<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 4, 1998
REGISTRATION NO. 333-49871
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
AMENDMENT NO. 1
TO
FORM F-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
TRANSTEL S.A.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
COLOMBIA
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)
4813
(PRIMARY STANDARD INDUSTRIAL CLASSIFICATION CODE NUMBER)
CALLE 19N, NO. 2-29
40TH FLOOR
CALI, COLOMBIA
57-2-660-4860
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
--------------
WITH A COPY TO:
CT CORPORATION BERNARD E. KURY
1633 BROADWAY, NEW YORK, NEW YORK DEWEY BALLANTINE LLP
10019 1301 AVENUE OF THE AMERICAS
(212) 664-1666 NEW YORK, NEW YORK 10019-1035
(NAME, ADDRESS, INCLUDING ZIP CODE,
AND TELEPHONE NUMBER, INCLUDING AREA
CODE, FOR AGENT OF SERVICE)
--------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the Registration Statement becomes effective.
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) 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 this form is a post-effective amendment filed pursuant to Rule 462(d)
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. [_]
--------------
CALCULATION OF REGISTRATION FEE
<TABLE>
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- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
PROPOSED PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES TO AMOUNT TO BE MAXIMUM OFFERING AGGREGATE OFFERING AMOUNT OF
BE REGISTERED REGISTERED(1) PRICE PER UNIT(2) PRICE(2) REGISTRATION FEE(3)
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<S> <C> <C> <C> <C>
Exchange Certificates
(as defined herein).... U.S. $150.0 million 100% U.S. $150.0 million U.S.$44,250.00
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Exchange Guarantee (as
defined herein)(4).....
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Senior Notes (as defined
herein)(5).............
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Total................... U.S. $150.0 million 100% U.S. $150.0 million U.S.$44,250.00
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</TABLE>
(1) Represents principal amount at maturity.
(2) Determined solely for the purposes of calculating the registration fee in
accordance with Rule 457 promulgated under the Securities Act.
(3) Calculated in accordance with Rule 457(f)(2) under the Securities Act,
based on the face value.
(4) No separate consideration will be received by the Issuer for issuing the
Exchange Guarantee.
(5) The registration fee was previously paid at the time of the filing of the
original registration statement which covered the Exchange Certificates.
--------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
There are a total of 212 pages contained in this Registration Statement.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion, dated September 4, 1998
PROSPECTUS
OFFER TO EXCHANGE ALL OUTSTANDING
12 1/2% PASS THROUGH TRUST CERTIFICATES DUE 2007,
FOR
12 1/2% PASS THROUGH EXCHANGE CERTIFICATES DUE 2007,
IN EACH CASE REPRESENTING INTERESTS IN 12 1/2% SENIOR NOTES DUE 2007
ISSUED BY
TRANSTEL S.A.
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON , 1998 (AS SUCH DATE MAY BE EXTENDED, THE "EXPIRATION
DATE").
Transtel S.A. (the "Company" or "Transtel"), a Colombian corporation,
together with Transtel Pass Through Trust, a Delaware business trust (the
"Trust" or "Issuer"), created pursuant to the Trust Agreement of Transtel Pass
Through Trust, dated as of October 20, 1997 (the "Original Trust Agreement"),
hereby offers, upon the terms and subject to the conditions set forth in this
Prospectus and the accompanying letter of transmittal (the "Letter of
Transmittal," and together with this Prospectus, the "Exchange Offer"), to
exchange all outstanding 12 1/2% Pass Through Trust Certificates due 2007 (the
"Original Certificates"), issued by the Trust, for a like aggregate principal
amount of 12 1/2% Pass Through Exchange Certificates due 2007 (the "Exchange
Certificates"), issued by the Trust, each representing a pro rata interest in
the $150.0 million aggregate principal amount of 12 1/2% Senior Notes due 2007
(the "Senior Notes"), issued by the Company. Both the Original Certificates and
the Exchange Certificates (together, the "Certificates") are guaranteed by the
Company. The Original Certificates and the Original Guarantee (as defined
herein) are collectively referred to herein as the "Original Securities" and
the Exchange Certificates and the Exchange Guarantee (as defined herein) are
collectively referred to herein as the "Exchange Securities." The terms of the
Exchange Securities are substantially identical to the terms of the Original
Securities, except that the Exchange Securities will have been registered under
the Securities Act of 1933, as amended (the "Securities Act"), and will not
contain terms restricting the transfer of such securities. For a complete
description of the Exchange Securities, see "Description of the Certificates"
and "Description of the Guarantees." The Company will not receive any cash
proceeds from, and will pay all expenses incident to, the Exchange Offer.
(Continued on the following page)
SEE "RISK FACTORS" BEGINNING ON PAGE 18 FOR A DISCUSSION OF CERTAIN RISKS
THAT SHOULD BE CONSIDERED BY THE ORIGINAL CERTIFICATEHOLDERS IN DECIDING
WHETHER TO TENDER ORIGINAL CERTIFICATES IN THE EXCHANGE OFFER.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (THE "COMMISSION") OR ANY STATE SECURITIES COMMISSION NOR
HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-----------
THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION. ORIGINAL CERTIFICATEHOLDERS (AS DEFINED HEREIN) ARE URGED TO READ
THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CAREFULLY BEFORE DECIDING
WHETHER TO TENDER THEIR ORIGINAL CERTIFICATES PURSUANT TO THE EXCHANGE OFFER.
-----------
The date of this Prospectus is September 4, 1998.
<PAGE>
(Continued from previous page)
The issuance of the Original Certificates and the purchase of the Senior
Notes by the Trust that occurred on October 28, 1997 are referred to herein as
the "Offering." The holders of Original Certificates (the "Original
Certificateholders") and the holders of the Exchange Certificates (the
"Exchange Certificateholders") are collectively referred to as the
"Certificateholders". The Certificates represent undivided beneficial
interests in the assets of the Trust. Wilmington Trust Company is the Pass
Through Trustee (the "Pass Through Trustee") of the Trust. The Trust exists
for the sole purpose of issuing and selling the Certificates, investing the
proceeds from the issuance of the Original Certificates in the Senior Notes,
registering the Exchange Securities under the Securities Act, exchanging the
Original Securities for Exchange Securities, and engaging in only those other
activities necessary or incidental thereto.
The Senior Notes bear interest at a rate of 12 1/2% per annum payable
semiannually in cash on each May 1 and November 1 of each year (each referred
to herein as an "Interest Payment Date"), commencing May 1, 1998. Interest
distributions made on each May 1 and November 1 will be paid to the persons
who are the registered Certificateholders on the April 15 and October 15, as
the case may be, immediately preceding such Interest Payment Date. Each
Certificateholder will be entitled to receive a pro rata share of any payments
received by, or on behalf of, the Pass Through Trustee on behalf of the Trust
in respect of the Senior Notes.
Transtel loaned a portion of the proceeds of the Senior Notes to its
Operating Companies (as defined herein). These loans are evidenced by
Intercompany Notes (as defined herein). The Senior Notes are secured by a
pledge of the Intercompany Notes and by pledge of the Escrow Account (as
defined herein). See "Description of the Senior Notes--Security." The Senior
Notes are senior obligations of the Company ranking pari passu with all
existing and future senior Indebtedness (as defined herein) of the Company and
ranking senior in right of payment to all existing and future subordinated
Indebtedness of the Company. The Intercompany Notes are senior unsecured
obligations of each of the Operating Companies. The Company is a holding
company that conducts substantially all of its operations through the
Operating Companies. Therefore, other than claims under the Intercompany
Notes, the Senior Notes are effectively subordinated to all debt and other
liabilities of the Operating Companies. As of December 31, 1997, on a pro
forma basis, after giving effect to the Offering and the Equity Contribution
(as defined herein) and the application of the net proceeds therefrom, the
Company and its subsidiaries on a consolidated basis would have had Ps195.9
billion ($151.4 million) of debt excluding any amounts arising under the
Vendor Financing (as defined herein) and the DIAN Financing (as defined
herein). In addition, as of December 31, 1997, on a pro forma basis, the
Operating Companies would have had Ps21.9 billion ($16.9 million) of other
liabilities. See "Summary--Expansion Plan." For purposes of the Indenture, the
Vendor Financing and the DIAN Financing, without duplication, will be
considered Indebtedness as they arise and therefore, as of December 31, 1997,
on a pro forma basis, the Company and its subsidiaries has Indebtedness of
Ps202.8 billion ($156.8 million).
The Senior Notes are redeemable, in whole or in part, at the option of the
Company, on or after November 1, 2002, at the redemption prices set forth
herein plus accrued and unpaid interest to the date of redemption. In
addition, in the event of the sale by the Company of at least $25.0 million of
its Capital Stock (as defined herein) in one or more Public Equity Offerings
(as defined herein) or to one or more Strategic Equity Investors (as defined
herein), on or prior to November 1, 2000, the Company may, at its option, use
the net cash proceeds of such sale or sales to redeem up to 35% of the Senior
Notes at a redemption price herein of the principal amount thereof plus
accrued and unpaid interest to the date of redemption. Upon a Change of
Control (as defined herein), the Company will be required to make an offer to
repurchase the Senior Notes at a price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest, to the date of repurchase.
Based on certain interpretive letters issued by the staff of the Commission
to third parties in unrelated transactions, Original Certificateholders (other
than any holder who is an "affiliate" of the Company within the meaning of
Rule 405 under the Securities Act) who exchange their Original Certificates
for Exchange Certificates pursuant to the Exchange Offer generally may offer
such Exchange Certificates for resale, resell such Exchange Certificates, and
otherwise transfer such Exchange Certificates without compliance with the
registration and prospectus delivery provisions of the Securities Act provided
such Exchange Certificates are acquired in the ordinary course of the holders'
business and such holders are not participating in, and have no arrangement or
understanding with any person to participate in, a distribution of such
Exchange Certificates. Each broker-dealer that receives Exchange Certificates
for
2
<PAGE>
its own account in exchange for Original Certificates, where such Original
Certificates were acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge that it will deliver
a prospectus in connection with any resale of such Exchange Certificates. See
"Plan of Distribution." If an Original Certificateholder does not exchange
such Original Certificates for Exchange Certificates pursuant to the Exchange
Offer, such Original Certificates will continue to be subject to the
restrictions on transfer contained in the legend thereon. In general, the
Original Certificates may not be offered or sold, unless registered under the
Securities Act, except pursuant to an exemption from, or in a transaction not
subject to, the Securities Act and applicable state securities laws. See "The
Exchange Offer--Consequences of Failure to Exchange; Resale of Exchange
Certificates".
The Trust will accept for exchange any and all Original Certificates that
are validly tendered on or prior to 5:00 p.m., New York City time, on the date
the Exchange Offer expires, which will be , 1998, unless the Exchange
Offer is extended (the "Expiration Date"). Tenders of Original Certificates
may be withdrawn at any time prior to 5:00 p.m., New York City time, on the
Expiration Date. The Exchange Offer is not conditioned upon any minimum number
of Original Certificates being tendered for exchange.
Any Original Certificates not tendered and accepted in the Exchange Offer
will remain outstanding and will be entitled to all the same rights and will
be subject to all the same limitations applicable thereto under the Trust
Agreement (except for certain rights to be registered under the Act which
terminate upon consummation of the Exchange Offer). Following consummation of
the Exchange Offer, all untendered and tendered but unaccepted Original
Certificates, if any, will continue to be subject to all of the existing
restrictions upon transfer provided thereon and neither the Company nor the
Trust will have any further obligation to such Original Certificateholders to
provide for registration under the Securities Act of the Original Certificates
held by them. To the extent that Original Certificates are not tendered and
accepted in the Exchange Offer, an Original Certificateholder's ability to
sell untendered and tendered but unaccepted Original Certificates could be
adversely affected. See "Risk Factors--Consequences of a Failure to Exchange."
Prior to this Exchange Offer, there has been no public market for the
Original Certificates and there can be no assurance that an active public or
private market for the Certificates will develop. The Company does not intend
to list the Certificates on any national securities exchange or to seek
admission thereof to trading on the National Association of Securities Dealers
Automated Quotation System. Even if a market for the Certificates should
develop, the Certificates could trade at a discount from their face value.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, ORIGINAL CERTIFICATEHOLDERS IN ANY JURISDICTION
IN WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN
COMPLIANCE WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
IN THIS PROSPECTUS, UNLESS OTHERWISE SPECIFIED OR THE CONTEXT OTHERWISE
REQUIRES, REFERENCES TO "PS" OR "PESOS" ARE TO COLOMBIAN PESOS, REFERENCES TO
"DOLLARS," "U.S. $" AND "$" ARE TO UNITED STATES DOLLARS AND THE TERMS "UNITED
STATES" AND "U.S." MEAN THE UNITED STATES OF AMERICA, ITS TERRITORIES,
POSSESSIONS AND ALL AREAS SUBJECT TO ITS JURISDICTION.
3
<PAGE>
ENFORCEABILITY OF CIVIL LIABILITIES
The Company is a sociedad anomina organized under the laws of Colombia. The
directors and officers of the Company and certain experts named in this
Prospectus reside outside of the United States, and all or a substantial
portion of the assets of such persons and of the Company are located outside
the United States. As a result, it may not be possible for the Pass Through
Trustee, the Indenture Trustee (as defined herein), Guarantee Trustee (as
defined herein) or the Certificateholders to effect service of process within
the United States upon such persons, including with respect to matters arising
under the Securities Act, or to enforce against the Company or any of such
persons judgments of courts of the United States predicated upon the civil
liability provisions of the federal securities laws of the United States or
under the Certificate Guarantees. The Company has been advised by its
Colombian legal counsel, Cavelier Abogados that there is doubt as to the
enforceability, in original actions in Colombian courts, of liabilities
predicated solely on the United States federal securities laws and as to the
enforceability in Colombian courts of judgments of United States courts
obtained in actions predicated upon the civil liability provisions of the
United States federal securities laws. The Company has appointed CT
Corporation System, New York, New York, as its agent to receive service of
process with respect to any action brought against it in any federal or state
court in the State of New York, arising from this Exchange Offer and the
Certificate Guarantees. The Company has been advised by its Colombian legal
counsel that a claim by the Pass Through Trustee, the Indenture Trustee or a
United States Certificateholder in connection with this Exchange Offer or the
Certificate Guarantees may be brought in Colombian courts. See "Enforcement of
Foreign Judgments in Colombia."
AVAILABLE INFORMATION
The Company has filed with the Commission under the Securities Act, a
registration statement (which term includes any amendments thereto) (the
"Registration Statement") on Form F-4, of which this Prospectus (the
"Prospectus") is a part, with respect to the Exchange Certificates offered
hereby. This Prospectus does not contain all the information set forth in or
annexed as an exhibit to the Registration Statement. Such additional
information, and other information filed by the Company, may be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional
offices of the Commission maintained at 7 World Trade Center, Suite 1300, New
York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511, at prescribed rates. The Commission also
maintains an Internet Web Site at http://www.sec.gov that contains reports and
other information. Statements contained in this Prospectus describing the
contents of any contract or other document referred to herein do not
necessarily describe such documents in their entirety, and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference.
No separate financial statements of the Trust have been included herein.
Neither the Company nor the Trust consider such financial statements material
to the Certificateholders because (i) the Trust has no independent operations
and exists for the sole purpose of issuing and selling the Certificates,
investing the proceeds from the issuance of the Original Certificates in the
Senior Notes issued by the Company, registering the Exchange Certificates
under the Securities Act, exchanging the Original Securities for Exchange
Securities, and engaging in only those other activities necessary or
incidental thereto, and (ii) the Company's obligations described herein to
provide certain indemnities in respect of, and be responsible for, certain
costs, expenses, debts and liabilities of the Trust under the Indenture and
any supplemental indenture thereto, the Certificate Guarantees, the Trust
Agreement and the Senior Notes, taken together, constitute a full and
unconditional guarantee of payments due on the Certificates. See "Description
of Securities."
Neither the Company nor the Trust is currently subject to the information
reporting requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Upon the effectiveness of this Registration Statement, the
Company will become subject to such requirements, which will continue for so
long as the Company is required to do so pursuant to Section 15(d) of the
Exchange Act. In the event that the Company is not required or shall cease to
be required to file reports with Commission pursuant to the Exchange Act,
pursuant to the Indenture, the Company shall nevertheless continue to file
such reports with the Commission and the Indenture Trustee.
4
<PAGE>
FORWARD-LOOKING STATEMENTS
This Prospectus contains forward-looking statements. These forward-looking
statements reflect the Company's views with respect to future events and
financial performance. Actual results could differ materially from those
projected in the forward-looking statements as a result of the risk factors as
well as other factors discussed elsewhere herein. See "Risk Factors." The
words "believe," "expect" and "anticipate" and similar expressions identify
forward-looking statements. Readers are cautioned not to place undue reliance
on these forward-looking statements, which speak only as of their dates. The
Company undertakes no obligation to publicly update or revise any forward-
looking statements, whether as a result of new information, future events or
otherwise. Many factors could cause the Company's actual results to differ
materially from historical results or the results projected in the forward-
looking statements. Among these factors are those identified in "Risk Factors"
and "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
MARKET AND POPULATION DATA
Market data used throughout this Prospectus was obtained from internal
company surveys and industry publications. Industry publications generally
state that the information contained therein has been obtained from sources
believed to be reliable, but that the accuracy and completeness of such
information is not guaranteed. The Company has not independently verified this
market data. Similarly, internal company surveys, while believed by the
Company to be reliable, have not been verified by any independent sources.
Data regarding population in Colombia are based on preliminary projections
of 1995 population figures calculated by the Departamento Administrativo
Nacional de Estadistica (National Administrative Department of Statistics)
("DANE") on the basis of the 1993 census. There can be no assurance that these
projections accurately reflect the current population in Colombia. Information
regarding subscriber penetration and line data in Colombia is derived from
information supplied by the Departamento Nacional de Planeacion (National
Planning Department) ("DNP") as of December 31, 1995.
EXCHANGE RATES
Until 1991, the Banco de la Republica of Colombia (the "Central Bank") set
an official exchange rate (the "Official Rate") applicable to all foreign
exchange transactions, based on its prevailing economic policy. Since October
1991, exchange rates have been freely set by the market. The Superintendencia
Bancaria of Colombia (the "Superintendency of Banking") calculates and
publishes daily the representative market rate, which is the weighted average
of the buy and sell rates quoted on the previous business day by certain
commercial banks and financial institutions in Santafe de Bogota, Cali,
Medellin and Barranquilla for the purchase and sale of Dollars (the
"Representative Market Rate"). The Representative Market Rate serves as a
basis for many foreign exchange transactions conducted on the foreign exchange
market and the free market as defined under Law 9 of 1991. From October 1991
through January 1995, the Central Bank set the Official Rate for certain
limited purposes. Since February 1994, the Central Bank issues buy and sell
quotations that form a band within which the Representative Market Rate can
move freely.
5
<PAGE>
The following table sets forth the Official Rate at the end of each period
indicated and, for each such period, the high, low, average and end of period
Representative Market Rate. The Federal Reserve Bank of New York does not
report a noon buying rate for Pesos.
<TABLE>
<CAPTION>
OFFICIAL RATE REPRESENTATIVE MARKET RATE
-------------------- --------------------------------------------------
% CHANGE % CHANGE
PERIOD FROM PRIOR PERIOD FROM PRIOR
END PERIOD END LOW HIGH AVERAGE END PERIOD END
--------- ---------- --------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1992.................... Ps 811.8 14.8% Ps 632.6 Ps 738.2 Ps 680.1 Ps 738.0 16.7%
1993.................... 917.3 13.0 737.6 819.6 786.6 804.3 9.0
1994.................... 1,018.8 11.0 804.3 844.4 826.5 831.3 3.4
1995.................... N/A N/A 831.3 1,003.5 912.5 987.7 18.8
1996.................... N/A N/A 987.6 1,074.7 1,036.7 1,005.3 1.8
1997.................... N/A N/A 1,005.3 1,090.6 1,063.0 1,293.6 28.7
1998 (through June 30,
1998).................. N/A N/A 1,363.0 1,399.6 1,384.7 1,363.0 5.4
</TABLE>
- --------
N/A means not applicable.
Sources: Central Bank; Superintendency of Banking
The Representative Market Rate calculated by the Superintendency of Banking
for August 20, 1998 was Ps1,384.24 for one Dollar. On September 2, 1998, the
Representative Market Rate was recalculated by the Superintendency of Banking
to be Ps1,442.95 for one Dollar. Since the period from August 20, 1998 through
September 2, 1998, the Peso devalued relative to the Dollar approximately
4.2%. For the convenience of the reader, this Prospectus contains translations
of Peso amounts into Dollars, unless otherwise indicated, at the
Representative Market Rate as of December 31, 1997 of Ps1,293.58 for one
Dollar. Unless otherwise noted, all financial information included in this
Prospectus has, for comparability purposes, been restated in constant Pesos as
of December 31, 1997, by indexing historical amounts using the Colombian
Middle-Income Consumer Price Index ("MCPI"). No representation is made that
the Peso or Dollar amounts shown in this Prospectus could have been or could
be converted into Dollars or Pesos, as the case may be, at any particular rate
or at all.
6
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety and should be read in
conjunction with the more detailed information and the financial statements,
including the notes thereto, included elsewhere in this Prospectus. As used in
this Prospectus, unless otherwise specified, the "Company" or "Transtel" means
Transtel S.A. and its non wholly-owned subsidiaries. Unless otherwise
specified, the financial information in this Prospectus is reflected in
constant Pesos as of December 31, 1997 and is presented in accordance with
generally accepted accounting principles in Colombia ("Colombian GAAP").
Certain capitalized terms used in this Prospectus are defined herein under the
caption "Glossary of Certain Telecommunications Terms."
THE COMPANY
The Company is the largest private telephone company in Colombia, providing
telephone services to both business and residential subscribers. The Company
(excluding TeleGirardot (as defined herein)) currently owns and operates
telephone systems serving seven cities, with an aggregate population of
approximately 2.9 million people, located in the southwestern region of
Colombia. Those cities are Palmira, Cartago, Popayan, Buga, Yumbo, Jamundi and
Cali. In each case (except in Cali where the telephone system is owned and
operated by Unitel, the same company that owns and operates the wireline system
in Yumbo), the Company has joined with the local municipality to form an
operating company to own and operate the telephone system, and the Company owns
a majority (60% or more) (other than Popayan where the Company owns 51%) of the
capital stock, with the balance being owned by the municipality. As of December
31, 1997, the Company's systems provided service to an aggregate of
approximately 101,500 subscribers and had an average penetration of
approximately 18 lines per 100 people. On December 31, 1997, the Company
acquired Empresa de Telecomunicaciones de Girardot S.A. E.S.P.
("TeleGirardot"). The statistical, financial and other data in this Prospectus
does not include information regarding TeleGirardot, except where specifically
indicated. For information regarding TeleGirardot, see "Prospectus Summary--
Recent Developments" herein.
The Company was formed in August 1993 by certain members of the Caicedo
family, a prominent Colombian family, and Guillermo Lopez, the Company's
President and a Director, to take advantage of the Colombian government's
recent initiatives to deregulate and privatize the state-owned
telecommunications sector. Managment's goal is to capitalize on the substantial
demand for telephone service which the Company believes exists throughout
Colombia. The Company has created an Expansion Plan (as defined herein)
pursuant to which the Company intends to increase the number of installed lines
and to upgrade its telephone networks to state-of-the-art digital and fiber-
optic technology. See "Business--Expansion Plan".
Colombia is one of the oldest democracies and most stable economies in Latin
America and is one of only three countries in Latin America rated investment
grade by all three major rating agencies. Annual inflation declined over the
past six years from 26.8% in 1991 to 17.7% in 1997. See "Business--Colombia and
Colombian Telephony Market Overview".
The Company is located at Calle 19N, No. 2-29, 40th Floor, Cali, Colombia,
and its telephone number is (572) 660-4860.
THE TRUST
General
The Trust is a statutory business trust, created under Delaware law pursuant
to the Original Trust Agreement and the filing of a certificate of trust with
the Delaware Secretary of State on October 20, 1997. The Trust is governed by
the Trust Agreement. Wilmington Trust Company is the Pass Through Trustee for
the Trust. Marine Midland Bank will act as the paying agent, registrar,
Indenture Trustee and Exchange Agent (as defined herein). All action taken by
the Trust will be conducted by the Pass Through Trustee. The Trust exists for
the exclusive purposes of (i) issuing and selling the Certificates, (ii) using
the proceeds from the sale of the
7
<PAGE>
Original Certificates to acquire the Senior Notes, (iii) registering the
Exchange Securities under the Securities Act, (iv) exchanging the Original
Securities for the Exchange Securities and (v) engaging in only those other
activities necessary or incidental thereto (such as soliciting directions from
the Certificateholders and taking such actions as the Certificateholders owning
a majority of the principal amount of the Certificates direct). Accordingly,
the Senior Notes will be the sole assets of the Trust, and payments received in
respect of the Senior Notes will be the sole source of revenue of the Trust.
The Exchange Certificates will constitute a new issue of securities for which
there is no trading market. See "Risk Factors--Lack of a Market for the
Exchange Certificates; Risks Associated with Non-Investment Grade Debt."
Principal Executive Office
The principal executive office of the Trust is c/o Wilmington Trust Company,
Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890-0001,
Attention: Corporate Trust Administration, and its telephone number is (302)
651-1000.
THE EXCHANGE OFFER
Securities Offered.......... $150.0 million aggregate principal amount of 12
1/2% Exchange Certificates due 2007. Each
Exchange Certificate along with each Original
Certificate remaining outstanding after the
Exchange Offer, if any, represent pro rata
interests in all of the assets of the Trust,
including the Senior Notes and all payments of
principal, interest, redemption premium, if any,
and Additional Amounts (as defined herein), if
any, made in respect of the Senior Notes.
Exchange Agent.............. The exchange agent with respect to the Exchange
Offer is Marine Midland Bank (in such capacity,
the "Exchange Agent"). The address, telephone and
facsimile numbers of the Exchange Agent are set
forth in "The Exchange Offer--Exchange Agent" and
in the accompanying Letter of Transmittal.
The Exchange Offer.......... Offer to exchange all outstanding Original
Certificates for Exchange Certificates. As of the
date hereof, $150.0 million aggregate principal
amount of Original Certificates are issued and
outstanding. The Company has agreed to make the
Exchange Offer in order to satisfy its
obligations under the Registration Rights
Agreement, dated as of October 28, 1997, among
the Company, the Trust, as Issuer, and BT Alex
Brown Incorporated, as initial purchaser (the
"Initial Purchaser") (the "Registration Rights
Agreement"). For a description of the procedures
for tendering, see "The Exchange Offer--
Procedures for Tendering Original Certificates."
Resale................. Based on certain interpretive letters issued by
the staff of the Commission to third parties in
unrelated transactions, Original
Certificateholders (other than any holder who is
an "affiliate" of the Company within the meaning
of Rule 405 under the Securities Act) who
exchange their Original Certificates for Exchange
Certificates pursuant to the Exchange Offer
generally may offer such Exchange
8
<PAGE>
Certificates for resale, resell such Exchange
Certificates, and otherwise transfer such
Exchange Certificates without compliance with the
registration and prospectus delivery provisions
of the Securities Act provided such Exchange
Certificates are acquired in the ordinary course
of the holders' business and such holders are not
participating in, and have no arrangement or
understanding with any person to participate in,
a distribution of such Exchange Certificates.
Each broker-dealer that receives Exchange
Certificates for its own account in exchange for
Original Certificates, where such Original
Certificates were acquired by such broker-dealer
as a result of market-making activities or other
trading activities, must acknowledge that it will
deliver a prospectus in connection with any
resale of such Exchange Certificates. See "Plan
of Distribution." If an Original
Certificateholder does not exchange such Original
Certificates for Exchange Certificates pursuant
to the Exchange Offer, such Original Certificates
will continue to be subject to the restrictions
on transfer contained in the legend thereon. In
general, the Original Certificates may not be
offered or sold, unless registered under the
Securities Act, except pursuant to an exemption
from, or in a transaction not subject to, the
Securities Act and applicable state securities
laws. See "The Exchange Offer--Consequences of
Failure to Exchange; Resale of Exchange
Certificates".
Expiration Date; The Exchange Offer will expire at 5:00 p.m., New
Withdrawal................. York City time, on , 1998 (as such date may
be extended, the "Expiration Date"). Original
Certificates tendered pursuant to the Exchange
Offer may be withdrawn at any time prior to the
Expiration Date. Any Original Certificates not
accepted for exchange for any reason will be
returned without expense to the tendering holders
thereof as promptly as practicable after the
expiration or termination of the Exchange Offer.
See "The Exchange Offer".
Conditions to Exchange The Exchange Offer is subject to certain
Offer...................... conditions. See "The Exchange Offer--Certain
Conditions to the Exchange Offer." The Exchange
Offer is not conditioned upon any minimum amount
of Original Certificates being tendered for
exchange.
U.S. Federal Income Tax
Considerations........
The exchange of the Original Certificates for the
Exchange Certificates will not be a taxable event
to the holder for U.S. federal income tax
purposes and, thus, the holder will not recognize
any taxable gain or loss as a result of such
exchange. See "Taxation--United States."
Colombian Tax The exchange of the Original Certificates for the
Considerations........ Exchange Certificates will not be a taxable event
for Colombian tax purposes to "Non-Colombian
Holders" and therefore the holder will not
recognize any taxable gain or loss as a result of
such exchange. See "Taxation--Colombia."
9
<PAGE>
Certain ERISA Original Certificateholders should review the
Considerations............. information set forth under "Certain ERISA
Considerations" prior to acquiring an interest in
the Exchange Certificates.
Use of Proceeds............. None of the Company, the Trust or the Original
Certificateholders will receive any cash proceeds
from the issuance of the Exchange Certificates
offered hereby.
Procedures for Tendering
Original Certificates......
Tendering Original Certificateholders must
complete and sign a Letter of Transmittal in
accordance with the instructions contained
therein and forward the same by mail, facsimile
or hand delivery, or an Agent's Message (as
defined herein) in lieu thereof, together with
any other required documents, to the Exchange
Agent either with the Original Certificates to be
tendered or in compliance with the specified
procedures for guaranteed delivery of Original
Certificates. Certain brokers, dealers,
commercial banks, trust companies and other
nominees may also effect tenders by book-entry
transfer. Original Certificateholders whose
Original Certificates are registered in the name
of a broker, dealer, commercial bank, trust
company or other nominee are urged to contact
such person promptly if they wish to tender
Original Certificates pursuant to the Exchange
Offer. See "The Exchange Offer--Procedures for
Tendering Original Certificates."
Letters of Transmittal and Original Certificates
should not be sent to the Company or the Trust.
Such documents should only be sent to the
Exchange Agent.
Untendered Original Upon consummation of the Exchange Offer, the
Certificates............... Original Certificateholders, if any, will have no
further registration or other rights under the
Registration Rights Agreement. Original
Certificateholders who do not tender their
certificates in the Exchange Offer or whose
Original Certificates are not accepted for
exchange will continue to hold such Original
Certificates and will be entitled to all the same
rights and will be subject to all the same
limitations applicable thereto under the Trust
Agreement (except for certain rights to be
registered under the Act which terminate as a
result of this Exchange Offer). All untendered
and tendered but unaccepted Original
Certificates, if any, will continue to be subject
to all of the existing restrictions upon transfer
provided therein. To the extent that Original
Certificates are not tendered and accepted in the
Exchange Offer, an Original Certificateholder's
ability to sell untendered and tendered but
unaccepted Original Certificates could be
adversely affected.
CONSEQUENCES OF EXCHANGING ORIGINAL CERTIFICATES PURSUANT TO THE EXCHANGE OFFER
Based on certain interpretive letters issued by the staff of the Commission
to third parties in unrelated transactions, Original Certificateholders (other
than any holder who is an "affiliate" of the Company within the meaning of Rule
405 under the Securities Act) who exchange their Original Certificates for
Exchange Certificates
10
<PAGE>
pursuant to the Exchange Offer generally may offer such Exchange Certificates
for resale, resell such Exchange Certificates, and otherwise transfer such
Exchange Certificates without compliance with the registration and prospectus
delivery provisions of the Securities Act provided such Exchange Certificates
are acquired in the ordinary course of the holders' business and such holders
are not participating in, and have no arrangement or understanding with any
person to participate in, a distribution of such Exchange Certificates. Each
broker-dealer that receives Exchange Certificates for its own account in
exchange for Original Certificates, where such Original Certificates were
acquired by such broker-dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Certificates. See "Plan of
Distribution." If an Original Certificateholder does not exchange such Original
Certificates for Exchange Certificates pursuant to the Exchange Offer, such
Original Certificates will continue to be subject to the restrictions on
transfer contained in the legend thereon. In general, the Original Certificates
may not be offered or sold, unless registered under the Securities Act, except
pursuant to an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. See "The Exchange Offer--
Consequences of Failure to Exchange; Resale of Exchange Certificates".
The Original Certificates are currently eligible for trading in the Private
Offerings, Resales and Trading through Automated Linkages ("PORTAL") market.
Following commencement of the Exchange Offer but prior to its consummation, the
Original Certificates may continue to be traded in the PORTAL market. However,
to the extent that Original Certificates are tendered and accepted in
connection with the Exchange Offer, any trading market for remaining Original
Certificates will be adversely affected. Following consummation of the Exchange
Offer, the Exchange Certificates will not be eligible for PORTAL trading.
THE EXCHANGE CERTIFICATES
The terms of the Exchange Certificates are identical in all material respects
to the Original Certificates, except for certain transfer restrictions and
registration rights relating to the Original Certificates.
Issuer of the Senior Transtel S.A., a Colombian corporation.
Notes......................
Issuer of the Original Transtel Pass Through Trust, a special purpose
Certificates............... Delaware business trust.
Issuer of the Exchange Transtel Pass Through Trust, a special purpose
Certificates............... Delaware business trust.
Maturity Date............... November 1, 2007.
Distribution Dates.......... Each May 1 and November 1, following the Exchange
Offer.
Interest Rate and Payment The Senior Notes bear interest at a rate of 12
Dates...................... 1/2% per annum payable semiannually on each May 1
and November 1, commencing May 1, 1998.
Escrow Account.............. The Company has deposited approximately $35.3
million of the net proceeds realized from the
sale of the Senior Notes, representing funds
sufficient to pay the first four interest
payments on the Senior Notes, in the Escrow
Account created pursuant to the Escrow and
Disbursement Agreement, dated as of October 28,
1998, among Marine Midland Bank, as Escrow Agent,
the Indenture Trustee , and the Company (the
"Escrow and Disbursement Agreement") (the "Escrow
Account") to be held by the Escrow Agent. Funds
will be
11
<PAGE>
disbursed from the Escrow Account only to pay
interest on the Senior Notes and, upon certain
repurchases or redemptions of the Senior Notes,
to pay principal of and premium, if any, thereon.
Refinancing Account......... The Company placed approximately $32.8 million of
the net proceeds realized from the sale of the
Senior Notes, representing funds sufficient for
the payment of indebtedness outstanding on
October 28, 1998 which the Company owed to
various financial institutions ("Other Existing
Indebtedness"), in an escrow account created
under the Escrow and Disbursement Agreement (the
"Refinancing Account") held by the Escrow Agent.
The Company has repaid the Other Existing
Indebtedness and the Refinancing Account (as
defined herein) has been terminated.
Optional Redemption......... The Senior Notes are redeemable, in whole or in
part, at the option of the Company on or after
November 1, 2002 at the redemption prices set
forth herein plus accrued and unpaid interest to
the date of redemption.
Redemption Upon Sale of
Capital Stock..............
At any time or from time to time on or prior to
November 1, 2000, in the event of the sale by the
Company of at least $25.0 million of its Capital
Stock in one or more Public Equity Offerings or
to one or more Strategic Equity Investors, the
Company may, at its option, use the net cash
proceeds of such sale or sales to redeem up to
35% of the Senior Notes at a redemption price
specified herein of the principal amount thereof
plus accrued and unpaid interest to the date of
redemption; provided, that at least 65% of the
initial aggregate amount of the Senior Notes
originally issued remains outstanding after any
such redemption.
Security.................... The Company has loaned approximately $98.3
million of the proceeds of the Senior Notes to
its Operating Companies. These loans are
evidenced by intercompany notes (the
"Intercompany Notes").
Ranking.....................
The Senior Notes are senior obligations of the
Company ranking pari passu in right of payment
with all existing and future senior Indebtedness
of the Company and ranking senior in right of
payment to all existing and future subordinated
Indebtedness of the Company. The Intercompany
Notes are senior unsecured obligations of each of
the Operating Companies. The Senior Notes are
secured by a pledge of the Intercompany Notes and
by a pledge of the Escrow Account. The Company is
a holding company that conducts substantially all
its operations through the Operating Companies.
Therefore, other than claims under the
Intercompany Notes, the Senior Notes are
effectively subordinated to all debt and other
liabilities of the Operating Companies. As of
December 31, 1997, on a pro forma basis, after
giving effect to the Offering and the Equity
Contribution and the application of the net
proceeds
12
<PAGE>
therefrom, the Company and its subsidiaries on a
consolidated basis would have had approximately
Ps195.9 billion ($151.4 million) of debt
outstanding, excluding any amounts arising under
the Vendor Financing and the DIAN Financing. In
addition, as of December 31, 1997, on a pro forma
basis, the Operating Companies would have had
Ps21.9 billion ($16.9 million) of other
liabilities. For the purpose of the Indenture,
the Vendor Financing and the DIAN Financing,
without duplication, will be considered
Indebtedness as they arise and therefore, as of
December 31, 1997, on a pro forma basis, the
Company and its subsidiaries had Indebtedness of
Ps202.8 billion ($156.8 million).
Change of Control........... Upon a Change of Control, the Company will be
required to make an offer to repurchase the
Senior Notes at a price equal to 101% of the
principal amount thereof, plus accrued and unpaid
interest, to the date of repurchase. See "Risk
Factors--Inability to Redeem Senior Notes within
One Year."
Certain Covenants...........
The Indenture imposes certain limitations on the
ability of the Company and its subsidiaries to,
among other things, incur additional
indebtedness, incur liens, pay dividends or make
certain other restricted payments, consummate
certain asset sales, enter into certain
transactions with affiliates, issue preferred
stock, merge or consolidate with any other person
or sell, assign, transfer, lease, convey, or
otherwise dispose of all or substantially all of
the assets of the Company and its subsidiaries.
Pursuant to the Indenture, the Company may not
loan more than 20% of the proceeds from the
issuance of the Senior Notes to any one Operating
Company. The amount loaned to each of the
Operating Companies is as follows at March 31,
1998 (in millions of Dollars):
<TABLE>
<S> <C>
Unitel................................................. $29.9
TeleJamundi............................................ 24.8
TelePalmira............................................ 22.8
TeleCartago............................................ 9.0
Caucatel............................................... 6.7
Bugatel................................................ 5.1
-----
$98.3
=====
</TABLE>
For additional information concerning (i) the Exchange Offer, see "The
Exchange Offer," (ii) the Exchange Certificates, see "Description of the
Certificates" and (iii) the Senior Notes, see "Description of the Senior
Notes."
RISK FACTORS
See "Risk Factors" for a discussion of certain factors which should be
considered by prospective investors in evaluating the exchange of the Original
Certificates for the Exchange Certificates.
13
<PAGE>
SUMMARY FINANCIAL AND OTHER DATA
The Company was incorporated in 1993 and commenced offering telephone
services in September 1995. Accordingly, the Company has no commercial
operating history prior to such time, and results for 1995 are not directly
comparable to those of 1996. The Company was in a preoperating stage prior to
September 1, 1995 and capitalized all of its net expenses as deferred costs;
thus, no statements of income are presented for 1993 and 1994. The summary
statement of income data for each of the years ended December 31, 1995, 1996
and 1997, and the summary balance sheet data as of December 31, 1994, 1995,
1996 and 1997 have been derived from audited financial statements. The summary
balance sheet data at December 31, 1993 have been derived from unaudited
consolidated financial statements of the Company. This information should be
read in conjunction with, and is qualified in its entirety by reference to,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Annual Financial Statements, including the
notes thereto, included elsewhere in this Prospectus.
The Consolidated Annual Financial Statements included herein have been
prepared in conformity with Colombian GAAP (including restatement of the
financial information in constant pesos as of December 31, 1997), which differs
in certain significant aspects from generally accepted accounting principles in
the United States ("U.S. GAAP"). Note 31 to the Consolidated Annual Financial
Statements provides a discussion of the principal differences between Colombian
and U.S. GAAP as they relate to the Company and a reconciliation of net income
and shareholders' equity for the Company as of and for the years ended December
31, 1995, 1996 and 1997 to amounts calculated in accordance with U.S. GAAP.
Dollar equivalent information set forth below has been included solely for
the convenience of the reader, and is translated from Pesos at the
Representative Market Rate in effect on December 31, 1997 of Ps1,293.58 to one
Dollar. Such translation should not be construed as a representation that the
Peso amounts represent, or have been or could be converted into, Dollars at
that rate or any other rate.
Unless otherwise indicated, all financial information included in this
Prospectus has, for comparability purposes, been restated in constant Pesos as
of December 31, 1997 by indexing historical amounts using the MCPI. Although
the restatement of nominal Pesos into constant Pesos lessens the distorting
effect that an inflationary environment has on comparisons of Consolidated
Financial Statements over time, such restatement does not wholly eliminate
those distortions and evaluation of period-to-period trends may be difficult.
See "Risk Factors--Corporate Disclosure and Accounting Standards" and "Risk
Factors--Inflation."
14
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1995 1996 1997 1997
----------- ------------ ------------- -------
(IN THOUSANDS OF CONSTANT PESOS OF DECEMBER
31, 1997 PURCHASING POWER AND IN THOUSANDS OF
DOLLARS, EXCEPT NETWORK AND OPERATING DATA AND
PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Colombian GAAP:
Revenues.................. Ps2,426,468 Ps11,890,389 Ps 26,563,264 $20,535
Costs and expenses........ 1,156,280 7,151,972 16,929,996 13,088
Operating income.......... 1,270,188 4,738,417 9,633,268 7,447
Interest expense.......... 284,987 1,945,302 8,133,026 6,287
Income tax expense........ 372 328,510 1,164,366 900
Minority interest
expense.................. 514,901 2,299,847 4,114,548 3,181
Net income(1)............. 773,189 3,339,325 1,088,144 841
Earnings per share........ 0.34 0.83 0.25 --
U.S. GAAP:
Revenues.................. Ps1,815,478 Ps 7,725,545 Ps 27,394,812 $21,178
Operating income (loss)... (2,373,970) (180,174) 6,404,379 4,951
Interest expense.......... 1,623,428 8,474,495 12,893,205 9,967
Net loss.................. (2,962,419) (2,988,629) (2,239,263) (1,731)
Basic earnings (loss) per
share.................... (1.29) (0.75) (0.51) --
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------------------
1993 1994 1995 1996 1997 1997
--------- ----------- ------------ ------------ ------------- --------
(IN THOUSANDS OF CONSTANT PESOS OF DECEMBER 31, 1997
PURCHASING POWER AND IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (END OF
PERIOD):
Colombian GAAP:
Cash.................. Ps116,843 Ps 6,260 Ps 720,644 Ps13,781,984 Ps 2,788,918 $ 2,156
Properties, plant and
equipment, net....... -- -- 22,725,200 26,921,077 113,234,666 87,536
Total assets.......... 187,191 4,066,867 35,068,074 86,429,728 353,255,435 273,084
Short-term debt(2).... -- -- 2,696,844 17,901,394 14,175,678 10,958
12 1/2% Senior Notes
due 2007............. -- -- -- -- 194,037,000 150,000
Other long-term
debt(3)(4)........... -- -- 12,115,244 26,096,526 4,439,717 3,432
Minority interest..... -- -- 9,453,325 17,533,960 42,401,345 32,778
Shareholders' equity.. 110,026 3,969,829 7,166,232 19,350,391 53,039,294 41,002
U.S. GAAP:
Cash.................. Ps -- Ps -- Ps 720,644 Ps13,781,984 Ps 2,788,918 $ 2,156
Properties, plant and
equipment, net....... -- -- 26,078,383 29,224,245 115,376,516 89,192
Total assets.......... -- -- 32,290,018 62,695,833 319,178,358 246,740
Short-term debt(2).... -- -- 3,091,690 18,447,275 15,096,836 11,670
12 1/2% Senior Notes
due 2007............. -- -- -- -- 194,037,000 150,000
Other long-term
debt(3)(4)........... -- -- 15,053,772 28,280,047 6,800,575 5,257
Minority interest..... -- -- 8,797,309 7,391,847 32,417,871 25,061
Shareholders' equity
(deficit)............ -- -- 2,129,241 (1,194,332) 28,596,297 22,107
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1995 1996 1997 1997
------------ ----------- ------------ --------
(IN THOUSANDS OF CONSTANT PESOS OF DECEMBER
31, 1997 PURCHASING POWER AND IN THOUSANDS OF
DOLLARS, EXCEPT NETWORK AND OPERATING DATA AND
PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
Colombian GAAP:
Capital expenditures(5)... Ps16,154,395 Ps6,763,489 Ps45,588,202 $ 35,242
Depreciation and
amortization(1).......... 321,951 1,283,575 3,907,548 3,020
Total Indebtedness(6)..... 18,609,727 47,098,734 215,914,132 166,912
Deficiency of earnings to
fixed charges(7)......... (11,960) (681,960) (1,383,374) (1,069)
U.S. GAAP:
Capital expenditures(5)... Ps15,957,992 Ps7,026,040 Ps46,641,679 $ 36,056
Depreciation and
amortization............. 354,275 1,637,804 5,075,501 3,924
Deficiency of earnings to
fixed charges(7)......... (3,424,520) (5,420,952) (197,665) (153)
NETWORK AND OPERATING DATA
(END OF PERIOD):
Systems in operation........ 1 1 6
Population.................. 317,995 317,995 2,897,600
Subscribers................. 22,260 29,528 92,009
Penetration(8).............. 7.0 9.3 14
</TABLE>
- --------
(1) For Colombian GAAP purposes, as of January 1, 1996, TelePalmira changed
from the straight-line to the reverse sum of the years digits' method of
computing depreciation which had the effect of decreasing 1996 depreciation
(and increasing 1996 income before income taxes and minority interest) by
Ps940,430 ($727) and increasing 1996 net income by Ps564,257 ($436). For
U.S. GAAP purposes, all periods use the straight-line method.
(2) Short-term debt includes current portion of other long-term debt, current
portion of capital lease obligations, short-term debt and the current
portion of the Transtel-Siemens Purchase Agreement.
(3) Other long-term debt includes other long-term debt, capital lease
obligations and the noncurrent portion of the Transtel-Siemens Purchase
Agreement.
(4) Under U.S. GAAP, all capital leases are required to be capitalized as they
arise, including the Global Leases (as defined herein) and the IBM
Arrangement (as defined herein), both of which comprise a portion of the
Vendor Financing. Under Colombian GAAP, certain lease payments are not
required to be capitalized, including some of the leasing arrangements
included in the Vendor Financing. See Notes 30 and 31 to the Consolidated
Annual Financial Statements and "Capitalization". The principal amounts of
Vendor Financing and the DIAN Financing (undiscounted) that will be
recorded, as they arise in the future, that are not recorded as liabilities
or advances at December 31, 1997 are as follows (in thousands):
<TABLE>
<S> <C> <C>
Vendor Financing:
Global Leases....................................... Ps104,544,250 $ 80,818
IBM Arrangement..................................... 3,505,590 2,710
Future Global Leases................................ 17,601,609 13,607
------------- --------
Total............................................. 125,651,449 97,135
DIAN Financing........................................ 29,881,698 23,100
------------- --------
Ps155,533,147 $120,235
============= ========
</TABLE>
(5) Capital expenditures consist of purchases of properties, plant and
equipment as reflected in the Company's consolidated statements of cash
flows.
(6) Total Indebtedness is calculated in accordance with the definition of
"Indebtedness" under the Indenture, which includes short-term debt, long-
term debt, capital lease obligations and obligations under the Vendor
16
<PAGE>
Financing and the DIAN Financing, as they arise.
(7) For purposes of computing the deficiency of earnings to fixed charges,
"earnings" consist of income (loss) before income taxes, minority interests
and fixed charges, excluding capitalized interest. Fixed charges consist of
interest on all indebtedness (whether capitalized or expensed) and that
portion of operating lease expenses deemed to be interest expense.
(8) Penetration represents the number of installed lines per 100 people. In
Cartago, Jamundi and Yumbo, penetration includes the installed lines of
municipal competitors as of December 31, 1997 of approximately 10,000
lines, 5,200 lines and 5,500 lines as per the Company's estimates,
respectively.
RECENT DEVELOPMENTS
Empresa de Comunicaciones de Girardot S.A. E.S.P.
On December 31, 1997, TeleGirardot, a new subsidiary, was formed by the
Company to acquire the telecommunication net assets of the municipality of
Girardot's wholly-owned subsidiary, Empresa de Telecomunicaciones de Girardot
E.S.P. ("Girardot Telephone"). TeleGirardot was capitalized with Ps9.2 billion
($7.1 million) in cash contributed by the Company to TeleGirardot in exchange
for a 60% interest in TeleGirardot. The municipality of Girardot contributed
the net assets of Girardot Telephone (which had approximately 23,500
subscribers) with a fair market value of Ps6.1 billion ($4.7 million) to
TeleGirardot in exchange for a 40% interest in TeleGirardot. The municipality's
telephone network commenced operations on December 2, 1978.
TeleGirardot serves the cities of Girardot, Flandes and Ricaurte. Girardot
and Ricaurte are located 362 kilometers east of Cali and 127 kilometers
southwest of Bogota. Flandes is located 363 kilometers east of Cali and 128
kilometers southwest of Bogota. The economic base of the three cities is
tourism, agriculture and cattle raising. The aggregate population of the three
cities is approximately 161,000 people.
Upon the commencement of Transtel's operation of TeleGirardot on December 31,
1997, TeleGirardot's subscriber base was composed of approximately 80%
residential and 20% commercial subscribers. TeleGirardot's competitor in its
service area is TeleTequendama E.S.P., which currently has approximately 8,500
subscribers.
On December 31, 1997, TeleGirardot had 24,500 subscribers in Girardot.
Transtel expects, through its expansion plan (the "TeleGirardot Expansion
Plan"), to increase the number of installed lines in Girardot to 40,000 lines
by the end of 1998. Transtel expects to incur approximately $4.0 million under
the TeleGirardot Expansion Plan which will be financed with cash flow from its
operations. The Company is currently negotiating with Siemens AG ("Siemens") to
enter into contracts for the supply of equipment to effect the TeleGirardot
Expansion Plan. As of March 31, 1998, TeleGirardot had approximately 1,500 new
subscribers, all of whom are serviced by digital lines, and approximately 70
employees.
17
<PAGE>
RISK FACTORS
Original Certificateholders should consider carefully the following risk
factors as well as the other information contained in this Prospectus in
evaluating an investment in the Exchange Certificates, although the risk
factors set forth below are generally applicable to the Original Certificates
as well as the Exchange Certificates.
TRUST'S DEPENDENCE ON OPERATING COMPANIES TO MAKE PAYMENTS; NO GUARANTEE BY
OPERATING COMPANIES; NOT WHOLLY-OWNED OPERATING COMPANIES.
The Company is the only entity which has an obligation under the Senior
Notes. The Operating Companies are obligated to pay the Company under their
respective Intercompany Notes, but they have not guaranteed the Senior Notes
and have no obligation under the Certificates and therefore are not obligated
to make funds available to the Company or the Indenture Trustee in the event
the Company or the Indenture Trustee is unable to make payments on the Senior
Notes or the Certificates. Additionally, the Operating Companies are not
wholly-owned subsidiaries of the Company but instead are owned jointly by the
Company and local municipalities. The Company owns approximately 60% or more
of each of the Operating Companies (other than Caucatel where the Company owns
51%). Any dividends issued by the Operating Companies must be distributed pro
rata to all of their shareholders.
The Company cannot be assured that it will be able to generate significant
cash through dividends or other distributions from the Operating Companies in
the foreseeable future and there can be no assurance that the Company will be
able to generate any significant cash flow from the Operating Companies at any
time in the future. Since the Company's assets consist primarily of its
ownership interests in the Operating Companies, the Senior Notes (and
therefore the Certificates) will be effectively subordinated (other than as to
claims that the Company can make under the Intercompany Notes) to all existing
and future debt and other liabilities (including trade payables) of the
Operating Companies, and the Company's right to receive the assets of the
Operating Companies upon their liquidation or reorganization will be subject
to the claims of such Operating Companies' creditors (including trade
creditors).
CONSEQUENCES OF FAILURE TO EXCHANGE
Original Certificateholders who do not exchange their Original Certificates
for Exchange Certificates pursuant to the Exchange Offer will continue to be
subject to the restrictions on transfer of such Original Certificates as a
consequence of the issuance of the Original Certificates pursuant to
exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable states securities laws. In
general, the Original Certificates may not be offered or sold, unless
registered under the Securities Act, except pursuant to an exemption from, or
in a transaction not subject to, the Securities Act and applicable state
securities laws. See "The Exchange Offer--Consequences of Failure to Exchange;
Resale of Exchange Certificates."
SUBSTANTIAL LEVERAGE OF THE COMPANY; INSUFFICIENCY OF EARNINGS TO COVER FIXED
CHARGES
The Company is highly leveraged. Even though a portion of the proceeds of
the Offering was used to repay debt, after the Offering, the Company and its
subsidiaries had as of December 31, 1997 on a pro forma basis approximately
Ps202.8 billion ($156.8 million) of Indebtedness, which includes the Vendor
Financing and the DIAN Financing which has arisen. The Indenture limits, but
does not prohibit, the incurrence of additional Indebtedness, secured or
unsecured, by the Company and its subsidiaries. Although funds sufficient to
pay the first four interest payments on the Senior Notes (and therefore on the
Certificates) were placed into the Escrow Account, future interest payments on
the Senior Notes (and therefore on the Certificates) will be payable from the
Company's cash flow. The debt service requirements of any additional debt
could make it more difficult for the Company to make principal and interest
payments on the Senior Notes and consequently, the Trust's ability to make
payments on the Certificates. For the years ended December 31, 1995, 1996 and
1997, earnings were
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insufficient to cover fixed charges by Ps11,960,000; Ps681,960,000 and
Ps1,383,374,000, respectively. On a U.S. GAAP basis, earnings were
insufficient to cover fixed charges by Ps3,424,520,000; Ps5,420,952,000 and
Ps197,665,000 for the years ended December 31, 1995, 1996 and 1997,
respectively.
