and its
Subsidiaries, taken as a whole.
SECTION 3.18. Insurance. The Issuer and each of its Subsidiaries are
insured by insurers of recognized financial responsibility against such losses
and risks and in such amounts as the Issuer reasonably believes are prudent and
customary in the businesses in which they are engaged; neither the Issuer nor
any such Subsidiary has been refused any insurance coverage sought or applied
for; and neither the Issuer nor any such Subsidiary has any reason to believe
that it will not be able to renew its existing insurance coverage as and when
such coverage expires or to obtain similar coverage from similar insurers as may
be necessary to continue its business at a cost that would not have a Material
Adverse Effect on the Issuer and its Subsidiaries, taken as a whole, except as
described in the Prospectus.
SECTION 3.19. Year 2000. The Issuer has reviewed its operations and
that of its Subsidiaries to evaluate the extent to which the business or
operations of the Issuer or any of its Subsidiaries will be affected by the Year
2000 Problem (that is, any significant risk that computer hardware or software
applications used by the Issuer and its Subsidiaries will not, in the case of
dates or time periods occurring after December 31, 1999, function at least as
effectively as in the case of dates or time periods prior to January 1, 2000);
as a result of such review, (i) the Issuer has no reason to believe, and does
not believe, that (A) there are any issues related to the Issuer's preparedness
to address the Year 2000 Problem that are of a character required to be
described or referred to in the Registration Statement or Prospectus which have
not been accurately described in the Registration Statement or Prospectus and
(B) the Year 2000 Problem will have a Material Adverse Effect on the Issuer and
its Subsidiaries, taken as a whole, or result in any material loss or
interference with the business or operations of the Issuer and its Subsidiaries,
taken as a whole; (ii) the Issuer reasonably believes, after due inquiry, that
the suppliers, vendors,
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customers or other material third parties used or served by the Issuer and such
Subsidiaries are addressing or will address the Year 2000 Problem in a timely
manner, except to the extent that a failure to address the Year 2000 Problem by
any supplier, vendor, customer or material third party would not have a Material
Adverse Effect on the Issuer and its Subsidiaries, taken as a whole; and (iii)
nothing has come to the attention of the Issuer as of the date hereof, after due
inquiry, that any Year 2000 Problems have occurred that (A) could have a
Material Adverse Effect on the Issuer and its Subsidiaries, taken as a whole, or
result in any material loss or interference with the business or operations of
the Issuer and its Subsidiaries, taken as a whole or (B) are of a character
required to be described or referred to in the Registration Statement or
Prospectus which have not been accurately described in the Registration
Statement or Prospectus.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants to the Issuer as follows:
SECTION 4.01. Organization. The Purchaser is duly organized and
existing under the Laws of its jurisdiction of organization.
SECTION 4.02. Authority; No Other Action.
(a) The execution, delivery and performance of this Agreement is
within the Purchaser's powers and have been duly authorized on the Purchaser's
part by all requisite corporate action.
(b) No action by or in respect of, or filing with, any Governmental
Authority is required for the execution, delivery and performance by the
Purchaser of this Agreement.
SECTION 4.03. No Contravention. The execution, delivery and performance
by the Purchaser of this Agreement and the consummation of the transactions
contemplated hereby do not and will not (i) violate the Purchaser's charter or
similar document or (ii) violate any applicable Law, judgment, injunction or
decree, which violation would (a) affect the validity of this Agreement or (b)
individually or in the aggregate impair the ability of the Purchaser to perform
in any material respect its obligations under this Agreement.
SECTION 4.04. Binding Effect. Except as limited by applicable
bankruptcy, insolvency, reorganization, moratorium and similar Laws affecting
the enforcement of creditors' rights generally, this Agreement has been duly
executed by the Purchaser and constitutes a valid and binding agreement of the
Purchaser.
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SECTION 4.05. No Defaults. The Purchaser is not in violation of its
charter or in default under any provision of applicable Law or of any agreement,
judgment, injunction, decree or other instrument binding upon it, which
violation or default (i) would affect the validity of this Agreement or (ii)
would (individually or in the aggregate) impair the ability of the Purchaser to
perform in any material respect its obligations under this Agreement.
SECTION 4.06. Private Placement.
(a) The Purchaser understands that (i) the offering and sale of the
Shares is intended to be exempt from registration under the Securities Act
pursuant to Section 4(2) of the Securities Act, (ii) the Shares are not
registered under the Securities Act and (iii) there is no existing public or
other market for the Shares and there can be no assurance that the Purchaser
will be able to sell or dispose of the Shares.