There can be no assurance that the Company will be able to generate
sufficient cash flow to cover either the required interest and principal
payments or any required redemptions or repurchases of the Senior Notes and
consequently, the Trust's ability to make payments on the Certificates. If the
Company is unable to meet interest 0and principal payments or any required
redemptions or repurchases of the Senior Notes in the future, it may,
depending upon the circumstances which then exist, seek additional equity or
debt financing, attempt to refinance its existing indebtedness or sell all or
part of its business or assets to raise funds to repay its indebtedness. There
can be no assurance that the Company will be able to generate sufficient cash
flow to cover any required payment on the Senior Notes and consequently the
Trust would not have the ability to make the corresponding payment on the
Certificates. There can be no assurance that sufficient equity or debt
financing will be available, or, if available, that it will be on terms
acceptable to the Company, that the Company will be able to refinance its
existing indebtedness or that sufficient funds could be raised through asset
sales.
The high degree of leverage of the Company may have important consequences
to Certificateholders. In particular: (i) a substantial portion of the
Company's anticipated cash flow from operations will be required for the
payment of the Company's interest expense and principal repayment obligations
on the Senior Notes; (ii) the ability of the Company to obtain additional
financing in the future for working capital, acquisitions, capital
expenditures, repayment of debt, or other purposes is limited by restrictive
covenants in the Indenture; and (iii) the Company may be more vulnerable to
downturns in general economic conditions or in its business and may have less
flexibility to respond to changing business conditions and opportunities.
COLOMBIAN POLITICAL, ECONOMIC AND SOCIAL RISKS
The Company is located in Colombia and is subject to political, economic and
other uncertainties, including expropriation, nationalization, renegotiation,
or nullification of existing contracts, currency exchange restrictions and
international monetary fluctuations. Furthermore, Colombia has experienced
violence related to guerrilla activity. The Indenture will not require the
Company, and the Company does not intend, to maintain insurance against such
risks.
Cali and its metropolitan area, the Company's largest market, has been the
center of operations of one of Colombia's most powerful drug organizations,
and as such has suffered the violence resulting from the Colombian
government's efforts to curb the drug trade. Cali may also have received
portions of the capital generated by the drug trade, to the extent some of
such capital was reinvested locally. The Company believes that neither the
drug trade nor the efforts to curb it have had a material adverse effect on
its business. However, no assurance can be given that drug activity in the
future will not have a material adverse effect on the Company or that the
efforts to curb such activity will not have a material adverse effect on the
economy of the region and thereby on the Company.
Since March 1, 1996, the United States government has declined to recertify
Colombia as qualifying for United States foreign aid, due to a perceived
failure by Colombia to cooperate adequately in combating the drug trade.
However, on February 26, 1998, due to the recent operations performed by the
Colombian Army and the National Police Department against the Colombian drug
cartels, the United States government certified Colombia with a "waiver".
Although the certification with a waiver does not mean that Colombia is
qualified for United States foreign aid, it does mean that Colombia is not
subject to economic or trade sanctions. The certification with a waiver
implies that the United States is able to vote in favor of Colombia at the
boards of multilateral agencies and credit institutions, such as the World
Bank, the Overseas Private Investment Corporation, OPIC, Export-Import Bank,
Eximbank and the Interamerican Development Bank, IDB.
It is impossible to predict what effect these events and conditions, which
are entirely outside the control of the Company, will have on the country or
on the Company. Certificateholders should recognize that these
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conditions and events create significant uncertainties and risks, which could
result in material adverse effects on the Company and on its ability to meet
its obligations, including its obligations under the Senior Notes and
consequently, the Trust's ability to pay on the Certificates.
In addition to these political and social uncertainties, investment in
Colombia, as with all emerging markets, is subject to economic uncertainties.
Colombia is divided into thirty-two political subdivisions called
departamentos (departments). The Company's operations are dependent upon the
performance of the Colombian economy generally, and, in particular, upon the
performance of the economies of the Departamentos of Valle del Cauca and
Cauca. The economies of Colombia and these departamentos are in a stage of
development and structural reform, and the possibility exists that rapid
fluctuations in consumer prices, gross domestic product and interest rates
will occur. The Company's financial results may be affected by such
fluctuations in the economies of Colombia, of Valle del Cauca, of Cauca, and
of any other departamentos in which the Company operates in the future, and
such fluctuations may affect the ability of customers to pay for the Company's
services and on the ability of the market to support the growth of telephone
operations.
The Colombian government has historically exercised significant influence
over the Colombian economy. Governmental actions concerning the economy could
continue to have an important effect on Colombian entities, including the
Company, and on market conditions, prices and returns on Colombian securities,
including the Senior Notes and consequently, the Certificates. There can be no
assurance that recent policies that have resulted in favorable economic growth
will be maintained by this government or any new government or that such
growth will continue.
HOLDING COMPANY STRUCTURE; LIMITATIONS ON ACCESS TO CASH FLOW OF OPERATING
COMPANIES; EFFECTIVE SUBORDINATION
The Senior Notes will be the exclusive obligation of the Company, which is a
holding company with no business operations of its own. The operations of the
Company are conducted through the Operating Companies, which are separate and
distinct legal entities. Other than the obligation to repay to the Company the
Intercompany Notes, the Operating Companies have no obligation, contingent or
otherwise, to pay any amounts due pursuant to the Senior Notes or the
Certificates, to make any funds available to the Company to enable it to make
payments on the Senior Notes and consequently, to make the funds available to
the Trust to make payments on the Certificates, to make funds available in
order to make investments in the Operating Companies, to meet working capital
needs or other liabilities of the Company or for any other reason. In
addition, the Operating Companies are not wholly-owned subsidiaries of the
Company but instead are owned jointly by the Company and local municipalities.
Any dividends issued by the Operating Companies must be distributed pro rata
to all of their shareholders. As a result, the Company cannot be assured that
it will be able to generate significant cash through dividends or other
distributions from the Operating Companies in the foreseeable future and there
can be no assurance that the Company will be able to generate any significant
cash flow from the Operating Companies at any time in the future. Since the
Company's assets consist primarily of its ownership interests in the Operating
Companies, the Senior Notes (and therefore the Certificates) will be
effectively subordinated (other than as to claims that the Company can make
under the Intercompany Notes) to all existing and future debt and other
liabilities (including trade payables) of the Operating Companies, and the
Company's right to receive the assets of the Operating Companies upon their
liquidation or reorganization will be subject to the claims of such Operating
Companies' creditors (including trade creditors).
LIMITED OPERATING HISTORY; POTENTIAL LACK OF CUSTOMER DEMAND
The Company is a new enterprise. It was incorporated in August 1993 and
commenced offering telephone services through TelePalmira on September 1,
1995. Most of the Company's systems have only recently begun to be operated by
Transtel. Unitel Wireless commenced operations on January 2, 1998.
TeleCartargo, Caucatel, TeleJamundi, Unitel Wireline and Bugatel commenced
operations on April 1, 1997; May 1, 1997; June 1, 1997; June 1, 1997; and July
1, 1997, respectively. TeleGirardot commenced operations on December 31, 1997.
The
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successful development and commercialization of these systems will depend on a
number of significant financial, logistical, technical, marketing, legal and
other factors, the outcome of which cannot be predicted. These Operating
Companies will require additional funds for capital expenditures, working
capital requirements, and other cash needs, including the costs of obtaining
additional equipment. In addition, there can be no assurance that the systems
will not encounter engineering, design, or other operational problems. There
can be no assurance that the Company can successfully develop any future
systems or that any of its systems will achieve commercial success.
Additionally, the extent to which prospective telephone customers will
choose to obtain telephone service from the Company is unclear. The Company
has incurred and will continue to incur significant operating expenses, has
made, and will continue to make, significant capital investments, has entered
into operating leases, equipment supply contracts and service arrangements, in
each case based upon certain expectations as to the anticipated market
acceptance of, and customer demand for, the Company's telephony services. The
failure to meet these expectations could have a material adverse effect on the
Company. A substantial portion of the Company's revenues to date have been
derived from non-recurring connection charges. The continuation of this
revenue stream will depend on the Company continuing to obtain new
subscribers, which cannot be assured.
RISKS ASSOCIATED WITH PRIVATIZATION AND MANAGEMENT OF GROWTH
The success of the Company's operating strategy is subject to factors that
are beyond the control of the Company and are impossible to predict, in part,
because the telecommunications industry has only recently begun to be
privatized in Colombia. The Company is unable to predict how consumer demand
for telecommunications services will develop over time. The size of the
Colombian market for telecommunications services, the rates of penetration of
the market and the sensitivity of potential subscribers to changes in prices,
among other factors, are uncertain. Moreover, the provision of telephony
service with additional calling features is without precedent in Colombia and,
therefore, the market acceptance and customer demand for such services is
uncertain. In addition, the Company's continued rapid growth will require the
training of new personnel, the expansion of its management information
systems, effective control of its expenses related to operations and systems
construction, and effective controls over the quality of new subscribers and
churn rate. If the Company is unable to satisfy these requirements, if it is
unable to generate sufficient revenue to meet its current expenses and future
obligations, or if it is otherwise unable to manage growth effectively, the
Company's ability to meet its obligations under the Senior Notes and
consequently, the Trust's ability to pay on the Certificates may suffer a
material adverse effect.
NETWORK ROLLOUT RISKS; RELIANCE ON SUPPLIERS; DELAYS IN CONSTRUCTION
The Company's service is dependent upon the completion and continued
viability of its network. The Company has completed portions of its network
and expects to incur significant expenditures to expand the geographic
coverage and increase the capacity of its network. The roll-out of the
Company's network is subject to risks and uncertainties that could delay the
rollout of the Company's services and increase the cost of construction.
With respect to wireless networks, one such risk is the availability, access
to, and continued use of, suitable base stations and switch sites. The
Company's ability to locate and retain suitable base stations and switch sites
is dependent on the cooperation of local planning authorities and potential
landlords. There can be no assurance that the Company will be successful in
obtaining property rights necessary to establish or maintain such base
stations and switch sites, or that delays in obtaining such rights will not
adversely affect the rate of the Company's network rollout.
The currently planned build out and upgrade of the Company's networks is
reliant on Siemens for the supply of equipment and other telecommunications
supplies and for construction of the networks. There can be no assurance that
Siemens will honor its current obligations to supply equipment and construct
the networks or that it will desire or be able to supply such equipment or
undertake construction of future projects. Equipment
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supplies are additionally subject to shortages and/or delays in delivery. In
addition, with respect to letters of intent to enter into purchase agreements
with respect to equipment, there can be no assurance that the letters of
intent are binding on Siemens or that definitive purchase agreements will be
entered into. Accordingly, there can be no assurance that currently planned
projects or future projects will be completed within the time periods
projected, or at all. Failure to obtain equipment on a timely basis, or at
all, could jeopardize subscriber contracts and could have a material adverse
effect on the Company.
The construction of the Company's networks in the municipalities of Palmira,
Jamundi, Yumbo, Cartago and Buga are currently governed by turn-key contracts
which obligate Siemens and the other contractors to finish construction or
installation. See "Business--Construction Arrangements." However, any future
projects will typically require substantial construction of new networks or
upgrades to existing networks, and no such construction obligation has been
undertaken by a third party. Construction activity will require qualified
subcontractors and necessary equipment to be secured on a timely basis, the
availability of which may vary significantly from location to location.
Construction projects may experience cost overruns and delays outside the
control of the Company or its subcontractors, such as those caused by acts of
governmental entities, financing delays and catastrophic occurrences. Delays
also can arise from design changes and material or equipment shortages or
delays in delivery. Accordingly, there can be no assurance that such projects
will be completed within the amount budgeted therefor or on time, or at all.
Failure to complete construction within the amount budgeted or on time could
jeopardize subscriber contracts and could have a material adverse effect on
the Company.
If the Company were to decide to pursue other investments or make other
expenditures, other than the Expansion Plan, additional capital resources
would be required. If the Company is unable to fund such expenditures or
investments, or if the Company's cash flow from operations does not increase
from its present level, the Company might not be able to continue to pursue
its network construction and subscriber growth strategy.
POTENTIAL NEED FOR ADDITIONAL EQUIPMENT
The success of the Company's telecommunications system is partially
dependent on the completion of its Expansion Plan and its TeleGirardot
Expansion Plan. See "Business--Expansion Plan." Although the Company has
entered into equipment purchase agreements with Siemens and IBM, there can be
no assurance that future network evaluations or other similar factors will not
necessitate the Company's re-evaluation of its equipment needs. See
"Description of Existing Indebtedness--Global-Siemens Arrangements,"
"Description of Existing Indebtedness--Transtel-Siemens Arrangement",
"Description of Existing Indebtedness--IBM Arrangement" and "Prospectus
Summary--Recent Developments." If equipment requirements do increase,
additional capital or financing sources would be required. There can be no
assurance that the Company will be able to fund such capital expenditures or
obtain such financing on terms favorable to the Company.
CONTINGENCY OF VENDOR FINANCING
The build out and upgrade of the Company's networks and the completion of
the Expansion Plan is reliant on equipment vendor financing from Siemens and
IBM. While there are four purchase agreements with Siemens and a purchase
agreement with IBM, the Company is negotiating the financing terms with
Siemens with respect to some of the equipment. See "Description of Existing
Indebtedness--Global-Siemens Arrangements." Additionally, the Company is
currently negotiating with Siemens to enter into contracts for the supply of
equipment to partially effect the TeleGirardot Expansion Plan. There can be no
assurance that the financing from Siemens will be available and if it is not
available, whether other financing will be available to the Company. In
addition, there can be no assurance that financing agreements will be
finalized and if finalized, whether the terms of such financing agreements
will be favorable to the Company.
RISKS ASSOCIATED WITH COLOMBIAN PLEDGE AND ENFORCEMENT OF FOREIGN JUDGMENTS
The Senior Notes are secured by a pledge of the Intercompany Notes. The
pledge is a security instrument governed primarily by the Codigo de Comercio
(Commercial Code) and the Codigo de Procedimiento Civil
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(Code of Civil Procedure) and there can be no assurance that this arrangement
will be effective to create a senior perfected security interest in the
Intercompany Notes enforceable in the same manner and to the same extent as a
security interest granted under the laws of the United States. An action to
enforce the pledge can only be executed before a Colombian court. The process
employed in executing the pledge entails a court order to sell the pledged
asset to the public, either by public auction or through a local stock
exchange, with the proceeds of the sale going to pay the defaulted
obligations. The right to initiate the judicial proceedings to enforce a
pledge expires four years after the obligation becomes enforceable.
Historically, the enforcement of pledges before Colombian courts has been a
long process. The delays of a trial to enforce the pledge may have a material
adverse effect on the Colombian court's ability to obtain payment of the full
value for the Senior Notes and therefore, on the Trust's ability to repay the
Certificates.
In addition, substantially all of the assets of the Company will be located
in Colombia. As a result, it may not be possible for the Pass Through Trustee,
the Indenture Trustee or the Exchange Certificateholders to enforce outside of
Colombia judgments against the Company, including enforcement in the United
States of judgments predicated upon the civil liability provisions of the
United States federal securities laws or a judgment to enforce the Certificate
Guarantees. The United States and Colombia do not have a treaty providing for
reciprocal recognition and enforcement of judgments in civil and commercial
matters. See "Enforcement of Foreign Judgments in Colombia." For a foreign
judgment to be effective and enforceable in Colombia, it must be proved in
accordance with the Rules of Court in Colombia, as contained in the Colombian
Code of Civil Procedure, pursuant to which a demand for an exequatur
(proceedings in the Colombian Judicial System for recognition of a foreign
judicial decision or arbitral award) must be presented before Colombia's
Supreme Court of Justice. Therefore, a final judgment for the payment of money
rendered by a federal or state court in the United States based on civil
liability, whether or not predicated solely upon the civil liability
provisions of the United States federal securities laws, would be enforceable
in Colombia against the Company only if it has been proven in accordance with
the Colombian Rules of Court. The Company also has been advised by its
Colombian counsel that there can be no assurance as to the enforceability, in
original actions in Colombian courts, of liabilities predicated solely on the
United States federal or other non-Colombian securities laws.
COMPETITION
There is currently no restriction in Colombia on competition within the
local telephony business. It is possible that competitors, including companies
with substantially greater capital or other resources than the Company, could
commence operations in the Company's service area and offer wireline,
wireless, cellular, Personal Communication Services ("PCS") or other
competitive telecommunications services. The Company currently faces
competition in certain cities primarily from various state-run providers of
local telephony service. Competition is based on services offered, quality of
service and coverage area. See "Industry Overview; Legal and Regulatory
Environment" and "Business--Operating Companies--General."
TECHNOLOGICAL RISK; RISK OF OBSOLESCENCE
The Company's Operating Companies generally use advanced technologies.
Although many of the technologies currently in use and to be used in the
future by the Company have been developed by international telecommunications
companies, such as Siemens, some have only recently been developed and
commercially introduced. There can be no assurance that the Operating
Companies will not experience technical problems in the commercial deployment
of these technologies, particularly because they are being introduced in a
developing country. In addition, the technology used in wireless
communications is evolving rapidly and one or more of the technologies
currently utilized or planned by the Company may not be preferred by its
customers or may become obsolete, which in either case would likely have a
material adverse effect on the Company. There can be no assurance that the
Company will be able to keep pace with ongoing technological changes in the
telecommunications industry.
REGULATORY RISKS
The privatization of telecommunications services in Colombia is dependent
upon Law 142 (as defined herein). There can be no assurance that material
adverse changes to Law 142 will not occur in the future.
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Additionally, certain Operating Companies could become subject to service
requirements, restrictions on interconnection to government-owned or private
telephone networks and government requirements regarding rates and tariffs,
among others. These requirements may be difficult to comply with, particularly
given demographic, geographic, or other issues in a particular market.
Further, changes in the regulatory framework may limit the Operating
Companies' ability to add subscribers to developing systems. An Operating
Company's failure to comply with applicable governmental regulations or
operating requirements could have a material adverse effect on the Company.
Further, the Company's current and anticipated ownership interests in the
Operating Companies are subject to continued support by the Colombian
government of privatization of the telecommunications sector.
Additionally, the pricing of the Company's services and related matters are
subject to regulation by the CRT (as defined herein). Changes in the
regulation of the Company's pricing, or a change in the interpretation of the
existing regulations, could have a material adverse effect on the Company. See
"Industry Overview; Legal and Regulatory Environment."
Furthermore, the frequency assigned to the Company with respect to Unitel's
fixed wireless system, which was assigned by the Ministerio de Comunicaciones
(Ministry of Communications), could be revoked if the Company operates out of
its assigned frequency, offers services other than those approved by the
Ministry of Communications or fails to comply with other regulations governing
such license.
RISK OF MODIFICATION OR LOSS OF PERMITS; UNCERTAINTY AS TO AVAILABILITY
Each of the Operating Companies' ability to exploit its respective existing
civil works permits is essential to the Company's construction of its network.
These permits are granted by the municipalities in the areas served. Although
the municipalities are required to grant such permits under Law 142, there can
be no assurance that these permits will not become difficult to obtain, that
the law will always require their issuance, or that some prohibited action of
any of the Operating Companies will not cause their termination, and the
occurrence of any of these events could have a material adverse effect on the
Company. The Operating Companies may have limited legal recourse if any of
these events were to occur.
DEPENDENCE ON OTHER TELECOMMUNICATIONS PROVIDERS
The success of the Company's telecommunication system will in many cases
depend upon access to the systems of other local telecommunications providers,
some of which may be competitors of the Company. Although access to such
service is required by Law 142, the revocation, loss, or modification of any
of the existing arrangements or the failure to obtain necessary agreements
and/or arrangements in the future could have a material adverse effect on the
Company. The Operating Companies are additionally required by Colombian law to
enter into interconnection arrangements with TELECOM. Although TELECOM is
currently providing such service and is required to continue to do so under
Colombian law, formal agreements are not in place with the Company's Operating
Companies, as is also the case with other telecommunications providers.
There can be no assurance that such arrangements will continue to be
regulated by the Colombian government. Additionally, a breach by any of the
Operating Companies of these interconnection agreements could lead to loss of
such agreements, which could have a material adverse effect on the Company.
DEPENDENCE ON KEY PERSONNEL
The Company is currently managed by a small number of key management and
operating personnel whose efforts will largely determine the Company's
success. The success of the Company also depends upon its ability to hire and
retain qualified operating, marketing, financial, accounting and technical
personnel. Competition for qualified personnel in the telecommunications
industry is intense and, accordingly, there can be no assurance that the
Company will be able to hire or retain necessary personnel. The loss of key
management personnel would likely have a material adverse effect on the
Company. See "Management."
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CORPORATE DISCLOSURE AND ACCOUNTING STANDARDS
A principal objective of the securities laws of the United States, Colombia
and other countries is to promote disclosure of all material corporate
information. However, it is likely that there would be less or different
publicly available information about the Company in Colombia than would be
available about issuers listed on stock exchanges in the United States or
certain other countries. In addition, the Company prepares its financial
statements in accordance with Colombian GAAP, which differs in significant
respects from U.S. GAAP. Thus, Colombian financial statements and reported
earnings may differ from those of companies in other countries in this and
other respects. For example, shareholders' equity and net income (loss) as of
and for the year ended December 31, 1997 was Ps53.0 billion and Ps1.1 billion,
respectively, under Colombian GAAP and Ps28.6 billion and Ps (2.2) billion,
respectively under U.S. GAAP. For a description of the principal differences
between Colombian GAAP and U.S. GAAP, insofar as they are relevant to the
Company, see Note 31 to the Consolidated Annual Financial Statements.
CURRENCY FLUCTUATIONS, FOREIGN EXCHANGE CONTROLS, AND DEVALUATION
Since the consummation of the Offering, a substantial amount of the
Company's debt obligations, including the Senior Notes, are denominated in
Dollars while the Company generates revenues in Pesos. In addition, the
Company has incurred and expects to continue to incur a significant portion of
its equipment costs in Dollars. Therefore, the Company is exposed to currency
exchange rate risks that could significantly affect the Company's ability to
meet its obligations and finance its network construction. The Company
currently does not plan to enter into hedging transactions with respect to
these foreign currency risks and it is unlikely that the Company would be able
to obtain hedging arrangements on commercially satisfactory terms with respect
to all such risks. The exchange rate of Pesos to the Dollar is a freely
floating rate which has declined in recent years. Since the period from August
1, 1997 through December 31, 1997, the Peso devalued relative to the Dollar
approximately 16.6%. Additionally, since the period from August 20, 1998
through September 2, 1998, the Peso devalued relative to the Dollar
approximately 4.2%. Any significant decrease in the value of the Peso relative
to the Dollar may have a material adverse effect on the Company and on its
ability to meet its obligations under the Senior Notes and consequently, on
the Trust's obligations under the Certificates. See "Exchange Rates."
The Colombian government does not currently restrict the ability of
Colombian persons or entities to convert Pesos into Dollars. See "Foreign
Investment and Exchange Controls in Colombia." However, Colombian law permits
the government to impose foreign exchange controls on dividend payments and
remittance of interest and principal in the event that the foreign currency
reserves of the Central Bank fall below a level equal to the value of three
months of imports into Colombia. No such foreign exchange controls are
currently applicable to payments on debt instruments such as the Senior Notes.
As of July 4, 1997, the Central Bank's currency reserves were sufficient for
approximately 10 months of imports. Nevertheless, there is no assurance that
such restrictions will not be imposed in the future, and any such restrictions
could prevent or restrict the Company's access to Dollars with which to meet
its obligations, including its obligations under the Senior Notes and
consequently, the Trust's obligations under the Certificates. There are no
limitations imposed by the Colombian government on nonresident or foreign
owners' ability to hold or vote the Senior Notes or the Certificates.
INABILITY TO REDEEM SENIOR NOTES WITHIN ONE YEAR
Because of a recent modification in Colombian securities laws, it is not
clear whether the Senior Notes can be prepaid within one year of their
issuance, whether by redemption, repurchase, acceleration, or otherwise.
Moreover, there is no controlling legal precedent with respect to this issue.
The Company has been advised by its Colombian counsel that there is legal risk
in redeeming or repurchasing the Senior Notes within one year of their
issuance. Unless a positive precedent arises or a change of law occurs after
the issuance of the Senior Notes, the Company does not intend to prepay the
Senior Notes within one year of their issuance, whether by redemption,
repurchase, acceleration, or otherwise. The Company's inability to redeem the
Senior Notes when required under the Indenture would result in an Event of
Default (as defined herein) under the Indenture.
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INFLATION
Throughout most of the 1980s and 1990s, Colombia experienced high levels of
inflation. While the Colombian government adopted policies which resulted in
reducing the inflation rate from 26.8% in 1991 to 19.5%, 21.6% and 17.4% in
1995, 1996 and 1997, respectively, there can be no assurance that the
performance of the Colombian economy or its securities markets, the operating
results of the Company, or the value of the Certificates and Senior Notes will
not be adversely affected by continuing or increased levels of inflation.
LACK OF A MARKET FOR THE EXCHANGE CERTIFICATES; RISKS ASSOCIATED WITH NON-
INVESTMENT GRADE DEBT
The Exchange Certificates are new securities for which there currently
exists no trading market. The Company does not intend to list the Exchange
Certificates on any national securities exchange or to seek admission thereof
to trading on the National Association of Securities Dealers Automated
Quotation System. The liquidity of any market for the Exchange Certificates
will depend on the number of Exchange Certificateholders, the interest of
securities dealers in making a market in the Exchange Certificates and other
factors. Accordingly, there can be no assurance as to the development or
liquidity of any trading market for the Exchange Certificates.
To comply with the applicable state securities laws, the Exchange
Certificates may not be offered or sold by a Certificateholder unless they
have been registered or qualified for sale under such applicable state
securities laws or an exemption from registration or qualification is
available therefrom.
The Company has not taken any action under the blue sky or state securities
laws to qualify the Exchange Certificates for sale and no state commission or
regulatory authority has received the Prospectus. However, the Exchange
Certificates may be offered and sold if such offer and sale is in compliance
with a security exemption or a transactional exemption under the applicable
state securities laws.
Historically, the market for non-investment grade debt has been subject to
disruptions that have caused substantial volatility in the prices of
securities similar to the Exchange Certificates. There can be no assurance
that the market, if any, for the Exchange Certificates will not be subject to
similar disruptions. Any such disruptions may have an adverse effect on the
Exchange Certificateholders. In addition, Colombia is generally considered by
international investors to be an "emerging market." Political, economic,
social and other developments in other "emerging markets" may have a material
adverse effect on the market value and liquidity of the Exchange Certificates.
CONTROL BY CERTAIN STOCKHOLDERS AND MANAGEMENT
Certain of the Company's directors, executive officers and principal
stockholders beneficially own 100% of the outstanding common stock of the
Company. Accordingly, if they choose to act together, these persons will be
able to control the election of the Board of Directors and other matters voted
upon by the stockholders. A sale by one or more of these principal
stockholders to third parties could trigger the right of the
Certificateholders to require the Company to repurchase the Senior Notes. In
the event that an Offer to Purchase (as defined herein) occurs at a time when
the Company does not have sufficient available funds to purchase the Senior
Notes, or at a time when the Company is prohibited from purchasing the Senior
Notes, an Event of Default could occur under the Indenture.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. These date code fields
will need to accept four digit entries to distinguish 21st century dates from
20th century dates. As a result, if not corrected, many computer applications
could fail or create erroneous results by or at the Year 2000. The Year 2000
issue affects virtually all companies and organizations. Many companies must
undertake major projects to address the Year 2000 issue. Each company's
potential costs and uncertainties will depend on a number of factors,
including its software and hardware and the nature of the industry. Companies
must coordinate with other entities with which they electronically interact,
including suppliers, customers, creditors, borrowers, and financial service
organizations. If a company does not successfully address Year 2000 issues, it
may face material adverse consequences.
26
<PAGE>
The Company has made an assessment of its information technology ("IT")
systems including its computer software and databases to determine the extent
which modifications are required to prevent problems related to the Year 2000
issue, and the resources which will be required to make such modifications.
The Company has determined that some of its software systems, including SAT
(version 2.11), CG-UNO and CM-UNO are not Year 2000 compliant. The Company has
evaluated both new software solutions and upgrades of its current software to
replace these systems. The Company has already spent approximately $2 million
upgrading and expanding its software packages and purchasing newer software
packages. The Company has purchased the following software: Multiple Systems
Platform, Oracle 7, Domino Go WebServer, SP/2/, Network Servers, and
Microcomputers (see chart below). Additionally, the Company expects to spend
an additional $6 million purchasing the following additional software: Billing
and Customer Service, Financial, Human Resources and Procurement, and EWSD
Software (version 12) (see chart below). In most cases, the Company had
planned to upgrade or replace its current software systems however, the Year
2000 issue accelerated such replacement dates. The Company estimates that the
total costs associated with the Year 2000 modifications and its planned
upgrade of its computer systems will be approximately $8 million. These
investment costs were defined before the Senior Notes were issued and are
included in the projected capital expenditures. The financial impact to the
Company to ensure Year 2000 compliance has not been and is not anticipated to
be material to its business, financial condition or results of operations.
Additionally, the Company has met with many of its suppliers (including IBM
de Colombia S.A., Oracle de Colombia S.A., SAP S.A., Andina S.A., Cabletron
Systems, Open Systems S.A., Siemens, Cisco Systems S.A., Citibank, American
Power, OSI Corporation and Mitsubishi de Colombia S.A.) and has a commitment
from each of these suppliers that their individual Year 2000 issues will be
resolved before the first quarter of 1999. The Company is also following a
detailed plan that the Superintendencia of Public Services released to address
Year 2000 issues and is developing an internal campaign oriented to create
awareness among the Company's employees.
In the event that the Company is unable to resolve the Year 2000 issue
before December 31, 1999, the following describes the "worst case scenario":
(i) accounts receivable problems due to incorrect dates on customers' bills;
(ii) accounts payable problems due to incorrect dates on incoming bills; (iii)
incorrect dates on toll ticketing tape which records the duration of customer
telephone calls; and (iv) incorrect statistical data including customer usage
data.
The Company has formulated a contingency plan in the event that, even after
having purchased the above described software, the "worst case scenario"
occurs. For example, should the new Billing and Customer Service software fail
to be Year 2000 compliant, the Company plans to reprogram the SAT system
(version 2.11) to recognize "00" or "2000". Should the new Financial, Human
Resources and Purchases software system fail to be Year 2000 compliant, the
Company would install a revised version of this software which is currently
being developed to be Year 2000 compliant (the cost of such revised version is
included in a maintenance contract with the supplier). Finally, should the
EWSD software (version 12) fail to be Year 2000 compliant, the Company would
add a "patch" which is currently being developed by Siemens to recognize "00"
or "2000". Due to the fact that many of the new software systems which the
Company has either purchased or intends to purchase, include a maintenance
contract which provides reprogramming should the system not be Year 2000
compliant, the estimated cost of the contingency plan is only $100,000.
Although, the Company has not made a complete assessment of its non-IT
systems (including elevators and other equipment which may contain
microcontrollers) for Year 2000 compliance, it has received a commitment from
Mitsubishi de Colombia S.A., the supplier of the elevators in the Unitel and
TelePalmira office buildings that the elevators are Year 2000 compliant.
27
<PAGE>
COSTS INCURRED:
<TABLE>
<CAPTION>
SOFTWARE SUPPLIER APPROXIMATE INVESTMENT
- -------- -------- ----------------------
<S> <C> <C>
Multiple System Platform IBM $ 330,000
Oracle 7 Oracle $ 200,000
Domino Go WebServer Lotus $ 370,000
SP/2/ IBM $ 600,000
Network Servers IBM $ 120,000
Microcomputers IBM $ 380,000
----------
TOTAL: $2,000,000
==========
</TABLE>
<TABLE>
<CAPTION>
ANTICIPATED COSTS:
SOFTWARE SUPPLIER ESTIMATED COST
- -------- -------- --------------
<S> <C> <C>
Billing, Customer Service, and Net Inventory Open System $ 500,000
Financial, Human Resources and Procurement SAP $4,500,000
EWSD Software Siemens AG $1,000,000
----------
TOTAL: $6,000,000
==========
</TABLE>
<TABLE>
<CAPTION>
CONTINGENCY PLAN COSTS:
SOFTWARE SUPPLIER ESTIMATED COST
- -------- -------- --------------
<S> <C> <C>
Reprogramming SAT System (version 2.11) SAT $100,000
Financial, Human Resources and Purchases Sistemas de Informacion revised versions
of this software
are included in
maintenance
contact
"Patch" developed by Siemens to update Siemens "patch" included
EWSD Software (version 12) in cost of
software
TOTAL: $100,000
========
</TABLE>
27_1
<PAGE>
DEFICIENCY OF EARNINGS TO FIXED CHARGES
The deficiency of earnings to fixed charges for each of the periods set
forth below has been computed on a consolidated basis and should be read in
conjunction with the Consolidated Annual Financial Statements included
elsewhere herein.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1995 1996 1997
----------- ------------ -----------
(IN THOUSANDS OF CONSTANT PESOS OF
DECEMBER 31, 1997 PURCHASING POWER)
<S> <C> <C> <C>
Colombian GAAP............................. Ps 11,960 Ps 681,960 Ps1,383,374
U.S. GAAP.................................. 3,424,520 5,420,952 197,665
</TABLE>
For purposes of computing deficiency of earnings to fixed charges,
"earnings" consist of income (loss) before income taxes, minority interests
and fixed charges, excluding capitalized interest. Fixed charges consist of
interest on all indebtedness (whether capitalized or expensed), amortization
of deferred financing costs and that portion of operating lease expense deemed
to be interest expense.
28
<PAGE>
USE OF PROCEEDS
The Company will not receive any cash proceeds from the issuance of the
Exchange Certificates offered hereby. The Original Certificates surrendered in
exchange for the Exchange Certificates will be cancelled and can not be
reissued. The issuance of the Exchange Certificates will not result in any
change in the aggregate indebtedness of the Company.
The net proceeds from the Offering were approximately $142.0 million
(Ps183.7 billion) after deducting offering fees and expenses of $8.0 million
(Ps10.3 billion). Approximately $35.3 million (Ps45.7 billion) was deposited
into the Escrow Account to satisfy the first four interest payments on the
Senior Notes. Approximately $32.8 million (Ps42.4 billion) was used to pay
existing debt and $9.8 million (Ps12.7 billion) was used to pay the Central
Bank's withdrawal fee. The balance of the proceeds has been or will be used to
(i) fund a portion of the costs associated with the Expansion Plan
(approximately $41.1 million), (ii) acquire Girardot Telephone (approximately
$7.1 million) and (iii) fund general corporate purposes, including any future
acquisitions (approximately $15.9 million).
The total cost of capital expenditures under the Expansion Plan is expected
to be approximately $181.8 million, of which approximately $7.8 million had
been financed with local bank borrowings, all of which has been repaid with
proceeds of the Offering, and approximately $1.5 million had been financed
with cash flow from operations. The remainder of the Expansion Plan,
approximately $172.5 million, is being financed from several sources
including: (i) the Offering; (ii) the sale of investments of $5.6 million;
(iii) the existing Global Leases, the IBM Arrangement, the Transtel-Siemens
Purchase Agreement and future Global Leases (the "Vendor Financing") (see
"Risk Factors--Contingency of Vendor Financing"); and (iv) the DIAN Financing
(collectively, the "Expansion Plan Financing") (see "Description of Existing
Indebtedness--DIAN Financing"). The following table sets forth the estimated
sources and uses for the Expansion Plan Financing, which includes the Equity
Contribution and sale of investments, as of October 28, 1997 (using December
31, 1997 exchange rate):
SOURCES OF FUNDS
<TABLE>
<CAPTION>
($ IN MILLIONS)
<S> <C>
Senior Notes................................ $150.0
------
Equity Contribution......................... 24.8
Vendor Financing............................ 102.7
DIAN Financing.............................. 23.1
Sale of Investments(1)...................... 7.8
------
158.4
------
Total Sources of Funds.................... $308.4
======
</TABLE>
29
<PAGE>
USES OF FUNDS
<TABLE>
<CAPTION>
PROVIDED BY THE OFFERING
-------------------------- PROVIDED
OPERATING TRANSTEL BY OTHER
COMPANIES S.A. TOTAL SOURCES TOTAL
--------- -------- ------ -------- ------
($ IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Expansion Plan Capital
Expenditures(2)................. $41.1 $ -- $ 41.1 $131.4(7) $172.5
Refinancing of Existing Debt(3).. 22.4 10.4 32.8 21.8 54.6
Escrow Account(4)................ 23.1 12.2 35.3 35.3
Central Bank Deposit Withdrawal
Fee(5).......................... 6.4 3.4 9.8 9.8
Fees and Expenses................ 5.3 2.7 8.0 8.0
Acquisition of Girardot
Telephone....................... 7.1 7.1 7.1
General Corporate Purposes....... 15.9 15.9 5.2(8) 21.1
----- ----- ------ ------ ------
$98.3(6) $51.7 $150.0 $158.4 $308.4
===== ===== ====== ====== ======
</TABLE>
- --------
(1) Investments includes short-term and long-term certificates of deposits and
a temporary investment in a company owned by a shareholder of the Company.
See "Consolidated Annual Financial Statements--Notes 4 and 29" and
"Certain Related Party Transactions--Certain Other Transactions with
Gonzalo Caicedo Toro."
(2) The aggregate capital expenditures for the Expansion Plan total
approximately $181.8 million, of which approximately $7.8 million was
financed with local bank borrowings prior to October 28, 1997, all of
which was repaid with proceeds of the Offering, and $1.5 million was
financed with cash flow from operations prior to October 28, 1997.
(3) Proceeds from the Offering of $32.8 million and $21.8 million of the
Equity Contribution have been utilized to repay approximately $54.6
million of debt of the Company that was outstanding as of October 28,
1997.
(4) Represents sufficient funds to pay the first four interest payments (two
years) on the Senior Notes.
(5) The Company was required to deposit approximately $37.9 million of the net
proceeds of the Offering with the Central Bank. This non-interest bearing
deposit was withdrawn before the end of the required deposit period of 18
months by the Company to fund the Expansion Plan. Such withdrawal required
a fee determined by applying a discount declining from 28.5% to 1.8%
depending on the time of withdrawal of the deposit. The Company withdrew
the deposit to finance the Expansion Plan and paid a withdrawal fee of
$9.8 million on December 29, 1997.
(6) Transtel S.A. has loaned $98.3 million of the proceeds of the Senior Notes
to its Operating Companies which have been or will be used as indicated.
(7) Provided by Vendor Financing of $102.7 million, the sale of investments of
$5.6 million and DIAN Financing of $23.1 million.
(8) Provided by $3.0 million from the Equity Contribution and $2.2 million
from sale of investments.
30
<PAGE>
CAPITALIZATION
COLOMBIAN GAAP
The following table shows on a Colombian GAAP basis, as of December 31,
1997, the Company's capitalization on a pro forma basis after giving effect to
the use of a portion of the proceeds from the sale of the Senior Notes and the
Equity Contribution to repay all existing long-term debt other than the Senior
Notes and capital lease obligations. See "Use of Proceeds" and "Selected
Financial and Other Data." This table should be read in conjunction with the
Consolidated Annual Financial Statements and notes thereto included elsewhere
herein.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------------------------------
ACTUAL PRO FORMA ACTUAL PRO FORMA
------------- ------------- -------- ---------
(IN THOUSANDS OF CONSTANT PESOS OF DECEMBER
31, 1997
PURCHASING POWER AND IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Cash and unrestricted
investments(1)................ Ps 70,737,831 Ps 65,410,277 $ 54,684 $ 50,565
Restricted investment--Escrow
Account(2).................... 48,509,250 48,509,250 37,500 37,500
Restricted investment--
Refinancing Account(3)........ 19,822,771 12,061,291 15,324 9,324
------------- ------------- -------- --------
Total cash and
investments............... Ps139,069,852 Ps125,980,818 $107,508 $ 97,389
============= ============= ======== ========
Long-term debt (including
current portion):
12 1/2% Senior Notes due
2007........................ Ps194,037,000 Ps194,037,000 $150,000 $150,000
Other long-term debt(3)(4)... 13,089,034 -- 10,118 --
Capital lease
obligations(5).............. 1,339,085 1,339,085 1,035 1,035
Vendor Financing(6).......... 3,679,228 3,679,228 2,844 2,844
------------- ------------- -------- --------
Total debt(6)(7)........... 212,144,347 199,055,313 163,997 153,839
Minority interest.............. 42,401,345 42,401,345 32,778 32,778
Shareholders' equity(8)........ 53,039,294 53,039,294 41,002 41,002
------------- ------------- -------- --------
Total capitalization....... Ps307,584,986 Ps294,495,952 $237,777 $227,659
============= ============= ======== ========
</TABLE>
U.S. GAAP
The following table shows on a U.S. GAAP basis, as of December 31, 1997, the
Company's capitalization on a pro forma basis after giving effect to the use
of a portion of the proceeds from the sale of the Senior Notes and the Equity
Contribution to repay all existing long-term debt other than the Senior Notes
and capital lease obligations. See "Use of Proceeds" and "Selected Financial
and Other Data." This table should be read in conjunction with the
Consolidated Annual Financial Statements and notes thereto included elsewhere
herein.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------------------------------
ACTUAL PRO FORMA ACTUAL PRO FORMA
------------- ------------- -------- ---------
(IN THOUSANDS OF CONSTANT PESOS OF DECEMBER
31, 1997
PURCHASING POWER AND IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Cash and unrestricted
investments(1)................ Ps 70,737,831 Ps 65,410,277 $ 54,684 $ 50,565
Restricted investment--Escrow
Account(2).................... 45,905,514 45,905,514 35,487 35,487
Restricted investment--
Refinancing Account(3)........ 19,822,771 12,061,291 15,324 9,324
------------- ------------- -------- --------
Total cash and
investments............... Ps136,466,116 Ps123,377,082 $105,495 $ 95,376
============= ============= ======== ========
Long-term debt (including
current portion):
12 1/2% Senior Notes due
2007........................ Ps194,037,000 Ps194,037,000 $150,000 $150,000
Other long-term debt(3)(4)... 13,089,034 -- 10,118 --
Capital lease
obligations(5).............. 4,621,101 4,621,101 3,572 3,572
Vendor Financing(6).......... 3,679,228 3,679,228 2,844 2,844
------------- ------------- -------- --------
Total debt(6)(7)........... 215,426,363 202,337,329 166,534 156,416
Minority interest.............. 32,417,871 32,417,871 25,061 25,061
Shareholders' equity(8)........ 28,596,297 28,596,297 22,107 22,107
------------- ------------- -------- --------
Total capitalization....... Ps276,440,531 Ps263,351,497 $213,702 $203,584
============= ============= ======== ========
</TABLE>
31
<PAGE>
- --------
(1) Includes cash and short-term and long-term investments except for the
Escrow Account and Refinancing Account which are presented separately. See
Note 4 to the Consolidated Annual Financial Statements.
(2) The Company deposited approximately Ps45.7 billion ($35.3 million) of the
net proceeds realized from the sale of the Senior Notes, representing U.S.
Treasury Bills and internal-only strips, which, at maturity, will be
sufficient to pay the first four interest payments on the Senior Notes,
into the Escrow Account. For Colombian GAAP, the Escrow Account is carried
at maturity value with unearned interest of Ps2.6 billion ($2.0 million)
recorded as a liability. See Notes 4, 16 and 20 to the Consolidated Annual
Financial Statements. For U.S. GAAP, the Escrow Account is carried at
original cost plus accretion of interest income of Ps0.2 billion
($183,000).
(3) The Company deposited approximately Ps42.4 billion ($32.8 million) of the
net proceeds from the sale of the Senior Notes into the Refinancing
Account, which was used to pay existing debt. On January 9, 1998 the
Company paid the remaining Ps7.8 billion ($6.0 million) of existing debt
with funds from the Refinancing Account and on July 14, 1998 the balance
of the Refinancing Account was returned to the Company for general
corporate purposes.
(4) Other long-term debt at December 31, 1997 consisted of Ps7.8 billion ($6.0
million) of existing debt paid on January 9, 1998 and Ps5.3 billion ($4.1
million) of debt assumed in the Girardot Telephone acquisition on December
31, 1997, which was paid on January 5, 1998. See Note 12 to the
Consolidated Annual Financial Statements.
(5) Amounts recorded as capital leases under Colombian and U.S. GAAP are
leases unrelated to the Company's expansion plan. See Notes 19 and 31
(d)(vi) to the Consolidated Annual Financial Statements.
(6) The Vendor Financing liability at December 31, 1997 consists of the
Transtel-Siemens Purchase Agreement less progress payments. See Notes 16
and 20 to Consolidated Annual Financial Statements. Under U.S. GAAP, all
capital leases are required to be capitalized as they arise, including the
Global Leases and the IBM Arrangement, both of which comprise a portion of
the Vendor Financing. Under Colombian GAAP, certain lease payments are not
required to be capitalized, including some of the leasing arrangements
included in the Vendor Financing, unless the purchase options are
exercised. The Company has informed the lessors that it will exercise the
purchase options, and, thus, will capitalize these leases under Colombian
GAAP as they arise. See Notes 30 and 31 to the Consolidated Annual
Financial Statements.
Vendor Financing consists of the existing Global Leases, the IBM
Arrangement, the Transtel-Siemens Purchase Agreement and future Global
Leases as follows:
<TABLE>
<CAPTION>
LESS AMOUNTS PAID,
ADVANCED OR RECORDED
AS LIABILITIES UNDER REMAINING
TOTAL COLOMBIAN AND U.S. UNRECORDED BALANCE
AMOUNT GAAP AT DECEMBER 31, 1997 DECEMBER 31, 1997
-------- ------------------------- ----------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Global Leases........... $ 83,037 $(2,219) $80,818 Ps 104,544,250
IBM Arrangement......... 2,710 2,710 3,505,590
Transtel-Siemens
Purchase Agreement..... 3,346 (3,346) -- --
-------- ------- ------- --------------
Existing Agreements... 89,093 (5,565) 83,528 108,049,840
Future Global Leases.... 13,607 13,607 17,601,609
-------- ------- ------- --------------
Total Vendor
Financing............ $102,700 $(5,565) $97,135 Ps 125,651,449
======== ======= ======= ==============
</TABLE>
Under Colombian and U.S. GAAP, the Global Leases (including the future
leases) will be treated as capital leases when the related equipment is
delivered, installed and tested. As of December 31, 1997, the Company had
advanced $2.2 million (Ps2.9 billion) to Global which will be applied to
the payments due under the leases. See Note 5 to the Consolidated Annual
Financial Statements. The IBM Arrangement will be recorded as a capital
lease under Colombian and U.S. GAAP in June 1998 after delivery and final
testing of the equipment. The Transtel-Siemens Purchase Agreement for $3.3
million (Ps4.3 billion) less progress payments of $0.5 million (Ps0.6
billion) is recorded as a liability of $2.8 million (Ps3.7 billion) at
December 31, 1997 under both Colombian and U.S. GAAP. See Notes 16 and 20
to the Consolidated Annual Financial Statements.
32
<PAGE>
(7) DIAN allows for the deferral of taxes and duties related to the purchase of
certain imported telecommunications equipment used by the Company, through
its Operating Companies, in the Expansion Plan. Based on the expected
imported equipment to be purchased under the Expansion Plan, the Company
estimates that it will defer approximately Ps29.9 billion ($23.1 million)
of taxes and duties during the Expansion Plan that will be paid over a
five-year period commencing six months from the date of incurrence. The
DIAN Financing does not bear any interest and no amounts were due at
December 31, 1997 as Siemens had not yet completed the delivery and
installation of the equipment to be leased under the Global Leases. DIAN
Financing consists of approximately Ps22.8 billion ($17.6 million) of
value-added tax and Ps7.1 billion ($5.5 million) of duty. The value-added
tax, when paid, may be taken as a credit against income taxes to the extent
that income taxes are payable. Under Colombian GAAP, amounts due under the
DIAN Financing will be recorded as liabilities when each semi-annual
payment is due, similar to an operating lease payment. Under U.S. GAAP, the
gross amount (undiscounted) representing value-added tax and duty will be
recorded as prepaid taxes and equipment, respectively, and liabilities at
the dates that the lease terms of the related Global Leases commence.
(8) The total authorized share capital of the Transtel S.A. is 50,000,000,000
shares comprised of one class of common stock with a par value of one Peso,
of which 5,039,801,222 shares were outstanding at December 31, 1997.
33
<PAGE>
THE EXCHANGE OFFER
GENERAL
The Company, together with the Trust, hereby offers upon the terms and
subject to the conditions set forth in this Prospectus and in the accompanying
Letter of Transmittal (which together constitute the "Exchange Offer"), to
exchange all outstanding Original Certificates properly tendered on or prior
to the Expiration Date and not withdrawn as permitted pursuant to the
procedures described below for Exchange Certificates.
As of the date of this Prospectus, U.S.$150.0 million aggregate principal
amount at maturity of the Original Certificates was outstanding. This
Prospectus, together with the Letter of Transmittal, is first being sent on or
about , 1998, to all Original Certificateholders known to the Company.
The Company's obligation to accept Original Certificates for exchange pursuant
to the Exchange Offer is subject to certain conditions set forth under "--
Certain Conditions to the Exchange Offer" below and to the terms and
provisions of the Registration Rights Agreement.
PURPOSE OF THE EXCHANGE OFFER
The Original Certificates were issued by the Trust on October 28, 1997 in
transactions exempt from the registration requirements of the Securities Act.
Accordingly, the Original Certificates may not be reoffered, resold, or
otherwise transferred in the United States unless registered pursuant to the
Securities Act or unless an applicable exemption from the registration and
prospectus delivery requirements of the Securities Act is available.
In connection with the issuance and sale of the Original Certificates, the
Company entered into the Registration Rights Agreement, which requires the
Company to use its best efforts to file with the Commission a registration
statement relating to the Exchange Offer by March 27, 1998, to use its best
efforts to cause the registration relating to the Exchange Offer to become
effective under the Securities Act by May 26, 1998, and to consummate the
Exchange Offer by June 25, 1998. The Exchange Offer is being made by the
Company to satisfy its obligations with respect to the Registration Rights
Agreement. The Company filed the registration statement on April 10, 1998. As
a result of the delay in filing, additional interest has accrued on the Senior
Notes (and therefore, on the Certificates) over and above the basic interest
amount at a rate of 0.50% per annum for the period of the delay. Due to the
fact that the Exchange Offer was not consummated by June 25, 1998, additional
interest is accruing for the period of delay past June 25.
RESALE EXPIRATION DATE; EXTENSION; TERMINATION; AMENDMENT
Based on certain interpretive letters issued by the staff of the Commission
to third parties in unrelated transactions, Original Certificateholders (other
than any holder who is an "affiliate" of the Company within the meaning of
Rule 405 under the Securities Act) who exchange their Original Certificates
for Exchange Certificates pursuant to the Exchange Offer generally may offer
such Exchange Certificates for resale, resell such Exchange Certificates, and
otherwise transfer such Exchange Certificates without compliance with the
registration and prospectus delivery provisions of the Securities Act provided
such Exchange Certificates are acquired in the ordinary course of the holders'
business and such holders are not participating in, and have no arrangement or
understanding with any person to participate in, a distribution of such
Exchange Certificates. Each broker-dealer that receives Exchange Certificates
for its own account in exchange for Original Certificates, where such Original
Certificates were acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge that it will deliver
a prospectus in connection with any resale of such Exchange Certificates. See
"Plan of Distribution." If an Original Certificateholder does not exchange
such Original Certificates for Exchange Certificates pursuant to the Exchange
Offer, such Original Certificates will continue to be subject to the
restrictions on transfer contained in the legend thereon. In general, the
Original Certificates may not be offered or sold, unless registered under the
Securities Act, except pursuant to an exemption from, or in a transaction not
subject to, the Securities Act and applicable state securities laws. See "The
Exchange Offer--Consequences of Failure to Exchange; Resale of Exchange
Certificates".
34
<PAGE>
The Exchange Offer will expire at 5:00 p.m., New York City time, on ,
1998, unless the Company, in its sole discretion, has extended the period of
time for which the Exchange Offer is open (such date, as it may be extended,
is referred to herein as the "Expiration Date"). The Company expressly
reserves the right, at any time or from time to time, to extend the period of
time during which the Exchange Offer is open and thereby delay acceptance for
exchange of any Original Certificates, by giving oral notice (promptly
confirmed in writing) or written notice to the Exchange Agent and by giving
written notice of such extension to the holders thereof or by timely public
announcement communicated, unless otherwise required by applicable law or
regulation, by making a release through the Dow Jones News Service, in each
case, no later than 9:00 a.m. New York City time, on the next business day
after the previously scheduled Expiration Date. During any such extension, all
Original Certificates previously tendered will remain subject to the Exchange
Offer unless properly withdrawn.
In addition, the Company expressly reserves the right to terminate or to
amend the Exchange Offer, and not to accept for exchange any Original
Certificates not theretofore accepted for exchange, upon the occurrence of any
of the events specified below under "--Certain Conditions to the Exchange
Offer". If any such termination or amendment occurs, the Company will notify
the Exchange Agent and will either issue a press release or give oral or
written notice to the Original Certificateholders as promptly as practicable
in the manner set forth above with respect to an extension of the Expiration
Date.
For purposes of the Exchange Offer, a "business day" means any day other
than a Saturday, a Sunday or a date on which banking institutions in New York
City are not required to be open, and consists of the time period from 12:01
a.m. through 12:00 midnight, New York City time.
PROCEDURES FOR TENDERING ORIGINAL CERTIFICATES
The tender to the Company of Original Certificates by an Original
Certificateholder thereof as set forth below and the acceptance thereof by the
Company will constitute a binding agreement between the tendering Original
Certificateholder and the Company upon the terms and subject to the conditions
set forth in this Prospectus and in the accompanying Letter of Transmittal.
Except as set forth below, an Original Certificateholder who wishes to
tender Original Certificates for exchange pursuant to the Exchange Offer must
transmit a properly completed and duly executed Letter of Transmittal,
including all other documents required by such Letter of Transmittal or, in
the case of a book-entry transfer, an Agent's Message in lieu of the Letter of
Transmittal, to the Exchange Agent at one of the addresses set forth below
under "Exchange Agent" on or prior to the Expiration Date. In addition, either
(i) certificates representing Original Certificates must be received by the
Exchange Agent along with the Letter of Transmittal or Agent's Message in lieu
thereof, or (ii) a timely confirmation of a book-entry transfer (a "Book-Entry
Confirmation") of such Original Certificates, if such procedure is available,
into the Exchange Agent's account at The Depository Trust Company ("DTC") (the
"Book-Entry Transfer Facility") pursuant to the procedure for book-entry
transfer described below, must be received by the Exchange Agent prior to the
Expiration Date, or (iii) the Original Certificateholder must comply with the
guaranteed delivery procedures described below. The term "Agent's Message"
means a message, transmitted by DTC to and received by the Exchange Agent and
forming a part of a book-entry confirmation, which states that DTC has
received an express acknowledgement from the DTC participant, which
acknowledgement states that such participant has received and agrees to be
bound by the Letter of Transmittal and that the Trust and the Company may
enforce such Letter of Transmittal against such participant.
THE METHOD OF DELIVERY OF ORIGINAL CERTIFICATES, LETTERS OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE ORIGINAL
CERTIFICATEHOLDERS. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT
REGISTERED MAIL PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. IN
ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO INSURE TIMELY DELIVERY. NO
ORIGINAL CERTIFICATES, LETTERS OF TRANSMITTAL OR AGENT'S MESSAGE IN LIEU
THEREOF SHOULD BE SENT TO THE COMPANY.
35
<PAGE>
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed unless the Original Certificates surrendered for
exchange pursuant thereto are tendered (i) by a registered Original
Certificateholder who has not completed the box entitled "Special Issuance
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal
or (ii) for the account of an Eligible Institution (as defined below). In the
event that signatures on a Letter of Transmittal or a notice of withdrawal, as
the case may be, are required to be guaranteed, such guarantees must be by a
firm which is a member of a registered national securities exchange as a
member of the National Association of Securities Dealers, Inc. or by a
clearing agency, an insured credit union, a savings association or a
commercial bank or trust company having an office or a correspondent in the
United States (each an "Eligible Institution"). If Original Certificates are
registered in the name of a person other than a signer of the Letter of
Transmittal, the Original Certificates surrendered for exchange must be
endorsed by, or be accompanied by a written instrument or instruments of
transfer or exchange, in satisfactory form as determined by the Company in its
sole discretion, duly executed by, the registered holder thereof with the
signature thereon guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Original Certificates or powers of
attorney are signed by transferors, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing, and,
unless waived by the Company, proper evidence satisfactory to the Company of
their authority to so act must be submitted.
A tender will be deemed to have been received as of the date when the
tendering holder's properly completed and duly signed Letter of Transmittal or
delivery of an Agent's Message in lieu thereof accompanied by (i) the Original
Certificates (or a confirmation of book-entry transfer of such Original
Certificates into the Exchange Agent's account at the Book-Entry Transfer
Facility) is received by the Exchange Agent, or (ii) a Notice of Guaranteed
Delivery (the "Notice of Guaranteed Delivery") or letter, telegram or
facsimile transmission to similar effect (as provided above) from an Eligible
Institution is received by the Exchange Agent. Issuances of Exchange
Certificates in exchange for Original Certificates tendered pursuant to a
Notice of Guaranteed Delivery or letter, telegram or facsimile transmission to
similar effect (as provided above) by an Eligible Institution will be made
only against timely deposit of the Letter of Transmittal or delivery of an
Agent's Message in lieu thereof (and any other required documents) and the
tendered Original Certificates.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Original Certificates tendered for exchange will be
determined by the Company in its sole discretion, which determination shall be
final and binding. The Company reserves the absolute right to reject any and
all tenders of any particular Original Certificates not properly tendered or
to not accept any particular Original Certificates which acceptance might, in
the judgment of the Company or its counsel, be unlawful. The Company also
reserves the absolute right to waive any defects or irregularities or
conditions of the Exchange Offer as to any particular Original Certificates
either before or after the Expiration Date (including the right to waive the
ineligibility of any holder who seeks to tender Original Certificates in the
Exchange Offer). The interpretation of the terms and conditions of the
Exchange Offer as to any particular Original Certificates either before or
after the Expiration Date (including the Letter of Transmittal and the
instructions thereto) by the Company shall be final and binding on all
parties. Unless waived, any defects or irregularities in connection with
tenders of Original Certificates for exchange must be cured within such
reasonable period of time as the Company shall determine. Neither the Company,
the Exchange Agent nor any other person shall be under any duty to give
notification of any defect or irregularity with respect to any tender of
Original Certificates for exchange, nor shall any of them incur any liability
for failure to give such notification.
By tendering, each Original Certificateholder will represent to the Company
that, among other things, the Exchange Certificates acquired pursuant to the
Exchange Offer are being acquired in the ordinary course of business of the
person receiving such Exchange Certificates, whether or not such person is the
holder, that neither the holder nor any such other person has an arrangement
or understanding with any person to participate in the distribution of such
Exchange Certificates and that neither the holder nor any such other person is
an "affiliate" as defined under Rule 405 of the Securities Act, of the
Company, or if it is an affiliate it will comply with the registration and
prospectus requirements of the Securities Act to the extent applicable.
36
<PAGE>
Each broker-dealer that receives Exchange Certificates for its own account
in exchange for Original Certificates where such Original Certificates were
acquired by such broker-dealer as a result of market-making activities or
other trading activities must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Certificates. See "Plan of
Distribution."
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request within two business days after the
date of this Prospectus to establish accounts with respect to the Original
Certificates at the Book-Entry Transfer Facility. DTC, for the purpose of
facilitating the Exchange Offer, and subject to the establishment thereof, any
financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Original Certificates by
causing the Book-Entry Transfer Facility to transfer such Original
Certificates into the Exchange Agent's account with respect to the Original
Certificates in accordance with the Book-Entry Transfer Facility's procedures
for such transfer. Although delivery of Original Certificates may be effected
through book-entry transfer into the Exchange Agent's account at the Book-
Entry Transfer Facility, an appropriate Letter of Transmittal with any
required signature guarantee or an Agent's Message in lieu thereof and all
other required documents must in each case be transmitted to and received or
confirmed by the Exchange Agent at its address set forth below on or prior to
the Expiration Date, or, if the guaranteed delivery procedures described below
are complied with, within the time period provided under such procedures.
GUARANTEED DELIVERY PROCEDURES
If an Original Certificateholder desires to accept the Exchange Offer and
time will not permit a Letter of Transmittal or Original Certificates to reach
the Exchange Agent before the Expiration Date or the procedure for book-entry
transfer cannot be completed on a timely basis, a tender may be effected if
the Exchange Agent has received at its address set forth below on or prior to
the Expiration Date, a letter, telegram or facsimile transmission from an
Eligible Institution setting forth the name and address of the tendering
holder, the names in which the Original Certificates are registered and, if
possible, the certificate numbers of the Original Certificates to be tendered,
and stating that the tender is being made thereby and guaranteeing that within
three business days after the Expiration Date the certificates for all
physically tendered Original Certificates, in proper form for transfer, or a
Book-Entry Confirmation of such Original Certificates into the Exchange
Agent's account at the Book-Entry Transfer Facility, will be delivered by such
Eligible Institution together with a properly completed and duly executed
Letter of Transmittal or an Agent's Message in lieu thereof (and any other
required documents). Unless Original Certificates being tendered by the above-
described method are deposited with the Exchange Agent within the time period
set forth above (accompanied or preceded by a properly completed Letter of
Transmittal and any other required documents), the Company may, at its option,
reject the tender. Copies of Notice of Guaranteed Delivery which may be used
by Eligible Institutions for the purposes described in this paragraph are
available from the Exchange Agent.
WITHDRAWAL RIGHTS
Tenders of Original Certificates may be withdrawn at any time prior to the
Expiration Date.
For a withdrawal to be effective, a written notice of withdrawal sent by
telegram, facsimile transmission (receipt confirmed by telephone) or letter
must be received by the Exchange Agent prior to the Expiration Date at its
address set forth below. Any such notice of withdrawal must specify the name
of the person having tendered the Original Certificates to be withdrawn,
identify the Original Certificates to be withdrawn (including the amount of
such Original Certificates), and (where Original Certificates have been
transmitted) specify the name in which such Original Certificates are
registered, if different from that of the withdrawing holder thereof. If
Original Certificates have been delivered or otherwise identified to the
Exchange Agent, then, prior to the release of such certificates the
withdrawing holder thereof must also submit the serial numbers of the
particular certificates to be withdrawn and a signed notice of withdrawal with
signatures guaranteed by an Eligible Institution unless such holder is an
Eligible Institution. If Original Certificates have been tendered pursuant to
37
<PAGE>
the procedure for book-entry transfer described above, any notice of
withdrawal must specify the name and number of the account at the Book-Entry
Transfer Facility to be credited with the withdrawn Original Certificates and
otherwise comply with the procedures of such facility. All questions as to the
validity, form and eligibility (including time of receipt) of such notices
will be determined by the Company in its sole discretion, which determination
will be final and binding on all parties. Any Original Certificates so
withdrawn will be deemed not to have been validly tendered for exchange for
purposes of the Exchange Offer. Any Original Certificates which have been
tendered for exchange but which are not exchanged for any reason will be
returned to the holder thereof without cost to such holder (or, in the case of
Original Certificates tendered by book-entry transfer into the Exchange
Agent's account at the Book-Entry Transfer Facility pursuant to the book-entry
transfer procedures described above, such Original Certificates will be
credited to an account with such Book-Entry Transfer Facility specified by the
holder thereof) as soon as practicable after such withdrawal, rejection of
tender or termination of the Exchange Offer. Properly withdrawn Original
Certificates may be retendered by following one of the procedures described
under "--Procedures for Tendering Original Certificates" above at any time on
or prior to the Expiration Date.
ACCEPTANCE OF ORIGINAL CERTIFICATES FOR EXCHANGE; DELIVERY OF EXCHANGE
CERTIFICATES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
the Company will accept, promptly after the Expiration Date, all Original
Certificates properly tendered prior to 5:00 p.m., New York City time, on the
Expiration Date and will issue the Exchange Certificates promptly after such
acceptance. See "The Exchange Offer--Certain Conditions to the Exchange
Offer." For purposes of the Exchange Offer, the Company shall be deemed to
have accepted properly tendered Original Certificates for exchange when, as
and if the Company has given oral and written notice thereof to the Exchange
Agent, with written confirmation of any oral notice to be given promptly
thereafter.
For each Original Certificate accepted for exchange, the Original
Certificateholder will receive Exchange Certificates having a principal amount
equal to that of the surrendered Original Certificates.
In all cases, issuance of Exchange Certificates for Original Certificates
that are accepted for exchange pursuant to the Exchange Offer will be made
only after timely receipt by the Exchange Agent of such Original Certificates
or a timely Book-Entry Confirmation of such Original Certificates into the
Exchange Agent's account at the Book-Entry Transfer Facility, a properly
completed and duly executed Letter of Transmittal or Agent's Message in lieu
thereof and all other required documents.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
The Exchange Offer shall not be subject to any conditions, other than that
(i) the Exchange Offer does not violate applicable law, rule, regulation or
any applicable interpretation of the Staff of the Commission (the "Staff"),
(ii) no action or proceeding is instituted or threatened in any court or by
any governmental agency which might materially impair the ability of the
Company or the Trust to proceed with the Exchange Offer and no material
adverse development has occurred in any existing action or proceeding with
respect to the Company or the Trust and (iii) all governmental approvals have
been obtained, which approvals the Company deems necessary for the
consummation of the Exchange Offer.
EXCHANGE AGENT
Marine Midland Bank has been appointed as the Exchange Agent for the
Exchange Offer. All tendered Original Certificates, executed Letters of
Transmittal or Agent's Messages in lieu thereof and other related documents
should be directed to the Exchange Agent at one of the addresses set forth in
the Letter of Transmittal. Questions and requests for assistance, requests for
additional copies of this Prospectus or of the Letter of Transmittal and
requests for Notices of Guaranteed Delivery should be directed to the Exchange
Agent at the address set forth in the Letter of Transmittal.
Marine Midland Bank also acts as Indenture Trustee under the Indenture.
38
<PAGE>
SOLICITATION OF TENDERS
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to broker, dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay
the Exchange Agent reasonable and customary fees for its services and will
reimburse it for its reasonable out-of-pocket expenses in connection
therewith. The Company will also pay brokerage houses and other custodians,
nominees and fiduciaries the reasonable out-of-pocket expenses incurred by
them in forwarding copies of this and other related documents to be beneficial
owners of the Original Certificates and in handling or forwarding tenders for
their customers.
No person has been authorized to give any information or to make any
representations in connection with the Exchange Offer other than those
contained in this Prospectus. If given or made, such information or
representations should not be relied upon as having been authorized by the
Company. Neither the delivery of this Prospectus nor any exchange made
hereunder shall, under any circumstances, create any implication that there
has not been a change in the affairs of the Company since the respective dates
as of which information is given herein. The Exchange Offer is not being made
to (nor will tenders be accepted from or on behalf of) Original
Certificateholders in any jurisdiction in which the making of the Exchange
Offer or the acceptance thereof would not be in compliance with the laws of
such jurisdiction.
TRANSFER TAXES
Certificateholders who tender their Original Certificates for exchange will
not be obligated to pay any transfer taxes in connection therewith except that
Certificateholders who instruct the Company to register Exchange Certificates
in the name of, or request Original Certificates not tendered or not accepted
in the Exchange Offer be returned to, a person other than the registered
tendering holder will be responsible for the payment of any applicable
transfer tax thereon.
ACCOUNTING TREATMENT
The Exchange Certificates will be recorded at the book value of the Original
Certificates as reflected in the Company's accounting records on the date of
the exchange. Accordingly, no gain or loss for accounting purposes will be
recognized by the Company upon the exchange of Exchange Certificates for
Original Certificates. Expenses incurred in connection with the issuance of
the Exchange Certificates will be amortized over the term of the Exchange
Certificates.
CONSEQUENCES OF FAILURE TO EXCHANGE; RESALE OF EXCHANGE CERTIFICATES
Original Certificateholders who do not exchange their Original Certificates
for Exchange Certificates pursuant to the Exchange Offer will continue to be
subject to the restrictions on transfer of such Original Certificates as set
forth in the legend thereon as a consequence of the issuance of the Original
Certificates pursuant to the exemptions from, or in transactions not subject
to, the registration requirements of the Securities Act and applicable state
securities laws. Original Certificates not exchanged pursuant to the Exchange
Offer will continue to remain outstanding in accordance with their terms. In
general, the Original Certificates may not be offered or sold unless
registered under the Securities Act and under the applicable state securities
laws, except pursuant to an exemption from, or in a transaction not subject
to, the Securities Act and applicable state securities laws. The Company does
not currently anticipate that it will register the Original Certificates under
the Securities Act. However, if, prior to consummation of the Exchange Offer,
the Initial Purchaser holds any Certificates acquired by it and having, or
which are reasonably likely to be determined to have, the status of an unsold
allotment in the initial distribution, or any other Original Certificateholder
is not entitled to participate in the Exchange Offer, under the Registration
Rights Agreement, the Company, upon the request of the Initial Purchaser or
any such Original Certificateholder, shall simultaneously with the delivery of
Exchange Certificates in the Exchange Offer, issue and deliver to the Initial
Purchaser or any such Original Certificateholder, in exchange (the "Private
Exchange") for such Certificates held by such Initial Purchaser and any such
Original
39
<PAGE>
Certificateholder, a like principal amount of certificates issued by the Trust
that are identical in all material respects to the Exchange Certificates (the
"Private Exchange Certificates") (and which are entitled to the benefits of
the Trust Agreement); provided, however, the Company shall not be required to
effect such exchange if, in the written opinion of counsel for the Company (a
copy of which shall be in form and substance reasonably satisfactory to the
Initial Purchaser and be delivered to the Initial Purchaser and any Original
Certificateholder affected thereby), such exchange cannot be effected without
registration under the Securities Act. The Private Exchange Certificates shall
bear the same CUSIP number as the Exchange Certificates.
Based on certain no-action letters issued by the Staff to third parties in
unrelated transactions, the Company believes that Exchange Certificates issued
pursuant to the Exchange Offer may be offered for resale, resold or otherwise
transferred by holders thereof (other than (i) any such holder that is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act or (ii) any broker-dealer that purchased Original Certificates from the
Company to resell pursuant to Rule 144A or any other available exemption)
without compliance with the registration and prospectus delivery provisions of
the Securities Act, provided that such Exchange Certificates are acquired in
the ordinary course of such holders' business and such holders have no
arrangement or understanding with any person to participate in the
distribution of such Exchange Certificates. If any holder has any arrangement
or understanding with respect to the distribution of the Exchange Certificates
to be acquired pursuant to the Exchange Offer, such holder (i) could not rely
on the applicable interpretations of the staff of the Commission and (ii) must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale transaction. Thus, any
Exchange Certificates acquired by such holder will not be freely transferable
except in compliance with the Securities Act. A broker-dealer who holds
Original Certificates that were acquired for its own account as a result of
market-making or other trading activities may be deemed to be an "underwriter"
within the meaning of the Securities Act and must, therefore, deliver a
prospectus meeting the requirements of the Securities Act in connection with
any resale of Exchange Certificates. Each such broker-dealer that receives
Exchange Certificates for its own account in exchange for Original
Certificates, where such Original Certificates were acquired by such broker-
dealer as a result of market-making activities or other trading activities,
must acknowledge in the Letter of Transmittal that it will deliver a
prospectus in connection with the resale of such Exchange Certificates. See
"Plan of Distribution."
In addition, to comply with applicable state securities laws, the Exchange
Certificates may not be offered or sold by a Certificateholder unless they
have been registered or qualified for sale under such applicable state
securities laws or an exemption from registration or qualification is
available therefrom.
The Company has not taken any action under the blue sky or state securities
laws to qualify the Exchange Certificates for sale and no state commission or
regulatory authority has reviewed the Prospectus. However, the Exchange
Certificates may be offered and sold if such offer and sale is in compliance
with a security exemption or a transactional exemption under the applicable
state securities laws.
Participation in the Exchange Offer is voluntary. Original
Certificateholders are urged to consult their financial and tax advisors in
making their own decisions on what action to take.
As a result of the making of, and upon acceptance for exchange of all
validly tendered Original Certificates pursuant to the terms, of this Exchange
Offer, the Company will have fulfilled a covenant contained in the
Registration Rights Agreement. Any Original Certificates not tendered and
accepted in the Exchange Offer will remain outstanding and will be entitled to
all of the same rights and will be subject to all of the same limitations
applicable thereto under the Trust Agreement (except for certain rights to be
registered under the Act which terminate upon consummation of the Exchange
Offer). All untendered Original Certificates, and all Private Exchange
Certificates will be subject to the restrictions on transfer set forth in the
Indenture, except that the holders of Private Exchange Certificates will in
certain circumstances have rights to have their Private Exchange Certificates
registered under the Act for resale. To the extent that Original Certificates
are tendered and accepted in the Exchange Offer, an Original
Certificateholder's ability to sell untendered Original Certificates could be
adversely affected.
The Company may in the future seek to acquire untendered Original
Certificates in open market or privately negotiated transactions, through
subsequent exchange offers or otherwise. The Company has no present plan to
acquire any Original Certificates which are not tendered in the Exchange
Offer.
40
<PAGE>
SELECTED FINANCIAL AND OTHER DATA
The Company was incorporated in 1993 and commenced offering telephone
services, through its operating subsidiary TelePalmira, in September 1995.
Accordingly, the Company has no commercial operating history prior to such
time, and results for 1995 are not directly comparable to those of 1996. The
Company was in a preoperating stage prior to September 1, 1995 and capitalized
all of its net expenses as deferred costs; thus, no statements of income are
presented for 1993 and 1994. The selected statement of income data for each of
the years ended December 31, 1995, 1996 and 1997, and the selected balance
sheet data as of December 31, 1994, 1995, 1996 and 1997 have been derived from
financial statements audited by Price Waterhouse, independent accountants. The
consolidated balance sheets at December 31, 1995, 1996 and 1997 and the
related statements of income and of cash flows, of changes in financial
position and of changes in shareholders' equity for each of the three years in
the period ended December 31, 1997, and notes thereto, appear elsewhere
herein. The report of Price Waterhouse which also appears herein contains an
explanatory paragraph relating to a change in the method of depreciation as
described in Note 7 to the Consolidated Annual Financial Statements. The
selected balance sheet data at December 31, 1993 have been derived from
unaudited consolidated financial statements of the Company. This information
should be read in conjunction with, and is qualified in its entirety by
reference to, "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the Consolidated Annual Financial Statements of the
Company, including the notes thereto, included elsewhere in this Prospectus.
The Consolidated Annual Financial Statements included herein have been
prepared in conformity with Colombian GAAP (including restatement of the
financial information in constant pesos as of December 31, 1997), which
differs in certain significant aspects from U.S. GAAP. Note 31 to the
Consolidated Annual Financial Statements provides a discussion of the
principal differences between Colombian and U.S. GAAP as they relate to the
Company and a reconciliation of net income and shareholders' equity for the
Company as of and for the years ended December 31, 1995, 1996 and 1997, to
amounts calculated in accordance with U.S. GAAP.
Dollar equivalent information set forth below has been included solely for
the convenience of the reader, and is translated from Pesos at the
Representative Market Rate in effect on December 31, 1997 of Ps1,293.58 to one
Dollar. Such translation should not be construed as a representation that the
Peso amounts represent, or have been or could be converted into, Dollars at
that rate or any other rate.
Unless otherwise indicated, all financial information included in this
Prospectus has, for comparability purposes, been restated in constant Pesos as
of December 31, 1997 by indexing historical amounts using the MCPI. Although
the restatement of nominal Pesos into constant Pesos lessens the distorting
effect that an inflationary environment has on comparisons of the Consolidated
Annual Financial Statements over time, such restatement does not wholly
eliminate those distortions and evaluation of period-to-period trends may be
difficult. See "Risk Factors--Corporate Disclosure and Accounting Standards"
and "Risk Factors--Inflation."
41
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1995 1996 1997 1997
------------ ------------ ------------ -------
(IN THOUSANDS OF CONSTANT PESOS OF DECEMBER
31, 1997 PURCHASING POWER AND IN THOUSANDS OF
DOLLARS, EXCEPT NETWORK AND OPERATING DATA AND
PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Colombian GAAP:
Revenues.................. Ps 2,426,468 Ps11,890,389 Ps26,563,264 $20,535
Costs and expenses........ 1,156,280 7,151,972 16,929,996 13,088
Operating income.......... 1,270,188 4,738,417 9,633,268 7,447
Interest expense.......... 284,987 1,945,302 8,133,026 6,287
Income tax expense........ 372 328,510 1,164,366 900
Minority interest
expense.................. 514,901 2,299,847 4,114,548 3,181
Net income(1)............. 773,189 3,339,325 1,088,144 841
Earnings per share........ 0.34 0.83 0.25 --
U.S. GAAP:
Revenues.................. Ps 1,815,478 Ps 7,725,545 Ps27,394,812 $21,178
Operating income (loss)... (2,373,970) (180,174) 6,404,379 4,951
Interest expense.......... 1,623,428 8,474,495 12,893,205 9,967
Net loss.................. (2,962,419) (2,988,629) (2,239,263) (1,731)
Basic earnings (loss) per
share.................... (1.29) (0.75) (0.51) --
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------------
1993 1994 1995 1996 1997 1997
--------- ---------- ----------- ------------ ------------ --------
(IN THOUSANDS OF CONSTANT PESOS OF DECEMBER 31, 1997
PURCHASING POWER AND IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (END OF
PERIOD):
Colombian GAAP:
Cash.................. Ps116,843 Ps 6,260 Ps 720,644 Ps13,781,984 Ps 2,788,918 $ 2,156
Properties, plant and
equipment, net....... -- -- 22,725,200 26,921,077 113,234,666 87,536
Total assets.......... 187,191 4,066,867 35,068,074 86,429,728 353,255,435 273,084
Short-term debt(2).... -- -- 2,696,844 17,901,399 14,175,678 10,958
12 1/2% Senior Notes
due 2007............. -- -- -- -- 194,037,000 150,000
Other long-term
debt(3)(4)........... -- -- 12,115,244 26,096,526 4,439,717 3,432
Minority interest..... -- -- 9,453,325 17,533,960 42,401,345 32,778
Shareholders' equity.. 110,026 3,469,829 7,166,232 19,350,391 53,039,294 41,002
U.S. GAAP:
Cash.................. Ps -- Ps -- Ps 720,644 Ps13,781,984 Ps 2,788,918 $ 2,156
Properties, plant and
equipment, net....... -- -- 26,078,383 29,224,245 115,376,516 89,192
Total assets.......... -- -- 32,290,018 62,695,833 319,178,358 246,740
Short-term debt(2).... -- -- 3,091,690 18,447,275 15,096,836 11,670
12 1/2% Senior Notes
due 2007............. -- -- -- -- 194,037,000 150,000
Other long-term
debt(3)(4)........... -- -- 15,053,772 28,280,047 6,800,525 5,257
Minority interest..... -- -- 8,797,309 7,391,847 32,417,871 25,061
Shareholders' equity
(deficit)............ -- -- 2,129,241 (1,194,332) 28,596,297 22,107
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1995 1996 1997 1997
------------ ------------ ------------- -------
(IN THOUSANDS OF CONSTANT PESOS OF DECEMBER 31,
1997 PURCHASING POWER AND IN THOUSANDS OF
DOLLARS, EXCEPT NETWORK AND OPERATING DATA AND
PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
Colombian GAAP:
Capital expenditures(5).. Ps16,154,395 Ps 6,763,489 Ps 45,588,202 $35,242
Depreciation and
amortization(1)......... 321,951 1,283,575 3,907,548 3,020
Total Indebtedness(6).... 18,609,727 47,098,734 215,914,132 166,912
Deficiency of earnings to
fixed charges(7)........ (11,960) (681,960) (1,383,374) (1,069)
U.S. GAAP:
Capital expenditures(5).. Ps15,957,992 Ps 7,026,040 Ps 46,641,679 $36,056
Depreciation and
amortization............ 354,275 1,637,804 5,075,501 3,924
Deficiency of earnings to
fixed charges(7)........ (3,424,520) (5,420,952) (197,665) (153)
NETWORK AND OPERATING DATA
(END OF PERIOD):
Systems in operation..... 1 1 6
Population............... 317,995 317,995 2,897,600
Subscribers.............. 22,260 29,528 92,009
Penetration(8)........... 7.0 9.3 14
</TABLE>
- --------
(1) For Colombian GAAP purposes, as of January 1, 1996, TelePalmira changed
from the straight-line to the reverse sum of the years digits' method of
computing depreciation which had the effect of decreasing 1996
depreciation (and increasing 1996 income before income taxes and minority
interest) by Ps940,430 ($727) and increasing 1996 net income by Ps564,257
($436). For U.S. GAAP purposes, all periods use the straight-line method.
(2) Short-term debt includes current portion of other long-term debt, current
portion of capital lease obligations, short-term debt and the current
portion of the Transtel-Siemens Purchase Agreement.
(3) Other long-term debt includes other long-term debt, capital lease
obligations and the noncurrent portion of the Transtel-Siemens Purchase
Agreement.
(4) Under U.S. GAAP, all capital leases are required to be capitalized as they
arise, including the Global Leases and the IBM Arrangement, both of which
comprise a portion of the Vendor Financing. Under Colombian GAAP, certain
lease payments are not required to be capitalized, including some of the
leasing arrangements included in the Vendor Financing. See Notes 30 and 31
to the Consolidated Annual Financial Statements and "Capitalization." The
principal amounts of Vendor Financing and the DIAN Financing
(undiscounted) that will be recorded, as they arise in the future, that
are not recorded as liabilities or advances at December 31, 1997 are as
follows (in thousands):
<TABLE>
<S> <C> <C>
Vendor Financing:
Global Leases....................................... Ps104,544,250 $ 80,818
IBM Arrangement..................................... 3,505,590 2,710
Future Global Leases................................ 17,601,609 13,607
------------- --------
Total............................................. 125,651,449 97,135
DIAN Financing........................................ 29,881,698 23,100
------------- --------
Ps155,533,147 $120,235
============= ========
</TABLE>
(5) Capital expenditures consist of purchases of properties, plant and
equipment as reflected in the Company's consolidated statements of cash
flows.
(6) Total Indebtedness is calculated in accordance with the definition of
"Indebtedness" under the Indenture, which includes short-term debt, long-
term debt, capital lease obligations and obligations under the Vendor
Financing and the DIAN Financing, as they arise.
(7) For purposes of computing the deficiency of earnings to fixed charges,
"earnings" consist of income (loss) before income taxes, minority
interests and fixed charges, excluding capitalized interest. Fixed charges
consist of interest on all indebtedness (whether capitalized or expensed)
and that portion of operating lease expenses deemed to be interest
expense.
(8) Penetration represents the number of installed lines per 100 people. In
Cartago, Jamundi and Yumbo, penetration includes the installed lines of
municipal competitors as of December 31, 1997 of approximately 10,000
lines, 5,200 lines and 5,500 lines as per the Company's estimates,
respectively.
43
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The Company is the largest private telephone company in Colombia, providing
telephone service to both business and residential subscribers. The Company
(excluding TeleGirardot) currently owns and operates telephone systems serving
seven cities, with an aggregate population of 2.9 million people, located in
the southwestern region of Colombia. As of December 31, 1997, such systems
provided service to an aggregate of approximately 101,500 subscribers and had
an average penetration of 18 lines per 100 people, excluding TeleGirardot (see
below).
The Company is implementing its Expansion Plan designed to satisfy the
significant demand and growth for telephone lines in each of its markets.
Management intends to substantially increase the number of lines installed
from 56,800 at the date of acquisition of each of the systems to approximately
222,200 lines by the completion of the Expansion Plan by December 31, 1998.
The Expansion Plan excludes activities of the Company's recently established
TeleGirardot subsidiary. As of March 31, 1998 the Company, in conjunction with
Siemens, had completed the installation of approximately 107,600 new lines, or
approximately 65% of the new lines to be installed pursuant to the Expansion
Plan, and had upgraded all of the existing 56,800 lines.
On December 31, 1997, the Company formed TeleGirardot to acquire the
telecommunications net assets of the municipality of Girardot. TeleGirardot
was capitalized with Ps9.2 billion ($7.1 million) in cash contributed by the
Company (in exchange for a 60% interest) and the municipality's contribution
of its net telecommunications assets valued at Ps6.1 billion ($4.7 million)
(for a 40% interest). TeleGirardot provides telecommunications services
through its fiber optics networks to the cities of Girardot, Flandes and
Ricaurte, which have a combined population of approximately 161,000 people.
The economic base of the three cities is tourism, agriculture and cattle
raising. On December 31, 1997, TeleGirardot had 23,500 subscribers, composed
of approximately 80% residential and 20% commercial subscribers. Transtel
expects to increase the number of installed lines in Girardot to 40,000 lines
by the end of 1998 (the "TeleGirardot Expansion Plan"). Transtel expects to
incur approximately $4.0 million under the TeleGirardot Expansion Plan and to
finance this with cash flow from its operations. The Company has negotiated a
contract with Siemens for the supply of equipment to partially effect the
TeleGirardot Expansion Plan. As of March 31, 1998, TeleGirardot had acquired
approximately 1,500 new subscribers.
The Company generates revenues by providing telephone services to its
commercial and residential subscribers. The Company's sources of revenue
consist of: (i) basic fixed charges based either on the predecessor telephone
operator or the existing competitive tariff structure, (ii) local usage
charges based on the number of minutes used per month; (iii) access charges
for national and international long distance based on the incoming and
outgoing calls from the Company's network system; (iv) the sale of equipment
to subscribers; (v) value-added services such as video conference calling and
voice mail; and (vi) connection fees from each new subscriber connected to the
Company's network. Various local institutions are available to finance
subscribers' connection fees. Typically, Transtel installs a line thereby
generating a connection fee receivable, which it subsequently sells to local
financial institutions on a non-discounted basis. In addition, the Company
expects to generate additional revenues from its subscribers' growing use of
the Internet. The Company's subscribers, who elect Internet service, will pay
a monthly service fee and related usage charges. All of the Operating
Companies were able to provide Internet access as of June 1, 1998.
The Company expects that connection fees will continue to comprise a
significant portion of the Company's near-term revenues as a result of the
expected growth in the Company's subscriber base. The Company believes that as
subscribers are added to the network and existing demand is satisfied, the
composition of revenues will shift towards usage derived revenue, including
local, national and long distance usage charges. In addition, the Company
expects that value-added services will also comprise a more significant
portion of future revenues driven by Internet access and other telephone
services such as videoconference calling, voice mail and call waiting.
44
<PAGE>
FACTORS THAT WILL AFFECT FUTURE RESULTS OF OPERATIONS--PRINCIPAL SOURCES OF
REVENUE AND EXPENSES
The Company has formulated a business plan based on, among other
assumptions, the following ideas regarding penetration, call volume, usage
patterns, capital expenditures and churn, all of which could significantly
affect its future results of operations.
Penetration. In 1995, Colombia had an average penetration of approximately
14.0 lines per 100 people. At the time the Company initiated the development
and operation of telephone service in the municipality of Palmira, the
municipality had a penetration of approximately 4.9 lines per 100 people. The
Company has since increased Palmira's subscriber base by 220% from 15,600 to
50,100 as of December 31, 1997, representing a penetration of approximately
16.0 lines per 100 people. The Company completed its network development in
Palmira as of March 31, 1998 with final testing in April 1998. Based on the
Company's experience in Palmira, the Company expects to achieve its complete
network build-out and subscriber addition by the end of 1998. The Company has
designed its Expansion Plan in order to accommodate the existing unmet demand
and the projected growth based on its extensive market studies that include
door-to-door surveys. Following completion of the Expansion Plan, and assuming
a fully subscribed network, the Company expects to have an average penetration
of approximately 22.8 lines per 100 people.
Call Volume/Usage. Charges for local and domestic long-distance service vary
with the price per minute and the number of minutes consumed on a monthly
basis. The charge per minute depends on the time of day, the day of the week
and the duration of calls. Telephone usage also depends on the number of lines
in service, the volume of minutes, the number of new lines to be installed and
the applicable tariffs. Telephone usage differs for residential, commercial
and rural subscribers.
Telephone usage in Colombia in terms of minutes has grown to 75.9 billion
minutes per annum in 1996, from 32.2 billion minutes per annum in 1994,
representing a compound annual growth rate ("CAGR") of 53.5%. Total usage for
1996 included 70.4 billion minutes of local calls, 4.9 billion minutes of
national long distance and 532 million minutes of international long distance.
According to the Ministry of Communications the average annual consumption per
subscriber in 1996 (including both residential and business subscribers) was
as follows: (i) 14,652 minutes (1,221 minutes per month) of local calls; (ii)
1,032 minutes (86 minutes per month) of domestic long distance calls; and
(iii) 110 minutes (9 minutes per month) of international long distance calls.
The Company believes that future usage in its markets will exceed historical
parameters as subscribers adjust to increased penetration, more reliable
service and a broader range of product offerings.
Revenues. The Company's revenues are comprised of: (i)basic fixed charges;
(ii) local usage charges; (iii) access charges of national and international
long distance calls; (iv) the sale of equipment to subscribers; (v) charges
for value-added services; and (vi) connection fees. The Company bills for its
services as they are provided except for connection fees as discussed below.
Telephone rates in Colombia, excluding connection fees, are subject to
inflationary adjustments on a monthly basis in accordance with regulations
from the CRT. For 1997 and 1996, the Colombian Consumer Price Index increased
17.4% and 19.5%, respectively, while basic telephone rates in constant pesos
increased approximately 3.6% and decreased approximately 2.4%, respectively.
The Company collects its service fees from its customers every month. The
local operator bills and collects a fixed monthly fee, local usage, long
distance and cellular revenues from each customer. The Company retains the
interconnection revenues associated with any long distance and cellular
incoming or outgoing calls. The CRT sets tariffs for all operators either in
accordance with their historical costs or levels established by such
operator's competition. This law has greatly benefited the Company by allowing
management to set its tariffs in accordance with its competitors' higher
historical operating costs, rather than the Company's much lower cost of
operations. The CRT also permits operators to increase tariffs as often as
monthly in order to capture the effects of local inflation.
Tariffs. Tariffs and usage patterns differ significantly for the three major
categories of subscribers in Colombia: (i) residential, (ii)
commercial/industrial; and (iii) rural subscribers. In addition, Colombia
imposes a progressive tariff structure whereby higher income customers are
charged a higher tariff to subsidize lower
45
<PAGE>
income subscribers. Tariffs are based on the economic stratum for which the
subscriber qualifies. Rural customers are usually charged the highest tariffs
as an incentive to the telephone providers to service such customers.
The following table sets forth current tariff information for residential
and commercial customers of the Company in Palmira.
<TABLE>
<CAPTION>
SERVICE RESIDENTIAL TARIFF COMMERCIAL TARIFF
- ------- ------------------- -------------------
<S> <C> <C>
Connection Fees......................... Ps332,000 ($257) Ps623,000 ($482)
Basic Charges........................... 2,572 ($1.99)/month 5,967 ($4.61)/month
Local Usage Charges..................... 5.1 ($.004)/minute 5.2 ($.004)/minute
Long Distance Charges................... 35 ($.027)/minute 35 ($.027)/minute
</TABLE>
Connection Fees. Tariffs with respect to installation or connection as of
December 31, 1997 ranged in each of the Operating Companies from Ps125,000-
664,000 ($97-513) for residential subscribers and Ps486,000-664,000 ($376-513)
for commercial subscribers. As of December 31, 1997, the top 25 telephone
operators in Colombia had an average residential connection fee of
approximately Ps339,941 ($263) and a commercial connection fee of
approximately Ps507,827 ($394). The Company sets its connection tariffs in
each municipality based either on its predecessor's prices or those of its
competitor's. As of December 31, 1997, the Company, based on the total number
of lines sold, charged an average connection fee on all residential and
commercial subscribers of Ps366,000 ($283) in Palmira.
Under Colombian GAAP, the Company recognizes income from connection fees
when full payment is received from the customer, or when the customer signs
the promissory note and makes the initial payment on the connection fee, and
is assigned a telephone number. These events may occur prior to the time that
the customer is connected to the network and becomes a subscriber. As of
December 31, 1997, the Company has cumulatively recorded Ps3.9 billion ($3.0
million) connection fees income from 13,700 customers that did not yet have a
dial tone at that date. Connection fees are refundable only if the customer
changes telephone service provider and the Company has not yet installed a
line with a dial tone. Connection fee refunds have been nominal.
Basic Charges. The Company's basic charges vary by municipality and are
negotiated based either on the predecessor telephone operator's or the
existing competitor's charges. In 1997, Palmira's average monthly basic fee
for residential and commercial customers was approximately Ps4,063 as compared
to the national average for the top 25 operators in Colombia which was
approximately Ps4,218. The following chart illustrates the Company's
residential and commercial basic monthly charges as of December 1997 for the
Company's Operating Companies.
<TABLE>
<CAPTION>
TELEPALMIRA TELECARTAGO CAUCATEL BUGATEL UNITEL TELEJAMUNDI
- --------------- --------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Ps4,063 ($3.14) Ps2,752 ($2.13) Ps3,683 ($2.85) Ps4,136 ($3.20) Ps6,630 ($5.13) Ps6,630 ($5.13)
</TABLE>
Local Usage Charges. The Company collects a monthly local usage charge from
its customers. Local usage is based on the number of minutes generated by each
subscriber, valued at the price per minute existing at the time of billing. In
1997, the Company generated approximately 883 minutes per month per average
residential and commercial subscriber and had a monthly access charge of Ps5.1
($.004) per minute in Palmira.
Long Distance Charges. The Company collects long distance charges based on
the number and duration of calls. The Company retains the portion of such
revenues associated with access and remits the balance to the applicable long
distance service provider. Long distance access tariffs are set by the CRT and
are identical for all operators throughout Colombia. In 1997, the Company
generated approximately 344 minutes per month per average residential and
commercial subscriber and had a monthly average usage charge of Ps35 ($.027)
per minute in Palmira. The use of the Company's local telephony network to
provide a pathway for incoming or outgoing calls by long distance operators
generates an access and usage charge per minute or fraction of completed call,
which was set at Ps30 per minute or fraction of a minute as of March 1, 1997.
This charge was increased according to the Tariff Update Index so that the
access charge beginning December 1, 1997 was Ps33 per minute. Additionally,
the long distance operator pays the local operator a billing charge of Ps500
per month for each customer's bill which includes long distance charges. This
billing charge relates to the billing and collecting activities for such
month, as well as customer relations carried out by the local operator on
behalf of the long distance operator.
46
<PAGE>
Other Revenues. Other revenues consist of, among other things, the sale of
telephone equipment to subscribers, yellow pages and public telephones. In
addition, value-added services such as videoconference calling and Internet
access are expected to generate a significant portion of the Company's
revenues in the future. The Company intends to offer competitive tariffs for
the usage of such value-added services. In addition, the Company expects to
complement its value-added services by increasing the number of lines of its
existing subscriber base that may need to have a separate line for a fax
machine or the Internet instead of sharing it with the main telephone line.
Operating Costs. The Company anticipates that it will incur operating costs
from the following primary activities: (i) operations, (ii) general
administrative expenses and (iii) sales and marketing. In each such category,
the Company's primary cost of operation will consist of personnel.
Substantially all of the expenses incurred by the Company during its
development period were deferred as preoperating costs and consisted primarily
of expenses associated with due diligence, research and execution of the
Company's acquisition strategy and formation of the Company's corporate
infrastructure. Such cumulative deferred costs (before accumulated
amortization) were Ps4.7 billion ($3.4 million), Ps5.9 billion ($4.6 million)
and Ps6.6 billion ($5.1 million) at December 31 1995, 1996 and 1997,
respectively.
Operating Expenses. Operating expenses consist of costs associated with
repairs and maintenance, network implementation and technology expenses, and
other operation costs. Initially, the cost of operation for the Company will
be limited to those associated with the turn-key contracts that the Company
has with Siemens, which also contain a warranty component to cover repairs and
damage. The Company expects that its operating expenses will increase in line
with its growth in subscribers. Beyond the installation and warranty period,
operating expenses will consist predominantly of general maintenance and
upkeep. For the year ended December 31, 1997, the Company incurred minimal
maintenance expense per line due to the fact that its networks are new and
digital systems. The Company expects that its annual maintenance expense will
increase to approximately Ps10,890 ($8) per line and that new lines will cost
an additional capital expenditure of Ps317,799 ($246) per line once the
network is fully built.
Administrative Expenses. Administrative expenses include information
technology expenses, finance and billing, management and miscellaneous costs.
Administrative expenses are expected to increase as the Expansion Plan is
executed due to the additional personnel the Company hired to oversee,
supervise and audit Siemens' construction of the networks for Palmira, Jamundi
and Yumbo.In the years ended December 31, 1996 and 1997, these additional
workers caused incremental administration costs of approximately Ps378 million
($292,000) and Ps510 million ($394,000), respectively. These workers are
temporary and the costs associated with their employment are expected to
decrease following completion of the networks.
Sales and Marketing Expenses. Sales and marketing expenses, consisting of
costs relating to the Company's sales and marketing department, advertising,
direct mailing programs and door-to-door survey activities, are expected to
remain constant throughout the Expansion Plan and to decrease thereafter,
reflecting costs associated with the launch and rollout of the Company's
services in each of its Operating Companies. Sales and marketing expenses are
expected to vary based on the size of each market. In 1997, in Palmira, the
average selling and marketing expense per new subscriber was approximately
Ps39,200 ($30).
Nonoperating income (expenses), net. Nonoperating income (expenses), net
consist primarily of interest income, interest expense and net exchange
losses. The Indenture for the Senior Notes imposes certain restrictions on the
Company's ability to incur additional indebtedness. Interest expense on the
Senior Notes is $18.75 million (Ps24.255 billion) annually excluding
additional interest expenses. Since a significant portion of the Company's
indebtedness, including the Senior Notes and a portion of the Vendor
Financing, is denominated in Dollars, net exchange losses will be incurred if
the exchange rate of pesos to the Dollar continues its recent devaluation.
Capital Expenditures. The Expansion Plan will cost the Company approximately
$181.8 million (Ps235.173 billion). The Company has contracted Siemens,
pursuant to fixed price equipment and turn-key
47
<PAGE>
installation contracts, for the execution of a significant portion of the
Expansion Plan. Siemens is continuing in its contracted efforts to complete
the construction and installation of the Company's new, modern networks and is
expected to complete the Expansion Plan by December 31, 1998. Upon completion
of the Expansion Plan, the Company will own and operate fully digital internal
plant facilities and fiber optic primary networks in each of the regions which
it serves.
Churn. Churn consists of both residential and business customers that change
premises, disconnect telephone service once established, switch to other
service providers, if and where available, or terminate the Company's
services. In the years ended December 31, 1995, 1996 and 1997, the Company as
a whole experienced an annual average churn rate of less than 0.00%, 0.09% and
0.04%, respectively. Palmira was the only operating telephone system in 1995
and 1996. Likewise, Palmira was the primary contributor to the 1997 churn.
Management attributes the low churn rate to (i) the significant unmet demand
and the lack of quality telephone service providers that has resulted in
multi-year waiting lists, (ii) the significant investment contributed by the
customers, in the form of a connection fee, to initiate service and (iii) the
Company's ability to provide high quality telephone services with an emphasis
on customer service. Management believes that these fundamentals exist in the
markets in which it operates and expects the churn rate to remain relatively
low. The Company, as a whole, experienced an average churn rate of 0.36% in
the three months ended March 31, 1998. While it takes a few years to develop a
historical pattern of churn, the Company expects its churn rate to be
approximately 0.40% for the twelve months ending December 31, 1998.
ANALYSIS OF HISTORICAL CHURN RATE
TELEPALMIRA
<TABLE>
<CAPTION>
AVERAGE CHURN CHURN
YEAR SUBSCRIBERS SUBSCRIBERS RATE
---- ----------- ----------- -----
<S> <C> <C> <C>
1995....................................... 18,930 0 0.00%
1996....................................... 25,894 23 0.09%
1997....................................... 39,795 20 0.05%
1998 (first quarter)....................... 51,407 51 0.10%
TELECARTAGO
<CAPTION>
AVERAGE CHURN CHURN
YEAR SUBSCRIBERS SUBSCRIBERS RATE
---- ----------- ----------- -----
<S> <C> <C> <C>
1995....................................... -- -- --
1996....................................... -- -- --
1997....................................... 15,672 6 0.04%
1998 (first quarter)....................... 18,227 137 0.75%
CAUCATEL
<CAPTION>
AVERAGE CHURN CHURN
YEAR SUBSCRIBERS SUBSCRIBERS RATE
---- ----------- ----------- -----
<S> <C> <C> <C>
1995....................................... -- -- --
1996....................................... -- -- --
1997....................................... 12,278 0 0.00%
1998 (first quarter)....................... 15,498 0 0.00%
TELEJAMUNDI
<CAPTION>
AVERAGE CHURN CHURN
YEAR SUBSCRIBERS SUBSCRIBERS RATE
---- ----------- ----------- -----
<S> <C> <C> <C>
1995....................................... -- -- --
1996....................................... -- -- --
1997....................................... 2,516 0 0.00%
1998 (first quarter)....................... 5,110 12 0.23%
</TABLE>
48
<PAGE>
UNITEL
<TABLE>
<CAPTION>
AVERAGE CHURN CHURN
YEAR SUBSCRIBERS SUBSCRIBERS RATE
---- ----------- ----------- -----
<S> <C> <C> <C>
1995....................................... -- -- --
1996....................................... -- -- --
1997....................................... 1,993 4 0.20%
1998 (first quarter)....................... 6,343 106 1.67%
BUGATEL
<CAPTION>
AVERAGE CHURN CHURN
YEAR SUBSCRIBERS SUBSCRIBERS RATE
---- ----------- ----------- -----
<S> <C> <C> <C>
1995....................................... -- -- --
1996....................................... -- -- --
1997....................................... 10,912 0 0.00%
1998 (first quarter)....................... 11,658 84 0.72%
</TABLE>
CONSOLIDATED
<TABLE>
<CAPTION>
AVERAGE CHURN CHURN
YEAR SUBSCRIBERS SUBSCRIBERS RATE
---- ----------- ----------- -----
<S> <C> <C> <C>
1995....................................... 18,930 0 0.00%
1996....................................... 25,894 23 0.09%
1997....................................... 83,166 30 0.04%
1998 (first qaurter)....................... 108,243 390 0.36%
</TABLE>
ANNUAL 1995, 1996 AND 1997
The following is a discussion of the consolidated financial condition as of
December 31, 1996 and 1997 and the results of operations of the Company for
the years ended December 31, 1995, 1996 and 1997. The discussion should be
read in conjunction with the Consolidated Annual Financial Statements of the
Company and the notes thereto included elsewhere herein. The Consolidated
Annual Financial Statements have been prepared in accordance with Colombian
GAAP, which differs in certain significant respects from U.S. GAAP. Note 31 to
the Company's Consolidated Annual Financial Statements provides a
reconciliation to U.S. GAAP of the Company's net income (loss) and
shareholders' equity (deficit) as of and for the years ended December 31,
1995, 1996 and 1997. Unless otherwise indicated, the financial information has
been presented in constant Pesos as of December 31, 1997. Dollar amounts are
translated from Pesos amounts at the Representative Market Rate on December
31, 1997, which was 1,293.58 Pesos to one Dollar. No representation is made
that the Peso or Dollar amounts shown herein could have been or could be
converted into Dollars or Pesos, as the case may be, at any particular rate or
at all.
RESULTS OF OPERATIONS
The composition of the Company's revenues for each of the years discussed
herein is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------------------------------
1995(1) % 1996 % 1997 %
----------- ----- ------------ ----- ------------ -----
(IN THOUSANDS OF CONSTANT PESOS OF DECEMBER 31, 1997
PURCHASING POWER, EXCEPT PERCENTS DATA)
<S> <C> <C> <C> <C> <C> <C>
Connection fees......... Ps 709,857 29.3% Ps 5,621,668 47.2% Ps11,506,950 43.3%
Local usage charges..... 354,310 14.6 1,298,805 10.9 3,504,517 13.2
Basic charges........... 337,581 13.9 1,124,278 9.5 2,433,706 9.2
Long-distance charges... 931,103 38.4 3,229,522 27.2 7,282,512 27.4
Other income............ 93,617 3.8 616,116 5.2 1,835,579 6.9
----------- ----- ------------ ----- ------------ -----
Total................. Ps2,426,468 100.0% Ps11,890,389 100.0% Ps26,563,264 100.0%
=========== ===== ============ ===== ============ =====
</TABLE>
- --------
(1)Includes only four months of commercial operation.
49
<PAGE>
The following table expresses certain financial data from the Company's
statement of income as a percentage of total revenues:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------
1995(1) 1996 1997
--------- ------- -------
<S> <C> <C> <C>
Revenues....................................... 100.0% 100.0% 100.0%
------- ------- -------
Costs and expenses:
Administrative expenses...................... 15.1 32.3 32.8
Marketing expenses........................... 3.7 6.5 5.9
------- ------- -------
Total...................................... 47.7 60.1 63.7
------- ------- -------
Operating income............................... 52.3 39.9 36.3
Net monetary inflation adjustment income
(loss)........................................ (2.6) 19.2 13.3
------- ------- -------
Income before income taxes and minority
interest...................................... 53.1 50.2 24.0
Income tax expense............................. (2.8) (4.4)
------- ------- -------
Income before minority interest................ 53.1 47.4 19.6
Minority interest.............................. (21.2) (19.3) (15.5)
------- ------- -------
Net income..................................... 31.9% 28.1% 4.1%
======= ======= =======
</TABLE>
- --------
(1) Includes only four months of commercial operation.
The following is a discussion of the consolidated results of operations of
the Company for the year ended December 31, 1997, the year ended December 31,
1996 and the four months ended December 31, 1995 (the Company commenced
commercial operation on September 1, 1995).
YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE YEAR ENDED DECEMBER 31, 1996
Revenues. The total revenues for the year ended December 31, 1997 ("Annual
1997") increased by Ps14,673 billion, or 123%, to Ps26,563 billion from
Ps11.890 billion in the year ended December 31, 1996 ("Annual 1996"). The
increase in revenues for Annual 1997 was mainly attributable to the increase
in connection fee revenue associated with the Company's continued growth of
its subscriber base. The number of subscribers increased from 29,528 at
December 31, 1996 to 101,503 at December 31, 1997, excluding TeleGirardot, as
operations commenced in the municipalities of Cartago, Popayan, Jamundi, Buga
and Yumbo during 1997. The number of new subscribers at TelePalmira increased
during the same period because of its increase in capacity and the
modernization of its telephone infrastructure. Although installation of
switching infrastructure and antennas was substantially completed at Unitel
Wireless in the fourth quarter of 1997, there was interference from
unauthorized radio spectrum users, who were subsequently removed by the
Ministry of Communications. This delayed the Company's launch of operations at
Unitel Wireless until the first quarter of 1998.
Connection fee revenue in Annual 1997 increased by Ps5.885 billion from
Ps5.622 billion in Annual 1996 to Ps11.507 billion. Other operating revenues,
including basic monthly charges, local usage charges, long-distance charges
and other fees for Annual 1997 increased by Ps8.788 billion from Ps6.268
billion in Annual 1996 to Ps15.056 billion in Annual 1997. The increase in
other operating revenues for Annual 1997 is attributed to the increase in the
number of subscribers and also in the higher usage associated with that
increase.