(b) The Purchaser is an "Accredited Investor" as such term is
defined in Regulation D.
(c) The Purchaser has sufficient knowledge and experience in
financial and business matters so as to be capable of evaluating the merits and
risks of its investment in the Shares and is capable of bearing the economic
risks of such investment.
ARTICLE V
COVENANTS
SECTION 5.01. Regulatory and Other Authorization; Consents. (a) Each of
the Issuer and the Purchaser shall use all reasonable efforts to obtain all
authorizations, consents, orders and approvals of all Governmental Authorities
that may be or become necessary for its execution and delivery of, and the
performance of its obligations pursuant to, this Agreement and will cooperate
fully with each other in promptly seeking to obtain all such authorizations,
consents, orders and approvals.
(b) The Issuer shall give promptly such notices to third parties and
use all its or their reasonable efforts to obtain such third party consents as
are necessary in connection with the transactions contemplated by this
Agreement.
(c) Each of the Issuer and the Purchaser shall cooperate and use all
reasonable efforts to assist each other in giving such notices and obtaining
such consents; provided, however, that the Purchaser shall not have any
obligation to give any guarantee or other consideration of any nature in
connection with any such notice or consent or to consent to any change in the
terms of any agreement or arrangement which the Purchaser in its sole and
absolute discretion may deem adverse to the interests of the Purchaser, the
Issuer or any Subsidiary of the Issuer.
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(d) Each of the Issuer and the Purchaser believes that all the
consents, approvals and authorizations necessary for the consummation of the
transactions contemplated hereby will be received.
SECTION 5.02. Further Action. Each of the Issuer and the Purchaser
shall use all reasonable efforts to take, or cause to be taken, all appropriate
action, do or cause to be done all things necessary, proper and advisable under
applicable Law, and execute and deliver such documents and other papers, as may
be required to carry out the provisions of this Agreement and consummate and
make effective the transactions contemplated by this Agreement.
ARTICLE VI
CONDITIONS PRECEDENT TO CLOSING
SECTION 6.01. Conditions to the Purchaser's Obligations. The
obligation of the Purchaser to purchase the Shares from the Issuer is subject to
the satisfaction, on or prior to the Closing Date, of the following conditions:
(a) each of the representations and warranties of the Issuer
contained herein shall be true and correct on and as of the Closing Date;
(b) the Issuer shall have performed and complied with all covenants
and agreements required by this Agreement to be performed or complied with by
the Issuer on or prior to the Closing Date, and the Issuer shall not be in
default under or in violation of any provisions of the Charter;
(c) the Purchaser shall have received a certificate dated the
Closing Date signed by an executive officer of the Issuer to the effect set
forth in subsections (a), (b), and (d) of this Section 6.01;
(d) the Issuer and the Purchaser shall have obtained all
Governmental Authorizations and all other material consents, waivers or permits,
necessary for the consummation of the transactions contemplated hereby;
(e) the Purchaser's acquisition of the Shares as provided herein
shall not be prohibited by any applicable Law or any contract, agreement,
document or other instrument by which the Purchaser is bound;
(f) there shall not have occurred any Material Adverse Change;
(g) the closing of the Initial Public Offering substantially
concurrently with the Closing;
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(h) the amendment to the Shareholders Agreement, substantially in
the form attached hereto as Exhibit A, shall have been executed and delivered by
each of the parties thereto; and
(i) the consent under the Securityholders Agreement, substantially
in the form attached hereto as Exhibit B, shall have been executed and delivered
by each of the parties thereto.
SECTION 6.02. Conditions to Issuer's Obligations. The obligations of
the Issuer to issue and sell the Shares to the Purchaser pursuant to this
Agreement are subject to the satisfaction, at or prior to the Closing Date, of
the following conditions:
(a) the representations and warranties of the Purchaser contained
herein shall be true and correct on and as of the Closing Date;
(b) the Purchaser shall have performed and complied with all
agreements required by this Agreement to be performed or complied with by the
Purchaser on or prior to the Closing Date;
(c) the Purchaser's acquisition of the Shares shall not be
prohibited by any applicable Law or any contract, agreement, document or other
instrument by which the Purchaser is bound;
(d) each of the Issuer and the Purchaser shall have obtained all
Governmental Authorizations and all other material consents, waivers or permits,
necessary for the consummation of the transactions contemplated hereby; and
(e) the closing of the Initial Public Offering substantially
concurrently with the Closing; and
(f) the consent under the Securityholders Agreement, substantially
in the form attached hereto as Exhibit B, shall have been executed and delivered
by each of the parties thereto.