Costs and Expenses. Costs and expenses for Annual 1997 increased by Ps9.778
billion, or 137%, to Ps16.930 billion from Ps7.152 billion in Annual 1996. The
increase is primarily attributable to the increase in the operating costs and
the administrative and marketing expenses due to the increase in the number of
subscribers and the maintenance and expansion of the telephony infrastructure
in the cities of Palmira, Cartago, Yumbo, Jamundi, Buga and Popayan.
50
<PAGE>
Operating costs for Annual 1997 increased by Ps4.111 billion from Ps2.527
billion in Annual 1996 to Ps6.638 billion, mainly as a result of increases in
salary costs, benefits and other labor expenses of Ps1.121 billion; rental of
space and equipment of Ps0.347 billion; and services, maintenance and repairs
of Ps0.657 billion due to the increased number of municipalities served. Cost
of sales of telephones increased by Ps0.262 billion due to the increased
number of subscribers. Amortization expense also increased by Ps0.582 billion
in Annual 1997 from Annual 1996 because during 1997 amortization of deferred
costs at all subsidiaries started. Other operating costs increased
substantially (Ps0.532 billion) in Annual 1997 compared to Annual 1997 mainly
because of additional security and various others costs due to the continuing
expansion and growth of the Company.
Administrative expenses for Annual 1997 increased by Ps4.880 billion to
Ps8.725 billion from Ps3.845 billion in Annual 1996. The increase was mainly
attributable to the increases in salaries, benefits and other labor payments
of Ps0.572 billion; fees, studies and research of Ps0.368 billion; taxes other
than income of Ps0.544 billion; provision for doubtful accounts of 0.177
billion; air transportation of Ps0.450 billion and amortization of Ps1.338
billion due to the increased number of municipalities and subscribers served.
Marketing expenses for Annual 1997 increased by Ps0.787 billion to Ps1.567
billion from Ps0.780 billion in Annual 1996. The increase in marketing
expenses was primarily attributable to the higher commissions and benefits
paid to the sales agents of Ps0.307 billion due to the increase in the lines
sold and the increase in amortization of Ps0.405 billion because market
research and publicity costs of the new companies, which were recorded as
deferred costs in prior years, are now being amortized.
Operating Income. Operating income for Annual 1997 increased by Ps4.895
billion from Ps4.738 billion in Annual 1996 to Ps9.633 billion. The increase
was mainly attributable to the increase in revenues as a result of the larger
number of subsidiaries in operation and of subscribers, net of the increase in
costs and expenses described above.
Nonoperating Income (Expenses). Nonoperating income (expense), net for
Annual 1996 and Annual 1997 consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1996 1997
----------------- -----------------
(IN THOUSANDS OF CONSTANT PESOS OF
DECEMBER 31, 1997 PURCHASING POWER)
<S> <C> <C>
Financial Income:
Interest income..................... Ps 564,293 Ps 5,645,798
Exchange gains...................... 306,892 3,026,145
Other financial income.............. 3,980 158,219
----------------- -----------------
875,165 8,830,162
----------------- -----------------
Financial Expenses:
Interest expense.................... (1,945,302) (8,133,026)
Bank commissions.................... (133,950) (577,014)
Exchange losses..................... (65,615) (4,771,236)
Bank expenses....................... (83,528) (15,121)
Other financial expenses............ (39,609) (269,374)
----------------- -----------------
(2,268,004) (13,765,771)
----------------- -----------------
Other:
Donations........................... (343,381)
Tax on foreign indebtedness......... (447,751)
Bonus to executive.................. (428,561)
Other, net.......................... 328,937 (642,717)
----------------- -----------------
328,937 (1,862,410)
----------------- -----------------
Ps(1,063,902) Ps (6,798,019)
================= =================
</TABLE>
51
<PAGE>
Net nonoperating expense increased from Ps1.064 billion for Annual 1996 to
Ps6.798 billion in Annual 1997. The increase was mainly due to the higher
interest expense on increased average borrowings of the Company for 1997,
including interest associated with the Senior Notes, net of an increase in
interest income, and an increase in net exchange losses and other expenses.
Interest expense increased from Ps1.945 billion in Annual 1996 to Ps8.133
billion in Annual 1997. An additional Ps9.305 billion of interest cost was
incurred on the Company's investments in its subsidiaries and expansion plan
projects and recorded as deferred costs in Annual 1997 as compared to Ps6.292
billion during Annual 1996. These deferred costs will be amortized when
commercial operations begin or projects are completed. The average borrowings
increased during Annual 1997 because of the implementation of the Expansion
Plan, including operations in five new municipalities. Of the Ps194.037
billion raised by the offering of Senior Notes, Ps42,429 billion was used to
refinance borrowings of the Company, including borrowings repaid in January
1998. The significant increase in interest income resulted from the temporary
investment of a portion of the proceeds of the Senior Notes. Similarly, the
increase in net exchange losses increased due to the higher U.S. dollar-
denominated borrowings, consisting primarily of the Senior Notes at December
31, 1997. Other expenses for Annual 1997 were Ps1.862 billion compared to
other income of Ps0.329 in Annual 1996 because the first time occurrence of
several costs: donations to charities in the municipalities served, a tax on
foreign borrowings which was only in effect in April through June 1997 and a
bonus to a Company executive.
Net Monetary Inflation Adjustment Income. Net monetary inflation adjustment
income for Annual 1997 increased by Ps1.244 billion to Ps3.532 billion from
Ps2.288 billion in Annual 1996 as a result of the impact of inflationary
adjustments on the higher balance of nonmonetary assets as well as on the
income, expense and shareholders' equity accounts.
Income Tax Expense. Income tax expense for Annual 1997 increased by Ps0.835
billion to Ps1.164 billion from Ps 0.329 billion in Annual 1996 as a result of
the increase in interest income which is not exempt from income tax and the
fact that the operating subsidiaries are only 90% exempt in Annual 1997. See
Note 18 of the Consolidated Financial Statements.
Minority Interest. Minority interest for Annual 1997 increased by Ps1.820
billion to Ps4.115 billion from Ps2.295 billion for Annual 1996 because of the
increased net income of the operating subsidiaries.
Net Income. Net income decreased by Ps2.251 billion from Ps3.339 billion for
Annual 1996 to Ps1.088 billion for Annual 1997 as a result of the factors
discussed above.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO THE YEAR ENDED DECEMBER 31, 1995
(COMMERCIAL OPERATIONS BEGAN SEPTEMBER 1, 1995).
The Annual 1996 financial statements reflect the Company's first full year
of operation of TelePalmira, the Company's sole system at that time, and are
therefore not directly comparable to the 1995 financial statements, which only
include the four months of operations of TelePalmira.
Revenues. Revenues for Annual 1996 increased by Ps9.464 billion or 390% to
Ps11.890 billion from Ps2.426 billion for the four months ended December 31,
1995 ("Annual 1995"). The increased revenues in Annual 1996 were primarily
attributable to the increase in connection fees associated with the increase
in the number of new subscribers. Subscribers in Palmira, the Company's only
system providing telecommunication services during these periods, increased by
32.3% to 29,500 at December 31, 1996 from 22,300 at December 31, 1995 (15,600
at September 1, 1995).
Connection fee revenue for Annual 1996 increased by Ps4.912 billion to
Ps5.622 billion from Ps0.710 billion in Annual 1995. While there was an
increase in subscribers in the four months ended 1995 and for the twelve
months ended December 31, 1996, 6,382 and 3,730 of these subscribers,
respectively, had paid their connection fees to the municipality prior to the
Company's acquisition and therefore paid no additional connection fees to the
Company. Other revenues, including local usage fees, basic fees, long distance
fees and
52
<PAGE>
other fees for Annual 1996 increased by Ps4.552 billion to Ps6.268 billion
from Ps1.716 billion in Annual 1995. The increase in other revenues in Annual
1996 resulted primarily from the increase in the number of subscribers and
usage associated with such growth.
Costs and Expenses. Cost and expenses for Annual 1996 increased by Ps5.996
billion to Ps7.152 billion from Ps1.156 billion for Annual 1995. The increase
in costs and expenses in Annual 1996 was primarily attributable to the
increase in operating costs, administrative expenses and marketing expenses
associated with the increased number of subscribers in Palmira and the
maintenance and expansion of the Company's system in Palmira.
Operating costs for Annual 1996 increased by Ps1.825 billion to Ps2.527
billion from Ps0.702 billion for Annual 1995 primarily as a result of the
increase in salaries, benefits and other labor payments of Ps0.935 billion and
rents of space and equipment of Ps0.587 billion due to the twelve months of
operation in Fiscal 1996 as compared to four months in Annual 1995.
Administrative expenses for Annual 1996 increased by Ps3.480 billion to
Ps3.845 billion from Ps0.365 billion for Annual 1995. This increase was
primarily as a result of the increase in fees, studies and investigations of
Ps0.566 billion; service, maintenance and repairs of Ps0.426 billion and
amortization of Ps0.843 billion.
Marketing expenses for Annual 1996 increased by Ps0.691 billion to Ps0.780
billion from Ps0.089 billion for Annual 1995. Selling expenses increased
primarily as a result of the increase in commissions and benefits paid to
salespeople of Ps0.328 billion and expenses of Ps0.137 billion.
The increase in overall costs and expenses resulted primarily from the
twelve months of operations of the Company in Annual 1996 as compared to four
months in Annual 1995.
Operating Income. Operating income for Annual 1996 increased by Ps3.468
billion to Ps4.738 billion from Ps1.270 billion for Annual 1995. This increase
was primarily attributable to the increase in revenues associated with the
twelve months of operations of the Company in Annual 1996 as compared to four
months in Annual 1995, offset partially by the increase in operating costs and
expenses as discussed above.
Nonoperating Income (Expenses). Nonoperating income (expenses), net for
Annual 1995 and Annual 1996 consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1996
--------------- ----------------
(IN THOUSANDS OF CONSTANT PESOS
OF DECEMBER 31, 1997
PURCHASING POWER)
<S> <C> <C>
Financial Income:
Interest income.......................... Ps 316,931 Ps 564,293
Exchange gains........................... 306,892
Other financial income................... 6,815 3,980
-------------- ----------------
323,746 875,165
-------------- ----------------
Financial Expense:
Interest expense......................... (284,987) (1,945,302)
Bank commissions......................... (5,923) (133,950)
Exchange losses.......................... (65,615)
Bank expenses............................ (700) (83,528)
Other financial expenses................. (332) (39,609)
-------------- ----------------
(291,942) (2,268,004)
-------------- ----------------
Other...................................... 49,504 328,937
-------------- ----------------
Ps 81,308 Ps(1,063,902)
============== ================
</TABLE>
53
<PAGE>
Nonoperating income (expenses), decreased from income of Ps0.081 billion for
Annual 1995 to an expense of Ps1.064 billion for Annual 1996. This decrease
was primarily a result of the increase in interest expense associated with the
higher levels of debt in Annual 1996 as compared to Annual 1995. Interest
expense increased from Ps0.285 billion in Annual 1995 to Ps1.945 billion in
Annual 1996. An additional Ps6.292 of interest cost was incurred on the
Company's investments in its subsidiaries and recorded as deferred costs
during Annual 1996 as compared to Ps1.309 billion during Annual 1995. These
deferred costs will be amortized when commercial operations begin.
Nonoperating income (expenses) also consists of interest income earned on
short-term Peso-denominated investments. The Company was able to invest its
excess cash from the float created in the collection of local, long distance
and cellular revenues from subscribers. Net exchange gains of Ps0.241 billion
occurred for the first time in Annual 1996 because the Company made its first
Dollar investment, a $2 million certificate of deposit.
Net Monetary Inflation Adjustment Income (Loss). Net monetary inflation
adjustment income for Annual 1996 increased by Ps2.351 billion to Ps2.288
billion income from a loss of Ps0.063 billion for Annual 1995 primarily as a
result of the impact of inflation adjustments to larger balances in
properties, plant and equipment and deferred costs because of the expansion of
the Company.
Income Tax Expense. Income tax expense for Annual 1996 increased to Ps0.329
billion. The low level of income taxes paid reflects the special status under
Law 142 for new telephone service providers. See Note 18 of the Consolidated
Financial Statements.
Minority Interest. Minority interest for Annual 1996 increased by Ps1.780
billion to Ps2.295 billion from Ps0.515 million for Annual 1995. This increase
was attributable to the municipality of Palmira's minority ownership (40%) in
TelePalmira and minority interest increased primarily as a result of the
twelve months of operations of TelePalmira in Annual 1996 as compared to four
months in Annual 1995.
Net Income. Net income for Annual 1996 increased by Ps2.566 billion to
Ps3.339 billion from Ps0.773 billion for Annual 1995 as a result of the
factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
The fixed landline telephone business is a capital intensive business which
requires substantial investment to acquire and upgrade the telephone networks
in each of the Company's markets. From inception through December 31, 1997,
the Company expended an aggregate of approximately Ps41.6 billion to acquire
various interests in each of its existing telephone systems. In addition, the
Company has required significant capital for personnel hiring and training,
systems infrastructure development, sales and marketing programs and the
initial build-out under the Expansion Plan. To date, the primary sources of
capital have consisted of equity contributions by the Company's shareholders,
debt financing from Colombian banks and local branches of other international
financial institutions, cash flow generated by the operating systems, certain
Vendor Financing in the form of non-capitalized leases (which are treated as
capitalized leases under U.S. GAAP), and the Senior Notes.
Net cash used by operating activities during Annual 1997 was Ps10.679
billion as compared to Ps7.748 billion for Annual 1996. The decrease in cash
used by operations for Annual 1997 was primarily caused by an increase in
accounts receivables and deferred costs, partially offset by an increase in
accounts payable, due to the Company's expansion. Net cash used in investing
activities during Annual 1997 was Ps179.210 billion as compared to Ps9.222
billion used in Annual 1996. Cash used in investing activities in Annual 1997
relates to the construction of new network systems, the acquisition of several
operating systems and the upgrade of existing network systems. In addition,
cash used in investing activities includes the purchase of short-term and
long-term investments. Net cash provided by financing activities during Annual
1997 was Ps170.669 billion as compared to Ps28.153 billion in Annual 1996.
Cash provided by financing activities during Annual 1997 primarily represents
net borrowing of Ps167.126 billion. As of December 31, 1997, the Company's
borrowings were Ps207.634 billion, consisting primarily of the Senior Notes of
Ps194.037 billion issued on October 28, 1997. As of December 31, 1997, the
Company's borrowings denominated in Dollars were Ps201.798 billion and the
Company's borrowings denominated in Pesos were Ps5.836 billion. The Company
also has obligations under
54
<PAGE>
leases, which are not capitalized in accordance with Colombian GAAP, but are
required to be capitalized under U.S. GAAP. See Notes 19, 30 and 31 to the
Consolidated Annual Financial Statements. During Annual 1997, the shareholders
of the Company invested Ps32.030 billion in the Company.
The Company's principal liquidity requirements will be for the Expansion
Plan, debt service (primarily on the Senior Notes), working capital and
general corporate purposes, including future acquisitions. The Expansion Plan
is projected to require aggregate capital expenditures of approximately $181.8
million. The Company expects to complete the build-out of the Expansion Plan
by December 31, 1998 and is financing the Expansion Plan with (i)
approximately $48.8 million of the proceeds of the Offering; (ii)
approximately $102.7 million of Vendor Financing (see "Risk Factors--
Contingency of Vendor Financing"); (iii) the sale of investments of
$5.7 million; (iv) approximately $23.1 million of DIAN Financing (see
"Description of Existing Indebtedness--DIAN Financing") and $1.5 million of
cash flow from operations. See "Use of Proceeds." As of March 31, 1998, the
Company had incurred approximately $118.2 million of capital expenditures
relating to the Expansion Plan and expects to incur the remainder,
approximately $63.6 million, by the end of 1998.
As a result of the Offering, the Vendor Financing, the DIAN Financing and
the incurrence of certain other indebtedness, the Company will be required to
satisfy certain debt service requirements. Following the disbursements in May
and November 1998 and 1999 of all the proceeds in the Escrow Account, a
substantial portion of the Company's cash flow will be utilized to service the
Senior Notes, the Vendor Financing and the DIAN Financing. The Senior Notes
will require semi-annual interest payments of approximately $9.4 million and
the Vendor Financing will require semi-annual interest and principal payments
of approximately $7.2 million. In addition, the DIAN Financing will require
semi-annual principal payments of approximately $2.3 million. The ability of
the Company to make payments of principal and interest will be largely
dependent upon its future performance. Many factors, some of which will be
beyond the Company's control (such as prevailing economic conditions), may
affect its performance. There can be no assurance that the Company will be
able to generate sufficient cash flow to cover required interest and principal
payments when due on its indebtedness. If the Company is unable to make
principal and interest payments in the future, it may, depending upon the
circumstances which then exist, seek additional equity or debt financing,
attempt to refinance its indebtedness or sell all or part of its business or
assets to raise funds to repay its indebtedness. The Company is required to
meet various financial covenants under the Indenture. See "Description of
Senior Notes--Certain Covenants." As of December 31, 1997 and the date of this
filing, the Company is in compliance with all such financial covenants.
The Company expects to consider additional acquisitions that fit its
strategic plans. Although the Company has had discussions concerning such
potential acquisitions, to date, no agreements have been reached with regard
to any particular transaction. Any such acquisitions that the Company might
consider are likely to require additional equity and/or debt financing, which
the Company will seek to obtain as necessary. Management believes that, based
on its current operations and anticipated growth resulting from the Expansion
Plan, cash flow from the Expansion Plan Financing, cash flow from operations
and other sources of funds, including local borrowings, it will have adequate
funds to complete the Expansion Plan and to meet its future cash requirements.
ACCOUNTING FOR INFLATION
As a Colombian company, the Company maintains its financial records in
Pesos. Colombian GAAP requires that the financial statements of Colombian
companies be adjusted to account for inflation. The inflation rate for the
year ended December 31, 1997 was 17.4%. Financial statements are adjusted for
the effects of inflation on the basis of changes in the Colombian MCPI. This
index is applied on a one-month lagging basis to nonmonetary assets and
liabilities, shareholders' equity, revenues and expense accounts. Monetary
balances are not adjusted because they reflect the purchasing power of the
currency on the date of the balance sheet. Foreign currency balances are not
adjusted because they are translated into Pesos at the exchange rate in effect
on the same date. The resulting net gain or loss from exposure to inflation is
reflected as "Net monetary inflation adjustment income (loss)" in the income
statement for each period in question. See Notes 2 and 28 to the Consolidated
Annual Financial Statements.
55
<PAGE>
INCOME TAX MATTERS
Consolidated income tax returns are not permitted in Colombia. The effective
statutory income tax rate for the Company was 35% for 1995, 1996 and 1997.
Under Colombian law, Transtel S.A. must pay a minimum tax which is presumed to
be not less than the greater of 5% (4% in 1995) of shareholders' equity for
tax purposes at the end of the immediately preceding year or 1.5% of gross
assets for tax purposes at the end of the immediate preceding year.
Adjustments to income to account for inflation are taken into account for
income tax purposes; however, operating companies such as Transtel's
subsidiaries are not subject to such a minimum income tax.
In accordance with Law 142 of 1994 and Law 223 of 1995, entities which
render basic residential telephony services and which are mixed capital
companies (i.e., companies with both public and private capital, such as the
Company's subsidiaries) were exempt in 1995 and are partially exempt from the
payment of income taxes for a term of seven years from 1996 with respect to
profits which are retained for upgrade, expansion or replacement of telephone
systems. These companies are exempt from taxes on 100% of income related to
basic telephony services for 1995 and 1996; thereafter the exemption reduces
by 10 percentage points each taxable year through 2000 and then reduces by 20
percentage points in 2001 and 2002. After 2002, there is no exemption.
In July 1997, Law 383 of 1997 established that dividends declared from
companies similar to Transtel's subsidiaries and paid to government entities
are not taxable. As there is not a similar exclusion for private investors
such as Transtel S.A., the Company expects that future dividends declared to
Transtel S.A. will be taxable.
RECONCILIATION TO U.S. GAAP
The Consolidated Annual Financial Statements are prepared in accordance with
Colombian GAAP, which differ from U.S. GAAP in certain significant respects. A
comparison of the Company's net income (loss) and shareholders' equity
(deficit) at and for the years ended December 31, 1995, 1996 and 1997, under
Colombian GAAP and after reflecting the material adjustments which arise when
U.S. GAAP is applied instead of Colombian GAAP, is shown below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1995 1996 1997
------------ ------------ ------------
(IN THOUSANDS OF CONSTANT PESOS OF
DECEMBER 31, 1997 PURCHASING POWER)
<S> <C> <C> <C>
Net Income (Loss)
Colombian GAAP...................... Ps 773,189 Ps 3,339,325 Ps 1,088,144
U.S. GAAP........................... (2,962,419) (2,988,629) (2,239,263)
Shareholders' Equity (Deficit)
Colombian GAAP...................... 7,166,232 19,350,391 53,039,294
U.S. GAAP........................... 2,129,241 (1,194,332) 28,596,297
</TABLE>
As more fully described and quantified in Note 31 to the Consolidated Annual
Financial Statements, the major differences between Colombian GAAP and U.S.
GAAP in each period relate to: income taxes, revaluation of assets,
depreciation expense, capitalized interest, deferred charges, capital leases,
revenue recognition, reversal of monetary correction and purchase of
properties from a shareholder.
INTERIM 1997 AND 1998
The following discussion compares results of operations for the three months
ended March 31, 1998 ("Interim 1998") to the three months ended March 31, 1997
("Interim 1997"). The discussion should be read in conjunction with the
Consolidated Interim Financial Statements of the Company and the notes thereto
included elsewhere herein. Amounts in these interim financial statements are
stated in constant Pesos of March 31, 1998 purchasing power. The Consolidated
Annual Financial Statements, which are stated in constant pesos of December
31, 1997 purchasing power, may be stated in constant Pesos of March 31, 1998
purchasing power by multiplying any Interim 1997 or 1998 amount by a factor of
1.0595. Dollar amounts are translated from Peso amounts at the Representative
Market Rate on March 31, 1998, which was 1,358.03 Pesos to one Dollar. No
representation is made that the Peso or Dollar amounts shown herein could have
been or could be converted into Dollars or Pesos, as the case may be, at any
particular rate or at all.
56
<PAGE>
The Interim 1997 and the Interim 1998 consolidated financial statements have
been prepared in accordance with Colombian GAAP which differs in certain
significant respects from U.S. GAAP. Note 4 to the Company's Consolidated
Interim Financial Statements provides reconciliations to U.S. GAAP of the
Company's net income (loss) and shareholders' equity (deficit).
RESULTS OF OPERATIONS
The composition of the Company's revenues for each of the periods discussed
herein is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
------------------------------------------------------
1997 % 1998 %
--------------- ---------- ---------------- ----------
(IN THOUSANDS OF CONSTANT PESOS OF
MARCH 31, 1998 PURCHASING POWER, EXCEPT PERCENTS)
<S> <C> <C> <C> <C>
Connection fees......... Ps 897,542 31.6% Ps 4,537,212 41.5%
Local usage charges..... 428,639 15.1 1,645,989 15.1
Basic charges........... 347,487 12.3 1,217,737 11.1
Long-distance charges... 1,034,497 36.5 2,902,044 26.5
Other income............ 128,003 4.5 629,746 5.8
--------------- --------- ---------------- ---------
Total................. Ps2,836,168 100.0% Ps10,932,728 100.0%
=============== ========= ================ =========
</TABLE>
The following table expresses certain financial data from the Company's
income statement as a percentage of total revenues:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
-----------------
1997 1998
------- -------
<S> <C> <C>
Revenues.................................................. 100.0% 100.0%
Cost and Expenses:
Operating costs......................................... 30.9 31.8
Administrative expenses................................. 50.5 41.3
Marketing expenses...................................... 9.9 6.8
------- -------
Total................................................. 91.3 79.9
------- -------
Operating income.......................................... 8.7 20.1
Nonoperating expenses, net................................ (47.2) (31.5)
Net monetary inflation adjustment income.................. 41.7 39.0
------- -------
Income before taxes and minority interest............... 3.2 27.6
Income tax expense........................................ (20.5) (12.6)
------- -------
Income (loss) before minority interest.................. (17.3) 15.0
Minority interest......................................... (3.7) (13.8)
------- -------
Net income (loss)......................................... (21.0)% 1.2%
======= =======
</TABLE>
Revenues. The total revenues for Interim 1998 increased by Ps8.097 billion,
or 286%, to Ps10.933 billion from Ps2.836 billion in Interim 1997. The
increase in revenues for the three months of 1998 was mainly attributable to
the increase in connection fees revenues associated with the increase in the
number of new subscribers. The number of subscribers increased from 32,274 at
March 31, 1997 to 140,310 at March 31, 1998 because of the beginning of
operations in the municipalities of Cartago, Popayan, Jamundi, Buga, Yumbo and
Girardot during the last three months of 1998, as well as new subscribers in
those areas and in Palmira because of the increase in capacity and the
modernization of the telephone infrastructure. Although installation of
switching infrastructure and antennas was substantially completed at Unitel
Wireless in the fourth quarter of 1997, there was interference from
unauthorized radio spectrum users, which were subsequently removed by the
Ministry of Communications. This delayed the Company's launch of operations at
Unitel Wireless until the first quarter of 1998.
57
<PAGE>
Connection revenues in Interim 1998 increased by Ps3.639 billion from
Ps0.898 billion in Interim 1997 to Ps4.537 billion. Other operating revenues,
including basic monthly charges, local usage charges, long-distance charges
and other fees for Interim 1998 increased by Ps4.458 billion from Ps1.938
billion in Interim 1997 to Ps6.396 billion in Interim 1998. The increase in
other operating revenues for Interim 1997 is attributed to the increase in the
number of subscribers and also in the higher usage associated with that
increase.
Costs and Expenses. The costs and expenses for Interim 1998 increased by
Ps6.138 billion, or 237%, to Ps8.730 billion from Ps2.592 billion in Interim
1997. The increase is primarily attributable to the increase in the operating
costs and the administrative and marketing expenses due to the increase in the
number of subscribers and the maintenance and expansion of the telephony
infrastructure in the cities of Palmira, Cartago, Yumbo, Jamundi, Buga,
Popayan and Girardot.
Operating costs for Interim 1998 increased by Ps2.599 billion from Ps0.876
billion in Interim 1997 to Ps3.475 billion, mainly as a result of an increase
in new telephone systems. These new systems resulted in an increase of salary
costs, benefits and other labor expenses of Ps0.906 billion, pension expense
of ps0.196 billion; of services maintenance and repairs of Ps0.201 billion; of
depreciation of Ps0.233 billion; of amortization of Ps0.323 billion and other
expenses of Ps0.461 billion.
Administrative expenses for Interim 1998 increased by Ps3.079 billion to
Ps4.511 billion from Ps1.432 billion in Interim 1997. The increase was mainly
attributable to the increase in salaries benefits and other labor payments of
Ps0.690 billion; amortization of Ps1.254 billion; and consulting fees, studies
and investigations of Ps0.154 billion.
Marketing expenses for Interim 1998 increased by Ps0.461 billion to Ps0.744
billion from Ps0.283 billion in Interim 1997. The increase in marketing
expenses was attributable to the higher commissions and benefits paid to the
sales agents of Ps0.127 billion, amortization of Ps0.155 billion, and
publicity and marketing costs of Ps0.059 billion.
Operating Income. Operating income for Interim 1998 increased by Ps1.957
billion from Ps0.245 billion in Interim 1997 to Ps 2.202 billion. The increase
was mainly attributable to the increase in revenues as a result of the larger
number of subsidiaries in operation and subscribers, net of the increase in
costs and expenses described above.
Nonoperating Income (Expenses). Nonoperating income (expense), net for
Interim 1998 and Interim 1997 consisted of the following:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
------------------------------------
1997 1998
----------------- -----------------
(IN THOUSANDS OF CONSTANT PESOS OF
MARCH 31, 1998 PURCHASING POWER)
<S> <C> <C>
Financial Income:
Interest income...................... Ps 414,324 Ps 2,348,502
Exchange gains....................... 540,290 5,924,798
Other................................ 15,375 155,502
----------------- -----------------
969,989 8,428,802
----------------- -----------------
Financial Expense:
Interest expense..................... (734,229) (2,877,798)
Bank commissions..................... (128,387) (826,988)
Exchange losses...................... (1,150,289) (8,281,314)
Bank expenses........................ (56,649) (131,892)
Other................................ (25,327) (202,375)
----------------- -----------------
(2,094,881) (12,320,367)
----------------- -----------------
Other.................................. (214,388) 447,559
----------------- -----------------
Ps (1,339,280) Ps (3,444,006)
================= =================
</TABLE>
58
<PAGE>
Net nonoperating expense increased by Ps2.105 billion to Ps3.444 billion in
Interim 1998 from Ps1.339 billion in Interim 1997. The increase was mainly due
to the higher interest expense on incurred average borrowings of the Company
for Interim 1998, including interest associated with the Senior Notes, net of
an increase in interest income and an increase in net exchange losses (also
related to the Senior Notes and U.S. Dollar investments) and other expenses.
Net Monetary Inflation Adjustment Income. Net monetary inflation adjustment
income for Interim 1998 increased by Ps3.088 billion to Ps4.272 billion from
Ps1.184 billion in Interim 1997 as a result of the impact of inflationary
adjustments on the higher balance of nonmonetary assets as well as on the
income, expense and shareholders' equity accounts.
Income Tax Expense. Income tax expense for the Interim 1998 increased by
Ps0.794 billion to Ps1.375 billion from Ps0.581 billion in Interim 1997 as a
result of the increase in interest income which is not exempt from income tax
and the fact that the operating subsidiaries are only 80% exempt in 1998.
Minority Interest. Minority interest for Interim 1998 increased by Ps1.406
billion to Ps1.510 billion from Ps0.104 billion for Interim 1997 because of
the increased net income of the operating subsidiaries.
Net Income. Net income increased by Ps0.741 billion from Ps(0.596) billion
for Interim 1997 to Ps0.145 billion for Interim 1998 as a result of the
factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used for operating activities during Interim 1998 was Ps4.977
billion, compared to a use of Ps13,259 billion for Interim 1997. The decrease
in cash used for operations in Interim 1998 principally relates to the
increase in accounts payable and amortization due to the Company's expansion.
Net cash provided by in investing activities in Interim 1998 was Ps16.444
billion compared to a use of Ps14.164 billion in Interim 1997. Net cash used
in investing activities mainly relates to the construction of new network
systems and the upgrade of existing network systems. In addition, cash used in
investing activities during 1998 includes the maturity of investments of
Ps55.006 billion less the purchase of short-term and long-term investments of
Ps20.644 billion. Net cash provided by financing activities in Interim 1997
was Ps13.800 billion, compared to a use of Ps13.455 billion in Interim 1998.
Net cash provided by the financing activities during Interim 1997 represents
an increase in net borrowings of Ps13.829 billion. As of March 31, 1998, the
Company had paid the balance of the outstanding debt at December 31, 1997 of
Ps14.313 billion, of which Ps8.051 billion were denominated in dollars and
Ps6.262 billion denominated in Pesos. The Company also has obligations under
leases, which are not capitalized in accordance with Colombian GAAP, but are
required to be capitalized under U.S. GAAP. See Note 4 of the Consolidated
Interim Financial Statements.
RECONCILIATION TO U.S. GAAP
The Consolidated Interim Financial Statements are prepared in accordance
with Colombia GAAP, which differs from U.S. GAAP in certain significant
respects. A comparison of the Company's net income (loss) and shareholders'
equity (deficit) at and for the three month periods ended March 31, 1997 and
March 31, 1998, under Colombian GAAP and after reflecting the material
adjustments which arise when U.S. GAAP is applied instead of Colombian GAAP,
is shown below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
------------------------------
1997 1998
-------------- --------------
(IN THOUSANDS OF CONSTANT
PESOS OF MARCH 31, 1998
PURCHASING POWER)
<S> <C> <C>
Net Income (Loss):
Colombian GAAP............................. Ps (596,266) Ps 145,108
U.S. GAAP.................................. (2,934,246) (4,335,860)
Shareholders' equity (deficit):
Colombian GAAP............................. 19,907,437 60,128,423
U.S. GAAP.................................. (4,199,641) 25,961,916
</TABLE>
59
<PAGE>
As more fully described and quantified in Note 4 to the Consolidated Interim
Financial Statements included herein, the major differences between Colombian
GAAP and U.S. GAAP in each period relate to: deferred income taxes,
revaluation of assets, depreciation expense, capitalized interest, deferred
charges, capital leases, revenue recognition, deferred monetary correction,
minority interests and purchase of properties from a shareholder.
60
<PAGE>
BUSINESS
THE COMPANY
The Company is the largest private telephone company in Colombia, providing
telephone services to both business and residential subscribers. The Company
(excluding TeleGirardot) currently owns and operates telephone systems serving
seven cities, with an aggregate population of approximately 2.9 million
people, located in the southwestern region of Colombia. As of December 31,
1997, such system provided service to an aggregate of approximately 101,500
subscribers and had an average penetration of approximately 18 lines per 100
people.
On December 31, 1997, the Company acquired Girardot Telephone. The
statistical, financial and other data in this Prospectus does not include
information regarding TeleGirardot except where specifically indicated. For
information regarding TeleGirardot see "Prospectus Summary--Recent
Developments" herein.
In 1990 through the enactment of Decree 1900 ("Decree 1900"), Colombia's
government initiated the deregulation and privatization of the state-owned
telecommunications sector in order to promote competition and encourage
private investment and thereby improve service for its citizens. This was
followed by the enactment of Law 142 on July 11, 1994 ("Law 142"), which
established the basic guidelines and regulations to support the sector's
privatization. Prior to the enactment of Decree 1900, telephone service in
Colombia had been provided by the same government-owned entities that also
provided other basic utility services. Since most of these municipal entities
lacked sufficient capital, spending for basic utility services such as power
and water often took precedence over the delivery of telephone service. As a
result, many of these municipal service providers have failed to install
sufficient capacity to satisfy their customers' demand for telephone service.
For those customers who do currently receive telephone service through
municipal service providers, the municipal entities provide low-quality
service and offer few, if any, of the more commonly available value-added
services.
The Company was formed in August 1993 by certain members of the Caicedo
family, a prominent Colombian family, and Guillermo Lopez, the Company's
President and a Director, to take advantage of the opportunities created by
deregulation. Management's goal is to capitalize on the substantial demand for
telephone service which the Company believes exists throughout Colombia. This
belief is supported by the fact that Colombia's first and third largest
cities, Bogota and Medellin, respectively, where capital has been spent to
meet telephone demand, have recently achieved penetration in excess of 30
lines per 100 people, which is substantially higher than cities in the
Company's service area. The Company seeks to modernize and expand its
telephone systems to accommodate existing demand for telephone service and
future growth.
The Company's objective is to increase the penetration in each of its
markets and to provide high quality value-added telephone services to its
subscribers. For example, in May 1995, the Company, in conjunction with the
local municipality, acquired its first telephone system, the only system
serving the city of Palmira. At the time of the acquisition, this system had
approximately 15,600 subscribers, representing a penetration of approximately
4.9 lines per 100 people. Following the acquisition, the Company initiated its
Expansion Plan in Palmira, which consists of investing approximately $34.2
million to replace a portion of the existing Palmira system's infrastructure,
to upgrade the system with modern equipment from Siemens and to increase
system capacity to 60,000 lines, which implies a penetration of 18.9 lines per
100 people. The Company began offering telephone service in Palmira in
September 1995 and, as a result of the substantial demand, experienced
immediate and significant improvements in operating and financial results.
Under the Company's management, the Palmira system's subscriber base has grown
by 220%, increasing from approximately 15,600 at the time of acquisition to
approximately 50,100 at December 31, 1997. Subsequent to the acquisition of
TelePalmira, the Company acquired three additional operating companies,
increasing its number of subscribers from approximately 15,600 as of September
30, 1995 to approximately 101,500 as of December 31, 1997. In addition to the
subscribers with installed lines as of December 31, 1997, the Company had
25,965 additional customers who have signed promissory notes for new lines to
be installed.
61
<PAGE>
COLOMBIA AND COLOMBIAN TELEPHONY MARKET OVERVIEW
Colombia is one of the oldest democracies and most stable economies in Latin
America and is one of only three countries in Latin America rated investment
grade by all three major rating agencies. Colombia has achieved positive real
economic growth every year since 1950 and averaged compounded annual growth in
Gross Domestic Product ("GDP") of approximately 4.7% from 1992 to 1996, one of
the highest growth rates in Latin America. Annual inflation has declined over
the past six years from 26.8% in 1991 to 17.7% in 1997. In recent years, the
Colombian government has encouraged foreign investment and exports through
reduced foreign exchange controls and lower import quotas and tariffs. The
Colombian government has also begun to open certain public services, such as
power and banking, to private sector investment and is considering other
sectors for privatization. In part as a result of these policies, net foreign
investment in Colombia has grown from $3.5 billion in 1990 to $10.5 billion in
1997. During the same period, Colombia has achieved increased diversification
of its export base and the value of its exports has grown from $6.7 billion to
$11.6 billion. See "Risk Factors--Colombian Political, Economic and Social
Risks."
In 1995, Colombia had approximately 4.9 million installed lines,
representing a penetration of approximately 14.0 lines per 100 people, which
generated approximately $635 million of local telephony revenues, representing
approximately 44% of the $1.5 billion telecommunications industry.
Historically, local telephony has been treated as a utility. The local
telephony network is fragmented and approximately 30 municipal operators
service approximately 780 municipalities. Prior to deregulation, each
municipal operator had a monopoly in the region which it served and typically
provided limited and often marginal service. As a result, Colombia is
significantly underserved by existing wireline operators and demand for
telephone service substantially outweighs the supply of telephone lines. This
is evidenced by multi-year waiting lists and unsatisfied demand in Colombia
for approximately 1.2 million telephone lines as estimated by the DNP. The DNP
also projects that the country's existing installed line network will need to
more than double by 2007 in order to keep pace with growing demand.
The Colombian government, recognizing the importance of an effective
telecommunications infrastructure and the role that the telecommunications
industry plays in national development, identified the problems in the
telecommunications industry and, from 1990 to 1994, established the regulatory
environment required to support private sector participation. The government
enacted decrees addressing many facets of operation including interconnection,
numbering and tariffs. The 1994 deregulation introduced competition and
established a tariff environment under which telephone service providers are
encouraged to compete on the basis of efficiency and service rather than
price. Tariffs for all telecommunication services are established and overseen
by the Comision de Regulacion de Telecomunicaciones (Telecommunications
Regulatory Commission) (the "CRT"), which allows operators to set prices based
on either the current or historical cost of providing service. See "Risk
Factors--Regulatory Risks."
In 1995, the Colombian government opened the long distance market to
competition. Until recently, domestic and international long distance service
was provided exclusively by Empresa Nacional de Telecomunicaciones
("TELECOM"), a state-owned company, which had a monopoly on international and
long distance calls. The CRT has established a process under which the opening
of the long distance market to competition is to be reviewed. Licenses were
given to Orbitel (a private company) and Empresa de Telecomunicaciones de
Bogota (a government owned entity) and it is expected that operations will
start in 1999. The Company believes that the deregulation of the long distance
market will, as it has in other countries, serve to stimulate telephone usage,
due to the fact that price competition is likely to lower tariffs to the
consumer. The Company does not currently expect that it would qualify to be a
new entrant into the long distance market in the near future.
For additional information regarding Colombia and its telecommunications
industry, see "Annex--Republic of Colombia" and "Industry Overview; Legal and
Regulatory Environment."
OPERATING COMPANIES
The Company has acquired interests in existing wireline telephone systems
serving the cities of Palmira, Cartago, Popayan, Buga and their surrounding
areas, and built new systems serving the cities of Yumbo,
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<PAGE>
Jamundi, Cali and their surrounding areas. In each case the Company has joined
with the local municipality to form an operating company (each an "Operating
Company" and, collectively the "Operating Companies") to own and operate each
telephone system. The Operating Companies are (i) Empresa de Telefonos de
Palmira S.A. E.S.P. ("TelePalmira"), which services the cities of Palmira and
Candelaria, (ii) Telefonos de Cartago S.A. E.S.P. ("TeleCartago"), which
services the city of Cartago, (iii) Caucatel S.A. E.S.P. ("Caucatel"), which
services the western section of the city of Popayan, (iv) Empresa de Telefonos
de Jamundi S.A. E.S.P. ("TeleJamundi"), which services the city of Jamundi;
(v) Bugatel S.A. E.S.P. ("Bugatel"), which services the city of Buga and its
surrounding regions; and (vi) Unitel S.A. E.S.P. ("Unitel"), which operates a
wireline system ("Unitel Wireline") in the city of Yumbo, a city adjacent to
Cali, and a fixed wireless system ("Unitel Wireless"), which commenced
operations in January, 1998, that services the city of Cali. In addition, see
"Prospectus Summary--Recent Developments" for a discussion of the Company's
acquisition of the telephone network of the municipality of Girardot on
December 31, 1997.
OPERATING COMPANIES--GENERAL
The existing shareholders of the Company have invested approximately Ps38.4
billion ($29.7 million) of equity in the Company, including the Equity
Contributions in July 1998. Approximately Ps28.2 billion ($21.8 million) of
the Equity Contribution has been used to repay local bank borrowings that were
used to finance start up expenses and a portion of the acquisition costs of
the Operating Companies.
The following table provides information regarding the Operating Companies:
<TABLE>
<CAPTION>
UNITEL UNITEL
TELEPALMIRA TELECARTAGO CAUCATEL TELEJAMUNDI WIRELINE BUGATEL TELEGIRARDOT WIRELESS(1) TOTAL
----------- ----------- -------- ----------- -------- ------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Municipality served.. Palmira Cartago Popayan Jamundi Yumbo Buga Girardot Cali N/A
Population........... 318,000 125,900 76,600 59,100 72,000 337,400 161,000(1) 1,908,600 2,897,600
Commencement date of
Company's
operations.......... 9/95 4/97 5/97 6/97 6/97 7/97 12/97 1/98 N/A
Number of subscribers
at Commencement New New New
date................ 15,600 13,800 10,800 System System 10,700 23,500 System 50,900
Number of subscribers
as of December 31,
1996................ 29,528 N/A N/A N/A N/A N/A N/A N/A 29,528
Total subscribers
added for the year
ended December 31,
1997................ 20,534 17,544 13,755 5,032 3,986 11,124 N/A N/A 71,975
Number of subscribers
as of December 31,
1997................ 50,062 17,544 13,755 5,032 3,986 11,124 23,500 N/A 125,003(2)
Total subscribers
added for the three
months ended March
31, 1998............ 2,343 1,456 3,448 234 279 1,076 1,500 4,971 15,307
Number of subscribers
as of March 31,
1998................ 52,405 19,000 17,203 5,266 4,265 12,200 25,000 4,971 140,310
Penetration(3)....... 16.5 23.0 22.5 17.7 13.6 13.0 20.8 22.8 20.6
</TABLE>
- --------
(1) Includes the neighboring cities of Flandes and Ricaurte.
(2) In addition to the subscribers with installed lines at December 31, 1997,
the Company has 25,965 additional customers who have signed promissory
notes for new lines to be installed before March 31, 1998.
(3) Penetration at March 31, 1998 represents the number of installed lines per
100 people. In Cartago, Jamundi, Buga, Yumbo, Cali and Girardot,
penetration includes the installed lines of municipal competitors of
approximately 10,000 lines, 5,200 lines, 30,700 lines, 5,500 lines,
431,400, lines and 8,500 lines as per the Company's estimates,
respectively.
EXPANSION PLAN
At the time of acquisition, the Company's systems generally lacked
sufficient capacity to service the demand of their customers in the respective
municipalities and utilized antiquated technology to provide limited service
to their customers. Based on extensive market demand studies, the Company
created an expansion plan (the
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<PAGE>
"Expansion Plan") which is designed to satisfy the significant demand for
telephone lines in each of its operating cities (excluding the cities serviced
by TeleGirardot). The Expansion Plan does not include TeleGirardot, for which
a separate expansion plan has been developed. Management intends to increase
the number of installed lines in its seven operating cities from an aggregate
of 56,800 which serve 50,900 subscribers at the date of acquisition of each of
its systems, to approximately 222,200 lines and subscribers upon completion of
the build-out of the Expansion Plan by December 31, 1998. The Expansion Plan
also involves the upgrade of each of its telephone networks to state-of-the-
art digital and fiber-optic technology.
The Company has entered into agreements with Siemens for the purchase of
most of the telephone equipment required for the Expansion Plan and for the
installation of the equipment to be provided to the Company pursuant to fixed
price turn-key construction contracts. In addition, the Company has entered
into an agreement with IBM de Colombia S.A. (an affiliate of International
Business Machines Corp. ("IBM")) for the purchase and installation of hardware
and software that will be used to offer value-added services for its telephone
systems which, together with the equipment provided by Siemens, comprises most
of the equipment necessary to complete the Expansion Plan. As of March 31,
1998, the Company, in conjunction with Siemens, had completed the installation
of approximately 107,600 new lines, or approximately 65%, of the Company's
Expansion Plan and had upgraded all of the existing 56,800 lines.
The Expansion Plan is projected to require aggregate capital expenditures of
approximately $181.8 million, approximately 70.0% of which will be incurred
pursuant to fixed price equipment purchase agreements (or letters of intent)
and turn-key installation contracts. As of October 28, 1997, approximately
$7.8 million was financed with local bank borrowings, all of which was repaid
with a portion of the proceeds of the Offering, and approximately $1.5 million
was financed with cash flow from operations. The remainder of the Expansion
Plan, approximately $172.5 million, has been or will be financed with (i)
approximately $41.1 million of the proceeds of the Offering; (ii)
approximately $102.7 million provided by the Company's vendors under equipment
financing agreements (with Siemens and IBM) or domestic leasing arrangements
(collectively, the "Vendor Financing") (see "Risk Factors--Contingency of
Vendor Financing"); (iii) the sale of investments of $5.6 million; and (iv)
the DIAN Financing (see "Description of Existing Indebtedness--DIAN
Financing"). See "Use of Proceeds." As of March 31, 1998, the Company had
incurred approximately $118.2 million of capital expenditures relating to the
Expansion Plan and expects to incur the remainder, approximately $63.6
million, by the end of 1998.
As of March 31, 1998, approximately Ps15.0 billion ($12 million) of capital
expenditures has been incurred relating to the Expansion Plan for Bugatel,
Ps14.3 billion ($11.5 million) for Caucatel, Ps33.9 billion ($27.2 million)
for TelePalmira, Ps10.7 billion ($8.6 million) for TeleJamundi, Ps8.7 billion
($7.0 million) for Unitel Wireline, Ps7.7 billion ($38.3 million) for Unitel
Wireless, and Ps16.9 billion ($13.6 million) for TeleCartago. The Company
expects to incur approximately $4.0 million under the TeleGirardot Expansion
Plan which will be financed with cash flow from its operations.
For the Company's expansion plan with respect to TeleGirardot, see
"Prospectus Summary--Recent Developments."
BUSINESS AND GROWTH STRATEGY
The Company's objective is to become the leading provider of quality
telephone services in each city in which it operates. The Company's business
and growth strategy includes the following:
. Capitalize on Significant Demand for Telephony Services. The Company
believes that the low telephone penetration levels throughout Colombia,
in general, and the southwestern region in particular, provide a
64
<PAGE>
substantial opportunity to quickly increase subscribers, net income and
cash flow in its markets. In the aggregate, the Expansion Plan assumes
that the Company increases penetration of its markets from approximately
16.9 lines per 100 people at the time of acquisition to 22.8 lines per 100
people upon completion of the Expansion Plan. Management expects similar
penetration increases with respect to the TeleGirardot Expansion Plan.
Management believes that these penetration levels are achievable,
especially when compared to two of Colombia's largest cities, Bogota and
Medellin, where substantial capital has already been spent to expand and
modernize the telephone systems and where penetration levels are currently
in excess of 30 lines per 100 people. Furthermore, after operating in
Palmira for only 28 months, the Company has added more than 34,400
subscribers, which represents an increase in telephone penetration from
4.9 lines per 100 people to approximately 18 lines per 100 people at
December 31, 1997.
. Create Strategic Alliances with Municipalities. The Company seeks to
maintain a strong relationship with each of the municipalities in which
it operates. This is accomplished primarily by establishing a mixed
capital company in which both the Company and the municipality are
investors. This structure allows the municipality to enjoy the benefits
of privatization while maintaining an ongoing economic interest in these
telephone operations. At the same time, the Company realizes substantial
benefits from working together with the municipal government, including:
(i) access to extensive demographic information which allows the Company
to optimize its network build out; (ii) work permits and rights of way to
ensure that the build out plan is completed quickly and efficiently; and
(iii) access to public records regarding non-paying customers of the
local government's other utility services. In addition, in situations
where the Company has acquired existing telephone systems, management has
the opportunity to retain the qualified employees of those systems.
. Utilize International Expertise. Since its inception, the Company has
contracted for the support of various internationally recognized
consultants to complement its own expertise. Prior to entering a new
market, management completes a full market demand study and in certain
instances has relied on the services of independent research consultants,
to gather and assess projected levels of demand as well as other
demographic and competitive information. The Company then sizes and
designs its networks around these demand parameters. Commonwealth
Communications, Inc. advised the Company with respect to the selection of
equipment manufacturers and the design of the Palmira, Jamundi and Yumbo
wireline telephone systems, and Bellcore ("Bellcore") advised the Company
with respect to the selection of equipment and design of the Unitel
Wireless system in Cali. Pursuant to the Expansion Plan and the
TeleGirardot Expansion Plan, the Company will rely on Siemens for the
supply of equipment for both its wireline and wireless networks as well
as the design, construction and installation of most of its systems
pursuant to fixed price, turn-key contracts. In addition, the Company has
contracted with IBM to install Internet-related services. The Company has
also contracted C-NIX, a leading international information operating
systems provider ("C-Nix"), to upgrade its existing facilities and
enhance the interface between its management control and information
systems. Management believes that the Company has realized substantial
benefits from these telecommunication services and expects to continue to
utilize the expertise of these organizations.
. Install Modern Telephony Equipment. The Company seeks to install high-
capacity, modern telephony equipment with sufficient capacity to meet
each market's expected demand. In the case of its wireline networks, the
Company, in conjunction with its primary equipment vendor, Siemens, has
installed a fiber-optic trunk supported by fully digital local exchanges.
In the case of its wireless networks, the Company is installing a fixed
wireless system utilizing DECT (as defined herein) equipment provided by
Siemens. This modern technology allows the Company to offer its
subscribers a full range of traditional and non-traditional value-added
services, including call waiting, voice mail, Internet access, ISDN and
Centrex.
. Maximize Revenue Generation. The Company seeks to maximize the revenue
generated from each installed line by capitalizing on its efficient
operating structure and by offering subscribers a full range of telephony
services. One of the stated goals of the recent deregulation of the local
telephone markets by the Colombian government is to promote competition
among public and private operators on the basis of
65
<PAGE>
efficiency and customer service, rather than price. The government
accomplished this by requiring operators to set tariffs, at their option,
based on either (i) their or their predecessor's costs or (ii) their
competitors' costs, but in no event below the cost of providing service.
This law has benefited the Company by allowing management to set tariffs
at levels established by inefficient municipal operators, rather than the
Company's own lower cost of operation. This pricing structure allows the
Company to realize a high return on its capital investment, especially
when compared to its inefficient municipal competitors. The Company's
operating results are further enhanced by the new, value-added telephony
services that the Company offers as a result of its system upgrades which
are not currently provided by its municipal competitors.
. Provide Excellent Customer Service. Telephone subscribers in Colombia
have historically received poor quality service. For example, under the
management of the municipality, in September 1995, Palmira customers were
able to complete approximately 40% of their calls and an estimated 17% of
subscribers experienced breakdowns which lasted an average of more than
12 hours. The Company utilizes sophisticated computer hardware and
software to manage, administer and correct telephone problems in its
telephone systems. This has resulted in a dramatic improvement in the
operating performance of its systems. In Palmira, in March 1998, the
Company's subscribers completed approximately 67% of their calls and only
5.5% of subscribers experienced breakdowns lasting only approximately 6
hours. In addition, the Company operates customer service centers in each
of the Company's markets and utilizes an aggregate of approximately 40
dedicated employees for this purpose.
. Pursue Selective Acquisitions and Other Business Opportunities. The
Company intends to selectively pursue acquisitions of additional
telephone networks from municipalities in Colombia engaged in
privatizations. The Company anticipates making bids for one or more
municipal systems in the upcoming months, including systems within and
beyond the southwestern region of Colombia. Management expects that any
future acquisitions will be structured similarly to its existing
acquisitions, including a substantial investment and ownership by the
municipality involved. The Company anticipates pursuing only those
markets which have low penetration levels and indications of significant
unmet demand for telephony service. In addition, the Company expects to
capitalize on the recent deregulation of the long distance market by
aligning itself with a strategic international partner.
OWNERSHIP AND MANAGEMENT
In August 1993, in anticipation of the deregulation of Colombia's
telecommunications industry, Guillermo Lopez combined his managerial expertise
with the financial support of certain members of the Caicedo family (the
"Caicedo Investors") to form the Company. The Caicedo family is a prominent
Colombian family with a history of operating businesses in the southwestern
region of Colombia dating back more than 400 years. Currently, the Caicedo
family has interests in sugar cane, milling and processing businesses in the
region, including Colombina S.A. ("Colombina"), Ingenio Riopaila S.A. and
Ingenio Central Castilla S.A. The existing shareholders of the Company have
invested approximately Ps38.4 billion ($29.7 million) in the Company,
including the sale of common stock of the Company to the existing shareholders
for a purchase price of Ps32.0 billion ($24.8 million), which was
substantially completed in July 1997 (the "Equity Contribution").
Guillermo Lopez has been managing businesses for the Caicedo family for the
past 14 years. Prior to founding the Company, Mr. Lopez was the financial and
legal advisor to the Caicedo family with respect to their many business
interests and served as a member of the Board of Directors of several publicly
held companies in Colombia in which the Caicedo family had a substantial
interest. Since the Company's inception, Mr. Lopez has been actively involved
in all aspects of the business, including the acquisition of the Company's
telephone systems, the recruiting and hiring of the management team, and the
build-out and commencement of operations of the Company's systems.
Mr. Lopez has assembled a senior management team comprised of individuals
with extensive telecommunications industry experience both in Colombia and
throughout the world. Reporting directly to Mr.
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Lopez is a General Manager for each of the Operating Companies. Collectively,
this group of nine executives has over 100 years of telephony industry
experience and includes Mr. Jose Fernando Ramirez, the General Manager of
TeleCartago, with 12 years of experience with TELECOM and TELECOM affiliated
companies, Mr. Anibal E. Perez, the Technology and Planning Vice President,
with 15 years of experience with Empresas Municipales de Cali ("EMCALI"), the
municipally-owned telephone company operating in Cali, Mr. Anibal Restrepo,
the General Manager of Unitel, with 21 years of experience with Empresas
Publicas de Medellin, the municipally-owned telephone company operating in
Medellin, Mr. Kenneth Spencer, the Marketing and Sales Vice President, with 27
years of experience with Bell Canada, a subsidiary of Bell Canada Enterprises,
AT&T Canada, Bell South, Nortel (Europe) and Empresa de Telecomunicacions de
Santafe de Bogota and Mr. Attilio Ciampini, the Manager for the Company's
Outside Plant, with 30 years of experience with Bell Canada, a subsidiary of
Bell Canada Enterprises. In addition to the General Managers, Mr. Lopez's
management team includes Mr. Jorge Enrique Martinez, the Financial Vice
President, who has nine years of experience with Corporacion Financiera del
Valle, and Mr. Carlos Arango, the Corporate Development Vice-President, who
has nine years of combined experience with Transejes S.A., an affiliate of
Dana Corporation, Carvajal S.A. and Lloreda Grasas S.A.
Mr. Lopez has established important relationships with several
telecommunications consultants and equipment vendors. See "Business--Expansion
Plan."
DESCRIPTION OF THE OPERATING COMPANIES
TELEPALMIRA
Overview
TelePalmira services the municipalities of Palmira and Candelaria. Palmira
is located 15 kilometers from Cali. Palmira's population is approximately
254,700 people and is distributed among several socioeconomic levels, with a
majority of the population belonging to the middle income bracket of Colombia.
Palmira has a stable economic base which includes agriculture, agribusiness,
light manufacturing, transportation and business commerce. The area
surrounding Palmira produces sugar cane, coffee, rice, corn and other
agriculture products used as raw material in the industries of Palmira and
Yumbo. In addition, Palmira has an international airport with significant air
freight operations and facilities. Candelaria is a municipality adjacent to
Palmira with a population of approximately 63,300 people. Candelaria is an
important residential center for the workers of the labor intensive sugarcane
industry.
Customers and Competition
In 1997, TelePalmira's subscriber base was composed of approximately 83%
residential and 17% commercial subscribers. The Company believes that, through
its technology, it can offer custom-made solutions to the business needs of
its commercial subscribers, such as Centrex, ISDN, DID and high speed access
through fiber optics. As a result, the Company expects that it can increase
both usage by commercial subscribers and the number of lines per subscriber.
The Company also believes that it can increase its residential subscriber base
through its sales and marketing efforts and by encouraging Internet, facsimile
and other data applications in the home.
TelePalmira has no current competition in Palmira or Candelaria.
History
Prior to September 1, 1995, when TelePalmira began commercial operations,
telephone service for Palmira had been provided by Empresas Publicas
Municipales de Palmira, a public entity owned by the municipality of Palmira.
The telephone services provided at that time were generally below standard,
with substantial unmet demand. On May 31, 1995, Transtel and the municipality
of Palmira incorporated TelePalmira to provide
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telephony services in the cities of Palmira and Candelaria. Transtel
contributed approximately Ps13.8 billion ($10.7 million) in cash and the
municipality of Palmira contributed certain of its existing telecommunications
assets and infrastructure valued at approximately Ps9.2 billion ($7.1 million)
to the capital of TelePalmira. In return for these contributions, Transtel
received 60% of TelePalmira's shares and the municipality of Palmira received
40% of TelePalmira's shares. Concurrently, TelePalmira purchased the remaining
assets of Palmira's telephony system for Ps12.4 billion ($9.6 million) in
cash.
Expansion Plan and Growth Strategy
The portion of the Expansion Plan relating to TelePalmira is substantially
completed. The Expansion Plan involved the design, construction, installation
and operation of a local telephone network with a capacity of 60,000 lines, of
which 50,500 have been installed as of December 31, 1997, representing a 76.5%
completion of the network installation. An implied penetration of 18.9 lines
per 100 people is expected upon completion of the Expansion Plan. The newly
installed system consists of an advanced network utilizing digital switching
and fiber-optic transmission technology. The new lines are supported by a
digital host installed in TelePalmira's Central Office and three digital
remote switches installed in newly constructed buildings. The estimated cost
of TelePalmira's completed Expansion Plan is approximately $34.2 million. This
has been financed with proceeds from certain Vendor Financing, debt obtained
from local financing institutions repaid with proceeds of the Offering,
proceeds from the Offering and the DIAN Financing.
TelePalmira's growth strategy is to provide the most advanced
telecommunications service in Palmira and Candelaria while improving the
percentage of calls completed and reducing the number of service calls and
breakdowns. The Expansion Plan has resulted in an increase in penetration for
TelePalmira from 4.9 lines per 100 people at September 1, 1995 to 15.7 lines
per 100 people at December 31, 1997. TelePalmira's growth strategy involves:
(i) increasing the number of lines available; (ii) actively marketing to new
subscribers; and (iii) offering high quality service to a substantial portion
of the population for whom telephony services were previously unavailable.
Results of Operations
At the time of the acquisition, Palmira had approximately 15,600 telephone
subscribers, representing a telephone penetration of approximately 4.9 lines
per 100 people. Following the acquisition, the Company initiated its Expansion
Plan in Palmira, which consists of investing approximately $34.2 million to
replace the existing Palmira system's infrastructure, to upgrade the system
with modern equipment from Siemens and to increase system capacity to
approximately 60,000 lines, which implies a penetration of 18.9 lines per 100
people. The Company began offering telephone service in Palmira in September
1995 and, as a result of the substantial demand, experienced immediate and
significant improvements in operating and financial results. Under the
Company's management, the Palmira system's subscriber base has grown by 220%,
increasing from approximately 15,600 at the time of acquisition to
approximately 50,100 at December 31, 1997. Under the Company's management,
revenues generated by the Palmira system have increased 103% for the year
ended December 31, 1997, as compared to the same period in 1996, to Ps14.2
billion ($11.0 million) from Ps7.0 billion ($5.4million). Net income decreased
24.6% for the year ended December 31, 1997 as compared to the same period in
1996 to Ps4.3 billion (3.3 million) from Ps5.7 billion ($4.4 million).
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The following table demonstrates TelePalmira's significant operating
improvements since the date when it began commercial operations to December
31, 1997:
<TABLE>
<CAPTION>
SEPTEMBER 1, DECEMBER 31,
1995 1997
------------ ------------
<S> <C> <C>
Number of subscribers(1)............................. 15,600 50,062
Penetration(2)....................................... 4.9 15.7
Service calls(3)..................................... 28% 11%
Breakdowns(4)........................................ 17% 5.8%
Total subscriber out of service time per month(5).... 3 0.5
Average out of service time per breakdown(6)......... 12 1/2 6
Percentage of calls completed(7)..................... 40% 67%
</TABLE>
- --------
(1) Subscribers are defined as customers currently receiving telephone
service.
(2) Penetration represents the number of installed lines per 100 people.
(3) Percentage of total subscribers who have contacted the Company, relating
to maintenance or general operating inquiries, in the preceding monthly
period.
(4) Percentage of lines experiencing any breakdown in service in the preceding
monthly period.
(5) Average hours each line was out of service during the preceding monthly
period.
(6) Average time in hours to correct service breakdown once reported by the
subscriber in the preceding monthly period.
(7) Number of calls completed divided by the number of calls made on such
date.
TELECARTAGO
Overview
TeleCartago services the municipality of Cartago which is located 237
kilometers northeast of Cali and 18 kilometers from Pereira, the capital of
Risaralda, which is a city with a population of approximately 416,100 people.
Cartago's population is approximately 125,900 people and is distributed among
several socioeconomic levels, with a majority of the population belonging to
the middle income bracket of Colombia. Cartago is located within Colombia's
Zona Cafetera (coffee-growing region) and is one of the most important
agricultural centers in the northern Valle del Cauca. Overall, the Zona
Cafetera provides nearly half of the country's coffee production, but covers
only 1.2% of the country's geographic area. Cartago has a stable and diverse
economic base which includes agriculture, agri-business, light manufacturing,
cattle raising and construction. In addition, Cartago has an international
airport with significant air freight operations and facilities.
Customers and Competition
Upon the initiation of the Company's operation of TeleCartago in April 1997,
TeleCartago's subscriber base was composed of approximately 69% residential
and 31% commercial subscribers. The Company believes that, through its
technology, it can offer custom-made solutions to the business needs of its
commercial subscribers, such as Centrex, ISDN, DID and high speed access
through fiber optics. As a result, the Company expects that it can increase
both usage by commercial subscribers and the number of lines per subscriber.
The Company also believes that it can increase its residential subscriber base
through its sales and marketing efforts and by encouraging Internet, facsimile
and other data applications.
TeleCartago's only competition in Cartago is Empresa Regional de
Telecomunicaciones ("ERT"), a telephone service provider owned by the
Departamento of Valle del Cauca. ERT commenced operations in Cartago in 1995
and the Company estimates that ERT currently has 10,000 subscribers.
History
Prior to April 1, 1997, when TeleCartago began commercial operations,
telephone service for Cartago had been provided by both Empresas Publicas
Municipales de Cartago, a public entity owned by the municipality of
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Cartago, and ERT. The telephone service provided at that time was generally
below standard, with substantial unmet demand for telephone services. On
January 3, 1997, Transtel and the municipality of Cartago incorporated
TeleCartago to provide telephony services in the city of Cartago. Transtel
contributed approximately Ps4.3 billion ($3.3 million) in cash and the
municipality of Cartago contributed certain of its existing telecommunications
assets and infrastructure valued at approximately Ps2.3 billion ($1.8 million)
to the capital of TeleCartago. In return for these contributions, Transtel
received 65% of TeleCartago's shares and the municipality of Cartago received
35% of TeleCartago's shares.
Expansion Plan and Growth Strategy
TeleCartago's Expansion Plan consists of upgrading the central exchanges and
the 14,100 existing lines acquired from the municipality and expanding the
network. Once completed, the telephone network system will consist of an
advanced network utilizing digital switching and fiber-optic transmission
technology. The new lines will be supported by a digital host installed in
Cartago's Central Office and three digital remote switches installed in newly
constructed buildings. The estimated cost of TeleCartago's completed Expansion
Plan is approximately $18.3 million, to be financed with proceeds from Vendor
Financing, debt obtained from local financing institutions (and repaid with
the proceeds of the Offering), proceeds from the Offering and the DIAN
Financing. Following completion of the Expansion Plan, TeleCartago will have
approximately 25,100 lines and an implied penetration of 27.9 lines per 100
people. As of December 31, 1997, TeleCartago had installed 17,600 lines
(including new installed lines and switching upgrades) since acquisition,
resulting in an installed base of approximately 21,100 lines.
TeleCartago's growth strategy is to provide the most advanced
telecommunications service in Cartago and the surrounding regions. TeleCartago
plans to increase its penetration rate in Cartago by: (i) increasing the
number of lines available; (ii) actively marketing to new subscribers; and
(iii) offering high quality service to a substantial portion of the population
for whom telephony services were previously unavailable.
CAUCATEL
Overview
Popayan, the capital of the Departamento of Cauca, is located 189 kilometers
south of Cali. The city is the capital of the Departamento of Cauca and houses
several universities and various museums, churches and monasteries. Popayan's
population is approximately 212,800 people, of which approximately 76,600
people live in the western section of the city, where Caucatel operates.
Popayan's population is distributed among several socioeconomic levels, with a
majority of the population belonging to the middle income bracket of Colombia.
Popayan's economic base includes agriculture, agribusiness, light
manufacturing, cattle raising, mining and tourism.
Customers and Competition
Upon the initiation of Transtel's operation of Caucatel in May 1997,
Caucatel's subscriber base was composed of approximately 93% residential and
7% commercial subscribers. The Company believes that it can increase usage in
Popayan by offering Internet and other data application services to the
student population attending Popayan's universities. In addition, the
universities serve as a prime training center for potential employees of
Caucatel and the Company. Furthermore, as a result of Popayan's geographic
location within the region and its status as the capital of the Departamento
of Cauca, Popayan has significant commercial and trading activity. Therefore,
Caucatel will focus its marketing efforts on these potential commercial
subscribers.
Caucatel has no competitors in the western region of Popayan. Caucatel
services the western region of Popayan only. The eastern region is serviced by
Empresa Municipal de Telecomunicaciones de Popayan ("EMTEL"), a municipally
owned company which had approximately 8,500 subscribers as of December 31,
1997.
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History
Prior to May 1, 1997, when Caucatel began commercial operations, telephone
service for Popayan had been provided by EMTEL, the municipally owned service
provider. Subsequently, EMTEL decided to split its operations into eastern and
western service areas and offered its western operations for sale. On April
30, 1997, Transtel and the municipality of Popayan incorporated Caucatel to
provide telephony services in the western section of the city of Popayan.
Transtel contributed to Caucatel approximately Ps1.0 billion ($844,000) in
cash and contributed assets valued at approximately Ps7.1 billion ($5.5
million) and the municipality of Popayan contributed its existing
telecommunications network and infrastructure valued at approximately Ps7.6
billion ($5.9 million) to the capital of Caucatel. In return for these
contributions Transtel received 51% of Caucatel's shares and the municipality
of Popayan received 49% of Caucatel's shares.
Expansion Plan and Growth Strategy
Caucatel's Expansion Plan was completed by December 31, 1997. As of December
31, 1997, Caucatel had a total of approximately 23,000 digital lines
(including approximately 3,400 newly installed digital lines and approximately
19,600 lines upgraded from analog to digital) and an implied penetration of
30.0 lines per 100 people. The telephone system consists of an advanced
network utilizing digital switching and fiber-optic transmission technology.
The new lines are supported by a digital host and various digital remote
switches. The cost of Caucatel's Expansion Plan is approximately $11.5
million, financed with proceeds from Vendor Financing, debt obtained from
local financing institutions (and repaid with the proceeds of the Offering),
proceeds from the Offering and the DIAN Financing. Following completion of the
Expansion Plan, Caucatel will have approximately 23,000 lines and an implied
penetration of 30.0 lines per 100 people.
Caucatel's growth strategy is to provide the most advanced
telecommunications service in the western section of Popayan and the
surrounding regions. Caucatel plans to increase its penetration rate in
Popayan by: (i) increasing the number of lines available; (ii) actively
marketing to new subscribers; (iii) offering high quality service to a
substantial portion of the population for whom telephony services were
previously unavailable; and (iv) providing value-added services including
voice mail, Internet services and videoconference calling.
TELEJAMUNDI
Overview
TeleJamundi services the municipality of Jamundi, which is located 23
kilometers south of Cali. Jamundi's population is approximately 59,100 people.
Jamundi is currently undergoing growth of its population that is primarily
driven by the relocation of middle and upper-middle income people from Cali to
suburban locations such as Jamundi. This has resulted in the construction of
two major malls, institutional and recreational facilities, and residential
developments in Jamundi.
Customer Base and Competition
TeleJamundi expects its subscriber base to be composed of 93% residential
and 7% commercial subscribers. As a result of EMCALI's limited telephone
service, Jamundi has very low installed lines and penetration rates. As of
December 31, 1997, the municipality of Jamundi had approximately 11,000
installed lines and a penetration of 27.4 lines per 100 people.
EMCALI continues to provide telephone service in Jamundi and is
TeleJamundi's only competitor in the municipality.
History
Prior to June 27, 1997, when TeleJamundi began commercial operations,
telephone service for Jamundi had been provided exclusively by EMCALI. The
telephone services provided at that time were generally below
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standard, with substantial unmet demand for telephone services. On September
29, 1993, Transtel and the municipality of Jamundi incorporated TeleJamundi to
provide telephony services in the city of Jamundi. Transtel contributed
approximately Ps25.1 million ($19,400) in cash and the municipality of Jamundi
contributed demographic information, the necessary civil work permits and
approximately Ps10.8 million ($8,300) in cash to the capital of TeleJamundi.
In return for these contributions, Transtel received 70% of TeleJamundi's
shares and the municipality of Jamundi received 30% of TeleJamundi's shares.
At December 31, 1997, TeleJamundi was indebted to the Company for
approximately Ps12.3 billion ($9.5 million). The Company is negotiating with
the municipal shareholder of TeleJamundi with respect to the potential
recapitalization of TeleJamundi by cancellation of such indebtedness in
exchange for approximately Ps4.1 billion ($3.2 million) of shares of
TeleJamundi, the number of such shares to be determined by shareholder
approval of a valuation of the Company.
Expansion Plan and Growth Strategy
TeleJamundi's Expansion Plan is currently underway and involves the design,
construction, installation and operation of a local telephone network with a
capacity of 15,000 lines, of which 11,000 lines were installed as of December
31, 1997. The newly installed system consists of an advanced network utilizing
digital switching and fiber-optic transmission technology. The new lines are
supported by a digital host and various digital remote switches. The estimated
cost of TeleJamundi's Expansion Plan is approximately $11.2 million, to be
financed with proceeds from Vendor Financing, debt obtained from local
financing institutions (and repaid with the proceeds of the Offering),
proceeds from the Offering and the DIAN Financing. Following completion of the
Expansion Plan, TeleJamundi will have approximately 15,000 lines and an
implied penetration of 34.2 lines per 100 people.
TeleJamundi's growth strategy is to provide the most advanced
telecommunications service in Jamundi. TeleJamundi expects to increase its
penetration rate by: (i) increasing the number of lines available; (ii)
actively marketing to new subscribers; (iii) offering high quality service to
a substantial portion of the population for whom telephony services were
previously unavailable; (iv) targeting EMCALI's subscribers to switch to the
Company's service; and (v) providing value-added services.
BUGATEL
Overview
The town of Buga is located in the heart of the Valle del Cauca, 97
kilometers northeast of Cali. Buga's surrounding regions boast prime fertile
farmlands typical of the Valle del Cauca. As with other cities in the Valle
del Cauca, Buga's stable economic base is derived largely from agriculture,
agribusiness and cattle raising and farming. Due to various historical
incidents, Buga is also the focus of religious tourism which streams to the
city steadily throughout the year giving rise to small commercial and lodging
businesses. Buga, together with its surrounding regions, has a population of
approximately 337,400 people. The demographic structure of Buga consists
primarily of middle income households.
Customers and Competition
Upon the initiation of the Company's operation of Bugatel in July 1997,
Bugatel's subscriber base was composed of approximately 66% residential and
34% industrial and commercial subscribers. The Company believes that, through
its technology, it can offer custom-made solutions to the business needs of
its commercial subscribers, such as Centrex, ISDN, DID and high speed access
through fiber optics. As a result, the Company expects that it can increase
both usage by commercial subscribers and the number of lines per subscriber.
The Company also believes that it can increase its residential subscriber base
through its sales and marketing efforts and by encouraging Internet, facsimile
and other data applications. Furthermore, the municipality is developing a
"dry port" facility. The Company intends to focus its marketing efforts on
these potential customers.
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ERT, a telephone service provider owned by the Departamento of Valle del
Cauca, also operates in Buga and is Bugatel's only competitor in the
municipality. TELECOM and Teletulua compete with Bugatel in the surrounding
region of Buga. The Company estimates that, as of December 31, 1997, its
competitors had an aggregate of 30,700 lines.
History
Prior to July 1, 1997, when Bugatel began commercial operations, telephone
service for Buga had been provided by both Empresas Municipales de Buga, a
public entity owned by the municipality of Buga, and ERT. The telephone
services provided at that time were generally below standard, with substantial
unmet demand for telephone services. On June 16, 1997, Transtel and the
municipality of Buga incorporated Bugatel to provide telephony services in the
city of Buga. Transtel initially contributed Ps2.2 billion ($1.7 million) and
in July 1997, contributed an additional Ps4.1 billion ($3.2 million) for a
total of approximately Ps6.3 billion ($4.9 million) in cash. The municipality
of Buga contributed certain of its existing telecommunications network and
infrastructure valued at approximately Ps4.2 billion ($3.3 million) to the
capital of Bugatel. In return for these contributions, Transtel received 60%
of Bugatel's shares and the municipality of Buga received 40% of Bugatel's
shares.
Expansion Plan and Growth Strategy
Bugatel's Expansion Plan consists of upgrading central exchanges and
approximately 11,200 existing lines acquired from the municipality and
installing 9,900 additional lines in the city of Buga and 4,000 wireless lines
in the surrounding rural areas, for a total of approximately 25,100 installed
lines by December 31, 1998. Once completed, the telephone network system will
consist of an advanced network utilizing digital and fiber-optic transmission
technology. The new lines will be supported by a digital host and various
digital remote switches. As of December 31, 1997, Bugatel had a total of
approximately 21,600 digital lines (including approximately 17,800 newly
installed digital lines and approximately 3,800 lines upgraded from analog to
digital). The estimated cost of Bugatel's Expansion Plan is approximately
$16.7 million, to be financed with proceeds from Vendor Financing, debt
obtained from local financing institutions (and repaid with the proceeds of
the Offering), proceeds from the Offering and the DIAN Financing. Following
the completion of the Expansion Plan, Bugatel will have approximately 25,100
lines and an implied penetration of 16.5 lines per 100 people. As of December
31, 1997 Bugatel had a penetration of 12.0 lines per 100 people.
The Company's growth strategy is to provide the most advanced
telecommunications service in Buga and the surrounding regions. Bugatel
expects to increase its penetration rate by: (i) increasing the number of
lines available; (ii) actively marketing to new subscribers; (iii) offering
high quality service to a substantial portion of the population for whom
telephony services were previously unavailable; (iv) targeting ERT's
subscribers to switch to the Company's service; and (v) providing value-added
services.
UNITEL WIRELINE
Overview
Unitel Wireline services the municipality of Yumbo, a small business
community located 12 kilometers north of Cali. Yumbo's population is
approximately 72,000 people. The second largest Colombian industrial park is
located in Yumbo. It has as tenants Colombian subsidiaries of multinational
companies such as The Goodyear Tire & Rubber Company, International Paper
Company, The B.F. Goodrich Company, Johnson & Johnson, Borden, Inc., Mobil
Corporation, Exxon Corporation and Texaco Inc.
Customers and Competition
Unitel expects that its subscriber base will be composed of 44% residential
and 56% commercial subscribers. Unitel also expects that its commercial
subscriber base will generate higher revenues per subscriber than any other
Operating Company. In addition, the Company expects to offer commercial
subscribers in Yumbo
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specialized equipment, such as PBX and direct fiber optic cable. Historically,
the municipality of Yumbo has been served by analog remote switching stations
established by EMCALI.
EMCALI provides telephone service in Yumbo and is Unitel's only competitor
in the municipality. The Company estimates that, as of December 31, 1997,
EMCALI had approximately 5,500 installed lines.
History
Prior to June 27, 1997, when Unitel began commercial operations, telephone
service for Yumbo had been provided by EMCALI. The telephone services provided
at that time were generally below standard, with substantial unmet demand. On
March 11, 1994, Transtel and the municipality of Yumbo incorporated Unitel to
provide telephone services in Yumbo. Transtel contributed approximately Ps77.7
million ($60,000) in cash and the municipality of Yumbo contributed
demographic information and approximately Ps19.4 million ($15,000) in cash to
the capital of Unitel. In return for these contributions, Transtel received
80% of Unitel's shares and the municipality of Yumbo received 20% of Unitel's
shares. On December 30, 1997, Unitel was indebted to the Company for
approximately Ps14.9 billion ($11.5 million) and the Company agreed with the
municipal shareholder to cancel approximately Ps5.6 billion ($4.3 million) of
such indebtedness in exchange for an additional approximately 15% of
ownership.
Expansion Plan and Growth Strategy
Unitel's Expansion Plan is currently underway and involves the design,
construction, installation and operation of a local telephone network with a
capacity of 15,000 lines, of which approximately 5,250 were installed as of
December 31, 1997. The newly installed system consists of an advanced network
utilizing digital switching and fiber-optic transmission technology. The new
lines are supported by a digital host and various digital remote switches. The
estimated cost of Unitel's completed Expansion Plan in Yumbo is approximately
$16.8 million, to be financed with proceeds from Vendor Financing, debt
obtained from local financial institutions (and repaid with the proceeds of
the Offering), proceeds from the Offering and the DIAN financing. Following
completion of the Expansion Plan, Unitel will have approximately 15,000 lines
and an implied penetration of 28.5 lines per 100 people. As of December 31,
1997, Unitel had a penetration of 13.2 lines per 100 people. Due to its heavy
commercial subscriber base, Unitel will install a network consisting of
maximum band width and capacity. This capacity will also be utilized by the
other Operating Companies for the provision of Internet services, except
Caucatel, which will provide its own Internet service to its subscribers. The
supporting Internet services will be supplied by IBM as part of its pilot
program for its Latin American market development activities.
Unitel's growth strategy in Yumbo focuses on satisfying the needs of its
predominantly commercial subscribers. Unitel plans to increase its penetration
rate by: (i) increasing the number of lines available per subscriber; (ii)
implementing its marketing strategy; (iii) targeting EMCALI's subscribers to
switch to the Company's service; and (iv) providing value-added services.
UNITEL WIRELESS
Overview
Cali is the second largest city in Colombia and is located in the
southwestern region of the country. Cali's population is 1,908,600 people.
Cali's population is distributed among all socioeconomic levels, with a
majority of the population belonging to the middle income bracket of Colombia.
Cali has a stable and diverse economic base which includes agriculture,
agribusiness, manufacturing and transportation. As of December 31, 1995,
EMCALI provided telephone service in Cali to approximately 386,800
subscribers, representing a penetration of 20.3 lines per 100 people.
Expansion Plan and Growth Strategy
As an alternative to the fixed landline services in Cali provided by EMCALI,
Transtel is implementing a fixed wireless system in order to penetrate the
Cali market. This technology is cost effective, can be quickly deployed, and
has a transmission quality that is comparable to wireline systems. See
"Business--Technology."
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In addition, wireless services do not require the civil works permits that
would be required for a landline system. In September 1996, Telemercadeo was
hired by Transtel to conduct a study of telephone demand in certain sections
of the city of Cali. The study estimated that there was unmet commercial
demand in the northern section of Cali for approximately 50,100 additional
lines.
Unitel Wireless' Expansion Plan consists of the design, construction,
installation and operation of a fixed wireless system for 59,000 subscribers
in the city of Cali. The new subscribers will be served by Unitel's digital
host. The Company has hired Bellcore to evaluate the wireless technologies
available and to advise the Company with respect to the best application for
this market. Although installation of switching infrastructure and antennas
was substantially completed at Unitel Wireless in the fourth quarter of 1997,
there was an interference from unauthorized radio spectrum users, which was
subsequently removed by the Ministry of Communications. This delayed the
Company's launch of operations at Unitel Wireless until the first quarter of
1998. The estimated cost of Unitel Wireless' Expansion Plan in Cali is
approximately $73.1 million to be financed with proceeds from certain Vendor
Financing, debt obtained from local financing institutions (and repaid with
the proceeds of the Offering), proceeds from the Offering and the DIAN
Financing.
The Company's growth strategy is to provide the most advanced
telecommunications service in Cali. Unitel expects that its subscriber base
will be composed of approximately 50% residential and 50% commercial
subscribers. Unitel subscriber growth began to occur in the last quarter of
1997 and early 1998 after Transtel installed its telecommunications network
and implemented its marketing strategy. Transtel expects to achieve its
objectives in Cali by: (i) offering high quality service; (ii) meeting the
substantial demand that currently exists in Cali; (iii) targeting subscribers
of the municipality-owned competitor to switch to the Company's service; and
(iv) providing value-added services.
SERVICES
The Company offers telephone services to residential and commercial
subscribers, including local calls and access to national and international
telephone carriers, Internet access and the ability to utilize standard modem
and fax equipment. The Company's basic residential service includes the
ability to activate a second telephone line without the need for a subscriber
premise visit. Residential and business services also include seven day a week
customer service.
The Company's basic telephone services include the following:
Call Divert/Forwarding diverts or forwards incoming calls to another
telephone number. The Company receives revenue for the diverted part of the
telephone call, as well as for the usual incoming call.
Call Barring prevents calls from being completed to specified groups of
numbers, such as "for fee" services and long distance telephone calls.
Caller Display enables subscribers with compatible equipment to identify the
telephone number of incoming calls.
Caller Return identifies and automatically redials the telephone number from
which the most recent incoming call was placed. The Company receives revenue
from the returned call.
The Company also offers a variety of special telephone services for an
additional fee, including the following:
Call Waiting alerts subscribers who are using their telephone that another
party is attempting to place a call to them; subscribers then have the option
of ignoring the new telephone call or answering it while placing their
existing call on hold. In addition to a subscription charge for call waiting,
the Company receives revenues from
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the second caller's telephone service provider for completing a call that, in
the absence of the Company's call waiting feature, would not have been
connected.
Three Way Calling enables subscribers to place conference telephone calls
with two additional parties. In addition to the subscription charge for
conference calling, the Company receives revenues from each of the telephone
calls placed to the participating parties.
Voice Mail enables subscribers to receive and retrieve voice mail messages,
whether at home or from an outside location. In addition to the subscription
charge for voice mail, the Company receives revenues from each of the
telephone calls placed to retrieve messages.
Alarm Calls enables subscribers to have telephone calls placed to their
number at a specified time (e.g., wake-up telephone calls or appointment
reminders). The Company receives a fee for each such call.
ISDN (Integrated Services Digital Network) allows two-way, simultaneous
voice and data transmission in digital formats over the same telephone line.
ISDN permits videoconferencing over a single line, for example, and also
supports many value-added networking capabilities, reducing costs for end-
users and resulting in a more efficient use of available facilities.
Internet The Company has entered into an agreement with IBM for the purchase
and installation of Internet hardware and software in each of the Operating
Companies. The Company expects to charge its Internet subscribers a monthly
service fee and a monthly usage fee to access the Internet. All of the
Operating Companies will be able to provide Internet access by May 1, 1998 and
the Company expects to be one of the leading providers of Internet related
services in Colombia. See "Description of Existing Indebtedness--IBM
Arrangement."
The Company intends to continue to develop and introduce additional value-
added services in order to retain its competitive advantage and generate
additional revenues.
MARKETING
Overview
The Company's primary marketing objectives are to: (i) create a regional
brand perceived as a reliable, high quality telephone company; (ii) achieve
increased market penetration rates in its operating markets; and (iii) educate
consumers as to the benefits of value-added services.
The Company markets to both residential and commercial subscribers in its
respective operating regions. Each Operating Company develops an in-depth
knowledge of its markets by analyzing the demographic and customer information
provided by its municipal shareholders as well as, in certain cases, the
market studies conducted for the Company by independent consultants. In
addition, the Company conducts its own door-to-door census in each of its
markets. Based on this information, the Company creates a detailed marketing
plan to increase subscribers and their use of services.
Sales
The Company uses a combination of door-to-door inquiries, selling booths and
networking to offer its services to consumers. Each Operating Company employs
its own trained sales force to contact potential subscribers. As of December
31, 1997, the Company and the Operating Companies (excluding TeleGirardot)
employed a sales staff of 66 people, which is expected to continue to
increase.
Advertising
The Operating Companies use radio, television, newspapers and direct mail to
solicit new subscribers, establish brand awareness, retain subscribers and
stimulate usage. Radio and direct mail are the main methods
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by which the Operating Companies advertise because these methods are
relatively inexpensive and offer high-volume coverage. National television and
newspaper advertisements are generally used only to establish the Operating
Company's name in the market when it commences operations and to maintain
brand recognition once the network is operating. The Operating Companies'
direct mail campaigns involve soliciting subscribers through the mail with
printed advertisements describing the telephone service offered. While the
Operating Companies generally have their own database of potential subscribers
to whom they direct their mail campaign, they also have access to the large
subscriber base served by the municipal utilities located in each of their
respective regions.
Customer Service
The Company has focused on providing its subscribers a high level of quality
service by establishing: (i) dedicated customer service centers in each of its
markets; and (ii) a seven-day-a-week customer service telephone hotline.
The Company has customer service representatives who are trained to receive
complaints from subscribers. Subscriber complaints are directly routed to the
engineering department through the Company's internal computer system. The
Company's customer service strategy has resulted in the reduction of customer
service calls and line repair.
OPERATIONS
Installation and Maintenance
The installation process for a new subscriber commences with the entry of a
service order into the Company's computerized subscriber administration system
("SAT"). The planning department then verifies that there is sufficient
capacity in the system and assigns a line. Once partial payment of the
connection fee has been received from the subscriber, the SAT system
automatically assigns a work order to an installer. A drop wire, internal
service wire and telephone jack are then installed and tested at the
customer's premises. Any equipment ordered by the customer is also installed.
Maintenance work is begun upon receipt of repair requests from the customer
service center or from the SAT system. Maintenance crews conduct both
preventive maintenance work as well as emergency repairs.
Billing
Transtel generates a monthly bill for each subscriber which itemizes
connection fees and local, cellular and long distance charges. The SAT system
generates all customer billing based on billing information provided by the
Central Office automated message accounting systems.
Credit and Collections
The Operating Companies offer potential subscribers flexible payment plans
of up to 36 months for connection fees and hardware. The subscriber signs a
contract with a partial payment of the connection fee and is billed for the
remaining balance on a monthly basis depending on the payment terms agreed
upon by the Company and the subscriber. Subscriber receivables are often
converted by the Operating Companies into cash by sale to local credit
institutions. The Operating Companies handle the collection of the connection
fees and any other outstanding payments.
A subscriber is charged interest for its failure to pay fees on time.
Service is suspended for failure to pay for two months and cancelled for
failure to pay for six months. Subscribers are charged substantial
reconnection expenses if their service is cancelled. To date, service
suspensions have not exceeded 1%.
Subscribers can pay their telephone bills at a large number of different
banking institutions in their community.
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YEAR 2000 COMPLIANCE
The Company has made an assessment of its information technology ("IT")
systems including its computer software and databases to determine the extent
which modifications are required to prevent problems related to the Year 2000
issue, and the resources which will be required to make such modifications.
The Company has determined that some of its software systems, including SAT
(version 2.11), CG-UNO and CM-UNO are not Year 2000 compliant. The Company has
evaluated both new software solutions and upgrades of its current software to
replace these systems. The Company has already spent approximately $2 million
upgrading and expanding its software packages and purchasing newer software
packages. The Company has purchased the following software: Multiple Systems
Platform, Oracle 7, Domino Go WebServer, SP/2/, Network Servers, and
Microcomputers (see chart below). Additionally, the Company expects to spend
an additional $6 million purchasing the following additional software: Billing
and Customer Service, Financial, Human Resources and Procurement, and EWSD
Software (version 12) (see chart below). In most cases, the Company had
planned to upgrade or replace its current software systems however, the Year
2000 issue accelerated such replacement dates. The Company estimates that the
total costs associated with the Year 2000 modifications and its planned
upgrade of its computer systems will be approximately $8 million. These
investment costs were defined before the Senior Notes were issued and are
included in the projected capital expenditures. The financial impact to the
Company to ensure Year 2000 compliance has not been and is not anticipated to
be material to its business, financial condition or results of operations.
Additionally, the Company has met with many of its suppliers (including IBM
de Colombia S.A., Oracle de Colombia S.A., SAP S.A., Andina S.A., Cabletron
Systems, Open Systems S.A., Siemens, Cisco Systems S.A., Citibank, American
Power, OSI Corporation and Mitsubishi de Colombia S.A.) and has a commitment
from each of these suppliers that their individual Year 2000 issues will be
resolved before the first quarter of 1999. The Company is also following a
detailed plan that the Superintendencia of Public Services released to address
Year 2000 issues and is developing an internal campaign oriented to create
awareness among the Company's employees.
In the event that the Company is unable to resolve the Year 2000 issue
before December 31, 1999, the following describes the "worst case scenario":
(i) accounts receivable problems due to incorrect dates on customers' bills;
(ii) accounts payable problems due to incorrect dates on incoming bills; (iii)
incorrect dates on toll ticketing tape which records the duration of customer
telephone calls; and (iv) incorrect statistical data including customer usage
data.
The Company has formulated a contingency plan in the event that, even after
having purchased the above described software, the "worst case scenario"
occurs. For example, should the new Billing and Customer Service software fail
to be Year 2000 compliant, the Company plans to reprogram the SAT system
(version 2.11) to recognize "00" or "2000". Should the new Financial, Human
Resources and Purchases software system fail to be Year 2000 compliant, the
Company would install a revised version of this software which is currently
being developed to be Year 2000 compliant (the cost of such revised version is
included in a maintenance contract with the supplier). Finally, should the
EWSD software (version 12) fail to be Year 2000 compliant, the Company would
add a "patch" which is currently being developed by Siemens to recognize "00"
or "2000". Due to the fact that many of the new software systems which the
Company has either purchased or intends to purchase, include a maintenance
contract which provides reprogramming should the system not be Year 2000
compliant, the estimated cost of the contingency plan is only $100,000.
Although, the Company has not made a complete assessment of its non-IT
systems (including elevators and other equipment which may contain
microcontrollers) for Year 2000 compliance, it has received a commitment from
Mitsubishi de Colombia S.A., the supplier of the elevators in the Unitel and
TelePalmira office buildings that the elevators are Year 2000 compliant.
78
<PAGE>
COSTS INCURRED:
<TABLE>
<CAPTION>
SOFTWARE SUPPLIER APPROXIMATE INVESTMENT
- -------- -------- ----------------------
<S> <C> <C>
Multiple System Platform IBM $ 330,000
Oracle 7 Oracle $ 200,000
Domino Go WebServer Lotus $ 370,000
SP/2/ IBM $ 600,000
Network Servers IBM $ 120,000
Microcomputers IBM $ 380,000
----------
TOTAL: $2,000,000
==========
</TABLE>
<TABLE>
<CAPTION>
ANTICIPATED COSTS:
SOFTWARE SUPPLIER ESTIMATED COST
- -------- -------- --------------
<S> <C> <C>
Billing, Customer Service, and Net Inventory Open System $ 500,000
Financial, Human Resources and Procurement SAP $4,500,000
EWSD Software Siemens AG $1,000,000
----------
TOTAL: $6,000,000
==========
</TABLE>
<TABLE>
<CAPTION>
CONTINGENCY PLAN COSTS:
SOFTWARE SUPPLIER ESTIMATED COST
- -------- -------- --------------
<S> <C> <C>
Reprogramming SAT System (version 2.11) SAT $100,000
Financial, Human Resources and Purchases Sistemas de Informacion revised versions
of this software
are included in
maintenance
contact
"Patch" developed by Siemens to update Siemens "patch" included
EWSD Software (version 12) in cost of
software
TOTAL: $100,000
========
</TABLE>
[/R]
78_1
<PAGE>
TECHNOLOGY
Initial Upgrades to Fixed Wireline Systems
Prior to takeover of a newly acquired system, Transtel personnel complete a
full inspection and appraisal of the existing network's elements, operational
procedures and performance parameters. This allows the Company to gather
accurate census, network inventory and subscriber record information which is
used in the network design process. Transtel then establishes new network
priorities and redesigns the network in order to raise it to international
standards. The table below describes certain characteristics of the typical
existing system acquired by Transtel and the Transtel upgrade.
<TABLE>
<CAPTION>
TYPICAL PREDECESSOR TRANSTEL'S
PREDECESSOR SYSTEM CAPABILITIES TRANSTEL UPGRADE SERVICE CAPABILITIES
------------------ ------------ ---------------- --------------------
<S> <C> <C> <C> <C>
Network . LECs typically . Little provision . Design . System provides
Design employ a small for alternate parameters derived redundancy and
number of Central routing in the from alternate routing
Offices configured event of network recommendations of for all critical
in a star network failure international links
to serve densely consultants . Excess capacity
populated . Use ring designs designed to meet
communities and intelligent demand forecast
. Short subscriber service nodes to and overall
loops achieve system network
flexibility flexibility
Central
Office
Environment
Switching . Primarily . No basic . Replace analog . 100% touchtone
Systems vintage touchtone service with fully digital . Provisioned with
electromechanical . Intelligent Siemens EWSD custom calling,
and crossbar Network services technology IBM DID, E1, ISDN,
technologies beginning to RS/6000 server Centrex and most
. Limited appear in larger applications Intelligent
application of markets Network
analog SPC or . Digital services applications
digital switching provided on a . Full Internet,
systems case-by-case basis voice mail and
. Newer switches . Multiple vendor interactive voice
supported by older sourcing response services
software versions complicates
network interface,
maintenance and
service
restoration
Transmission . PDH systems . No add-drop . All Central . Capacity
. Switching system capability Office links sufficient to
interconnection . Fiber-to- utilize Siemens accommodate
achieved via customer services STM (SDH type) Internet and dense
copper, coaxial or not yet present multiplexers and data transmission
microwave links fiber-optic cable . Dedicated
. Selective use of channel services
digital microwave available upon
radio links IBM request via fiber,
RS/6000 server microwave radio or
applications HDSL copper
facilities
Network
Administration
General . Virtually no TMN . Few alarm . Centralized call . Digital network
Operations operating system monitoring or center for and standard
architecture network management efficient customer interfaces allow
capabilities service operation in
. Ability to . SAT from C-NIX compliance with
analyze traffic utilizes Oracle international TMN
trends limited Data Base and IBM standards
hardware to handle
administration and
billing
. Information
systems centrally
administered
through IBM's
TIVOLI and NETVIEW
network management
systems
Management/ . Manual . Repair times up . Fully automated . Fully flexible,
Recordkeeping to three months system automated system
. Typical line offers effective,
installation up to responsive system
one month management
Outside . All copper . Cable splices . Fiber optics . Key business
Plant facilities inadequately added to all major subscribers have
. A typical urban protected against trunks direct fiber
network design moisture . System rebuilt access to network
based on an . Co-location to provide maximum . Sufficient
underground degrades capacity (up to 64 capacity to serve
network with non- transmission fibers per cable) growing customer
pressurized pulp- quality and full needs
insulated copper . Rural signal insulation . All networks
cable extended via attenuation . OSP networks grounded and surge
cement conduits compensated with provided with 30% protected
open to water and lead coil reserve ratio of . Significant
dirt penetration technology which primary cable improvement in
. Secondary routes amplifies both pairs to switching operations
are aerial often noise and the capacity (reduction in
co-located with intended signal . Secondary cable service calls,
electric power . Frequent service is provided with a improved call
lines. Rural failures due to 30% reserve to the completion)
service provided poor network primary routes
through non- protection
redundant
microwave links or
higher gauge cable
</TABLE>
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<PAGE>
Transtel's Planned Fixed Wireless System
Transtel is employing a fixed wireless technology from Siemens for both
urban and rural applications. This technology is called DECT. It has its
origins in the wireless PBX technology developed in Europe in the early 1990's
and is based on Time Division Multiple Access ("TDMA") transmission technology
(with reception and transmission slots offset in time).
Transtel selected DECT on the basis of regulatory, market and technical
considerations. Colombia segregates wireless technology into mobile and fixed
categories. Mobile technology (which includes PCS systems) requires operator
licensing and fees whereas fixed technology requires frequency assignment by
the Ministry of Communications. The radio spectrum from 1910-1930 mHz has been
assigned for fixed wireless technology by the Ministry of Communications. DECT
utilizes this frequency and offers digital capabilities. Other systems,
including CDMA and GSM technology, cannot currently be used in Colombia, as
equipment manufacturers have not yet modified their products for use at 1910-
1930 mHz. DECT also offers Transtel the rapid deployment capability it needs
to capture unsatisfied customer demand in target service areas.
DECT provides telecommunications services via antenna sites which may cover
an area of two to ten kilometers in diameter, depending on the density and
usage patterns of subscribers, topography, and existing construction. A
standard cell can cover up to 480 subscribers. Cell size may be modified over
time to accommodate traffic trends. The DECT system utilizes Adaptive
Differential PCM ("ADPCM") technology to compress voice and data
communications and achieve better transmission efficiency.
The basic components of DECT, starting from the subscriber's premises,
consist of a Radio Network Termination Unit ("RNT"), a Radio Base Station
("RBS"), the Radio Base Controller ("RBC") and a Radio Distribution Unit
("RDV").
RNT--Radio Network Termination Unit is a small base station unit
installed at the subscriber's location next to his telephone allowing for
two lines to the jack. The RNT accepts any standard telephone, facsimile,
modem or other telecommunications adjunct. The RNT has its own power
capability (including an eight-hour battery backup) and connects to an
antenna installed on the subscriber's roof or other location in "line of
sight" of the RBS.
RBS--Radio Base Stations are the units with sectorized or omnidirectional
antennas which receive and transmit to the RNT's, collect all traffic and
utilize copper cable or coaxial facilities to further aggregate
communications in the RBC. The RBS is powered remotely and supports up to
12 channels.
RBC--The Radio Base Controller supports up to 15 RBS interfaces, further
collects traffic and is linked to the RDU located at the Central Office.
The link can be either digital microwave, fiber-optic or coaxial cable
without distance limitations.
RDU--The Radio Distribution Unit is the final link in the chain of nodes
from the subscriber to the Central Office transporting telephone calls via
two Megabit channels directly to the switching network. It supports up to
four RBC interfaces.
There are other elements to the DECT system providing network management
capabilities, extended coverage and other features essential for a flexible
network.
CONSTRUCTION ARRANGEMENTS
On April 30, 1996, each of TelePalmira, Unitel (with respect to its wireline
applications) and TeleJamundi entered into turn-key arrangements (the "Turn-
Key Arrangements") with Siemens S.A. and an affiliate of Siemens, to (i)
install the lines, switches and other equipment leased by each of these
Operating Companies from Global under the Global I Leases (as defined herein),
(ii) put in operation such lines and equipment, (iii) manage the "cut-over" to
the new system lines, install air conditioner equipment and train the
personnel who will operate the switching equipment, (iv) install SDH, (v)
expand, replace and install the Outside Plant, and (vi) complete expansion of
the network. The aggregate amount due to Siemens S.A. under these Turn-Key
Arrangements is approximately $8.3 million. Siemens S.A. has not completed any
phases of these arrangements at December 31, 1997; however, the Company has
advanced $3.4 million to Siemens S.A.
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For each of the Turn-Key Arrangements described in the paragraph above,
Siemens S.A. has provided the respective Operating Company with performance
bonds equivalent to (i) 10% of the amount of each Turn-Key Arrangement, (ii)
5% of the services contracted under each Turn-Key Arrangement, (iii) 10% of
the cost of the Outside Plant civil works and (iv) up to $100,000 for personal
or property liability.
On June 18, 1997, June 30, 1997 and March 10, 1998 each of Transtel (in
place of Bugatel, which was not yet formed), TeleCartago and Unitel (with
respect to its wireless applications) entered into Turn-Key Arrangements with
Siemens S.A. to (i) install the lines, switches and other equipment leased by
Bugatel, TeleCartago and Unitel from Global under the Global II Leases (as
defined herein), (ii) put in operation such lines and equipment, and (iii)
expand, replace and install the outside plant for Bugatel and TeleCartago. The
aggregate amount due to Siemens S.A. under these Turn-Key Arrangements is
approximately $9.4 million. Siemens S.A. has provided Transtel, TeleCartago,
and Unitel with performance bonds substantially similar to those provided to
TelePalmira, Unitel and TeleJamundi.
On May 23, 1997, Transtel entered into a Turn-Key Arrangement with Siemens
S.A. to (i) install the lines, switches and other equipment that Transtel
agreed to contribute to the capital of Caucatel as part of its capital
contribution and which the Company acquired from Siemens pursuant to the
Transtel-Siemens Purchase Agreement, and (ii) put in operation such lines and
equipment. The aggregate amount due to Siemens S.A. under this Turn-Key
Arrangement is $533,494. This equipment was installed by December 31, 1997.
The Company is currently negotiating with Siemens regarding contracts for
the supply of equipment to partially effect the TeleGirardot Expansion Plan.
INTERCONNECTION AGREEMENTS
Local Connections
Each Operating Company which has a competitor in its local calling area must
enter into an arrangement with such competitor for access to the competitor's
network so that subscribers can complete local calls between the networks. Law
142 provides that each local service provider must permit each other local
service provider in its local calling area access to its network. Law 142
additionally empowers the CRT to regulate the tariffs associated with such
arrangements. The Company intends to have interconnection agreements between
each of the Operating Companies and their competitors. Interconnection
agreements have been signed between EMCALI and Unitel and between EMCALI and
TeleJamundi. In compliance with Law 142, ERT is interconnected with
TeleCartago and Bugatel and EMTEL is interconnected with Caucatel. However,
there are no written agreements which govern these arrangements.
Long-Distance Connections
Each Operating Company must enter into an interconnection arrangement with
TELECOM for access to the national and international long distance network.
Law 142 provides that TELECOM must permit the Operating Companies to have
access to such network and empowers the CRT to establish the tariff for such
access. At the present time, each of the Operating Companies has entered into
an interconnection agreement with TELECOM for national and international long
distance service at the CRT established tariffs. Such agreements were executed
on July 28, 1998.
BY-LAWS OF OPERATING COMPANIES
Set forth below is a brief description of certain provisions of the
estatutos sociales (by-laws) (the "by-laws") of each of the Operating
Companies (including TeleGirardot) and Colombian law with regard to each of
the Operating Companies' capital stock. This description does not purport to
be complete and is qualified in its entirety by reference to the by-laws of
each Operating Company.
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Capital Stock
The capital stock of each Operating Company is divided into two classes of
common shares, Class A shares and Class B shares, each with par value of one
Peso. Law 142 provides that shares of private public service companies owned
by the Colombian government are referred to as "Class A shares", and shares
owned by private investors are referred to as "Class B shares".
Voting Rights
In accordance with the by-laws of each Operating Company, each Class A share
and Class B share entitles the holder thereof the right to one vote per share
at meetings of the shareholders of such Operating Company.
Preemptive Rights
In accordance with the by-laws of each Operating Company, holders of common
shares of each Operating Company are entitled to preemptive rights in
proportion to their holdings in the event of an issuance of additional shares
by such Operating Company.
Transfer
Under Law Decree 130 of 1976, each shareholder of a mixed capital company
which is a public company has pre-emptive rights with respect to shares
proposed to be sold by a private sector shareholder. These pre-emptive rights
are superior to any pre-emptive rights contained in the by-laws of such
company. Each of the municipalities of Palmira, Cartago and Yumbo have waived
pre-emptive rights. Under Law 226 of 1995, employees, former employees,
unions, pension funds and cooperative entities have pre-emptive rights with
respect to shares of a mixed capital company proposed to be sold by the public
company shareholder. These pre-emptive rights are superior to any pre-emptive
rights contained in the by-laws of such company.
The by-laws of each Operating Company provide that shareholders who wish to
transfer their common shares in an Operating Company must first offer such
shares to the Operating Company. If the Operating Company does not purchase
the shares from the transferor within 30 business days, the Operating Company
is required to offer such shares to the remaining shareholders on a pro rata
basis. Any shares not purchased by the remaining shareholders within the 30
business days following such offer may be offered to third parties, which in
the case of TelePalmira's, TeleCartago's and Unitel's by-laws, must be on
terms no less favorable to the terms offered to the remaining shareholders.
Shareholders' Meetings
The by-laws of each Operating Company provide that shareholders meetings may
be ordinary or extraordinary. Matters that may be considered at an ordinary
meeting are approval of the annual financial statements, distribution of
dividends, election of the members of the Board of Directors, appointment of
administrative officers, and other matters relating to the ordinary course of
the Company's business. Extraordinary meetings may be called at any time to
consider matters beyond the competence of an ordinary meeting, such as
dissolution of an Operating Company.
The quorum required for ordinary and extraordinary meetings of the
shareholders of the Operating Companies consists of two or more shareholders
representing at least 51% of the outstanding shares.
Board of Directors
The board of directors of each Operating Company has five members, who are
elected on a cumulative voting basis, and five alternate directors.
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Dividends
The distribution of dividends by the Operating Companies is governed by Law
222 of 1995, which requires that any distribution of profits must be taken by
the favorable vote of 78% of the shares represented at a duly convened
shareholders' meeting. If a 78% majority vote cannot be obtained, the
Operating Company is obligated to distribute at least 50% of its liquid
profits to the extent such profits exceed accumulated losses from prior years.
LEGAL PROCEEDINGS
Girardot Telephone was sued by TeleTequedama E.S.P., a local telephone
operator competitor, for Ps2.2 billion on June 4, 1997 for unfair competition
in TeleTequedama's zone of operations. A resolution and trial of this lawsuit
will not occur until after December 31, 1998. The Company has recorded a
liability of Ps2.2 billion at December 31, 1997 related to this lawsuit in
connection with its acquisition of Girardot Telephone. Other than such
litigation, neither the Company nor any of the Operating Companies is
currently a defendant in any legal proceeding.
PROPERTIES
On September 18, 1996, Transtel purchased a 2,000 square meter building for
Ps1.7 billion ($1.3 million). See "Certain Related Party Transactions." In
addition, Transtel leases its headquarters at Calle 19N, No 2-29, Oficina
501A, Cali, Colombia. The monthly payment for such lease is Ps5.6 million
($4,300) and such lease runs on a year to year basis.
Each Operating Company owns the building where its Central Office is located
and certain smaller properties where some of its remote digital switches are
located. In addition, each Operating Company leases within the municipalities
it serves certain properties which are used for office space or for the
installation of other remote digital switches.