ARTICLE VII
MISCELLANEOUS
SECTION 7.01. Notices. All notices, requests and other communications
to any party hereunder shall be in writing (including, without limitation,
telecopier or similar writing) and shall be given to such party by certified
first class mail at its address with a return receipt requested, by Federal
Express or similar overnight mail service with signature required for receipt,
or by telecopy at the telecopier number set forth below or such other address or
telecopier number as such party may hereinafter specify in writing
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for the purpose to the party giving such notice. Each such notice, request or
other communication shall be effective (i) if given by telecopy, when such
telecopy is transmitted to the telecopy number specified in this Section 7.01
and the appropriate electronic confirmation is received and a copy of such
notice is sent by overnight mail service or (ii) if given by certified mail or
overnight courier, 72 hours after such communication is deposited in the mails
with first class postage prepaid or given to overnight courier service,
addressed as aforesaid.
Issuer: IMPSAT Fiber Networks, Inc.
Alferez Pareja 256
1107 Buenos Aires, Argentina
Attn: Chief Executive Officer
Telefax: 011-54-11-4300-8060
Purchaser: Nunsgate Limited
Queen Victoria House
Queen Victoria Street
Douglas IM1 2LS
Isle of Man
Telefax: 011 44 1624 636 011
With a copy to:
Secretary and Chief Legal Adviser
British Telecommunications plc
81 Newgate Street
London EC1A 7AJ
United Kingdom
Telefax: 011-44171-356-6135
SECTION 7.02. No Waivers; Amendments.
(a) No failure or delay on the part of any party in exercising any
right, power or privilege hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein provided shall be cumulative and not exclusive of any rights or
remedies provided by Law.
(b) Any provision of this Agreement may be amended or waived if, but
only if, such amendment or waiver is in writing and is signed by both parties
hereto.
SECTION 7.03. Indemnification.
(a) The Issuer hereby agrees to indemnify and hold harmless the
Purchaser, its Affiliates and their directors, officers, agents and employees
(each, a
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"Purchaser Indemnified Person") from and against and to pay any losses,
claims, damages or liabilities (or actions or proceedings in respect thereof)
("Damages") to which such Purchaser Indemnified Person may become subject as the
result of any misrepresentation, breach of representation, warranty or covenant
made or to be performed on the part of the Issuer under this Agreement and will
reimburse any Purchaser Indemnified Person for all reasonable expenses
(including, without limitation, reasonable counsel and expert fees) as they are
incurred by any such Purchaser Indemnified Person in connection with any such
misrepresentation or breach of representation, warranty or covenant or
investigating, preparing or defending any such action or proceeding, whether
pending or threatened, and whether or not such Purchaser Indemnified Person is a
party hereto. The Issuer will not be responsible for any Damages or expenses to
the extent that a court of competent jurisdiction shall have finally determined
that such Damages or expenses resulted primarily from such Purchaser Indemnified
Person's bad faith or breach of this Agreement. The agreement of the Issuer in
this Section 7.03(a) shall be in addition to any liability the Issuer may
otherwise have.
(b) The Purchaser hereby agrees to indemnify and hold harmless the
Issuer, its Affiliates and their directors, officers, agents and employees
(each, an "Issuer Indemnified Person" and collectively with the Purchaser
Indemnified Persons, the "Indemnified Persons"), from and against and to pay any
Damages to which such Issuer Indemnified Person may become subject as the result
of any misrepresentation, breach of representation, warranty or covenant made or
to be performed on the part of the Purchaser under this Agreement and will
reimburse any Issuer Indemnified Person for all reasonable expenses (including,
without limitation, reasonable counsel and expert fees) as they are incurred by
any such Issuer Indemnified Person in connection with any such misrepresentation
or breach of representation, warranty or covenant or investigating, preparing or
defending any such action or proceeding, whether pending or threatened, and
whether or not such Issuer Indemnified Person is a party hereto. The Purchaser
will not be responsible for any Damages or expenses to the extent that a court
of competent jurisdiction shall have finally determined that such Damages or
expenses resulted primarily from such Issuer Indemnified Person's bad faith or
breach of this Agreement. The agreement of the Purchaser in this Section 7.03(b)
shall be in addition to any liability the Purchaser may otherwise have.