EMPLOYEES
As of January 1, 1998, Transtel and its Operating Companies (excluding
TeleGirardot) had approximately 543 employees. As of January 1, 1998, 149 of
those employees were employed by TelePalmira, 71 by Bugatel, 59 by Caucatel,
41 by TeleJamundi, 108 by Unitel, 89 by TeleCartago and 26 by Transtel. Many
of these employees are part of the construction phase of projects that are
currently taking place, and therefore the number of employees will reduce once
these projects are concluded. The Company is not a party to any collective
bargaining agreements and has never experienced a strike or work stoppage.
None of the employees are members of a union. The Company believes its
relations with its employees to be good.
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DESCRIPTION OF EXISTING INDEBTEDNESS
GLOBAL-SIEMENS ARRANGEMENTS
Global Telecommunications Operations, Inc. ("Global") is a British Virgin
Islands company owned by the same shareholders who own Transtel. Global was
formed in January 1995 for the exclusive purpose of acting as a financing
vehicle for the purchase of telecomunications equipment from Siemens AG
("Siemens"). As part of the Company's expansion plan, Global has entered into
four purchase agreements with Siemens for the provision of certain equipment
necessary for the Company's expansion plan. Global has entered or intends to
enter into lease agreements with the Operating Companies (other than Caucatel)
for the lease of such telecommunications equipment to those Operating
Companies on terms substantially similar to the financing to Global from
Siemens. Transtel purchased equipment to be used by Caucatel directly from
Siemens ($3.4 million switches and $533,494 for installation) and contributed
it to Caucatel as part of its capital. Caucatel is the only Operating Company
that does not lease its equipment from Global. Under these leases, if the
Operating Companies default under the leases, Global has the right to take
action against the assets leased thereunder including repossession or sale of
the equipment. Global has assigned to Siemens the lease payments under each of
the leases in the event of an event of default under the purchase agreements
occurs and is continuing. Upon commencement of the leases' lease terms, the
following leasing transactions with Global will be accounted for as capital
leases under Colombian GAAP and under U.S. GAAP.
Global I Purchase Agreement. On May 2, 1996, Global entered into a purchase
agreement with Siemens (as amended on July 28, 1997, the "Global I Purchase
Agreement") to purchase certain landline telecommunications equipment to be
used for the development of each of TelePalmira's, TeleJamundi's and Unitel's
respective wireline networks for an aggregate amount of approximately $19.3
million, of which 16% (approximately $3.1 million) was paid upon execution of
the Global I Purchase Agreement. The remaining 84% of the price of equipment
delivered and installed by Siemens under the Global I Purchase Agreement is
payable by Global in 24 semi-annual payments. Global's obligations under the
Global I Purchase Agreement are secured by a pledge of the Global I Leases (as
defined below). Siemens' obligations for delivery and installation were
completed on April 19, 1998.
Global I Leases. On August 1, 1996, Global entered into a lease agreement,
as amended on April 12, 1998, for TelePalmira (the "Global--TelePalmira
Lease"). On April 19, 1998, Global entered into a lease agreement for
TeleJamundi (the "Global--TeleJamundi Lease") and for Unitel (the "Global--
Unitel I Lease") (the Global--TeleJamundi Lease, Global--TelePalmira Lease,
Global--TeleJamundi Lease and Global-Unitel I Lease are collectively referred
to as the "Global I Leases"). The lease term of each lease commenced on April
19, 1998.
Global-TelePalmira Lease. Pursuant to the Global-TelePalmira Lease,
TelePalmira agreed to pay Global an aggregate amount of approximately $16.8
million to lease, for a 12-year term, certain switching and cable equipment
that Global purchased from Siemens under the Global I Purchase Agreement.
The Global-TelePalmira Lease includes an option to purchase the equipment
for an additional $285,000 at the end of the lease term.
Global-TeleJamundi Lease. Pursuant to the Global-TeleJamundi Lease,
TeleJamundi agreed to pay Global an aggregate amount of $5.9 million to
lease, for a 12-year term, certain switching and cable equipment that
Global purchased from Siemens under the Global I Purchase Agreement. The
Global-TeleJamundi Lease includes an option to purchase the equipment for
an additional $104,000 at the end of the lease term.
Global-Unitel I Lease. Pursuant to the Global-Unitel I Lease, Unitel
agreed to pay Global an aggregate amount of $4.4 million to lease, for a
12-year term, certain switching and cable equipment that Global purchased
from Siemens under the Global I Purchase Agreement for its wireline
applications. The Global-Unitel I Lease includes an option to purchase the
equipment for an additional $73,000 at the end of the lease term.
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Global II Purchase Agreement. On May 30, 1997, Global entered into a
purchase agreement, as amended on July 28 and October 29, 1997 and April 1,
1998, with Siemens (the "Global II Purchase Agreement") to purchase certain
landline and wireless telecommunications equipment to be used for the
development of each of TeleCartago's, Bugatel's and Unitel Wireless'
respective networks for an aggregate amount of approximately $39.8 million, of
which approximately $3.7 million was paid upon execution of the Global II
Purchase Agreement. The remaining price of equipment delivered and installed
by Siemens under the Global II Purchase Agreement is payable by Global in 24
semi-annual payments. Global's obligations to Siemens under the Global II
Purchase Agreement are secured by a pledge of the lease payments under the
Global II Leases (as defined below). Due to the modification of the Company's
network plan with respect to Bugatel and TeleCartago, the Company and Siemens
amended on April 1, 1998 the Global II Purchase Agreement to increase the
amount of equipment and increase the amount of the financing that will be
provided by Siemens. Siemens' obligations for delivery and installation are
expected to be completed by late 1998 or early 1999.
Global II Leases. On July 28, 1997, Global entered into a lease agreement
with Unitel (the "Global-Unitel II Lease"), TeleCartago (the "Global-
TeleCartago Lease") and Bugatel (the "Global-Bugatel II Lease") for certain of
the equipment that is the subject of the Global II Purchase Agreement (the
Global-Unitel II Lease, the Global-TeleCartago Lease, and the Global-Bugatel
II Lease are collectively referred to herein as, the "Global II Leases"). The
lease term of each lease will commence upon completion of Siemens' delivery
and installation obligations.
Global-Unitel II Lease. Pursuant to the Global-Unitel II Lease, Unitel
agreed to pay Global an aggregate amount of $25.8 million to lease, for a
12-year term, certain wireless telecommunications equipment that Global
purchased from Siemens under the Global II Purchase Agreement. The Global-
Unitel II Lease includes an option to purchase the equipment for an
additional $525,000 at the end of the lease term. The Company expects to
increase the Global-Unitel Lease II to $36.9 million to reflect
modifications to the lease.
Global-TeleCartago Lease. Pursuant to the Global-TeleCartago Lease,
TeleCartago agreed to pay Global an aggregate amount of $9.7 million to
lease, for a 12-year term, certain switching and cable equipment that
Global purchased from Siemens under the Global II Purchase Agreement. The
Global-TeleCartago Lease includes an option to purchase the equipment for
an additional $197,000 at the end of the lease term. The Company expects to
decrease the Global-TeleCartago Lease to $9.0 million to reflect
modifications to the lease.
Global-Bugatel II Lease. Pursuant to the Global-Bugatel II Lease, Bugatel
agreed to pay Global an aggregate amount of approximately $9.4 million to
lease, for a 12-year term, certain wireless telecommunications equipment
that Global purchased from Siemens under the Global II Purchase Agreement.
The Global-Bugatel II Lease includes an option to purchase the equipment
for an additional $190,000 at the end of the lease term. The Company
expects to decrease the Global-Bugatel II Lease to $8.7 million to reflect
modifications to the lease.
Global III Purchase Agreement. Global entered into a purchase agreement on
June 11, 1998 with Siemens (the "Global III Purchase Agreement") to purchase
certain landline and wireless telecommunications equipment to be used for the
development of each of TelePalmira's, Unitel's Wireless and TeleJamundi's
respective networks for an aggregate amount of approximately $12.9 million.
The payment terms are under negotiation, although, the Company expects that
the payment terms will be similar to those used under the Global I and Global
II Purchase Agreements and that the lease terms between its Operating
Companies and Global will be similar to those under the Global I leases and
Global II leases. The total lease payments will be approximately $18.5 million
plus purchase options of approximately $129,000. The lease terms will commence
in the first half of 1999.
Global IV Purchase Agreement. Global entered into a purchase agreement on
June 11, 1998 with Siemens (the "Global IV Purchase Agreement") to purchase
certain landline and wireless telecommunications
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equipment to be used for the development of each of TelePalmira's, Bugatel's,
TeleGirardot's and TeleCartago's respective networks for an aggregate amount
of approximately $11.0 million. The payment terms are under negotiation,
although, the Company expects that the payment terms will be similar to those
under the Global I and Global II Purchase Agreements and that the lease terms
between its subsidiaries and Global will be similar to those under the Global
I leases and Global II leases. The total lease payments will be approximately
$15.8 million plus purchase options of approximately $110,000. The lease terms
will commence in the first half of 1999.
TRANSTEL-SIEMENS ARRANGEMENT
On May 23, 1997, Transtel entered into a purchase agreement with Siemens
(the "Transtel-Siemens Purchase Agreement") for certain telecommunications
equipment to be used by Caucatel in the installation of approximately 23,000
lines for approximately $3.3 million payable semiannually over a ten-year
period at an interest rate of LIBOR plus 1% (6.9% at December 31, 1997),
commencing six months after the completion of the Turn-Key Arrangements. The
obligations of Transtel under the Transtel-Siemens Purchase Agreement are
secured by a promissory note from Transtel. Siemens completed the installation
of this equipment in December 1997 and the payment obligation to Siemens is
recorded as a liability at December 31, 1997.
IBM ARRANGEMENT
The Company has entered into an agreement with International Business
Machines Corp. ("IBM") whereby IBM has agreed to finance and to provide and
install all the Internet and voice mail related hardware and software for the
Company's telephone systems and the Company has agreed to pay IBM an aggregate
amount of $3.4 million for such equipment. On October 1 and October 28, 1997,
Unitel and Caucatel entered into 60 month leases with IBM for $2.8 million and
$532,008 respectively, for this equipment. The lease term of each lease
commenced in June 11, 1998. The leases will be capital leases under Colombian
and U.S. GAAP.
DIAN FINANCING
The Departamento de Impuestos y Aduanas ("DIAN") allows for the deferral of
value-added taxes and duties related to the purchase of certain imported
telecommunications equipment by the Company through its operating subsidiaries
in its expansion plan. Based on the expected imported equipment to be
purchased under the Expansion Plan, the Company estimates that it will defer
approximately Ps29.9 billion ($23.1 million) of taxes and duties during the
expansion plan that will be paid over a five-year period commencing six months
from the date of incurrence (the "DIAN Financing"). The DIAN Financing does
not bear any interest and no amounts were due at December 31, 1997 as Siemens
had not yet completed the delivery and installation of the equipment to be
leased under the Global Leases. DIAN Financing consists of approximately
Ps21.8 billion ($17.6 million) of value-added tax and Ps7.1 billion ($5.5
million) of duty. The value-added tax, when paid, may be taken as a credit
against income taxes to the extent that income taxes are payable in a two year
period.
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INDUSTRY OVERVIEW; LEGAL AND REGULATORY ENVIRONMENT
Colombia is one of the oldest democracies and most stable economies in Latin
America and is one of only three countries in Latin America rated investment
grade by all three major rating agencies. Colombia has achieved positive real
economic growth every year since 1950 and averaged compounded annual growth in
Gross Domestic Product ("GDP") of approximately 4.7% from 1992 to 1996, one of
the highest growth rates in Latin America. Annual inflation has declined over
the past six years from 26.8% in 1991 to 17.7% in 1997. In recent years, the
Colombian government has encouraged foreign investment and exports through
reduced foreign exchange controls and lower import quotas and tariffs. The
Colombian government has also begun to open certain public services, such as
power and banking, to private sector investment and is considering other
sectors for privatization. In part as a result of these policies, net foreign
investment in Colombia has grown from $3.5 billion in 1990 to $10.5 billion in
1997. During the same period, Colombia has achieved increased diversification
of its export base and the value of its exports has grown from $6.7 billion to
$11.6 billion. See "Risk Factors--Colombian Political, Economic and Social
Risks."
In 1995, Colombia had approximately 4.9 million installed lines,
representing a penetration of approximately 14.0 lines per 100 people which
generated approximately $635 million of revenues representing approximately
44% of the $1.5 billion telecommunications industry. Historically, local
telephony has been treated as a utility. The local telephony network is
fragmented and approximately 30 municipal operators service approximately 780
municipalities. Prior to deregulation, each municipal operator had a monopoly
in the region which it served and typically provided limited and often
marginal service. As a result, Colombia is significantly underserved by
existing wireline operators and demand for telephone service substantially
outweighs supply for telephone lines. This is evidenced by multi-year waiting
lists and unsatisfied demand in Colombia for approximately 1.2 million
telephone lines as estimated by the DNP. The DNP also projects that the
country's existing installed line network will need to more than double by
2007 in order to keep pace with growing demand.
The Colombian government, recognizing the importance of an effective
telecommunications infrastructure and the role that the telecommunications
industry plays in national development, identified the problems in the
telecommunications industry and, from 1990 to 1994, established the regulatory
environment required to support private sector participation. The government
enacted decrees addressing many facets of operation including interconnection,
numbering and tariffs.
In 1990, the Ministry of Communications issued Decree 1900 which permitted
private sector's participation in the state-owned telecommunications industry.
The decree launched a deregulation process which resulted in the privatization
of local wireline telecommunications, the sale of cellular licenses and the
planned privatization of the national long distance carrier, TELECOM. Law 142
established the basic guidelines for the privatization of basic services,
including telecommunications, thereby introducing open competition in the
telecommunications sector and promoting a tariff environment whereby
participants would be encouraged to compete on the basis of efficiency and
service rather than price.
There is currently no restriction in Colombia on competition within the
local telephony business and therefore any person can organize and operate a
telephone company provided such person has obtained the civil works permits
for the construction of the telephone networks from the local municipalities
in the market in which such person operates. Law 142 prohibits a municipality
from denying a company the permit requirements for such works. In addition,
telephone companies are required to enter into interconnection agreements with
the long distance carrier, TELECOM, and other local municipalities for the
provision of national and international long distance services and local
service, respectively. Law 142 requires that this access be granted. See
"Business--Interconnection Agreements--Local Connections" and "Business--
Interconnection Agreements--Long-Distance Connections."
Telephone companies are subject to the supervision of the Superintendencia
de Industria y Comercio (Superintendency of Industry and Commerce), which is
empowered to enforce antitrust regulations, protect free
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competition in the marketplace and protect consumer rights on a case by case
basis, and to the supervision of the Superintendencia de Sociedades
(Superintendency of Corporations), which is entitled by Colombian Commercial
Law to exercise regulatory control over certain activities of
telecommunication service providers. The Superintendencia de Servicios
Publicos (Superintendency of Public Services) ("SPS") was created as a new
organization under Law 142 to review the management and performance of
utilities. Telecommunications service providers are required by Law 142 to
appoint an external professional reviewer to also review their management and
performance. This requirement may be waived by the SPS if it is satisfied that
a company's internal controls are sufficient.
Pursuant to such new regulations, the CRT was created as a special
administrative unit with administrative, technical and financial independence
to oversee the telecommunications sector. The CRT is funded by the companies
it regulates, which are required to pay a fee for this purpose. For 1996, this
fee was set at 0.65% of 1995 operating expenses. The CRT is chaired by the
Minister of Communications, and also includes, as members, the Director of the
DNP and three technical experts appointed by the President of Colombia for
three-year terms. Whereas the SPS is responsible for oversight and control and
has the power to impose sanctions for non-compliance with regulations, the CRT
performs the regulatory functions in the industry such as the establishment of
tariffs for all telecommunication services, which allows operators to set
prices in accordance with costs or at levels established by their competitors.
In addition, the CRT issues regulations for the purpose of promoting
competition, reviews the efficiency of monopolistic service providers, sets
technical standards for telephone services to ensure continuous, quality
service to telephone subscribers, and is also appointed to resolve disputes
among telephone service providers and between providers and consumers. The CRT
also has the authority to review the efficiency of service providers and order
the liquidation of monopolistic service providers which are found to be
inefficient. Where competition is lacking, the CRT may also set fixed fees for
services.
The CRT restricts the activities of telephone service providers in order to
ensure free competition in the marketplace. For example, users may not be
required to purchase other services together with telephone service or be
required to purchase telephone equipment. Service providers are obligated to
permit other licensed service providers access to their telephone networks on
the basis of "equal access--equal fees."
Local telephone service providers are free to set their own fees within
maximum and minimum limits set by the CRT. The minimum is the cost of
providing the service and the maximum is set for each service provider based
on its expenses and infrastructure investment. The maximum and minimum limits
are set for five-year periods and adjusted annually for inflation. The limits
can be modified within the five-year period if there is a prior agreement
between the CRT and the service provider to do so or in extraordinary
circumstances.
Domestic and international long distance service has been provided
exclusively by TELECOM, which has had a monopoly on international and long
distance calls. However, in 1995, the Colombian government opened the long
distance market to competition. The CRT has established a process under which
the opening of the long distance market to competition is to be reviewed.
Licenses were given to Orbitel (a private company) and Empresa de
Telecomunicaciones de Bogota (a government-owned entity) and it is expected
that operations will start in 1999. The conditions for a new entrant include:
(i) an initial payment of $150 million for a ten-year license, which is
automatically renewed at no cost for an additional ten-year period and a
monthly payment of 5% of the gross revenues to the Ministry of Communications
payable over the duration of the license; (ii) the members of the consortium
must have at least 400 million minutes of international long distance traffic;
(iii) the operation of a minimum of 150,000 local telephone lines in Colombia
but in no case serving over 35% of the Colombian telephone market; and (iv)
the provision of universal service to a wide range of municipalities
throughout Colombia. It is expected that tariffs will be under a regulated
competitive system until 1999. The Company believes that the deregulation of
the long distance market will, as it has in other countries, serve to
stimulate phone usage, due to the fact that price competition is likely to
lower tariffs to the consumer. The Company does not currently expect that it
would qualify to be a new entrant into the long distance market in the near
future.
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MANAGEMENT
DIRECTORS AND OFFICERS
The directors and executive officers of the Company are as follows:
<TABLE>
<S> <C>
Gonzalo Caicedo Toro............... Director
Guillermo O. Lopez................. Director and President
Victoria E. Meza................... Director and General Secretary
Jorge E. Martinez.................. Director and Financial Vice President
Anibal E. Prez..................... Director and Technology and Planning Vice
President
Carlos A. Arango................... Corporate Development Vice President
Kenneth H. Spencer................. Marketing and Sales Vice President
</TABLE>
GONZALO CAICEDO TORO, 51, has been a member of the Board of Directors of the
Company since August 1993. Mr. Caicedo is an economist by training and an
investor in agribusiness, particularly in the sugar cane industry. He is an
investor, as well as a member of the Board of Directors of several Colombian
companies, including Ingenio Riopaila, S.A., Ingenio Central Castilla, S.A.
and Colombina S.A.
GUILLERMO O. LOPEZ, 42, is a lawyer by training and has been a director of
several Colombian companies, such as Colombina S.A. and Ingenio Central
Castilla, S.A. and a consultant for other companies. Before joining Transtel,
Mr. Lopez provided business, financial and managerial advice to the Caicedo
Investors and has been a member of the Board of Directors and President of the
Company since December 1994. Between 1992 and 1993, his principal occupation
was the creation of Transtel. Upon incorporation of the Company, Mr. Lopez
joined the Company as General Manager and held that position until he was
appointed President.
VICTORIA E. MEZA, 34, has been a member of the Board of Directors of the
Company since December 1994 and has been General Secretary since December
1993. Before joining Transtel, Ms. Meza worked as a prosecuting attorney in
the Ministry of Finance.
JORGE ENRIQUE MARTINEZ, 48, has been a member of the Board of Directors of
the Company since December 1994. Mr. Martinez worked for Corporacion
Financiera del Valle S.A., a financial institution specializing in project
finance and investment banking for nine years as Credit Executive and Manager.
Mr. Martinez joined Transtel in 1993 as Projects Manager and became Financial
Vice President in 1996.
ANIBAL E. PEREZ, 40, has been a member of the Board of Directors of the
Company since January 1997. Mr. Perez worked for EMCALI from September 1993 to
October 1996, as Director of External Affairs, Vice President of Network
Planning and General Manager. Mr. Perez joined Transtel in October 1996 as
Technology and Planning Vice President.
CARLOS A. ARANGO, 44, has been Corporate Development Vice President since
July 1997. From 1988 to 1992, Mr. Arango was Finance Manager of Transejes
S.A., an affiliate of Dana Corporation. From 1992 to January 1994, Mr. Arango
was Corporate Planning Director of Carvajal S.A., responsible for annual
strategic business planning, budget, forecasting and economic engineering
analysis. From 1994 to 1997, Mr. Arango was Controller for Corporate
Development of Lloreda Grasas S.A., responsible for the reengineering process
of the company.
KENNETH H. SPENCER, 51, has been Marketing and Sales Vice President since
June 1998. Mr Spencer has 27 years experience in telecommunications with
senior sales and marketing positions in Bell Canada and as a Director of
Projects for AT&T Canada, Bell South, Nortel (Europe) and most recently with
Empresa de Telcomunicaciones de Santafe de Bogota.
ANIBAL RESTREPO, 46, has been general manager of Unitel since August 1997.
From 1975 to 1997 Mr. Restrepo held several positions with Empresas Publicas
de Medellin, including Telecommunications Project Director, Head of the
Division of Commercialization, Special Projects Director and Head of Network
Design.
ATTILIO CIAMPINI, 52, has been Manager for the Company's Outside Plant since
April 1, 1997. From 1988 to 1991, Mr. Ciampini worked for Bell Canada as
Access Network Section Manager. From 1991 to 1994, Mr. Ciampini worked as
Access Network Management Consultant for Bell Sygma Telecom Solutions. Mr.
Ciampini joined Transtel on April 1, 1997 as Technical Manager for Unitel
Wireless.
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STATUTORY AUDITOR
Transtel and each of its subsidiaries, as required by the Colombian
Commercial Code, has a revisor fiscal ("statutory auditor"). The statutory
auditor is elected by the shareholders' general assembly for a one-year period
beginning on the date of election. The statutory auditor may be reelected
indefinitely. Pursuant to the Commercial Code, the statutory auditor has the
obligation to audit a company's annual financial statements and review tax
returns of each company in order to indicate their agreement with the
accounting records. The statutory auditor also reports on a company's
compliance with shareholders and board of directors' resolutions, certain
Colombian laws and regulations, and requests by Colombian government entities.
The statutory auditor, who has no power over a company's operations, is
authorized to investigate and require correction of noncompliance with certain
laws, including convening an extraordinary session of the Board of Directors
or the shareholders' general assembly. Commencing in 1997, the Company's
statutory auditor has been Price Waterhouse, independent accountants.
MANAGEMENT COMPENSATION
While the Company's directors are not compensated for their services, as of
December 31, 1997, the Company's officers were compensated according to the
Colombian salary standards for executive officers in the telecommunications
sector. The aggregate compensation of all executive officers of the Company
was approximately Ps1.1 billion for the year ended December 31, 1997. In
addition, the Company made contributions totalling Ps72.2 million for the year
ended December 31, 1997 as determined by the Social Security Institute for
health, pension and other benefits.
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PRINCIPAL SHAREHOLDERS
The following table sets forth the aggregate number of shares of Transtel's
voting securities beneficially owned following the Equity Contribution by: (i)
each person known by Transtel to be a beneficial owner of more than 5% of any
class of Transtel's voting securities; and (ii) each director of Transtel. As
of August 20, 1998, there were 5,039,801,222 shares of common stock issued and
outstanding.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE
SHARES OF SHARES
BENEFICIALLY BENEFICIALLY
NAMED AND ADDRESS(1) OF BENEFICIAL OWNER OWNED OWNED
- ---------------------------------------- ------------- ------------
<S> <C> <C>
Guillermo Lopez................................... 2,519,900,611 50%
Gonzalo Caicedo Toro.............................. 2,519,900,611(2) 50%(2)
Gonzalo Caicedo Toro & Cia S.C.S.................. 303,367,541 6%
Maria Eugenia Llano............................... 199,999,995 4%
Valentina Caicedo Toro............................ 4 --
</TABLE>
- --------
(1) The address for each listed shareholder is c/o Transtel, S.A., Calle 19N,
No. 2-29, 40th Floor, Cali, Colombia.
(2) The "Number of Shares Beneficially Owned" and "Percentage of Shares
Beneficially Owned" for Gonzalo Caicedo Toro include the shares registered
in the name of Maria Eugenia Llano, his wife, the shares registered in the
name of Valentina Caicedo Toro, his daughter, and the shares registered in
the name of Gonzalo Caicedo Toro & Cia. S.C.S., which is owned 50% by
Maria Eugenia Llano and 50% owned by Gonzalo Caicedo Toro.
CERTAIN RELATED PARTY TRANSACTIONS
INGENIO RIOPAILA, S.A. AND INGENIO CENTRAL CASTILLA, S.A. SHARES
Transtel and Gonzalo Caicedo Toro have entered into several transactions. In
the first of these transactions, during 1996, Mr. Caicedo pledged to certain
banks part of his shares in two Colombian companies, Ingenio Riopaila, S.A.
and Ingenio Central Castilla, S.A. as collateral for loans that such banks
made to Transtel in the principal amount of Ps15.0 billion ($11.6 million)
(the "Secured Loans"). In the second transaction, during the first quarter of
1997, Transtel borrowed Ps7.1 billion ($5.5 million) (the "Other Loans") and
loaned the proceeds to Mr. Caicedo (the "Caicedo Loan"). Mr. Caicedo used the
proceeds from the Caicedo Loan to remove certain liens from certain other
shares of Ingenio Riopaila, S.A. and Ingenio Central Castilla, S.A. owned by
him. Mr. Caicedo then created a trust (the "Caicedo Trust") that borrowed from
third parties Ps22.1 billion ($17.1 million) (the "Trust Loan"). In April
through July 1997, Mr. Caicedo used Ps7.1 billion ($5.5 million) of the
proceeds of this loan to repay the Other Loans on behalf of Transtel. The
repayment of the Other Loans by Mr. Caicedo, on behalf of Transtel, was
credited by Transtel as a repayment by Mr. Caicedo of the Caicedo Loan. Mr.
Caicedo used the remaining proceeds of the Trust Loan (Ps15.0 billion ($11.6
million)) to make a capital contribution, in July 1997, to Transtel, in
partial satisfaction of the Equity Contribution. Transtel used this money for
the repayment of the Secured Loan. In addition, in July 1997, Mr. Caicedo made
a partial equity contribution of Ps0.8 billion ($618,000).
CERTAIN OTHER TRANSACTIONS WITH GONZALO CAICEDO TORO
In addition to the transactions outlined above, the Company has been
involved in a number of transactions with Mr. Caicedo. In 1995, the Company
loaned Mr. Caicedo a total of approximately Ps8.6 billion ($6.6 million) of
which Mr. Caicedo repaid approximately Ps6.8 billion ($5.3 million) of that
loan in the same year. In 1996, the Company lent Mr. Caicedo an additional
approximately Ps9.5 billion ($7.3 million). These loans were repaid
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in full by Mr. Caicedo in 1996 with (i) approximately Ps6.7 billion ($5.2
million) in cash, (ii) the assignment of a 2,000 square meter building located
in the municipality of Cali that the Company valued at approximately
Ps1.8 billion ($1.3 million), and (iii) the transfer by Mr. Caicedo of the
capital stock of GCT & Cia., which owns 7.59% of Colombina, the largest candy
manufacturer in Colombia, that the Company valued at approximately Ps2.7
billion ($2.1 million). As of August 31, 1997, Mr. Caicedo had repaid the
balance of additional net loans made to him in 1997 of Ps1.4 billion ($1.1
million), including the Caicedo Loan discussed above. The loans to Mr. Caicedo
were non-interest bearing and had no maturity dates.
PURCHASE AGREEMENTS AND LEASE AGREEMENTS WITH GLOBAL
As part of the Company's tax planning, Global, a British Virgin Island
company owned by the same shareholders who own Transtel, has entered into
purchase agreements and letters of intent with Siemens for the purchase of
certain telecommunications equipment to be leased by Global to the Operating
Companies to develop their respective networks according to the Expansion
Plan. In connection with these equipment purchases, Global and the Company
have entered into or intend to enter into long-term equipment financing
arrangements with Siemens under which Siemens will provide financing for up to
85% of the total cost of such equipment, or approximately $82.1 million. See
"Description of Existing Indebtedness--Global-Siemens Arrangements" for the
terms of the existing financing arrangements, and see "Risk Factors--
Contingency of Vendor Financing." Global in turn has entered into or intends
to enter into lease agreements with the Operating Companies for the lease of
such equipment. As security for these arrangements, Global has assigned to
Siemens the lease payments under the Global leases in case an event of default
occurs and is continuing under the Purchase Agreements. See "Description of
Existing Indebtedness--Global-Siemens Arrangement."
UNDERTAKINGS BY GLOBAL REGARDING INDEBTEDNESS AND LINE OF BUSINESS
As a condition precedent to the Offering, Global entered into a Letter of
Undertaking, among Global, Siemens, Transtel and the Indenture Trustee (the
"Global Undertaking Letter"), whereby Global agreed that it would incur
additional indebtedness only if Transtel and the Operating Companies are in
compliance with the covenant described under "Description of the Senior
Notes--Certain Covenants--Limitation on Indebtedness" after giving effect to
any lease or guaranty arrangements entered into by Transtel or any Operating
Company in connection with such indebtedness and such indebtedness is used for
the purchase of telecommunications equipment to be leased to an Operating
Company. Pursuant to the Global Undertaking Letter, Global has also agreed not
to engage, directly or indirectly, in any business other than in the business
of purchasing telecommunications equipment and the leasing of such equipment
to the Operating Companies. In addition, Global has agreed that to the extent
it sells or otherwise disposes of any equipment leased under the Global Leases
(collectively, the "Equipment"), it will apply all cash proceeds received by
it in respect of any sale of, collection from, or other realization upon any
Equipment to prepay on a pro rata basis the Senior Notes and any amounts owing
by Global to Siemens under the Global Purchase Agreements.
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DESCRIPTION OF THE CERTIFICATES
Pursuant to the terms of the Trust Agreement, the Pass Through Trustee will
issue the Exchange Certificates on behalf of the Trust and exchange the
Original Certificates for the Exchange Certificates. The Certificates will
represent undivided beneficial interests in the assets of the Trust. The terms
of the Exchange Certificates are substantially identical to the terms of the
Original Certificates, except that the Exchange Certificates will have been
registered under the Securities Act and will not contain terms restricting
transfer of such Exchange Certificates. This summary of certain provisions of
the Certificates and the Trust Agreement does not purport to be complete and
is subject to, and qualified in its entirety by reference to, all the
provisions of the Trust Agreement, including the definitions therein of
certain terms. Wherever particular defined terms of the Trust Agreement are
referred to herein, such defined terms are incorporated herein by reference. A
copy of the form of the Trust Agreement is available without charge upon
request from the Pass Through Trustee.
GENERAL
Legal title to the Senior Notes will be held at all times by the Trust as a
separate legal entity, except where the laws of any jurisdiction where the
Senior Notes are located require title to be held by a trustee in which case
legal title will be held by the Pass Through Trustee in trust for the benefit
of the Certificateholders. Each Certificate will represent a pro rata share of
the principal amount of the Senior Notes held by the Trust as well as any
other property held by the Trust from time to time, including all payments of
principal, interest, redemption premium, if any, and Additional Amounts, if
any, paid by the Company in respect of the Senior Notes.
PAYMENTS AND DISTRIBUTIONS
All payments of principal, interest, redemption premium or other amounts in
respect of the Senior Notes received by, or on behalf of, the Trust will to
the extent reasonably practicable, be distributed to Certificateholders on the
date such payments are received. From and after October 28, 1997, the Senior
Notes will bear interest at a rate of 12 1/2% per annum payable semiannually
in cash on each May 1 and November 1 of each year, (each referred to herein as
an "Interest Payment Date") commencing May 1, 1998. Interest distributions
made on each May 1 and November 1 will be paid to the persons who are the
registered Certificateholders on the April 15 and October 15, as the case may
be, immediately preceding such Interest Payment Date. Each Certificateholder
will be entitled to receive a pro rata share of any payments received by, or
on behalf of, the Pass Through Trustee on behalf of the Trust in respect of
the Senior Notes.
VOTING RIGHTS
So long as the Senior Notes are held by the Trust or the Pass Through
Trustee, as the case may be, the Pass Through Trustee will not (i) direct the
time, method and place of conducting any proceeding for any remedy available
to the Indenture Trustee, or execute any trust or power conferred on the Pass
Through Trustee with respect to the Senior Notes, (ii) waive any past default
that is waivable under the Senior Notes, (iii) exercise any right to rescind
or annul a declaration that the Senior Notes are due and payable, (iv) consent
to any amendment, modification or termination of the Indenture or the Senior
Notes, where such consent is required, without, in each case, obtaining the
prior approval of a Majority In Interest of Certificateholders, except that if
such consent under the Indenture would require the consent of each holder of
Senior Notes affected thereby, no such consent will be given by the Pass
Through Trustee without the prior consent of each Certificateholder (see
"Description of the Senior Notes--Modification and Waiver"), or (v) take any
other action, except as described below. If the Indenture Trustee requests the
Pass Through Trustee to take any action with respect to the Senior Notes,
including, but not limited to, a request for its consent to any amendment,
modification, waiver or supplement under the Indenture, the Pass Through
Trustee will immediately mail a notice to each Certificateholder registered as
of the date of such notice of the proposed action, and will take such action
with respect to the Senior Notes as it is instructed by the
Certificateholders; provided, however, that the Pass Through Trustee will not
be required to take any action with respect to the Senior Notes, the
Indenture, or the Certificates if it has not been assured of being indemnified
therefor.
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Any required approval of the Certificateholders may be given at a meeting of
Certificateholders convened for such purpose or pursuant to their written
consent. The Pass Through Trustee will cause a notice of any meeting at which
Certificateholders are entitled to vote, or of any matter upon which action by
written consent of such Certificateholders is to be taken, to be given to each
Certificateholder in the manner set forth the Trust Agreement.
SUPPLEMENTAL TRUST AGREEMENTS
The Trust Agreement may be supplemented from time to time by the Pass
Through Trustee and the Company, without the consent of the
Certificateholders, to, among other things, cure any ambiguity, to correct or
supplement any provision in the Trust Agreement which may be defective or
inconsistent with any other provision, or to make any other provisions with
respect to matters or questions arising under the Trust Agreement, provided
that such action shall not adversely affect the interests of the
Certificateholders.
The Trust Agreement may be supplemented by the Pass Through Trustee and the
Company with the consent of a Majority In Interest of the Certificateholders;
provided, however, that no such supplement may, without the consent of each
Certificateholder affected thereby, (i) reduce the amount of, or delay the
timing of, any receipts by the Pass Through Trustee of payments on the Senior
Notes or distributions that are required to be made, under the Trust
Agreement, on the Certificates, or change any date of payment on any
Certificate, or change the place of payment where, or the coin or currency in
which, any Certificate is payable, or impair the right to institute suit for
the enforcement of any such payment or distribution on or after the
Distribution Date or Special Distribution applicable thereto; or, (ii) permit
the disposition of any Senior Note in the Trust Property except as permitted
by the Trust Agreement, or otherwise deprive any Certificateholder of the
benefit of the ownership of the Senior Notes in the Trust; or (iii) reduce the
percentage of the aggregate Fractional Undivided Interests of the Trust which
is required for any such supplemental agreement, or reduce such percentage
required for any waiver (of compliance with certain provisions of this Trust
Agreement or certain defaults hereunder and their consequences) provided for
in this Trust Agreement; or (iv) modify any of the provisions of Section 10.02
or Section 7.05 of the Trust Agreement, except to increase any such percentage
or to provide that certain other provisions of this Trust Agreement cannot be
modified or waived without the consent of the Holder of each Certificate
affected thereby; or (v) have the effect of any of the events described in
Section 9.02 of the Indenture; or (vi) otherwise adversely affect such
Certificateholder.
Prior to the execution of any supplement, the Pass Through Trustee will be
entitled to receive, and shall be fully protected in relying upon, an opinion
of counsel stating that the execution of such supplemental agreement is
authorized or permitted by the Trust Agreement.
TERMINATION OF THE PASS THROUGH TRUST
Pursuant to the Trust Agreement, the Trust shall terminate upon the
distribution to all Certificateholders of all amounts required to be
distributed to them pursuant to the Trust Agreement and the disposition of all
funds or property held by the trust.
EVENTS OF DEFAULT AND CERTAIN RIGHTS UPON AN EVENT OF DEFAULT
An event of default under the Trust Agreement (a "Certificate Event of
Default") is defined as the occurrence and continuance of an Event of Default
under the Indenture (an "Indenture Default"). For a description of the
Indenture Defaults, see "Description of the Senior Notes--Events of Default."
The Trust Agreement provides that as long as an Indenture Default has
occurred and is continuing with respect to the Senior Notes, the Pass Through
Trustee will exercise such rights and take such actions with respect to the
Certificates and the Senior Notes as it is instructed to take pursuant to the
written directions of Certificateholders representing the required percentage
set forth in the Trust Agreement.
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The Indenture provides that if an Indenture Default has occurred and is
continuing with respect to the Senior Notes, the Indenture Trustee may declare
the unpaid principal amount of the Senior Notes immediately due and payable,
together with any interest accrued thereon. Under certain circumstances the
Senior Notes and any accrued and unpaid interest thereon automatically will
become due and payable without action by the Indenture Trustee. See
"Description of the Senior Notes--Events of Default."
Any amount paid to the Pass Through Trustee, on behalf of the Trust as
holder of the Senior Notes, by the Indenture Trustee under the Indenture
following an Indenture Default will be applied first, to cover all fees,
indemnity costs, expenses and compensation of the Pass Through Trustee;
second, will thereafter be applied as a distribution to the Certificateholders
in accordance with the Trust Agreement; and third, to the Company or to such
party as a court of competent jurisdiction shall direct.
REPORTS AND NOTICES
Upon receipt of any annual and quarterly financial statements from the
Company under the Indenture, the Trust will forward a copy of such financial
statements to the Pass Through Trustee and the Registrar. See "Description of
the Senior Notes--Certain Covenants--Reports." Notices in respect of the
Certificates will be given by mail, first-class postage prepaid, to each
registered Certificateholder at the address of such Certificateholder set
forth in the securities register maintained by the Certificate Registrar with
respect to the Certificates. So long as the Certificates are represented by a
Global Certificate or Global Exchange Certificate, notices to the
Certificateholders may be given by delivery of the relevant notice to DTC,
Euroclear and Cedel for communication by them to the relevant account holders.
If, by reason of the suspension of the mails or for any other reason, it is
impracticable to give notice to the Certificateholders in the manner described
above, then such notification in lieu thereof as may be made by, or on behalf
of, the Pass Through Trustee will constitute sufficient provision of such
notice, if such notification, so far as may be practicable, approximates the
terms and conditions of the notice in lieu of which it is given. Neither the
failure to give notice nor any defect in any notice given to any particular
Certificateholder will affect the sufficiency of any notice with respect to
other Certificates. Such notices will be deemed to have been given on the date
of mailing.
ADDITIONAL AMOUNTS
All payments made by the Trust under or in respect of the Certificates will
be made free and clear of and without withholding or deduction for or on
account of any present or future tax, duty, fee, levy, impost, assessment or
other governmental charge (including penalties, interest, additions to tax and
any other liabilities related thereto) (collectively referred to as "Taxes")
imposed or levied by or on behalf of Colombia, the United States, or any other
jurisdiction in which the Trust, the Company or any of the Company's
Restricted Subsidiaries is organized or engaged in business for tax purposes
(each, a "Taxing Authority"). If the Trust is required to withhold or deduct
or if the Trust is otherwise required to pay any amount for or on account of
Taxes imposed by a Taxing Authority, from or in respect of any payment made
under or with respect to the Certificates, the Trust will pay such additional
amounts ("Additional Amounts") as may be necessary so that the net amount
received by each Certificateholder (including Additional Amounts) after such
withholding or deduction or other payment of Taxes will not be less than the
amount the Certificateholder would have received if such Taxes had not been
withheld or deducted or paid; provided that no Additional Amounts will be
payable with respect to a payment made to a Certificateholder (A) with respect
to any Tax which would not have been imposed, payable or due: (i) but for the
existence of any present or former connection between such Certificateholder
(or the beneficial owner of, or other person having a right to acquire an
interest in, such Certificate) and the relevant Taxing Authority, other than
the mere holding of a Certificate; (ii) if the Certificates are held in
definitive registered form and the presentation of the definitive Certificate
for payment had occurred within 30 days after the date such payment was due
and payable or was provided for, whichever is later; or (iii) but for the
failure of a Certificateholder that is not a "United States Person" as defined
in Section 7701(a)(30) of the United States Internal Revenue Code of 1986, as
amended, to comply with certification, information or other reporting
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requirements concerning the nationality, residence, identity or business
activity within the United States of such Certificateholder (or, if
applicable, the beneficial owner of, or other person having a right to acquire
an interest in, the Certificate) if such compliance is a condition to such
Taxes not having been imposed, payable or due with respect to the payment or
(B) if the beneficial owner of, or other person having a right to acquire an
interest in, such Certificate had been the Certificateholder and would not be
entitled to the payment of Additional Amounts under (A). Except as provided in
the second succeeding paragraph below, in no event will Additional Amounts be
payable with respect to any tax that is payable otherwise than by withholding
from payment of or with respect to principal of, or interest on, the
Certificates.
The Trust will also (i) make such withholding or deduction and (ii) remit
the full amount deducted or withheld to the relevant Taxing Authority in
accordance with applicable law. The Trust will make reasonable efforts to
obtain certified copies of tax receipts evidencing the payment of any Taxes so
deducted or withheld from each Taxing Authority imposing such Taxes. The Trust
will furnish to the Certificateholders, within 60 days after the date that the
payment of any Taxes so deducted or withheld is due pursuant to applicable
law, either certified copies of tax receipts evidencing such payment by the
Trust or, if such receipts are not obtainable, other evidence of such payments
by the Trust.
In addition, the Trust will, upon written request of a Certificateholder
(subject to the exclusions set forth in (A) and (B) of the first paragraph
above), and provided that reasonable supporting documentation is provided,
reimburse each such Certificateholder for the amount of any Taxes levied or
imposed by any Taxing Authority and paid by such Certificateholder as a result
of payments made by the Trust to such Certificateholder with respect to the
Certificates. Any payment pursuant to this paragraph shall be an Additional
Amount.
Whenever in the Trust Agreement, Indenture or in this Prospectus there is
mentioned in the context of the payment of amounts based upon the principal
of, premium, if any, interest or of any other amount payable under or with
respect to any Certificate, such mention shall be deemed to include mention of
the payment of Additional Amounts to the extent that, in such context,
Additional Amounts are, were or would be payable in respect thereof.
In addition, the Trust will pay any stamp, issue, transfer, sales, use,
value-added, property, registration, documentary, enforcement or other similar
taxes and other duties (including interest and penalties) payable to any
Taxing Authority in respect of the creation, issue or offering of the
Certificates or any other documents directly related to such creation, issue
or offering.
REMOVAL AND RESIGNATION OF THE PASS THROUGH TRUSTEE; APPOINTMENT OF SUCCESSORS
A Majority In Interest of the Certificateholders may remove the Pass Through
Trustee for cause or, if a Certificate Event of Default has occurred and is
continuing, with or without cause. If the Pass Through Trustee is removed by
the Certificateholders, a successor shall be appointed by the
Certificateholders holding at least 25% in principal amount of Certificates.
If the Pass Through Trustee resigns, the Company shall immediately appoint its
successor. If the Company fails to appoint a successor, the Certificateholders
holding at least 25% in principal amount of the outstanding Certificates may
appoint a successor. If a successor shall not have been appointed by the
Company or by the Certificateholder holding at least 25% in aggregate amount
of Certificates, within 30 days of notice of such resignation or removal, the
Pass Through Trustee or any Certificateholder may petition a court in the
State of Delaware to appoint a successor. Any Pass Through Trustee must meet
the applicable requirements of Section 3807 of the Delaware Business Trust
Act, 12 Del. c. (S)3801 et seq. Any Pass Through Trustee must at the time of
appointment have capital and surplus of at least $50,000,000. No resignation
or removal of the Pass Through Trustee and no appointment of a successor
trustee shall be effective until the acceptance of appointment by the
successor trustee in accordance with the provisions of the Trust Agreement.
PAYMENT AND PAYING AGENCY
Payments in respect of the Certificates will be made to DTC, which payments
will be credited to the relevant accounts at DTC on the applicable payment
dates or, if the Certificates are not held by DTC, such payments will
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be made by check mailed to the address of the Certificateholder entitled
thereto as such address appears on the securities register for the
Certificates. Marine Midland Bank (Marine Midland Bank and any co-paying agent
chosen by the Pass Through Trustee and acceptable to the Company, the "Paying
Agent") will initially be the paying agent. The Paying Agent will be permitted
to resign as Paying Agent upon 30 days' written notice to the Pass Through
Trustee and the Company, in which event the Company will appoint a successor
to act as Paying Agent.
If any day for payment and other amounts payable in respect of the
Certificates is not a Business Day (as defined herein) in the applicable place
of payment, the Certificateholders will not be entitled to payment until the
next Business Day following such day in the place of payment or to any
interest or other sums in respect of such postponed payment. For purposes of
the Trust Agreement, "Business Day" means a day (other than Saturday and
Sunday) on which DTC, Euroclear and banks in New York, Delaware and Colombia
are open for business.
CERTIFICATE REGISTRAR AND TRANSFER AGENT
Marine Midland Bank will act as registrar and transfer agent for the
Certificates (the "Certificate Registrar").
Registration of transfers of Certificates will be effected without charge by
or on behalf of the Trust, other than amounts with respect to any tax or other
governmental charges that may be imposed in connection with any transfer or
exchange. The Certificate Registrar will not be required to register or cause
to be registered the transfer of the Certificates after the Exchange
Certificates have been called for redemption.
GOVERNING LAW
The Trust Agreement and the Certificates will be governed by and construed
in accordance with the laws of the State of Delaware.
INFORMATION CONCERNING THE PASS THROUGH TRUSTEE
The Pass Through Trustee, other than during the occurrence and continuance
of a Certificate Event of Default, will perform only such duties as are
specifically set forth in the Trust Agreement. The Pass Through Trustee is
under no obligation to exercise any of the powers vested in it by the Trust
Agreement at the request of any Certificateholder unless it is offered
reasonable indemnity against the costs, expenses and liabilities that might be
incurred thereby. The Pass Through Trustee is not required to expend or risk
its own funds or otherwise incur personal financial liability in the
performance of its duties if the Pass Through Trustee reasonably believes that
repayment or adequate indemnity is not reasonably assured to it.
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DESCRIPTION OF THE GUARANTEES
GENERAL
On October 28, 1997 the Company executed the Original Certificate Guarantee,
for the benefit of the Original Certificateholders, whereby the Company fully,
irrevocably and unconditionally guaranteed all of the Trust's obligations
under the Original Certificates (the "Original Guarantee"). Concurrently with
the issuance of the Exchange Certificates by the Trust, the Company will
execute a like guarantee evidenced by an Exchange Certificate Guarantee (the
"Exchange Certificate Guarantee"), for the benefit of the Exchange
Certificateholders, whereby the Company will fully, irrevocably and
unconditionally guarantee all of the Trust's obligations under the Exchange
Certificates (the "Exchange Guarantee"). The Certificate Guarantee and the
Exchange Certificate Guarantee (together the "Certificate Guarantees") will
have substantially identical terms. Marine Midland Bank will act as guarantee
trustee (together with any successor guarantee trustee, the "Guarantee
Trustee") under the Certificate Guarantees.
The Certificate Guarantees are guarantees by the Company of (i) the punctual
payment of the full amount, when due, of the principal of and interest on, and
fees and expenses due pursuant thereto, and (ii) the full and timely payment
as if payment had been made on a full and timely basis on the Senior Notes.
The Company's obligation to make a Guarantee Payment may be satisfied by
direct payment of the required amounts by the Company to the
Certificateholders.
The Certificate Guarantees are irrevocable guarantees on a senior basis of
the Trust's obligations under the Certificates, and are not guarantees of
collection (i.e., the guaranteed party may institute a legal proceeding
directly against the Company (a "Direct Action") to enforce its rights under
the Certificate Guarantees without first instituting a legal proceeding
against any other person or entity). The Certificate Guarantees are held by
the Guarantee Trustee for the benefit of the Certificateholders. The
Certificate Guarantees will not be discharged except by payment of the
Guarantee Payments in full to the extent not paid by the Trust. The Trust
Agreement provides that each Certificateholder by acceptance thereof agrees to
the provisions of the Certificate Guarantees and the Indenture.
AMENDMENTS AND ASSIGNMENT
The Certificate Guarantees may not be amended without the prior approval of
Certificateholders of not less than a majority in aggregate principal amount
of the Certificates outstanding.
EVENT OF DEFAULT
An event of default under the Certificate Guarantees will occur upon the
failure of the Company to perform any of its payment obligations thereunder.
The Certificateholders of not less than a majority in aggregate principal
amount of the Certificates outstanding have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Guarantee Trustee in respect of the Certificate Guarantees or to direct the
exercise of any trust or power conferred upon the Guarantee Trustee under the
Certificate Guarantees.
Any registered Certificateholder may institute a legal proceeding directly
against the Company to enforce its rights under the Certificate Guarantees
without first instituting a legal proceeding against the Trust, the Guarantee
Trustee or any other person or entity.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The duties of the Guarantee Trustee are subject to limitations and
qualifications substantially similar to those described with respect to the
Pass Through Trustee under "--Information Concerning the Pass Through
Trustee."
GOVERNING LAW
The Certificate Guarantees will be governed by and construed in accordance
with the laws of the State of New York.
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ENFORCEMENT OF CIVIL LIABILITIES
The Company has appointed CT Corporation System, New York, New York, as its
agent to receive service of process with respect to any action brought against
it in any federal or state court in the State of New York, arising out of the
Certificate Guarantees. See "Enforcement of Foreign Judgments in Colombia."
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DESCRIPTION OF THE SENIOR NOTES
GENERAL
The Senior Notes were issued under an Indenture (the "Indenture"), dated as
of October 28, 1997, between the Company and Marine Midland Bank, as indenture
trustee (in such capacity, the "Indenture Trustee"). The Indenture permits the
issuance of up to $180.0 million of Senior Notes thereunder, $150.0 million of
which were offered pursuant to the Offering consummated on October 28, 1997
(the "Initial Senior Notes") and $30.0 million of which may be offered in the
future (the "Additional Senior Notes") subject to compliance with the first
paragraph of clause (a) of the "--Limitation on Indebtedness" covenant below.
For purposes of this section of the Prospectus, the term Senior Notes shall
mean the Initial Senior Notes and the Additional Senior Notes. In the event of
such a future offering, the Additional Senior Notes would have the same terms
as the Initial Senior Notes (including payment dates and maturity) and rank
pari passu with the Initial Senior Notes in all respects. The following
summary of certain provisions of the Indenture does not purport to be complete
and is subject to, and is qualified in its entirety by reference to, all the
provisions of the Indenture, including the definitions of certain terms
therein and those terms made a part thereof by the Trust Indenture Act.
Certain capitalized terms used in this section of the Prospectus are defined
below. Whenever particular Sections or defined terms of the Indenture not
otherwise defined herein are referred to, such Sections or defined terms are
incorporated herein by reference. A copy of the Indenture is available upon
request from the Company or the Indenture Trustee. Concurrently with the
issuance of the Original Certificates, the Trust invested the proceeds
therefrom in the Senior Notes issued by the Company. For purposes of this
section of the Prospectus, "Holders" shall mean the holders of the Senior
Notes. The Trust is the sole Holder of the Senior Notes.
The Senior Notes were issued in registered form only, without coupons, in
denominations of $1,000 and integral multiples of $1,000. Initially, Marine
Midland Bank will act as Paying Agent and Registrar for the Senior Notes. The
Senior Notes may be presented for registration or transfer and exchange at the
offices of the Registrar, which will be the Registrar's corporate trust office
at 140 Broadway, 12th Floor, New York, New York 10005. The Company may change
any Paying Agent and Registrar without notice to the Holders. The Company will
pay the principal of (premium, if any), and interest on the Senior Notes at
the Paying Agent's corporate trust office in New York, New York. At the
Company's option, principal and interest may be paid by check mailed to the
registered address of the Holders or to the Paying Agent.
PRINCIPAL, MATURITY AND INTEREST
The Senior Notes are limited in aggregate principal amount to $180 million.
The Senior Notes will mature on November 1, 2007, and bear interest from
October 28, 1997 at a rate of 12 1/2% per annum payable semiannually in cash
on each May 1 and November 1 (each an "Interest Payment Date"), commencing May
1, 1998. Interest on the Senior Notes will be computed on the basis of a 360-
day year of twelve 30-day months.
REDEMPTION
Optional Redemption
The Senior Notes are not redeemable at the Company's option prior to
November 1, 2002. Thereafter, the Senior Notes will be subject to redemption
at the option of the Company, in whole or in part, upon not less than 30 nor
more than 60 days prior notice, at the following redemption prices (expressed
in percentages of the principal amount) set forth below plus accrued and
unpaid interest, if any, to the redemption date, if redeemed during the 12-
month period commencing November 1 of the years set forth below:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
---- ----------------
<S> <C>
2002..................................................... 106.250%
2003..................................................... 104.688%
2004..................................................... 103.125%
2005..................................................... 101.565%
2006 and thereafter...................................... 100.000%
</TABLE>
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Notwithstanding the foregoing, in the event of the sale by the Company prior
to November 1, 2000 of at least $25.0 million of its Capital Stock (other than
Disqualified Stock) in one or more Public Equity Offerings, or to one or more
Strategic Equity Investors, the Company may, at its option, use the Net Cash
Proceeds of such sale or sales of Capital Stock to redeem up to 35% of the
Senior Notes at a redemption price equal to 112.50% of the principal amount
thereof plus accrued and unpaid interest thereon, if any, to the date of
redemption; provided that at least 65% of the initial principal amount of the
Senior Notes (including in such initial principal amount, the initial
principal amount of any Additional Senior Notes issued as contemplated by the
first paragraph under the heading "--General" above, if issued prior to the
date of the redemption pursuant to this paragraph) remains outstanding
immediately after such redemption. In order to effect the foregoing redemption
with the proceeds of any such sale of Capital Stock (other than Disqualified
Stock), the Company shall make such redemption not more than 120 days after
the consummation of any such sale or sales of Capital Stock.
Mandatory Redemption; Change of Control; Certain Asset Sales
The Company is not required to make any mandatory redemption or sinking fund
payments in respect of the Senior Notes. However, (i) upon the occurrence of a
Change of Control, the Company is obligated to make an Offer to Purchase (as
defined in "--Offer to Purchase Upon Change of Control") all or a portion of
each Holder's Senior Notes, in integral multiples of $1,000 at a purchase
price of 101% of the aggregate principal amount thereof plus accrued and
unpaid interest, if any, to the date of repurchase and (ii) upon the
occurrence of an Asset Sale, the Company may be obligated to make a Net
Proceeds Offer (as defined in "--Certain Covenants--Limitation on Asset
Sales") for all or a portion of the outstanding Senior Notes at a price of
100% of the principal amount thereof plus accrued and unpaid interest, if any,
to the date of repurchase. See "--Offer to Purchase Upon Change of Control"
and "--Certain Covenants--Limitation on Asset Sales," respectively.
Selection; Effect of Notice of Redemption
In the case of any partial redemption, selection of the Senior Notes for
redemption will be made by the Indenture Trustee or Registrar on a pro rata
basis by lot or in accordance with any other method the Indenture Trustee
considers fair and appropriate, provided that no Senior Notes of $1,000 or
less shall be redeemed in part. The notice of redemption relating to such
Senior Notes shall state the portion of the principal amount thereof to be
redeemed. A new Senior Note in principal amount equal to the unredeemed
portion thereof will be issued in the name of the Holder upon cancellation of
the original Senior Note. Upon redemption, unless the Company defaults in
providing the funds for such redemption, interest on Senior Notes called for
redemption will cease to accrue on and after the date fixed for redemption
and, upon redemption, such Senior Notes will then cease to be outstanding.
OFFER TO PURCHASE UPON CHANGE OF CONTROL
The Indenture provides that upon the occurrence of a Change of Control the
Company shall be required to offer to repurchase all or a portion of each
Holder's Senior Notes, in integral multiples of $1,000 pursuant to the offer
described below (the "Offer to Purchase"), at a purchase price equal to 101%
of the aggregate principal amount thereof plus accrued and unpaid interest
thereon, if any, to the date of repurchase.
Within 30 days following the date upon which a Change of Control occurs, the
Company must send, by first class mail, a notice to each Holder, with a copy
to the Indenture Trustee and Paying Agent, which notice shall govern the terms
of the Offer to Purchase. Such notice shall state, among other things, the
purchase date, which must be no earlier than 30 days nor later than 45 days
from the date such notice is mailed, other than as may be required by law (the
"Change of Control Payment Date"). Holders will be required to surrender the
Senior Notes they wish to have redeemed, with the form entitled "Option of
Holder to Elect Purchase" on the reverse of the Senior Note or Senior Notes
completed, to the Paying Agent at the address specified prior to the close of
business on the third Business Day prior to the Change of Control Payment
Date.
If an Offer to Purchase is made, there can be no assurance that the Company
will have available funds sufficient to pay the Change of Control purchase
price for all the Senior Notes that might be delivered by the
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Holders seeking to accept the Offer to Purchase. In the event the Company is
required to purchase outstanding Senior Notes pursuant to an Offer to
Purchase, the Company expects that it would seek third-party financing to the
extent it does not have available funds to meet its purchase obligations.
However, the Indenture limits the Company's ability to incur Indebtedness (see
"--Certain Covenants--Limitation on Indebtedness") and there can be no
assurance that the Company would be able to obtain such financing.
DISBURSEMENT OF FUNDS--ESCROW ACCOUNT
As provided in the Indenture, the Company has placed approximately $35.0
million of the net proceeds realized from the sale of the Senior Notes,
representing funds sufficient to pay the first four interest payments on the
Initial Senior Notes, in an escrow account (the "Escrow Account") held by the
Escrow Agent for the benefit of Holders of the Senior Notes and the Indenture
Trustee in accordance with the Escrow and Disbursement Agreement. The Company
entered into the Escrow and Disbursement Agreement, which provides, among
other things, that funds may be disbursed from the Escrow Account only to pay
interest on the Senior Notes (or, if any Senior Notes have been retired by the
Company, funds representing the interest payment on the retired Senior Notes
may be paid to the Company on the date of retirement) and, upon certain
repurchases or redemptions of Senior Notes, to pay principal of and premium,
if any, on the Senior Notes being repurchased or redeemed. Pending such
disbursement, the Company will cause such funds contained in the Escrow
Account to be invested in cash items or Marketable Securities. Interest earned
on these Marketable Securities will be added to the Escrow Account. The Escrow
Account will be held in the corporate trust office of the Escrow Agent in New
York.
The Company granted to the Indenture Trustee for the benefit of the Holders
a security interest in the Escrow Account under the Escrow and Disbursement
Agreement. Such security interest secures the payment and performance when due
of all of the Obligations of the Company under the Indenture with respect to
the Senior Notes, as provided in the Escrow and Disbursement Agreement. The
ability of the Holders to realize upon any such funds or securities may be
subject to certain bankruptcy law limitations in the event of the bankruptcy
of the Company.
Upon the acceleration of the maturity of the Senior Notes or upon certain
redemptions and repurchases of the Senior Notes, the Escrow and Disbursement
Agreement provides for the foreclosure by the Indenture Trustee upon the net
proceeds of the Escrow Account. Under the terms of the Indenture, the proceeds
of the Escrow Account shall be applied to the Obligations under the Senior
Notes.
RANKING
The Senior Notes are senior obligations of the Company ranking pari passu in
right of payment with all existing and future senior Indebtedness of the
Company and rank senior in right of payment to all existing and future
subordinated Indebtedness of the Company, if any. The Company is a holding
company that conducts substantially all of its operations through its
subsidiaries. Other than claims under the Intercompany Notes, the Senior Notes
are effectively subordinated to all existing and future liabilities and
Indebtedness of the Company's subsidiaries. Subject to certain limitations set
forth in the Indenture and as described under "--Limitations on Liens" below,
the Company and its Restricted Subsidiaries may incur Indebtedness which is
secured by assets of the Company and its Restricted Subsidiaries. Any right of
the Company to receive assets of the Company's Restricted Subsidiaries or any
future Restricted Subsidiaries of the Company, upon a Restricted Subsidiary's
liquidation or reorganization (and the consequent right of the Holders to
participate in those assets), are effectively subordinated to the claims of
that Restricted Subsidiary's creditors, except to the extent that the Company
is itself recognized as a creditor of such Restricted Subsidiary as in the
case of Indebtedness evidenced by Intercompany Notes, although other creditors
of such Restricted Subsidiary may be secured by certain assets of such
Restricted Subsidiary.
SECURITY
The Company has loaned approximately $98.3 million of the proceeds of the
Senior Notes to its Operating Companies. These loans are evidenced by the
Intercompany Notes. The Company loaned approximately $22.7
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million to TelePalmira, approximately $29.9 million to Unitel, approximately
$24.7 million to TeleJamundi, approximately $5.1 million to Bugatel,
approximately $6.6 million to Caucatel and approximately $8.9 million to
TeleCartago.
The Senior Notes are secured by a first priority security interest in: (i)
the Intercompany Notes, which Intercompany Notes represent senior unsecured
obligations of each Restricted Subsidiary and rank senior in right of payment
to all existing and future subordinated Indebtedness of the respective
Restricted Subsidiary and pari passu with all existing and future Senior
Indebtedness of such Restricted Subsidiary; and (ii) pending disbursement
pursuant to the Escrow and Disbursement Agreement and the Escrow Account.
CERTAIN COVENANTS
Limitation on Indebtedness
(a) Under the terms of the Indenture, the Company will not, and will not
permit any Restricted Subsidiary to, incur any Indebtedness; provided that the
Company and its Restricted Subsidiaries may incur Indebtedness if, after
giving effect to the incurrence of such Indebtedness and the receipt and
application of the proceeds therefrom, (i) no Default or Event of Default
shall have occurred and be continuing and (ii) the Indebtedness to Annualized
EBITDA Ratio as of the date of such incurrence shall not exceed (x) 6.0 to 1.0
if such incurrence occurs on or prior to the second anniversary of the Issue
Date, (y) 5.5 to 1.0 if such incurrence occurs after the second anniversary of
the Issue Date and on or prior to the third anniversary of the Issue Date and
(z) 5.0 to 1.0 if such incurrence occurs thereafter.
The foregoing limitation will not apply to: (i) Indebtedness evidenced by
the Initial Senior Notes; (ii) the existing Indebtedness, consisting of (A)
Indebtedness of the Company under the Transtel-Siemens Purchase Agreement in
an amount not to exceed $3.4 million; (B) the Obligations of the Restricted
Subsidiaries under the Global I Leases, Global II Leases and Global III Leases
in an aggregate amount not to exceed $95.0 million; (C) Obligations of the
Company under the DIAN Financing in an amount not to exceed $25.0 million,
(D) Obligations of the Company under the IBM Financing in an amount not to
exceed $3.4 million; (E) Obligations of the Company under the purchase money
financing existing on the Issue Date in an amount not to exceed $6.5 million;
and (F) Obligations of the Company under the Certificate Guarantees; (iii) the
Other Existing Indebtedness; (iv) the incurrence by the Company or its
Restricted Subsidiaries of Bank Indebtedness in an aggregate principal amount
at any one time outstanding, together with Indebtedness incurred under clause
(xi) below, not to exceed $25.0 million, as such amount may be permanently
reduced as specified in the "--Limitation on Asset Sales" covenant described
below; provided that the use of the proceeds of such Bank Indebtedness will
not be used to make Investments; (v) (A) the Guarantee by Restricted
Subsidiaries of Bank Indebtedness permitted to be incurred by the Company and
(B) the Guarantee by the Company of Bank Indebtedness permitted to be incurred
by Restricted Subsidiaries, in each case pursuant to clause (iv) above;
(vi) Indebtedness of the Company to any Restricted Subsidiary; provided that
(a) any such Indebtedness is unsecured and subordinated, pursuant to a
Subordination Agreement, in right of payment to the Senior Notes and (b) any
subsequent issuance or transfer of any Capital Stock which results in any such
Restricted Subsidiary ceasing to be a Restricted Subsidiary or any subsequent
transfer of such Indebtedness to a Person not a Restricted Subsidiary shall be
deemed, in each case, to constitute an incurrence of such Indebtedness not
permitted by this clause (vi); (vii) Indebtedness of a Restricted Subsidiary
issued to and held by the Company; provided that (a) any subsequent issuance
or transfer of any Capital Stock which results in any such Restricted
Subsidiary ceasing to be a Restricted Subsidiary or any subsequent transfer of
such Indebtedness to a Person not a Restricted Subsidiary shall be deemed, in
each case, to constitute an incurrence of such Indebtedness not permitted by
this clause (vii) and (b) if such Indebtedness arises from loans or advances
made to a Restricted Subsidiary by the Company with the proceeds of the Senior
Notes, such Indebtedness shall be evidenced by an Intercompany Note; (viii)
the incurrence by the Company or its Restricted Subsidiaries of additional
Indebtedness in an aggregate principal amount not to exceed $10.0 million at
any one time outstanding; (ix) the incurrence (a "Permitted Refinancing") by
the Company or its Restricted Subsidiaries of Indebtedness issued in exchange
for, or the
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proceeds of which are used to extend, refinance, renew, replace or refund
Indebtedness incurred pursuant to the first paragraph of this clause (a) or
pursuant to clauses (i) (but, only as to clause (i), only to the extent the
proceeds thereof are used to purchase Senior Notes tendered in an Offer to
Purchase made as a result of a Change of Control), (ii), (iv), (v), (vii) and
(viii) above or theretofore incurred pursuant to this clause (ix)
("Refinancing Indebtedness"); provided that: (a) the net proceeds of such
Refinancing Indebtedness shall not exceed the principal amount of and required
premium, if any, and accrued interest on the Indebtedness so extended,
refinanced, renewed, replaced, substituted or refunded (or if such
Indebtedness was issued at an original issue discount, the face amount of such
Indebtedness less the remaining unamortized portion of the original issue
discount of such Indebtedness at the time of the repayment of such
Indebtedness) and reasonable expenses incurred in connection therewith; (b)
the Refinancing Indebtedness shall have a final maturity not sooner than, and
an Average Life equal to or greater than, the final maturity and remaining
Average Life of the Indebtedness being extended, refinanced, renewed, replaced
or refunded; (c) if the Indebtedness being extended, refinanced, renewed,
replaced or refunded is subordinated in right of payment to the Senior Notes,
the Refinancing Indebtedness shall be subordinated in right of payment to the
Senior Notes pursuant to a Subordination Agreement; (d) the obligor with
respect to the Refinancing Indebtedness shall be the same as the obligor with
respect to the Indebtedness being extended, refinanced, renewed or replaced or
refunded, and there shall be no additional guarantors (direct or indirect)
with respect to any such Refinancing Indebtedness; and (e) the Refinancing
Indebtedness shall be unsecured, secured in compliance with the "--Limitation
on Liens" covenant, or, if the Indebtedness being extended, refinanced,
renewed, replaced or refunded is secured, the respective Refinancing
Indebtedness may be secured, but only to the same extent as the Indebtedness
being refinanced, renewed, replaced or refunded; (x) Indebtedness of the
Company or any Restricted Subsidiary (A) in respect of performance, surety or
appeal bonds provided in the ordinary course of business, (B) in respect of
Currency Agreements or Interest Rate Agreements incurred for the purpose of
hedging against currency or interest rate risks with respect to Indebtedness
incurred in accordance with the first paragraph of clause (a) of "--Limitation
on Indebtedness" and which the Company in good faith determines is non-
speculative in nature and is a bona fide hedge against fluctuations in
currency values or interest rates, respectively; provided, that in the case of
Currency Agreements that relate to other Indebtedness, such Currency Agreement
does not increase the Indebtedness of the obligor outstanding at any time
other than as a result of fluctuations in foreign currency exchange rates or
by reasons of fees, indemnities and compensation payable thereunder and in the
case of Interest Rate Agreements, the notional amount of such Interest Rate
Agreement does not exceed the underlying obligation or amount to which such
Interest Rate Agreement relates; and (C) arising from agreements providing for
indemnification, adjustment of purchase price or similar obligations, or from
Guarantees or letters of credit, surety bonds or performance bonds securing
any obligations of the Company or any of its Restricted Subsidiaries pursuant
to such agreements, in any case incurred in connection with the disposition of
any business, assets or Restricted Subsidiary of the Company (other than
Guarantees of Indebtedness incurred by any Person acquiring all or any portion
of such business, assets or Restricted Subsidiary of the Company for the
purpose of financing such acquisition), in a principal amount not to exceed
the gross proceeds actually received by the Company or any Restricted
Subsidiary in connection with such disposition; and (xi) Guarantees by the
Company of operating leases expensed under GAAP of its Restricted
Subsidiaries; provided that the Company's Obligations under such Guarantees
and Indebtedness incurred under clause (iv) shall not exceed $25.0 million.
The Company and its Subsidiaries may incur Acquired Debt only in compliance
with this covenant.
(b) For purposes of determining any particular amount of Indebtedness under
the "--Limitation on Indebtedness" covenant, Liens on such Persons' assets or
obligations of such Persons with respect to letters of credit supporting
Indebtedness otherwise included in the determination of such particular amount
shall not be included. For purposes of determining compliance with the "--
Limitation on Indebtedness" covenant, (A) in the event that an item of
Indebtedness meets the criteria of more than one of the types of Indebtedness
described in the above paragraph, the Company shall classify such item of
Indebtedness and only be required to include the amount of such Indebtedness
in one of such types of Indebtedness and (B) the amount of Indebtedness issued
at a price that is less than the principal amount thereof shall be equal to
the amount of the liability in respect thereof determined in conformity with
GAAP. The Indenture further provides that, notwithstanding any other provision
of the "--Limitation on Indebtedness" covenant, the maximum amount of
Indebtedness that the
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Company or a Restricted Subsidiary may incur pursuant to the "--Limitation on
Indebtedness" covenant shall not be deemed to be exceeded due solely to the
result of fluctuations in the exchange rates of currencies after the date of
the respective incurrence of Indebtedness otherwise in conformity with the
provisions of the "--Limitation on Indebtedness" covenant.
Limitation on Restricted Payments
So long as any of the Senior Notes are outstanding, the Company and its
Restricted Subsidiaries will not, directly or indirectly, (i) declare or pay
any dividend or make any distribution on Capital Stock of the Company or any
of its Restricted Subsidiaries (other than dividends or distributions payable
solely in shares of such Capital Stock held by holders of such Capital Stock
or in options, warrants, or other rights to acquire such shares of Capital
Stock), (ii) repurchase, redeem, retire or otherwise acquire for value any
shares of Capital Stock of the Company or any of its Restricted Subsidiaries
(including options, warrants or other rights to acquire such shares of Capital
Stock) held by any Person (other than any such Capital Stock owned by the
Company), (iii) make any voluntary or optional principal payment, or voluntary
or optional redemption, repurchase, defeasance, or other acquisition or
retirement for value, of Indebtedness of the Company that is subordinated in
right of payment to the Senior Notes or Indebtedness of Restricted
Subsidiaries that is subordinated to the Intercompany Notes, or (iv) make any
Investment in any Person (such payments or any other actions described in
clauses (i) through (iv) being collectively "Restricted Payments") if, at the
time of, and after giving effect to, the proposed Restricted Payment: (A) a
Default or Event of Default shall have occurred and be continuing, (B) the
Company could not incur at least $1.00 of Indebtedness under the first
paragraph of the "--Limitation on Indebtedness" covenant (without reliance
upon any of the exceptions in clauses (a)(i) through (xi) under "--Limitation
on Indebtedness") or (C) the aggregate amount expended for all Restricted
Payments (the amount so expended, if other than in cash, to be determined in
good faith by the Board of Directors, whose determination shall be conclusive
and evidenced by a Board Resolution) after the Issue Date shall exceed the sum
of (1) 50% of the aggregate amount of the Consolidated Net Income (or, if the
Consolidated Net Income is a loss, minus 100% of such loss) accrued on a
cumulative basis during the period (taken as one accounting period) beginning
on the first day of the fiscal quarter immediately following the Issue Date
and ending on the last day of the last fiscal quarter preceding the
Transaction Date for which annual or interim financial statements of the
Company have been delivered to the Indenture Trustee in compliance with the
covenant described in "--Reports", plus (2) 100% of the aggregate Net Cash
Proceeds received by the Company after the Issue Date from the issuance and
sale permitted by the Indenture of (A) its Capital Stock (other than
Disqualified Stock) to a Person who is not a Subsidiary of the Company, or (B)
the issuance to a Person who is not a Subsidiary of the Company of
Indebtedness of the Company that has been exchanged for or converted into
Capital Stock of the Company, plus without duplication of amounts included
pursuant to clause (1) above, (3) an amount equal to the net reduction in
Investments (other than reductions in Permitted Investments) in any Person
resulting from payments of dividends, repayments of loans or advances, or
other transfers of assets, in each case to the Company or any Restricted
Subsidiary, or designations of Unrestricted Subsidiaries as Restricted
Subsidiaries (valued in each case as provided in the definition of
"Investments"), in the aggregate under this subclause (3) not to exceed the
amount of Investments previously made by the Company and its Restricted
Subsidiaries in such Person.
The foregoing provision shall not be violated by reason of: (i) the payment
of any dividend within 60 days after the date of declaration thereof if, at
said date of declaration, such payment would comply with the foregoing
paragraph; (ii) the payment of dividends or distributions by a Restricted
Subsidiary on its Capital Stock to the Company or any other Restricted
Subsidiary that owns equity interests in the Restricted Subsidiary making the
respective payment; (iii) in connection with a payment of dividends or
distributions by a Restricted Subsidiary to its shareholders generally, the
payment to the minority shareholders, if any, of such Restricted Subsidiary of
dividends or distributions (not to exceed their proportionate share of the
dividends or distributions so paid); provided that in no case shall any
Affiliate Minority Shareholder be entitled to receive dividends or
distributions pursuant to this clause (iii); (iv) so long as no Default or
Event of Default shall have occurred and be continuing, the making of any
principal payment or repurchase, redemption, retirement, defeasance or other
acquisition for value of Indebtedness of the Company which is subordinated in
right of payment to the Senior Notes, in exchange for, or out of the proceeds
of a substantially concurrent issuance of, shares of the Capital Stock of the
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Company; (v) so long as no Default or Event of Default shall have occurred and
be continuing, a Permitted Refinancing; or (vi) Permitted Investments;
provided, that, with respect to Investments by the Company in a Restricted
Subsidiary, no more than an aggregate principal amount of $35.0 million of the
gross proceeds of the Initial Senior Notes shall be applied to make
Investments in the Capital Stock of Restricted Subsidiaries and provided
further that the aggregate Investment in any Restricted Subsidiary in the form
of Intercompany Notes shall not exceed 20% of the gross proceeds of the Notes.
The amounts referred to in clauses (i), (iii) and (iv) shall be included as
Restricted Payments in any computation made pursuant to the first paragraph
above.
Not later than the making of any Restricted Payment, the Company shall
deliver to the Indenture Trustee an Officers' Certificate (as defined in the
Indenture) stating that such Restricted Payment is permitted and setting forth
the basis upon which the calculations required by the "--Limitation on
Restricted Payments" covenant were computed.
Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries
So long as any of the Senior Notes are outstanding, the Company will not,
and will not permit any Restricted Subsidiary to, create or otherwise cause or
suffer to exist or become effective any consensual encumbrance or consensual
restriction of any kind on the ability of any Restricted Subsidiary to (i) pay
dividends or make any other distributions permitted by applicable law on any
Capital Stock of such Restricted Subsidiary owned by the Company or any other
Restricted Subsidiary, (ii) pay any Indebtedness owed to the Company or any
other Restricted Subsidiary, (iii) make loans or advances to the Company or
any other Restricted Subsidiary or (iv) transfer any of its property or assets
to the Company or any other Restricted Subsidiary.
The foregoing provisions shall not restrict any encumbrances or
restrictions: (i) existing on the Issue Date, including those in the Indenture
or in the Existing Indebtedness, and any Permitted Refinancings thereof;
provided that the encumbrances and restrictions in any such Permitted
Refinancings are in the aggregate not materially more restrictive than those
encumbrances or restrictions that are then in effect and that are being
extended, refinanced, renewed or replaced; (ii) existing under or by reason of
applicable law and not due to any contractual arrangement; (iii) in the case
of clause (iv) of the first paragraph of this covenant, (A) that restrict in a
customary manner the subletting, assignment or transfer of any property or
asset that is a lease, license, conveyance or contract or similar property or
asset, (B) existing by virtue of any transfer of, agreement to transfer,
option or right with respect to, or Lien on, any property or assets of the
Company or any Restricted Subsidiary not otherwise prohibited by the
Indenture, (C) arising or agreed to in the ordinary course of business, not
relating to any Indebtedness for borrowed money, and that do not, individually
or in the aggregate, detract from the value of property or assets of the
Company or any Restricted Subsidiary in any manner material to the Company or
any Restricted Subsidiary, (D) existing pursuant to any purchase money
obligations for property solely with respect to the property acquired or (E)
existing pursuant to any mortgage or construction financing that imposes
restrictions solely on the real property acquired or improved; (iv) with
respect to a Restricted Subsidiary and imposed pursuant to an agreement that
has been entered into for the sale or disposition of all or substantially all
of the Capital Stock of, or property or assets of, such Restricted Subsidiary;
or (v) included in Bank Indebtedness or Guarantees incurred pursuant to
clauses (iv) and (v) of the second paragraph of the "--Limitation on
Indebtedness" covenant, respectively, so long as, in the case of this clause
(v), the relevant restrictions in no event restrict payments to the Company to
be used by it to make payments of principal, interest or other amounts as
required pursuant to the terms of the Senior Notes or the Indenture other than
to require that no such payment be made if there is a default or event of
default with respect to the Bank Indebtedness or Guarantees. Nothing contained
in this "--Limitation on Dividend and Other Payment Restrictions Affecting
Restricted Subsidiaries" covenant shall prevent the Company or any Restricted
Subsidiary from (1) creating, incurring, assuming or suffering to exist any
Liens otherwise permitted in the "--Limitation on Liens" covenant or (2)
restricting the sale or other disposition of property or assets of the Company
or any of its Restricted Subsidiaries that secure Indebtedness of the Company
or any of its Restricted Subsidiaries.
Limitation on the Issuance and Sale of Capital Stock of Restricted
Subsidiaries
Under the terms of the Indenture, the Company will not sell, and will not
permit any Restricted Subsidiary, directly or indirectly, to issue or sell any
shares of Capital Stock of a Restricted Subsidiary (including options,
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warrants or other rights to purchase shares of such Capital Stock) except (i)
to the Company, a Wholly-Owned Subsidiary or, in the case of Restricted
Subsidiaries, the Municipal Shareholders of such Restricted Subsidiary so long
as such Restricted Subsidiary remains a Subsidiary of the Company; (ii) if,
immediately after giving effect to such issuance or sale, such Restricted
Subsidiary would no longer constitute a Restricted Subsidiary; (iii) issuances
or sales to foreign nationals of shares of Capital Stock of Restricted
Subsidiaries, to the extent required by applicable law; and (iv) issuances or
sales of Capital Stock of Restricted Subsidiaries to persons who after such
issuance or sale will hold a minority interest in such Restricted Subsidiary;
provided that in the case of clauses (ii) and (iv), the Company or such
Restricted Subsidiary applies the Net Cash Proceeds, if any, of any such sale
in accordance with the "--Limitation on Asset Sales" covenant described
herein.
Limitation on Issuances of Guarantees by Restricted Subsidiaries
Under the terms of the Indenture, the Company will not permit any Restricted
Subsidiary, directly or indirectly, to Guarantee any Indebtedness of the
Company ("Guaranteed Indebtedness"), unless (i) such Restricted Subsidiary
simultaneously executes and delivers a Subsidiary Guarantee and (ii) such
Restricted Subsidiary waives and will not in any manner whatsoever claim or
take the benefit or advantage of, any rights of reimbursement, indemnity or
subrogation or any other rights against the Company or any other Restricted
Subsidiary as a result of any payment by such Restricted Subsidiary under its
Subsidiary Guarantee; provided that this paragraph shall not be applicable to
any Guarantee of any Restricted Subsidiary that (A) (x) existed at the time
such Person became a Restricted Subsidiary and (y) was not incurred in
connection with, or in contemplation of, such Person becoming a Restricted
Subsidiary or (B) Guarantees of Bank Indebtedness incurred by the Company
pursuant to clause (iv) of the second paragraph of the "--Limitation on
Indebtedness" covenant. If the Guaranteed Indebtedness is (A) pari passu with
the Senior Notes, then the Guarantee of such Guaranteed Indebtedness shall be
pari passu with, or subordinated to, the Subsidiary Guarantee or (B)
subordinated to the Senior Notes, then the Guarantee of such Guaranteed
Indebtedness shall be subordinated to the Subsidiary Guarantee at least to the
extent that the Guaranteed Indebtedness is subordinated to the Senior Notes.
Notwithstanding the foregoing, any Subsidiary Guarantee by a Restricted
Subsidiary shall provide by its terms that it shall be automatically and
unconditionally released and discharged upon (i) any sale, exchange or
transfer, to any Person not an Affiliate of the Company, of all of the
Company's and each Wholly-Owned Subsidiary's Capital Stock in such Restricted
Subsidiary (which sale, exchange or transfer is not prohibited by the
Indenture) or (ii) the release or discharge of the Guarantee or other
Indebtedness which resulted in the creation of such Subsidiary Guarantee,
except a release or discharge by or as a result of payment under such
Guarantee.
Under certain circumstances, the Company may cause the execution and
delivery of Subsidiary Guarantees. Each Subsidiary Guarantee delivered by a
Restricted Subsidiary is limited to such amount as will not, after giving
effect thereto, and to all other liabilities of such Restricted Subsidiary,
result in such amount constituting a fraudulent transfer or conveyance.
Limitation on Transactions with Shareholders and Affiliates
Under the terms of the Indenture, the Company will not, and will not permit
any Restricted Subsidiary to, directly or indirectly, enter into, renew or
extend any transaction (including, without limitation, the purchase, sale,
lease or exchange of property or assets, or the rendering of any service) with
any legal or beneficial owner (or any Affiliate of such holder) of 5% or more
of any class of Capital Stock of the Company or with any Affiliate of the
Company or any Restricted Subsidiary (each of the foregoing, an "Affiliate
Transaction"), unless: (i) such Affiliate Transaction is on terms that are no
less favorable to the Company or such Restricted Subsidiary than those that
would have been obtained at the time of such transaction or at the time of the
execution of the agreement providing therefor in a comparable arm's-length
transaction with a Person that is not such a Related Person and (ii) the
Company delivers to the Indenture Trustee: (x) with respect to any Affiliate
Transaction involving aggregate payments in excess of $250,000 but less than
$2.5 million, a resolution of the Board of
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Directors of the Company set forth in an Officers' Certificate certifying that
such Affiliate Transaction complies with clause (i) above, (y) with respect to
any Affiliate Transaction involving aggregate payments equal to or greater
than $2.5 million but less than $15.0 million, a resolution of the Board of
Directors of the Company set forth in an Officers' Certificate certifying that
such Affiliate Transaction complies with clause (i) above and (A) that such
Affiliate Transaction has been approved by at least three disinterested
directors of the Board of Directors of the Company and, in any case, by a
majority of the disinterested directors of the Board of Directors of the
Company or (B) a written opinion as to the fairness to the Company or such
Restricted Subsidiary from a financial point of view issued by an independent
internationally recognized investment banking firm or independent Colombian
investment banking firm with respect to any such Affiliate Transaction, and
(z) with respect to any Affiliate Transaction involving aggregate payments
equal to or greater than $15.0 million, a resolution of the Board of Directors
of the Company set forth in an Officers' Certificate certifying that such
Affiliate Transaction complies with clause (i) above and a written opinion as
to the fairness to the Company or such Restricted Subsidiary from a financial
point of view issued by an independent internationally recognized investment
banking firm with respect to any such Affiliate Transaction.
Notwithstanding the foregoing, the following shall not be deemed Affiliate
Transactions: (i) any transaction between the Company and any of its
Restricted Subsidiaries or between Restricted Subsidiaries, provided such
transaction complies with clause (i) in the first paragraph above (other than
for amounts paid by a Restricted Subsidiary to the Company in respect of
corporate overhead); (ii) the payment of reasonable and customary regular fees
to directors of the Company who are not employees of the Company; (iii) any
payments or other transactions pursuant to any tax-sharing agreement between
the Company and any other Person with which the Company files a consolidated
tax return or with which the Company is part of a consolidated group for tax
purposes; (iv) Global I Leases, Global II Leases and Global III Leases, and
any extension, amendment, replacement or renewal thereof on substantially
similar terms; (v) any Restricted Payments not prohibited by the "--Limitation
on Restricted Payments" covenant; or (vi) equipment leases with Affiliates
entered into after the Issue Date; provided such leases comply with clause (i)
in the first paragraph above and the Company delivers to the Indenture Trustee
a resolution of the Board of Directors of the Company set forth in an
Officer's Certificate certifying that such Affiliate Transaction complies with
clause (i) in the first paragraph above, and contains terms substantially
similar to the terms of Global I Leases, Global II Leases and Global III
Leases, and any extension, amendment, replacement or renewal thereof.
Limitation on Liens
Under the terms of the Indenture, the Company will not, and will not permit
any Restricted Subsidiary to, create, incur, assume or suffer to exist any
Lien on any of its assets or properties of any character, or any shares of
Capital Stock or Indebtedness of any Restricted Subsidiary, except for
Permitted Liens.
The Indenture also provides that if the Company or any of its Restricted
Subsidiaries shall create, incur, assume or suffer to exist any Lien, other
than a Permitted Lien, on any assets or other property to secure Indebtedness
in violation of this covenant, the Company or such Restricted Subsidiary, as
the case may be, will make effective provision for securing the Senior Notes
equally and ratably with such Indebtedness as to such assets or other property
for so long as such Indebtedness shall be so secured.
Notwithstanding the foregoing, Permitted Liens may not extend to the Escrow
Account, the Escrow and Disbursement Agreement or the Intercompany Notes.
Limitation on Modifications to Certain Documents
The Company will not, and will not permit any of its Restricted Subsidiaries
to: (a) after the issuance thereof, amend or modify (or permit the amendment
or modification of) any of the terms or provisions of the Intercompany Notes
in any manner adverse to the interests of the Holders and the Indenture
Trustee under the Pledge Agreement, or forgive or reduce (except to extent
resulting from actual repayment to the Company in cash) the principal amount
of the Indebtedness evidenced thereunder, or (b) amend or modify any of the
terms
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or provisions of its estatutos sociales or other charter documents and, in the
case of the Restricted Subsidiaries, any lease agreement to which an Affiliate
of such Restricted Subsidiary or an Affiliate of the Company is a party, in
any manner adverse to the interests of the Holders.
Limitation on Asset Sales
Under the terms of the Indenture, the Company will not, and will not permit
any Restricted Subsidiary to, consummate any Asset Sale, unless (i) the
consideration received by the Company or such Restricted Subsidiary is at
least equal to the Fair Market Value of the assets sold or disposed of (as
determined in good faith by the Company's Board of Directors or if the Fair
Market Value of such assets (A) exceeds $10.0 million but is less than $25.0
million, the Company shall receive from an independent internationally
recognized investment banking firm or independent Colombian investment banking
firm or (B) exceeds $25.0 million, the Company shall receive from an
independent internationally recognized investment banking firm, a written
opinion in customary form as to the fairness, to the Company, of such Asset
Sale) and (ii) at least 75% of the consideration received consists of cash or
Cash Equivalents.
Upon the consummation of an Asset Sale, the Company may apply, or cause such
Restricted Subsidiary to apply, the Net Cash Proceeds relating to such Asset
Sale within 270 days of receipt thereof either to (A) permanently prepay any
Bank Indebtedness and, in the case of any Bank Indebtedness outstanding under
a revolving credit facility, to effect a permanent reduction in the
availability under such revolving credit facility, (B) invest in property or
assets that are used in a Telecommunications Business, or the acquisition of
Capital Stock of any Person primarily engaged in a Telecommunications Business
if, as a result of such acquisition, such Person would become a Restricted
Subsidiary and such acquisition is in compliance with the "--Limitation on
Restricted Payments" covenant or (C) a combination of prepayment and
investment permitted by the foregoing clauses (A) and (B). On the 271st day
after an Asset Sale or such earlier date, if any, as the Board of Directors of
the Company or of such Restricted Subsidiary determines not to apply any
portion of the Net Cash Proceeds relating to such Asset Sale as set forth in
Clauses (A), (B) or (C) of the preceding sentence (each, a "Net Proceeds Offer
Trigger Date"), such aggregate amount of Net Cash Proceeds which have not been
applied on or before such Net Proceeds Offer Trigger Date as permitted in
clauses (A), (B) or (C) of the preceding sentence (each a "Net Proceeds Offer
Amount") shall be applied by the Company to make an offer to purchase (the
"Net Proceeds Offer") on a date (the "Net Proceeds Offer Payment Date") not
less than 30 nor more than 45 days following the applicable Net Proceeds Offer
Trigger Date, from the Holders on a pro rata basis that amount of Senior Notes
equal to the Net Proceeds Offer Amount at a price equal to 100% of the
principal amount of the Senior Notes to be purchased, plus accrued and unpaid
interest thereon, if any, to the date of purchase; provided, however, that if
at any time any non-cash consideration received by the Company or any
Restricted Subsidiary of the Company, as the case may be, in connection with
any Asset Sale is converted into or sold or otherwise disposed of for cash
(other than interest received with respect to any such non-cash
consideration), then such conversion or disposition shall be deemed to
constitute an Asset Sale under the Indenture and the Net Cash Proceeds thereof
shall be applied in accordance with this covenant.
Notwithstanding the foregoing, if a Net Proceeds Offer Amount is less than
$5.0 million, the application of the Net Cash Proceeds constituting such Net
Proceeds Offer Amount to a Net Proceeds Offer may be deferred until such time
as such Net Proceeds Offer Amount plus the aggregate amount of all Net
Proceeds Offer Amounts arising subsequent to the Net Proceeds Offer Trigger
Date relating to such initial Net Proceeds Offer Amount from all Asset Sales
by the Company and its Restricted Subsidiaries aggregates at least $5.0
million, at which time the Company shall apply all Net Cash Proceeds
constituting all Net Proceeds Offer Amounts that have been so deferred to make
a Net Proceeds Offer (the first date the aggregate of all such deferred Net
Proceeds Offer Amounts is equal to $5.0 million or more shall be deemed to be
a Net Proceeds Offer Trigger Date).
Each Net Proceeds Offer will be mailed within not less than 30 nor more than
45 days following the applicable Net Proceeds Offer Trigger Date to the record
Holders as shown on the register of Holders, with a copy to the Pass Through
Trustee and the Indenture Trustee, and shall comply with the procedures set
forth in the Indenture. Upon receiving notice of the Net Proceeds Offer,
Holders may elect to tender their Senior Notes
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in whole or in part in integral multiples of $1,000 in exchange for cash. To
the extent Holders properly tender Senior Notes in an amount exceeding the Net
Proceeds Offer Amount, Senior Notes of tendering Holders will be purchased on
a pro rata basis (based on amounts tendered). A Net Proceeds Offer shall
remain open for a period of 20 Business Days or such longer period as may be
required by law.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder in
connection with the repurchase of Senior Notes (and the repurchase by the
Trust of the Certificates) pursuant to a Net Proceeds Offer (whether or not
such rule by its terms would be applied to such offer as a matter of law). To
the extent that the provisions of any securities laws or regulations conflict
with the "Asset Sale" provisions of the Indenture, the Company shall comply
with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations under the "Asset Sale" provisions of the
Indenture by virtue thereof.
Conduct of Business
The Indenture provides that the Company and its Restricted Subsidiaries may
not, directly or indirectly, engage in any business other than the
Telecommunications Business in Latin America; provided that in the event a
Change of Control occurs in which one or more Strategic Equity Investors gain
control of the Company this covenant shall no longer be of force or effect.
Reports
For so long as any of the Senior Notes remain outstanding, the Company will
file with the Indenture Trustee: (i) within 120 days after the end of each
fiscal year, (a) audited year-end consolidated financial statements prepared
in accordance with GAAP and reconciled to U.S. GAAP and (b) the information
described in Item 303 of Regulation S-K under the Securities Act, (ii) by
January 30, 1998, (a) unaudited quarterly consolidated financial statements
prepared in accordance with GAAP and reconciled to U.S. GAAP and (b) the
information described in Item 303 of Regulation S-K under the Securities Act,
with respect to the quarter ending September 30, 1997 and (iii) thereafter,
through and including the quarter ending September 30, 1999, within 75 days
after the end of each of the first three fiscal quarters of each fiscal year
(year to date only), (a) unaudited quarterly consolidated financial statements
prepared in accordance with GAAP and reconciled to U.S. GAAP (provided, that,
such quarterly financial statements and reconciliation to U.S. GAAP shall
continue to be provided for a period to be agreed to between the Company and
the Holders if 66 2/3% in principal amount of the outstanding Senior Notes
request) and (b) the information described in Item 303 of Regulation S-K under
the Securities Act, with respect to such period. Upon qualification of the
Indenture under the Trust Indenture Act, the Company shall also comply with
the provisions of Trust Indenture Act Section 314(a). In the event that the
Company is not required or shall cease to be required to file reports with the
Commission pursuant to the Exchange Act, the Company shall nevertheless
continue to file such reports with the Commission and the Indenture Trustee.
If the Indenture Trustee (at the Company's request and expense) is to mail the
foregoing information to the Holders, the Company shall supply such
information to the Indenture Trustee at least five days prior thereto.
ADDITIONAL AMOUNTS
The Company has covenanted in the Indenture that (A) for so long as the
Trust is required to pay any amounts on the Certificates, the Company will pay
to the Trust as additional sums on the Senior Notes (a) such amounts as may be
required so that the payments payable by the Trust will not be reduced as a
result of any Taxes imposed by any Taxing Authority on payments to the Trust
under the Indenture except to the extent that the Trust would not have been
obligated to pay Additional Amounts with respect to such amounts if such
payment had been made directly by the Trust to the Certificateholder and (b)
such amounts as may be necessary in order to satisfy the obligation of the
Trust to pay any (i) Additional Amounts in respect of the Certificates, and
(ii) any stamp, issue, transfer, sales, use, value-added property,
registration, documentary, enforcement or other similar taxes and other duties
(including interest and penalties) payable to any Taxing Authority in respect
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of the creation, issue or offering of the Certificates or any other documents
directly related to such creation, issue or offering; and (c) such amounts as
may be required so that the payments payable by the Trust will not be reduced
as a result of any Taxes or other liabilities imposed on the Trust, except to
the extent that the Company is required to pay such Taxes pursuant to (a) or
(b) of this paragraph. See also "Description of the Guarantees--Additional
Amounts."
EVENTS OF DEFAULT
The following events are defined as "Events of Default" in the Indenture:
(a) default in the payment of principal of, or premium, if any, on, the
Senior Notes when the same becomes due and payable at maturity, upon
acceleration, redemption or otherwise;
(b) default in the payment of interest on the Senior Notes when the same
becomes due and payable and such default continues for a period of 30 days;
(c) failure to perform or comply with the provisions described under "--
Offer to Purchase Upon Change of Control" or "--Limitation on Asset Sales,"
or the failure by the Company to deposit the amounts required to be
deposited in the Escrow Account and Refinancing Account, each in accordance
with the Escrow and Disbursement Agreement;
(d) failure to comply with the covenant described under "--Consolidation,
Merger and Sale of Assets;"
(e) the Company defaults in the performance of or breaches any other
covenant or agreement of the Company in the Indenture, the Senior Notes or
the Escrow and Disbursement Agreement and such default or breach continues
for a period of 30 consecutive days after written notice by the Indenture
Trustee or the Holders of 25% or more in aggregate principal amount of the
Senior Notes outstanding (other than those referred to in (a), (b), (c) or
(d));
(f) there occurs with respect to (A) any issue or issues of Indebtedness
(other than Intercompany Notes) of the Company or any Subsidiary having an
outstanding principal amount of $5 million or more in the aggregate for all
such issues of all such Persons or (B) any Intercompany Note of any
Restricted Subsidiary, in each case, whether such Indebtedness now exists
or shall hereafter be created, (I) an event of default that has caused the
holder thereof to declare such Indebtedness to be due and payable prior to
its final Stated Maturity and such Indebtedness has not been discharged in
full or such acceleration has not been rescinded or annulled within 30 days
following such acceleration and/or (II) the failure to make a principal
payment at the final Stated Maturity and such defaulted payment shall not
have been made, waived or extended within 30 days of such payment default
or any longer grace period provided for in such Indebtedness;
(g) one or more final judgments rendered against the Company or any of
its Subsidiaries (other than any judgment as to which a reputable insurance
or bonding company has accepted full liability in writing) aggregating in
excess of $5.0 million which judgments are not stayed within 60 days after
their entry;
(h) certain events of bankruptcy, liquidation, insolvency, "concordato",
reorganization or administration affecting the Company or any Subsidiary;
(i) there occurs with respect to the Global I Purchase Agreement, the
Global II Purchase Agreement, the purchase agreements to be entered into in
connection with the Global III Leases, or any future Global arrangements
permitted under the Indenture an event of default that has caused Siemens
to declare Global's Obligations under such purchase agreements to be due
and payable prior to such Obligations' Stated Maturity and (A) such
Obligations have not been discharged in full, or (B) such acceleration has
not been rescinded or annulled within 10 days following such acceleration;
and
(j) failure by Global to perform or comply with the Global Undertaking
Letter, or Global rejects being bound by the terms of the Global
Undertaking or repudiation by the Company of its obligations under the
Escrow and Disbursement Agreement for any reason.
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If any Event of Default (other than an Event of Default specified in clause
(h) above that occurs with respect to the Company occurs and is continuing
under the Indenture, the Indenture Trustee or the Holders of at least 25% in
aggregate principal amount of the Senior Notes outstanding by written notice
to the Company and the Indenture Trustee, may declare the Senior Notes
outstanding to be immediately due and payable at 100% of the unpaid principal
thereof plus accrued and unpaid interest thereon, if any. Upon such
declaration, the principal of, premium, if any, and accrued interest on the
Senior Notes outstanding shall become immediately due and payable. In case of
an Event of Default specified in clause (h) above or an Event of Default
specified in clause (i) above, the Senior Notes then outstanding shall ipso
facto become immediately due and payable at 100% of the principal amount
thereof plus accrued and unpaid interest thereon, if any, to the date of such
Event of Default, without any declaration or other act on the part of the
Indenture Trustee or any Holder.
At any time after a declaration of acceleration, but before a judgment or
decree for the payment of money due has been obtained by the Indenture
Trustee, the Holders of at least a majority in principal amount of the Senior
Notes may rescind and cancel such declaration and its consequences (i) if the
rescission would not conflict with any judgment or decree; (ii) if all
existing Events of Default have been cured or waived except non-payment of
principal or interest that has become due solely because of the acceleration;
(iii) to the extent the payment of such interest is lawful, interest on
overdue installments of interest and overdue principal, which has become due
otherwise than by such declaration of acceleration, has been paid; (iv) if the
Company has paid the Indenture Trustee its reasonable compensation and
reimbursed the Indenture Trustee for its expenses, disbursements and advances;
and (v) in the event of the cure or waiver of certain Events of Default
specified in clause (h) above, the Indenture Trustee shall received an
Officers' Certificate and an Opinion of Counsel that such Event of Default has
been cured or waived. For information as to the waiver of defaults, see "--
Modification and Waiver."
The Holders of a majority in principal amount of the outstanding Senior
Notes may direct the time, method and place of conducting any proceeding for
exercising any remedy available to the Indenture Trustee or exercising any
trust or power conferred on the Indenture Trustee. However, the Indenture
Trustee may refuse to follow any direction that conflicts with law or the
Indenture that the Indenture Trustee determines may be unduly prejudicial to
the rights of Holders of Senior Notes not joining in the giving of such
direction or that may involve the Indenture Trustee in personal liabililty. A
Holder may pursue any remedy with respect to the Indenture or the Senior Notes
only if: (i) the Holder gives the Indenture Trustee written notice of a
continuing Event of Default; (ii) the Holders of at least 25% in principal
amount of the then outstanding Senior Notes make a written request to the
Indenture Trustee to pursue the remedy; (iii) such Holder or Holders offer
and, if requested, provide to the Indenture Trustee indemnity satisfactory to
the Indenture Trustee against any loss, liability or expense; (iv) the
Indenture Trustee does not comply with the request within 15 days after
receipt of the request and the offer and, if requested, the provision of
indemnity; and (v) during such 15-day period, the Holders of a majority in
principal amount of the outstanding Senior Notes do not give the Indenture
Trustee a direction inconsistent with the request. However, the right of any
Holder of a Senior Note to receive payment of the principal of, premium, if
any, or interest on, such Senior Note or to bring suit for the enforcement of
any such payment, on or after the due date expressed in the Senior Notes,
shall not be impaired or affected without the consent of the Holder.
The Indenture requires certain officers of the Company to certify, within
120 days after the end of each fiscal year, that a review has been conducted
of the activities of the Company and its Restricted Subsidiaries, and of the
Company's and its Subsidiaries' performance under the Indenture or the Escrow
and Disbursement Agreement, and that the Company has fulfilled all obligations
under the Indenture or the Escrow and Disbursement Agreement, or, if there has
been a default in the fulfillment of any such obligation, specifying each such
default and the nature and status thereof. The Company will also be obligated
to notify the Indenture Trustee of any default or defaults in the performance
of any covenants or agreements under the Indenture or the Escrow and
Disbursement Agreement.
MERGER, CONSOLIDATION OR SALE OF ASSETS
The Company shall not consolidate with, merge with or into, or sell, convey,
transfer, lease or otherwise dispose of all or substantially all of its
property or assets (as an entirety or substantially an entirety in one
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transaction or a series of related transactions) to, any Person or permit any
Person to merge with or into the Company (other than a consolidation or merger
with or into a Restricted Subsidiary with a positive net worth where minority
shareholders of Restricted Subsidiaries receive only stock of the surviving
entity; provided that, in connection with any such merger or consolidation,
clauses (i) and (iv) below are complied with and no consideration (other than
Common Stock in the surviving Person or the Company) shall be issued or
distributed to the shareholders of the Company) unless: (i) the Company shall
be the surviving Person, or the Person (if other than the Company) formed by
such consolidation or into which the Company is merged or that acquired or
leased such property and assets of the Company shall be a corporation
organized and validly existing under the laws of Colombia or the United States
of America, any State thereof or the District of Columbia, and shall expressly
assume, by a supplemental indenture, executed and delivered to the Indenture
Trustee, all of the obligations of the Company under the Senior Notes and the
Indenture; (ii) immediately after giving effect to such transaction, no
Default or Event of Default shall have occurred and be continuing; (iii)
immediately after giving effect to such transaction on a pro forma basis, the
Company, or any Person becoming the successor obligor of the Senior Notes,
could incur at least $1.00 of Indebtedness under the first paragraph of clause
(a) of the "--Limitation on Indebtedness" covenant (without reliance upon any
of the exceptions in (a)(i) through (xi) under "--Limitation on
Indebtedness"); and (iv) the Company delivers to the Indenture Trustee an
Officers' Certificate (attaching, if applicable, the arithmetic computations
to demonstrate compliance with clause (iii)) and opinion of counsel, in each
case stating that such consolidation, merger or transfer and such supplemental
indenture complies with this provision and that all conditions precedent
provided for herein relating to such transaction have been complied with.
The Indenture provides that upon any consolidation, combination or merger or
any transfer of all or substantially all of the assets of the Company in
accordance with the foregoing, the surviving entity shall succeed to, and be
substituted for, and may exercise every right and power of, the Company under
the Indenture and the Senior Notes with the same effect as if such surviving
entity had been named as such; provided that solely for purposes of computing
amounts described in clause (C) of the first paragraph of the covenant "--
Limitation on Restricted Payments" above, any such surviving entity to the
Company shall only be deemed to have succeeded to and be substituted for the
Company with respect to periods subsequent to the effective time of such
merger, consolidation, combination or transfer of assets.
BANKRUPTCY ("CONCORDATO")
Under Colombian law, the procedure for reorganization differs from that in
the United States. Under Law 222/1995, upon admittance of the Company to the
concordato proceeding, the Company cannot make any payment or settle any of
its obligations (including the Senior Notes) without obtaining a written
consent of the Superintendency of Corporations. Furthermore, the Company is
restricted from making any payments, as from the same date of admission to
concordato and until (i) the concordato proceeding is terminated by the
Superintendency of Corporations because of failure to reach any agreement, in
which case the Company enters immediately into mandate liquidation or (ii) an
agreement is reached between the Company and its creditors during the
concordato and is declared by the Superintendency of Corporations to have been
(x) fulfilled or (y) terminated due to a breach of obligations under such
agreement. Any creditor who fails to file a timely claim under the concordato
will be barred from the concordato proceeding (except if during any hearing
such creditors are accepted to be a party of the concordato agreement) and
cannot receive any payment from the debtor during the period referred to in
the preceding sentence, although the statute of limitations applicable to such
creditor's claim will be tolled during such period.
SATISFACTION AND DISCHARGE
The Indenture will cease to be of further effect, and the Indenture Trustee,
on demand of and at the expense of the Company, will execute proper
instruments acknowledging satisfaction and discharge of the Indenture, when
(1) either (a) the Company shall have irrevocably paid in full all Guaranteed
Obligations (as such term is defined in the Certificate Guarantee) to the
Guarantee Trustee (as such term is defined in the Certificate
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Guarantee) pursuant to the terms of the Certificate Guarantee; or (b) all
Senior Notes theretofore authenticated and issued (other than (i) Senior Notes
which have been destroyed, lost or stolen and which have been replaced or paid
and (ii) Senior Notes for whose payment money has theretofore been deposited
in trust or segregated and held in trust by the Company and thereafter repaid
to the Indenture Trustee or discharged from such trust) have been delivered to
the Indenture Trustee for cancellation; or (c) all such Senior Notes not
theretofore delivered to the Indenture Trustee for cancellation (i) have
become due and payable; or (ii) will become due and payable within one year,
and the Company, in the case of (c)(i) or (ii) above, has deposited or caused
to be deposited with the Indenture Trustee as trust funds in trust an amount
sufficient to pay and discharge the entire indebtedness on such Senior Notes
not theretofore delivered to the Indenture Trustee for cancellation, for
principal of, premium, if any, and interest on the Senior Notes to the date of
such deposit (in the case of Senior Notes which have become due and payable)
together with irrevocable instructions from the Company directing the
Indenture Trustee to apply such funds to the payment thereof at maturity or
redemption, as the case may be; (2) the Company has paid or caused to be paid
all other sums payable hereunder by the Company; and (3) the Company has
delivered to the Indenture Trustee an Officers' Certificate and an Opinion of
Counsel, each stating that all conditions precedent herein provided for
relating to the satisfaction and discharge of the Indenture have been complied
with.
Notwithstanding the satisfaction and discharge of the Indenture, the
obligations of the Company to the Indenture Trustee with respect to
compensation, indemnification and reimbursement, the obligations of the
Indenture Trustee to any authenticating agent, registrar, co-registrar, paying
agent or transfer agent under the Indenture and, if money shall have been
deposited with the Indenture Trustee pursuant to subclause (c) of clause (1)
above, the obligations of the Indenture Trustee with respect to notices of
default under the Indenture shall survive.