(c) None of the Issuer nor the Purchaser may make a claim for
indemnification for any sums due under this Article VII until the aggregate
amount of the Damages exceeds U.S.$1.5 million and then, the Damages shall be
limited to in the case of claims against the Issuer to a maximum aggregate
amount of U.S.$20 million; provided that, in the event that the U.S.$1.5 million
threshold is exceeded, any party may assert one or more claims for
indemnification for any and all claims regardless of the amount of such claims
(up to the maximum amount for the Issuer provided for above) and going back to
the first U.S. dollar of such Damages.
(d) Neither the Issuer nor the Purchaser shall be entitled to
indemnification hereunder with respect to the breach of any warranty,
representation,
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covenant or agreement contained herein unless such claim for
indemnification is asserted against the party from whom indemnification is
sought within 18 months after the Closing Date. A claim shall be deemed to have
been asserted when notice of such claim is given pursuant to Section 7.01 hereof
in sufficient detail for the nature and substance of the claim to be clear to
the recipients of such notice.
SECTION 7.04. Successors and Assigns. The Purchaser may assign its
rights and obligations hereunder to a direct or indirect wholly-owned Subsidiary
of British Telecommunications plc if such Subsidiary becomes a party to this
Agreement without the consent of the Issuer, or to any other Person with the
prior written consent of the Issuer. The Issuer may not delegate its obligations
hereunder. This Agreement shall be binding upon the Issuer and the Purchaser and
their respective successors and assigns.
SECTION 7.05. New York Law. This Agreement shall be construed in
accordance with and governed by the laws of the State of New York.
SECTION 7.06. Counterparts; Effectiveness. This Agreement may be
executed in any number of counterparts each of which shall be an original with
the same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement shall become effective when each party hereto shall
have received a counterpart hereof signed by the other hereto.
SECTION 7.07. Entire Agreement. This Agreement constitutes the entire
agreement and understanding of the parties hereto in respect of the subject
matter contained herein and therein, and there are no restrictions, promises,
representations, warranties, covenants, or undertakings with respect to the
subject matter hereof, other than those expressly set forth or referred to
herein or therein.
SECTION 7.08. Remedies. The parties hereby acknowledge that money
damages would not be adequate compensation for the damages that a party would
suffer by reason of a failure of any other party to perform any of the
obligations under this Agreement. Therefore, each party hereto agrees that
specific performance is the only appropriate remedy under this Agreement and
hereby waives the claim or defense that any other party has an adequate remedy
at law. No party shall be liable for consequential damages as a result of any
breach hereof.
SECTION 7.09. Jurisdiction. Each of the parties hereto agrees that any
legal suit, action or proceeding arising out of or relating to this Agreement or
the transaction contemplated herein may be instituted in any U.S. federal or New
York State court in the Borough of Manhattan in the City of New York or in the
court of the corporate domicile of each of the parties hereto, with respect to
actions brought against that party as a defendant, and each of the parties
hereto hereby waives any objection which it may now or hereafter have to the
laying of venue of any such proceeding, and irrevocably submits to the
jurisdiction of such courts and to the courts of its corporate domicile, with
respect to actions brought against it as defendant, in any suit, action or
proceeding.
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SECTION 7.10. Judgment Currency. If for purposes of obtaining judgment
in any court it is necessary to convert a sum due hereunder into any currency
other than U.S. dollars, the parties hereto agree, to the fullest extent that
they may effectively do so, that the rate of exchange used shall be the rate at
which in accordance with normal banking procedures the Purchaser could purchase
U.S. dollars with such other currency in the City of New York on the Business
Day preceding that on which final judgment is given.
SECTION 7.11. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any Law or
public policy, all other terms and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the matters contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner in
order that the matters contemplated hereby are consummated as originally
contemplated to the greatest extent possible.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed, as of the day and year first above written.
IMPSAT FIBER NETWORKS, INC.
By:
-------------------------------
Name:
Title:
NUNSGATE LIMITED
By:
-------------------------------
Name:
Title:
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EXHIBIT A
AMENDMENT NO.1 TO SHAREHOLDERS AGREEMENT
<PAGE> 20
EXHIBIT B
CONSENT TO AMENDMENT NO.1 TO SHAREHOLDERS AGREEMENT
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 2 to Registration
Statement No. 333-88389 of IMPSAT Fiber Networks, Inc. of our report dated March
12, 1999 appearing in the Prospectus, which is part of such Registration
Statement, and to the reference to us under the headings "Selected Consolidated
Financial and Other Data" and "Experts" in such Prospectus.
/s/ Deloitte & Touche LLP
- -----------------------------
Certified Public Accountants
Miami, Florida
January 28, 2000