AMENDMENT, SUPPLEMENT AND WAIVER
Without Consent of Holders of Senior Notes
From time to time, the Company and the Indenture Trustee, without the
consent of the Holders of not less than a majority in aggregate principal
amount of the Senior Notes, may amend the Indenture for the following
purposes, so long as such change does not adversely affect the rights of any
of the Holders. The Indenture Trustee will be entitled to rely on such
evidence as it deems appropriate, including, without limitation, solely on an
Opinion of Counsel that such change does not adversely affect the rights of
any Holder, in executing any supplemental indenture.
Notwithstanding the provisions in the Indenture with respect to amending or
supplementing with consent of Holders of the Senior Notes, the Company and the
Indenture Trustee may amend or supplement the Indenture, the Notes or the
Escrow and Disbursement Agreement without the consent of any Holder of a
Senior Note: (a) to cure any ambiguity, defect or inconsistency; (b) to
provide for uncertificated Senior Notes in addition to or in place of
certificated Senior Notes; (c) to provide for the assumption of the Company's
obligations to the Holders of the Senior Notes in the case of a merger or
consolidation; (d) to execute and deliver any documents necessary or
appropriate to release Liens on the Escrow Account and the Refinancing
Account; (e) to make any change that would provide any additional rights or
benefits to the Holders of the Senior Notes or that does not adversely affect
the legal rights hereunder of any Holder of the Senior Notes; or (f) to comply
with requirements of the Commission in order to effect or maintain the
qualification of this Indenture under the Trust Indenture Act.
Upon the written request of the Company accompanied by a resolution of the
Board of Directors of the Company authorizing the execution of any such
amended or supplemental Indenture, and upon receipt by the Indenture Trustee
of the documents described in the Indenture, the Indenture Trustee shall join
with the Company in the execution of any amended or supplemental Indenture
authorized or permitted by the terms of the Indenture and to make any further
appropriate agreements and stipulations which may be therein contained, but
the Indenture Trustee shall not be obligated to enter into such amended or
supplemental Indenture which affects its own rights, duties or immunities
under the Indenture or otherwise.
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With Consent of Holders of Senior Notes
The Company and the Indenture Trustee may amend or supplement the Indenture,
the Senior Notes or the Escrow and Disbursement Agreement or any amended or
supplemental Indenture with the written consent of the Holders of Senior Notes
of not less than a majority in aggregate principal amount of the Senior Notes
then outstanding, and any existing Default and its consequences or compliance
with any provision of the Indenture, the Senior Notes or the Escrow and
Disbursement Agreement may be waived with the consent of the Holders of a
majority in principal amount of the then outstanding Senior Notes.
Upon the request of the Company accompanied by a resolution of the Board of
Directors of the Company authorizing the execution of any such amended or
supplemental Indenture, and upon the filing with the Indenture Trustee of
evidence satisfactory to the Indenture Trustee of the consent of the Holders
of Senior Notes as aforesaid, and upon receipt by the Indenture Trustee of the
documents described in the Indenture, the Indenture Trustee shall join with
the Company in the execution of such amended or supplemental Indenture unless
such amended or supplemental Indenture affects the Indenture Trustee's own
rights, duties or immunities under the Indenture or otherwise, in which case
the Indenture Trustee may in its discretion, but shall not be obligated to,
enter into such amended or supplemental Indenture.
It shall not be necessary for the consent of the Holders of Senior Notes to
approve the particular form of any proposed amendment or waiver, but it shall
be sufficient if such consent approves the substance thereof.
After such amendment, supplement or waiver becomes effective, the Company
shall mail to the Holders of Senior Notes affected thereby a notice briefly
describing the amendment, supplement or waiver. Any failure of the Company to
mail such amended notice, or any defect therein, shall not, however, in any
way impair or affect the validity of any such amended or supplemental
Indenture or waiver. Subject to provisions in the Indenture, the Holders of a
majority in aggregate principal amount of the Senior Notes then outstanding
may waive compliance in a particular instance by the Company with any
provision of the Indenture or the Senior Notes. However, without the consent
of each Holder affected thereby, an amendment or waiver may not (with respect
to any Senior Notes held by a non-consenting Holder of Senior Notes); (a)
reduce the principal amount of Senior Notes whose Holders must consent to an
amendment, supplement or waiver; (b) reduce the principal of or change or have
the effect of changing the fixed maturity of any Senior Note or change the
date on which any Senior Note may be subject to redemption or repurchase, or
reduce the redemption or repurchase price thereof; (c) reduce the rate of or
change or have the effect of changing the time for payment of interest,
including defaulted interest, on any Senior Notes; (d) waive a Default or
Event of Default in the payment of principal of or premium, if any, or
interest on the Senior Notes (except a rescission of acceleration of the
Senior Notes by the Holders of at least a majority in aggregate principal
amount of the Senior Notes and a waiver of the payment default relating solely
to the principal or interest that has become due solely because of the
acceleration); (e) make any Senior Note payable in money other than that
stated in the Senior Notes; (f) make any change in the provisions of the
Indenture relating to waivers of past Defaults or the rights of Holders of
Senior Notes to receive payments of principal of or interest on the Senior
Notes on or after the due date thereof or to bring suit to enforce such
payment; (g) waive a redemption payment with respect to any Senior Note (other
than certain payments referenced in the Indenture); (h) amend, change or
modify in any material respect the obligation of the Company to make and
consummate a Change of Control Offer in the event of a Change of Control or
make and consummate a Net Proceeds Offer with respect to any Asset Sale that
has been consummated or modify any of the provisions or definitions with
respect thereto; (i) make any change in the foregoing amendment and waiver
provisions; or (j) directly or indirectly release Liens on all or
substantially all of the collateral except as permitted by the Escrow and
Disbursement Agreement.
NO PERSONAL LIABILITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS, DIRECTORS, OR
EMPLOYEES
No director, officer, employee, incorporator or stockholder of the Company,
as such, shall have any liability for any obligations of the Company under the
Senior Notes, the Indenture or the Escrow and Disbursement Agreement or for
any claim based on, in respect of, or by reason of, such obligations or their
creation. Each Holder of the Senior Notes, by accepting a Senior Note, waives
and releases all such liability. The waiver and release are part of the
consideration of issuance of the Senior Notes.
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CONCERNING THE INDENTURE TRUSTEE
The Indenture Trustee's address is Marine Midland Bank, 140 Broadway, 12th
Floor, New York, New York 10005. The Indenture provides that, except during
the continuance of a Default, the Indenture Trustee will not be liable, except
for the performance of such duties as are specifically set forth in such
Indenture. If an Event of Default has occurred and is continuing, the
Indenture Trustee will use the same degree of care and skill in its exercise
of the rights and powers vested in it by the Indenture as a prudent person
would exercise under the circumstances in the conduct of such person's own
affairs.
The Indenture, and provisions of the Trust Indenture Act incorporated by
reference therein, contain limitations on the rights of the Indenture Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases or to realize on certain property received by it in respect of
any such claims, as security or otherwise. The Indenture Trustee is permitted
to engage in other transactions; provided, however, that if it acquires any
conflicting interest, it must eliminate such conflict within 90 days, apply to
the Commission for permission to continue as trustee or resign.
GOVERNING LAW
The Indenture provides that the Indenture and the Senior Notes issued
thereunder will be governed by and construed in accordance with the laws of
the State of New York without regard to principles of conflict of laws.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
covenants and other provisions of the Indenture. Reference is made to the
Indenture for the full definition of all terms as well as any other
capitalized term used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person, Indebtedness of
any other Person existing at the time such other Person merged with or into or
became a Restricted Subsidiary of such specified Person or Indebtedness
incurred by such Person in connection with the acquisition of assets,
including, without limitation, Indebtedness incurred or assumed in connection
with, or in contemplation of, such other Person merging with or into or
becoming a Restricted Subsidiary of such specified Person or the acquisition
of such assets, as the case may be.
"Affiliate" means, as applied to any Person, any other Person directly or
indirectly controlling, controlled by, or under direct or indirect common
control with, such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled
by" and "under common control with"), as applied to any Person, is defined to
mean the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of such Person, whether through
the ownership of voting securities, by contract or otherwise.
"Affiliate Minority Shareholder" at any time shall mean any minority
shareholder of a Restricted Subsidiary which is an Affiliate (other than a
Restricted Subsidiary) or Related Person (other than a Restricted Subsidiary)
of the Company.
"Annualized Pro Forma EBITDA" means with respect to any Person, such
Person's Pro Forma EBITDA for the latest fiscal quarter preceding the date of
calculation for which financial statements are then available multiplied by
four.
"Asset Acquisition" means (i) an Investment by the Company or any of its
Restricted Subsidiaries in any other Person pursuant to which such Person
shall become a Restricted Subsidiary of the Company or shall be merged into or
consolidated with the Company or any of its Restricted Subsidiaries or (ii) an
acquisition by the Company or any of its Restricted Subsidiaries of the
property or assets of any Person other than the Company or any of its
Restricted Subsidiaries that constitute substantially all of a division or
line of business of such Person.
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"Asset Sale" means any sale, transfer or other disposition (or series of
related sales, leases, transfers or dispositions) in one transaction or a
series of related transactions by the Company or any of its Restricted
Subsidiaries to any Person other than the Company or any of its Restricted
Subsidiaries of (i) any of the Capital Stock of any Restricted Subsidiary,
(ii) all or substantially all of the property or assets of an operating unit
or business of the Company (other than Capital Stock of the Company) or any of
its Restricted Subsidiaries or (iii) any other property or assets of the
Company or any of its Restricted Subsidiaries outside the ordinary course of
business of the Company or such Restricted Subsidiary and, in each case, that
is not governed by the provisions of the Indenture applicable to mergers,
consolidations and sales of assets of the Company; provided that (A) sales or
other dispositions of inventory, receivables and other current assets, (B)
sales or other dispositions of equipment that has become worn out, obsolete or
damaged or otherwise unsuitable for use in connection with the business of the
Company or its Restricted Subsidiaries, (C) sales and other dispositions
constituting Restricted Payments and Permitted Investments made in compliance
with the terms of the Indenture, (D) sales or other dispositions of assets
with a Fair Market Value (as certified in an Officers' Certificate) not in
excess of $500,000 and (E) issuances, sales or other dispositions of shares of
Capital Stock of Unrestricted Subsidiaries and issuances, sales or other
dispositions of shares of Capital Stock of Restricted Subsidiaries effected in
accordance with the "--Limitation on Issuance and Sale of Capital Stock of
Restricted Subsidiaries"; provided, in each case set forth in clause (E), that
the consideration received therefor by the Company, the Unrestricted
Subsidiary or the Restricted Subsidiary, as the case may be, has at least
substantially equal market value to the Company, the Unrestricted Subsidiary
or such Restricted Subsidiary as the shares of Capital Stock so issued, sold
or disposed of (as determined by the Board of Directors whose good faith
determination shall be conclusive and evidenced by a Board Resolution) shall
not be included within the meaning of "Asset Sale."
"Average Life" means, at any date of determination with respect to any debt
security, the quotient obtained by dividing (i) the sum of the products of (a)
the number of years from such date of determination to the dates of each
successive scheduled principal payment of such debt security and (b) the
amount of such principal payment by (ii) the sum of all such principal
payments.
"Bank Indebtedness" means loans made by banks, trust companies and other
institutions principally engaged in the business of lending money to
businesses to the Company or a Restricted Subsidiary under a credit facility,
loan agreement or similar agreement.
"Board of Directors" means the Board of Directors of the Company or any
committee of such Board of Directors duly authorized to act with respect to
the Indenture from time to time.
"Board Resolution" means a copy of a resolution, certified by the secretary
of the duly convened meeting or the legal representative or statutory auditor
of the Company to have been duly adopted by the Board of Directors and to be
in full force and effect on the date of such certification, and delivered to
the Indenture Trustee.
"Business Day" means a day (other than a Saturday or Sunday) on which DTC,
Euroclear, Cedel and banks in New York, Delaware and Colombia are open for
business.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations, rights in or other equivalents (however designated,
whether voting or non-voting) in equity of such Person, whether outstanding at
the Issue Date or issued after the Issue Date, including, without limitation,
all Common Stock and Preferred Stock, and any and all rights, warrants or
options exchangeable for or convertible into any thereof.
"Capitalized Lease" means, as applied to any Person, any lease or license
of, or other agreement conveying the right to use, any property (whether real,
personal or mixed, movable or immovable) of which the present value of the
obligations of such Person to pay rent or other amounts is required, in
conformity with U.S. GAAP, to be classified and accounted for as a finance
lease obligation; and "Capitalized Lease Obligation" is defined to mean the
capitalized present value of the obligations to pay rent or other amounts
under such lease or other agreement, determined in accordance with U.S. GAAP.
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"Cash Equivalents" means (i) any evidence of Indebtedness with a maturity of
365 days or less issued or directly and fully guaranteed or insured by the
United States of America or Colombia or any agency or instrumentality thereof
(provided that the full faith and credit of the United States of America or
Colombia, as the case may be, is pledged in support thereof); (ii)
certificates of deposit or acceptances with a maturity of 180 days or less of
any financial institution that is a member of the Federal Reserve System
having combined capital and surplus and undivided profits of not less than
$500 million; (iii) commercial paper with a maturity of 180 days or less
issued by a corporation that is not an Affiliate of the Company and is
organized under the laws of any state of the United States or the District of
Columbia and rated at least A-1 by S&P or at least P-1 by Moody's; (iv)
repurchase agreements and reverse repurchase agreements relating to marketable
direct obligations issued or unconditionally guaranteed by the United States
Government or issued by any agency thereof and backed by the full faith and
credit of the United States, as the case may be, in each case maturing within
one year from the date of acquisition; provided that the terms of such
agreements comply with the guidelines set forth in the United States Federal
Financial Agreements of Depository Institutions with Securities Dealers and
Others, as adopted by the United States Comptroller of the Currency; (v)
Colombian Peso deposits, with maturities of not more than 12 months from the
date of acquisition, in (A) Banco de Colombia, Banco Ganadero, Banco
Industrial Colombiano or Banco de Bogota or (B) any other bank or financial
institution incorporated under the laws of Colombia with total assets
exceeding the equivalent of $350 million; provided that the aggregate
principal amount of any such deposits in banks described in this subclause (B)
shall not exceed the equivalent of $10 million at any time outstanding; (vi)
repurchase agreements and reverse repurchase agreements relating to marketable
direct obligations issued or unconditionally guaranteed by Colombia and backed
by the full faith and credit of Colombia maturing within one year from the
date of acquisition, in each case entered into with any of the Colombian banks
specified in the preceding clause (v); provided that such agreement with banks
described in subclause (v) (B) shall be deemed a deposit for purposes of the
$10 million limit in such subclause; and (vii) investments in money market
funds all of the assets of which consist of securities of the types described
in the foregoing clauses (i) through (vi).
"Cedel" means Cedel Bank, societe anonyme.
"Change of Control" means the occurrence of any of the following events:
(i) the sale, lease, transfer, conveyance or other disposition, whether
direct or indirect (by way of a merger, consolidation or otherwise), by the
Company or a Restricted Subsidiary of the Company, in one or a series of
related transactions, of all or substantially all of the assets of the
Company and its Restricted Subsidiaries taken as a whole, to any Person
other than a Restricted Subsidiary of the Company;
(ii) the adoption of a plan relating to the liquidation or dissolution of
the Company;
(iii) a "person" or "group" (within the meaning of Sections 13(d) and
14(d)(2) of the Exchange Act), other than the Permitted Holders, becomes
the ultimate "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act) of (a) more than 35% of the total voting rights of the Common
Stock of the Company and (b) a greater percentage of the voting power of
the total Common Stock of the Company than that represented by the voting
power of the Common Stock of the Company then beneficially owned, in the
aggregate, by the Permitted Holders; or
(iv) individuals who on the Issue Date constitute the Board of Directors
of the Company (together with any new directors whose election by the Board
of Directors or whose nomination for election by the Company's shareholders
was approved by a vote of at least a majority of the members of the Board
of Directors then in office who either were members of the Board of
Directors on the Issue Date or whose election or nomination for election
was previously so approved) cease for any reason to constitute a majority
of the members of the Board of Directors then in office.
"Closing Price" on any Trading Day with respect to the per share price of
any shares of Capital Stock means the last reported sale price regular way or,
in case no such reported sale takes place on such day, the average of the
reported closing bid and asked prices regular way, in either case on the New
York Stock Exchange or, if such shares of Capital Stock are not listed or
admitted to trading on such exchange, on the principal national
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securities exchange on which such shares are listed or admitted to trading or,
if not listed or admitted to trading on any national securities exchange, on
the Nasdaq National Market or, if such shares are not listed or admitted to
trading on any national securities exchange or quoted on such automated
quotation system, the average of the closing bid and asked prices in the over-
the-counter market as furnished by any New York Stock Exchange member firm
that is selected from time to time by the Company for that purpose and is
reasonably acceptable to the Indenture Trustee.
"Collateral Agent" means Marine Midland Bank, as Collateral Agent under the
Pledge Agreement, or any other successor thereto appointed pursuant to such
agreement.
"Common Stock" means, with respect to any Person, any and all shares,
interests or other participations in, and other equivalents (however
designated and whether voting or non-voting) of such Person's common stock or
ordinary shares, whether or not outstanding at the Issue Date, and includes,
without limitation, all series and classes of such common stock or ordinary
shares.
"Consolidated EBITDA" for any period means the Consolidated Net Income for
such period plus to the extent deducted in calculating Consolidated Net Income
(i) Consolidated Income Tax Expense, (ii) net monetary inflation adjustment,
(iii) depreciation and amortization expenses, (iv) Net Financial Expense, (v)
minority interest, (vi) interest expense attributable to Capitalized Leases in
accordance with U.S. GAAP (whether or not in accordance with GAAP) and (vii)
all other non-cash charges (other than non-cash charges which require an
accrual of or reserve for cash charges in future periods), less any non-cash
items which have the effect of increasing Consolidated Net Income for such
period, plus (less) to the extent deducted (included) in Consolidated Net
Income, extraordinary losses (gains) and non-recurring items (including gains
and losses on Asset Sales) deducted (included) in calculating Consolidated Net
Income, each (except with respect to (vi) above) determined in accordance with
GAAP.
"Consolidated Income Tax Expense" for any Person for any period means,
without duplication, the aggregate amount of net taxes based on income or
profits for such period of the operations for such Person and its consolidated
Subsidiaries with respect to such period in accordance with GAAP.
"Consolidated Indebtedness" means the aggregate amount of Indebtedness of
the Company and its Restricted Subsidiaries on a consolidated basis.
"Consolidated Net Income" means, for any period, the aggregate net income
(or loss) of the Company and its Restricted Subsidiaries for such period
determined in conformity with GAAP; provided that the following items shall be
excluded in computing Consolidated Net Income (without duplication): (i) the
net income of any Person (other than net income attributable to a Restricted
Subsidiary) in which any Person (other than the Company or any of its
Restricted Subsidiaries) has a joint interest and the net income of any
Unrestricted Subsidiary, except to the extent of the amount of dividends or
other distributions actually paid to the Company or any of its Restricted
Subsidiaries by such other Person or such Unrestricted Subsidiary during such
period; (ii) the net income of any Restricted Subsidiary in which any Person
other than the Company or another Restricted Subsidiary has a minority
interest shall be excluded to the extent such net income is attributable to
such minority interests; (iii) the net income of any Restricted Subsidiary to
the extent that the declaration or payment of dividends or similar
distributions by such Restricted Subsidiary of such net income is not at the
time permitted by the operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulation
applicable to such Restricted Subsidiary, except that (A) the Company's equity
in the net income of any such Restricted Subsidiary for such period shall be
included in such Consolidated Net Income up to the aggregate amount of cash
actually distributed by such Restricted Subsidiary during such period to the
Company or another Restricted Subsidiary as a dividend or other distribution
(subject, in the case of a dividend or other distribution to a Restricted
Subsidiary, to the limitation contained in this clause) and (B) the Company's
equity in a net loss of any such Subsidiary for such period shall be included
in determining such Consolidated Net Income; (iv) without duplication, any
gains or losses (on an after-tax basis) attributable to Asset Sales; (v)
except for purposes of calculating the amount of Restricted Payments that may
be made pursuant to
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clause (C) of the first paragraph of the "--Limitation on Restricted Payments"
covenant, any amount paid or accrued as dividends on Preferred Stock of the
Company owned by Persons other than the Company and any of its Restricted
Subsidiaries; and (vi) all extraordinary gains and extraordinary losses.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any Restricted Subsidiary against fluctuations in currency values.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable) or upon the happening of any event, matures (other than any
maturity that results from an optional redemption by the issuer thereof) or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the option of the holder thereof, in whole or in part, on or
prior to the Stated Maturity of the Senior Notes; provided, however, that any
Capital Stock that would not constitute Disqualified Stock but for provisions
thereof giving holders thereof the right to require the Company to repurchase
or redeem such Capital Stock upon the occurrence of a Change of Control
occurring prior to the Stated Maturity of the Senior Notes shall not
constitute Disqualified Stock if (i) the change of control provisions
applicable to such Capital Stock are not more favorable to the holders of such
Capital Stock than the provisions applicable to the Senior Notes contained in
the covenant described under "Offer to Purchase Upon Change of Control" and
(ii) such Capital Stock specifically provides that the Company will not
repurchase or redeem any such stock pursuant to such provisions prior to the
Company's repurchase of Senior Notes as are required to be repurchased
pursuant to the covenant described under "Offer to Purchase Upon Change of
Control."
"Eligible Institution" means a commercial banking institution that has
combined capital and surplus of not less than $500 million or its equivalent
in foreign currency, whose debt is rated "A" (or higher) by S&P or Moody's at
the time as of which any investment or rollover therein is made.
"Equity Market Capitalization" of any Person means, as of any day of
determination, the product of (a) the aggregate number of outstanding shares
of Common Stock of such Person on such day (which shall not include any
options or warrants on, or securities convertible or exchangeable into, shares
of Common Stock of such Person) and (b) the average Closing Price of such
Common Stock over the 20 consecutive Trading Days immediately preceding such
day. If no such Closing Price exists with respect to shares of any such class,
the value of such shares for purposes of clause (b) of the preceding sentence
shall be determined by an independent internationally recognized investment
banking firm.
"Escrow Account" means an escrow account for the deposit of approximately
$35 million of the net proceeds from the sale of the Senior Notes under the
Escrow and Disbursement Agreement, representing funds sufficient to pay the
first four interest payments on the Senior Notes.
"Escrow Agent" means Marine Midland Bank, as Escrow Agent under the Escrow
and Disbursement Agreement, or any successor thereto appointed pursuant to
such agreement.
"Escrow and Disbursement Agreement" means the Escrow and Disbursement
Agreement, dated as of the date of the Indenture, by and among the Escrow
Agent, the Indenture Trustee and the Company, governing the disbursement of
funds from the Escrow Account and the Refinancing Account.
"Euroclear" means Morgan Guaranty Trust Company of New York, Brussels
office, as operator of the Euroclear system.
"Existing Indebtedness" means (i) the Indebtedness of the Company under the
Transtel-Siemens Purchase Agreement, (ii) the Obligations of the Restricted
Subsidiaries under the Global I Leases, Global II Leases and
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the Global III Leases, (iii) the Obligations of the Company under the DIAN
Financing, (iv) the obligations of the Company under the IBM Financing, and
(v) the Other Existing Indebtedness.
"Fair Market Value" means, with respect to any asset or property, the price
that could be negotiated in an arm's-length free-market transaction, for cash,
between a willing seller and a willing buyer, neither of whom is under
pressure or compulsion to complete the transaction. Unless otherwise specified
in the Indenture, Fair Market Value shall be determined by the Board of
Directors acting in good faith and shall be evidenced by a Board Resolution
delivered to the Indenture Trustee.
"GAAP" means, at any date of determination, generally accepted accounting
principles in Colombia as then in effect.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness or other obligation of
any other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of)
such Indebtedness or other obligation of such other Person (whether arising by
virtue of partnership arrangements, or by agreements to keep-well, to purchase
assets, goods, securities or services, to take-or-pay, or to maintain
financial statement conditions or otherwise) or (ii) entered into for purposes
of assuring in any other manner the obligee of such Indebtedness or other
obligation of the payment thereof or to protect such obligee against loss in
respect thereof (in whole or in part); provided that the term "Guarantee"
shall not include endorsements for collection or deposit in the ordinary
course of business. The term "Guarantee" used as a verb has a corresponding
meaning.
"Incur" means, with respect to any Indebtedness, to incur, create, issue,
assume, Guarantee or otherwise, contingently or otherwise, become liable,
directly or indirectly, for or with respect to, or become responsible for, the
payment of such Indebtedness, including an incurrence of Indebtedness by
reason of the acquisition of a Restricted Subsidiary. The term "incurrence"
has a corresponding meaning.
"Indebtedness" means, with respect to any Person at any date of
determination (without duplication), (i) any liability, contingent or
otherwise, of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments,
(iii) all obligations of such Person in respect of letters of credit or other
similar instruments (including reimbursement obligations with respect thereto
and purchase money obligations), (iv) all obligations of such Person to pay
the deferred and unpaid purchase price of property or services, which purchase
price is due more than 180 days after the date of placing such property in
service or taking delivery and title thereto or the completion of such
services, except Trade Payables, (v) all obligations of such Person as lessee
under Capitalized Leases in accordance with U.S. GAAP (whether or not in
accordance with GAAP); (vi) all Indebtedness of other Persons secured by a
Lien on any asset of such Person, whether or not such Indebtedness is assumed
by such Person, (vii) all Indebtedness of other Persons Guaranteed by such
Person to the extent such Indebtedness is Guaranteed by such Person, (viii) to
the extent not otherwise included in this definition, the Net Obligation under
Currency Agreements and Interest Rate Agreements, (ix) all obligations of such
Person to pay deferred Colombian taxes and duties to DIAN (or any other
Colombian taxing authority) with respect to imported equipment purchases and
leases and (x) any and all deferrals, renewals, extensions and refundings of,
or amendments of or supplements to, any liability or obligation of the kind
described in this definition. The amount of Indebtedness of any Person at any
date shall be the outstanding balance at such date of all unconditional
obligations as described above and, with respect to contingent obligations,
the maximum liability upon the occurrence of the contingency giving rise to
the obligation, provided that (A) the amount outstanding at any time of any
Indebtedness issued with original issue discount is the face amount of such
Indebtedness less the remaining unamortized portion of the original issue
discount of such Indebtedness at such time as determined in conformity with
GAAP and (B) the amount of Indebtedness for purposes of clause (vi) above
shall be the lesser of (x) the principal amount of the Indebtedness secured by
the assets of the relevant Person and (y) the Fair Market Value (as determined
by the board of directors of the relevant Person) of the assets securing such
Indebtedness.
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"Indebtedness to Annualized EBITDA Ratio" means, as at any date of
determination, the ratio of (i) the aggregate amount of Consolidated
Indebtedness to (ii) the Annualized Pro Forma EBITDA of the Company, each
calculated on the date of the incurrence of Indebtedness.
"Intercompany Note" means the promissory notes issued by a Restricted
Subsidiary to the Company upon making an advance or loan to such Restricted
Subsidiary with the proceeds of the Senior Notes, which Intercompany Notes (i)
are pledged to the Collateral Agent pursuant to the Pledge Agreement, (ii)
have the same Stated Maturity as the Senior Notes, (iii) contain a provision
that accelerates payment of the Intercompany Notes upon acceleration of the
Senior Notes and (iv) state that they are senior unsecured obligations of the
respective Restricted Subsidiary and rank senior in right of payment to all
existing and future subordinated Indebtedness of such Restricted Subsidiary
and rank pari passu with all Senior Indebtedness of such Restricted Subsidiary
(including the Indebtedness evidenced by the Global I Leases, Global II Leases
and Global III Leases).
"Interest Rate Agreement" means any interest rate protection agreement,
interest rate future agreement, interest rate option agreement, interest rate
swap agreement, interest rate cap agreement, interest rate collar agreement,
interest rate hedge agreement or other similar agreement or arrangement
designed to protect the Company or any of its Restricted Subsidiaries against
fluctuations in interest rates in respect of Indebtedness to or under which
the Company or any of its Restricted Subsidiaries is a party or a beneficiary
on the date of the Indenture or becomes a party or a beneficiary hereafter;
provided that the Net Obligation thereof does not exceed the principal amount
of the Indebtedness of the Company and its Restricted Subsidiaries that bears
interest at floating rates.
"Investment" means, with respect to any Person, any advance, loan, account
receivable (other than an account receivable arising in the ordinary course of
business), or other extension of credit (including, without limitation, by
means of any Guarantee) or any capital contribution to (by means of transfers
of property to others, payments for property or services for the account or
use of others, or otherwise), or any purchase or ownership of any stocks,
bonds, notes, debentures or other securities of, any other Person, and shall
include the designation of a Restricted Subsidiary as an Unrestricted
Subsidiary. For purposes of the definition of "Unrestricted Subsidiary"
described below and the "--Limitation on Restricted Payments" covenant
described above, (i) "Investment" shall include the Fair Market Value of the
assets (net of liabilities) of any Restricted Subsidiary at the time that such
Restricted Subsidiary is designated an Unrestricted Subsidiary and shall
exclude the Fair Market Value of the assets (net of liabilities) of any
Unrestricted Subsidiary at the time that such Unrestricted Subsidiary is
designated a Restricted Subsidiary of the Company, and (ii) any property
transferred to or from an Unrestricted Subsidiary shall be valued at its Fair
Market Value at the time of such transfer, in each case as determined by the
Board of Directors in good faith.
"Issue Date" means the original date of issuance of the Senior Notes.
"Lien" means any mortgage, charge, pledge, security interest, encumbrance,
lien (statutory or other), hypothecation, assignment for security, claim, or
preference or priority or other encumbrance of any kind upon or with respect
to any property, it being understood that Lien includes any lien granted in
any future receivables (including, without limitation, any conditional sale or
other title retention agreement or lease in the nature thereof, any sale with
recourse against the seller or any Affiliate of the seller or any agreement to
give any security interest).
"Marketable Securities" means (i) U.S. Government Securities maturing not
more than two years after the date of acquisition; (ii) any certificate of
deposit maturing not more than 270 days after the date of acquisition issued
by, or time deposit of, an Eligible Institution; (iii) commercial paper
maturing not more than 270 days after the date of acquisition issued by a
corporation (other than an Affiliate of the Company) with a rating, at the
time as of which any investment therein is made, of "A-1" (or higher)
according to S&P or "P-1" (or higher) according to Moody's; (iv) any banker's
acceptances or money market deposit accounts issued or offered by an Eligible
Institution; and (v) any fund investing exclusively in investments of the
types described in clauses (i) through (iv) above.
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"Moody's" means Moody's Investors Service Inc. and its successors.
"Municipal Shareholder" of a Restricted Subsidiary means the shareholder of
such Subsidiary that is a municipality in which such Restricted Subsidiary
conducts its business and such municipality's related entities.
"Net Cash Proceeds" means, (a) with respect to any Asset Sale, the proceeds
of such Asset Sale in the form of cash or Cash Equivalents, including payments
in respect of deferred payment obligations (to the extent corresponding to the
principal, but not interest, component thereof) when received in the form of
cash or Cash Equivalents (except to the extent such obligations are financed
or sold with recourse to the Company or any Restricted Subsidiary of the
Company) and proceeds from the conversion of other property received when
converted to cash or Cash Equivalents if converted within 12 months after
receipt, net of (i) brokerage commissions and other fees and expenses
(including fees and expenses of counsel and investment bankers) related to
such Asset Sale, (ii) provisions for all taxes (whether or not such taxes will
actually be paid or are payable) as a result of such Asset Sale without regard
to the consolidated results of operations of the Company and its Restricted
Subsidiaries, taken as a whole, (iii) payments made to repay Indebtedness or
any other obligation outstanding at the time of such Asset Sale (excluding the
Senior Notes and the Bank Indebtedness incurred by the Company or a Restricted
Subsidiary pursuant to clause (iv) of the second paragraph of the "--
Limitation on Indebtedness" covenant) that either (A) is secured by a Lien on
the property or assets sold or (B) is required to be paid as a result of such
sale and (iv) appropriate amounts to be provided by the Company or any
Restricted Subsidiary of the Company as a reserve against any liabilities
associated with such Asset Sale, including, without limitation, pension and
other post-employment benefit liabilities, liabilities related to
environmental matters and liabilities under any indemnification obligations
associated with such Asset Sale, all as determined in conformity with GAAP and
(b) with respect to any issuance or sale of Capital Stock, the proceeds of
such issuance or sale in the form of cash or Cash Equivalents, including
payments in respect of deferred payment obligations (to the extent
corresponding to the principal, but not interest, component thereof) when
received in the form of cash or Cash Equivalents (except to the extent such
obligations are financed or sold with recourse to the Company or any
Restricted Subsidiary of the Company) and proceeds from the conversion of
other property received when converted to cash or Cash Equivalents, net of
attorneys' fees, accountants' fees, underwriters' or placement agents' fees,
discounts or commissions and brokerage, consultant and other fees incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"Net Financial Expense" for any period means financial expenses, which
include interest expense, commissions, discounts and other fees and charges
paid or accrued with respect to letters of credit and bankers' acceptance
financing, and exchange losses less financial income, which includes interest
income, commercial discounts and exchange gains, all determined on a
consolidated basis in accordance with GAAP.
"Net Obligation" means, at any date of determination, the net amount,
exclusive of any commission or administrative fees that a Person would be
obligated to pay upon the termination of an Interest Rate Agreement or
Currency Agreement.
"Obligations" means any principal, interest, penalties, fees, payments,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Other Existing Indebtedness" means Indebtedness outstanding on the Issue
Date owed to various financial institutions which was to be repaid with
proceeds in the Refinancing Account.
"Paying Agent" means Marine Midland Bank, as Paying Agent under the
Indenture, or any successor thereto appointed pursuant to the Indenture.
"Permitted Holders" means Guillermo Lopez, Gonzalo Caicedo Toro, Gonzalo
Caicedo & Co., Maria Eugenia Caicedo Llano, Valentina Caicedo Toro or any
Person controlled by such Persons.
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"Permitted Investment" means so long as no Default or Event of Default shall
have occurred and be continuing (i) an Investment by the Company in a
Restricted Subsidiary or a Person which will, upon the making of such
Investment, become a Restricted Subsidiary or be merged or consolidated with
or into, or transfer or convey all or substantially all its assets to, the
Company or a Restricted Subsidiary; provided that (A) such Restricted
Subsidiary is a Wholly-Owned Subsidiary or an empresa mixta (mixed capital
company) under Law 142 with no Affiliate Minority Shareholders and (B) if such
Restricted Subsidiary ceases to be a Restricted Subsidiary (except by reason
of the sale by the Company or its Restricted Subsidiary of the Capital Stock
therein), then any Investment in such Restricted Subsidiary will be deemed to
be a Restricted Payment at the time of such event determined in accordance
with the "--Limitation on Restricted Payments" covenant; (ii) Cash
Equivalents; (iii) payroll, travel and similar advances to cover matters that
are expected at the time of such advances ultimately to be treated as expenses
in accordance with GAAP; (iv) stock, obligations or securities received in
satisfaction of judgments; and (v) an Investment in any Person (other than a
Restricted Subsidiary) engaged in a Telecommunications Business not to exceed
$10.0 million in the aggregate for all Investments under this clause (v) at
any time outstanding (determined without regard to any write-downs or write-
offs thereof).
"Permitted Liens" means:
(i) Liens on (x) the Escrow Account and the Refinancing Account and all
funds and securities therein securing only the Senior Notes and (y) the
Intercompany Notes securing only the Senior Notes;
(ii) Liens to secure Bank Indebtedness incurred by the Company or the
Restricted Subsidiaries in compliance with clause (iv) or the second
paragraph of the "--Certain Covenants--Limitation on Indebtedness" covenant
and Guarantees incurred by the Company or the Restricted Subsidiaries in
compliance with clause (iv) of the second paragraph of "--Certain
Covenants--Limitation on Indebtedness" executed in connection therewith;
(iii) Liens on the property of the Company or its Restricted Subsidiaries
created solely for the purpose of securing purchase money obligations
incurred in compliance with the "--Certain Covenants--Limitation on
Indebtedness" covenant; provided that (a) such property so acquired is for
use in lines of business related to the Company's or its Restricted
Subsidiaries' business as it exists immediately prior to the issuance of
the related Indebtedness, (b) no such Lien shall extend to or cover other
property or assets of the Company and its Restricted Subsidiaries other
than the respective property so acquired and (c) the principal amount of
Indebtedness secured by any such Lien shall at no time exceed the original
purchase price of such property or assets;
(iv) Liens on the property or assets of a Restricted Subsidiary acquired
after the Issue Date or on property or assets acquired in an asset purchase
transaction with a Person that is not an Affiliate created solely to secure
the Obligations that financed the acquisition of such Restricted Subsidiary
or such property or assets and which were incurred in compliance with the
"--Certain Covenants--Limitation on Indebtedness" covenant; provided that
(a) no such Lien shall extend to or cover property or assets of the Company
and its Restricted Subsidiaries other than the property or assets of the
Restricted Subsidiary so acquired or the property or assets so acquired and
(b) no such Lien shall extend to the Capital Stock of any Restricted
Subsidiary so acquired and (c) the principal amount of Indebtedness secured
by any such Lien shall not exceed the original purchase price of such
Restricted Subsidiary or such property or assets;
(v) Liens on assets of any entity existing at the time such entity or
assets are acquired by the Company or any of its Restricted Subsidiaries,
whether by merger, consolidation, purchase of assets or otherwise; provided
that such Liens (a) are not created, incurred or assumed in connection
with, or in contemplation of, such assets being acquired by the Company or
any of its Restricted Subsidiaries and (b) do not extend to any other
property of the Company or any of its Restricted Subsidiaries;
(vi) Liens for taxes, assessments, governmental charges or claims that
are being contested in good faith by appropriate legal proceedings promptly
instituted and diligently conducted and for which a reserve or other
appropriate provision, if any, as shall be required in conformity with GAAP
shall have been made;
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(vii) statutory Liens of landlords and carriers, warehousemen, mechanics,
suppliers, materialmen, repairmen or other similar Liens arising in the
ordinary course of business and with respect to amounts not yet delinquent
or being contested in good faith by appropriate legal proceedings promptly
instituted and diligently conducted and for which a reserve or other
appropriate provision, if any, as shall be required in conformity with GAAP
shall have been made;
(viii) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other
types of social security;
(ix) Liens on the Existing Indebtedness existing on the date of the
Indenture; provided such Liens on the Other Existing Indebtedness are
removed within 75 days after the Issue Date;
(x) Liens incurred or deposits made to secure the performance of tenders,
bids, leases, statutory or regulatory obligations, bankers' acceptances,
surety and appeal bonds, government contracts, performance and return-of-
money bonds and other obligations of a similar nature incurred in the
ordinary course of business (exclusive of obligations for the payment of
borrowed money);
(xi) easements, rights-of-way, municipal and zoning ordinances and
similar charges, encumbrances, title defects or other irregularities that
do not materially interfere with the ordinary course of business of the
Company or any of its Restricted Subsidiaries;
(xii) leases or subleases granted to others that do not materially
interfere with the ordinary course of business of the Company and its
Restricted Subsidiaries, taken as a whole;
(xiii) Liens encumbering property or assets under construction arising
from progress or partial payments by a customer of the Company or its
Restricted Subsidiaries relating to such property or assets;
(xiv) any interest or title of a lessor in the property subject to any
Capitalized Lease or operating lease;
(xv) Liens in favor of the Company or any Restricted Subsidiary;
(xvi) Liens arising from the rendering of a final judgment or order
against the Company or any Restricted Subsidiary of the Company that does
not give rise to an Event of Default;
(xvii) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of customs duties in connection with the
importation of goods;
(xviii) Liens arising out of conditional sale, title retention,
consignment or similar arrangements for the sale of goods entered into by
the Company or any of its Restricted Subsidiaries in the ordinary course of
business of the Company and its Restricted Subsidiaries; and
(xix) Liens to secure Obligations under Capitalized Leases (except in
respect of sale leaseback transactions) on real or personal property of the
Company to the extent consummated in compliance with the Indenture;
provided that (A) at the time such Lien attaches to the real or personal
property of the Company, the Company shall be permitted to incur at least
$1.00 of Indebtedness under the first paragraph of the "--Certain
Covenants--Limitation on Indebtedness" covenant (without reliance upon any
of the exceptions in clauses (a)(i) through (xi) under "--Certain
Covenants--Limitation on Indebtedness").
"Person" means any individual, corporation, partnership, joint venture,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"Pledge Agreement" means the Pledge Agreement, dated as of the date of the
Indenture, between the Company and the Collateral Agent, whereby the Company
pledges the Intercompany Notes to the Indenture Trustee.
"Preferred Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of such
Person's preferred or preference stock, whether now outstanding, or issued
after the Issue Date, and including, without limitation, all classes and
series of preferred or preference stock of such Person.
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"Pro Forma EBITDA" means for any Person for any period the Consolidated
EBITDA of such Person after giving effect to the following: (i) if, during the
period commencing on the first day of the relevant period through the
Transaction Date (the "Reference Period"), the Company or any Restricted
Subsidiaries have engaged in any Asset Sale, Pro Forma EBITDA of the Company
for such period shall be reduced by an amount equal to the Consolidated EBITDA
(if positive), or increased by an amount equal to the Consolidated EBITDA (if
negative), directly attributable to the assets which are the subject of such
Asset Sale, (ii) if during such Reference Period the Company or any Restricted
Subsidiaries have effected any Asset Acquisition, Pro Forma EBITDA of the
Company for such period shall be calculated using the historical results of
such acquired entity on a pro forma basis as if such acquisition had occurred
on the first day of such Reference Period and (iii) if during such Reference
Period, (A) the Company designates a Restricted Subsidiary as an Unrestricted
Subsidiary, Pro Forma EBITDA for the Company shall be reduced by an amount
equal to the Consolidated EBITDA (if positive), or increased by an amount
equal to the Consolidated EBITDA (if negative), directly attributable to the
designated Unrestricted Subsidiary and (B) the Company designates an
Unrestricted Subsidiary as a Restricted Subsidiary, Pro Forma EBITDA for the
Company shall be increased by an amount equal to the Consolidated EBITDA (if
positive), or decreased by an amount equal to the Consolidated EBITDA (if
negative), directly attributable to the designated Restricted Subsidiary.
"Public Equity Offering" means underwritten public offerings or quotations
or placements of Common Stock of the Company (i) that have been registered
with the Commission under the Securities Act, (ii) that have been registered
with the Superintendency of Corporations so long as a Level 3 American
Depositary Receipt Program is established in the United States in conjunction
therewith or (iii) that have been listed on the London Stock Exchange or the
Luxembourg Stock Exchange.
"Refinancing Account" means an escrow account for the deposit of $32,762,036
million of the net proceeds from the sale of the Senior Notes under the Escrow
and Disbursement Agreement.
"Registrar" means Marine Midland Bank, as registrar under the Indenture, or
any successor thereto appointed pursuant to the Indenture.
"Related Person" means any holder (or any Affiliate of such holder) of 5% or
more of any class of Capital Stock of the Company and any Affiliate of the
Company or any Restricted Subsidiary.
"Restricted Subsidiary" means any Subsidiary of the Company (including any
Subsidiary which has an outstanding Intercompany Note to the Company and each
newly acquired or newly formed Subsidiary of the Company) other than an
Unrestricted Subsidiary.
"S&P" means Standard & Poor's Corporation and its successors.
"Stated Maturity" is defined to mean, (i) with respect to any debt security,
the date specified in such debt security as the fixed date on which the final
installment of principal of such debt security is due and payable and (ii)
with respect to any scheduled installment of principal of or interest on any
debt security, the date specified in such debt security as the fixed date on
which such installment is due and payable.
"Strategic Equity Investor" means any Person (and any Subsidiary of such
Person) that, both as of the Trading Day immediately before the day of such
sale and the Trading Day immediately after the day of such sale, has an Equity
Market Capitalization of at least $1.0 billion (or the Peso equivalent on the
day of such sale) and is engaged in the Telecommunications Business.
"Subordination Agreement" shall mean an agreement, which may be incorporated
into the terms of the respective Indebtedness, for the benefit of the Holders
of the Senior Notes to the effect that (i) the Indebtedness subject to such
Subordination Agreement is subordinated in right of payment to the Senior
Notes, (ii) in any bankruptcy, insolvency or similar proceeding with respect
to the respective obligor (or any guarantor) of such Indebtedness, no payment
shall be made thereon until the payment in full in cash of all principal,
interest and
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other amounts owing with respect to the Senior Notes, (iii) if there is any
default in any payment when due of principal of, premium on, interest on or
any other amount owing with respect to any Senior Notes, then until all such
payment defaults have been cured by the payment in full in cash of the amounts
then due, no payment shall be permitted to be made on the Indebtedness subject
to the Subordination Agreement and (iv) if any payments are received by a
holder of Indebtedness subject to a Subordination Agreement in contravention
of the provisions of the Subordination Agreement, such amount shall be held
for the benefit of, and shall be turned over to the Trustee for the benefit
of, the Holders of the Senior Notes.
"Subsidiary" is defined to mean, with respect to any Person, any
corporation, association or other business entity (i) of which outstanding
Capital Stock having at least a majority of the votes entitled to be cast in
the election of directors is owned, directly or indirectly, by such Person
and/or one or more other Subsidiaries of such Person, or (ii) of which at
least a majority of voting interest is owned, directly or indirectly, by such
Person and one or more other Subsidiaries of such Person.
"Subsidiary Guarantee" is defined as the Guarantee of a Subsidiary in favor
of the Trustee for the benefit of the Noteholders substantially in the form of
the Exhibit relating thereto to the Indenture.
"Tax" is defined to mean any tax, duty, levy, impost, assessment or other
governmental charge (including penalties, interest, additions to tax and any
other liabilities related thereto).
"Taxing Authority" is defined to mean any government or political
subdivision or territory or possession of Colombia, the United States, or any
jurisdiction in which the Trust, the Company or any of the Company's
Restricted Subsidiaries is organized or engaged in business for tax purposes
or any authority or agency therein or thereof having power to tax.
"Telecommunications Business" means the development, ownership and/or
operation of one or more telephone, telecommunications or information systems
and/or the provision of telephony, telecommunications and/or information
services and any related, ancillary or complementary business, including,
without limitation, local and long distance telephony, telecommunications and
other information and transmission services such as the Internet.
"Trade Payables" means any accounts payable or other indebtedness or
monetary obligation to trade creditors created, assumed or Guaranteed by the
Company or any of its Restricted Subsidiaries arising in the ordinary course
of business in connection with the acquisition of goods or services.
"Trading Day," with respect to a securities exchange or automated quotation
system, means a day on which such exchange or system is open for a full day of
trading.
"Transaction Date" means, with respect to the incurrence of any Indebtedness
by the Company or any of its Restricted Subsidiaries, the date such
Indebtedness is incurred and, with respect to any Restricted Payment, the date
such Restricted Payment is made.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as it may be
amended from time to time.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by
the Board of Directors in the manner provided below and (ii) any Subsidiary of
an Unrestricted Subsidiary. The Board of Directors may designate any
Restricted Subsidiary of the Company (including any newly acquired or newly
formed Subsidiary of the Company), other than a Subsidiary that has given a
Subsidiary Guarantee or has Intercompany Notes outstanding, to be an
Unrestricted Subsidiary unless such Subsidiary owns any Capital Stock of, or
owns or holds any Lien on any property of, the Company or any Restricted
Subsidiary; provided that either (A) the Subsidiary to be so designated has
total assets of $10,000 or less or (B) if such Subsidiary has assets greater
than $10,000, (x) that such designation shall be deemed to be at the time of
such designation the making of a Restricted Payment at the time of such
designation
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in an amount equal to the Investment in such Subsidiary subject to the
restrictions contained in the "--Limitation on Restricted Payments" covenant
described above, (y) that no Default or Event of Default shall have occurred
and be continuing at the time of or after giving effect to such designation
and (z) the Company would be permitted to incur $1.00 of additional
indebtedness under the "--Limitation on Indebtedness" covenant described
above, assuming the effectiveness of such designation. The Board of Directors
may designate any Unrestricted Subsidiary to be a Restricted Subsidiary of the
Company; provided that immediately after giving effect to such designation (x)
all Indebtedness of such Subsidiary could be incurred under the "--Limitation
on Indebtedness" covenant described above and (y) no Default or Event of
Default shall have occurred and be continuing or result from such designation
(treating all outstanding Indebtedness of the Unrestricted Subsidiary as
incurred at the time of such designation). Any such designation by the Board
of Directors shall be evidenced to the Indenture Trustee by promptly filing
with the Indenture Trustee a copy of the Board Resolution giving effect to
such designation and an Officers' Certificate certifying that such designation
complied with the foregoing provisions.
"U.S. GAAP" means, at any date of determination, generally accepted
accounting principles in the United States as then in effect.
"U.S. Government Securities" means securities that are (i) direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged or (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States
of America, the payment of which is unconditionally guaranteed as a full faith
and credit obligation by the United States of America, which, in either case,
are not callable or redeemable at the option of the issuer thereof, and shall
also include a depository receipt issued by a bank (as defined in Section
3(a)(2) of the Securities Act) as custodian with respect to any such U.S.
Government Obligation or a specific payment of principal of or interest on any
such U.S. Government Obligation held by such custodian for the account of the
holder of such depository receipt; provided that (except as required by law)
such custodian is not authorized to make any deduction from the amount payable
to the holder of such depository receipt from any amount received by the
custodian in respect of the U.S. Government Obligation or the specific payment
of principal of or interest on the U.S. Government Obligation evidenced by
such depository receipt.
"Wholly-Owned Subsidiary" means any Subsidiary of the Company, all of the
outstanding Capital Stock (other than directors' qualifying shares), or in the
case of a non-corporate Subsidiary, other equity interests having ordinary
voting power for the election of directors or other governing body of such
Subsidiary, of which is owned by the Company or another Wholly-Owned
Subsidiary of the Company or a combination thereof.
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TAXATION
The following describes the opinion of Lewin & Wills with respect to certain
Colombian tax considerations and the opinion of Dewey Ballantine LLP with
respect to certain United States federal income tax considerations associated
with the exchange of Original Certificates for Exchange Certificates and the
ownership and disposition of the Exchange Certificates by Exchange
Certificateholders who acquire the Exchange Certificates pursuant to the
Exchange Offer. These opinions are based upon existing Colombian tax law and
United States federal income tax law, which is subject to change, possibly
retroactively. These opinions only describe the material Colombian tax
consequences to Non-Colombian Holders (as defined herein) and the material
United States federal income tax consequences to United States Holders (as
defined herein) of exchange for, ownership of and disposition of Exchange
Certificates and do not describe all aspects of Colombian or United States
federal income taxation.
The statements regarding United States and Colombian tax laws and practices
set forth below are based on the laws in force and as applied in practice on
the date of this Prospectus. These laws and practices are subject to changes
subsequent to the date of this Prospectus and any such changes may be
retroactive.
As used herein in referring to Certificateholders, a "Non-Colombian Holder"
means: (i) a natural person who is neither a citizen nor a resident of
Colombia; (ii) a company or other legal entity that is not organized under the
laws of Colombia or any political subdivision thereof; and (iii) any other
person that is not subject to Colombian income tax on a net income basis in
respect of the Certificates.
As used herein in referring to Certificateholders, a "United States Holder"
means: (i) a natural person who is either a citizen or a resident of the
United States; (ii) a corporation, partnership or other legal entity organized
under the laws of the United States, any State thereof or the District of
Columbia; (iii) an estate the income of which is subject to United States
federal income taxation regardless of its source; (iv) a trust (a) the
administration over which a United States court can exercise primary
supervision and (b) over which one or more United States persons have the
authority to control all substantial decisions; and (v) a person that for any
other reason is subject to United States federal income tax on a net income
basis in respect of the Exchange Certificates.
COLOMBIA
The following is the opinion of Lewin & Wills regarding certain aspects of
Colombian tax law relevant to the Senior Notes and the Certificates. Lewin and
Wills has not provided an opinion regarding the tax laws of any jurisdiction
other than Colombia.
Non-Colombian Holders will not be required to file any tax returns in
Colombia solely by reason of their ownership of the Certificates or their
interest in the Senior Notes, and will not be subject to Colombian income and
remittance withholding taxes to the extent payments on the Senior Notes do not
constitute Colombian source income. Article 25 of the Estatuto Tributario (the
"Colombian Tax Code") provides that credits obtained abroad (including bank
loans and debt securities) by Colombian companies carrying out activities
deemed to be of interest to the social and economic development of the
country, as determined by the National Council on Economic and Social
Policies, do not generate Colombian source income and will not be considered
to be possessed in Colombia. Resolution 54 of 1992 ("Resolution 54") of CONPES
established that all activities pertaining to the primary, manufacturing and
service sector are deemed to be of interest to the social and economic
development of the country. Under Colombian law, the Company's activities are
categorized as being part of the service sector. As a result, no income or
remittance tax will be withheld on interest payments on the Senior Notes by
the Company or on payments by the Issuer on the Certificates to Non-Colombian
Holders.
Resolution 54 may be rescinded or modified. In the event the Company's
activities were not deemed to be of interest for the social and economic
development of the country, interest payments on the Senior Notes from the
Company to Non-Colombian Holders could be subject to withholding tax at the
rate of 35% and withholding
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of remittance tax at the rate of 7% on the net amount of the payment after
deducting the withholding of income tax (a combined rate of 39.55%). If
withholding of such taxes on interest payments on the Senior Notes or the
Certificates were required, the Company generally would be required to pay
Additional Amounts to Non-Colombian Holders. See "Description of the Senior
Notes--Additional Amounts." Any gain realized on the sale, transfer, exchange
or other disposition of a Senior Note or Certificate by a Non-Colombian Holder
is not subject to Colombian capital gain taxes or to Colombian income tax.
There are no reciprocal tax treaties between the Colombian and the United
States governments regarding withholding.
There are no inheritance, gift or wealth taxes imposed by Colombia
applicable to Senior Notes or the Certificates.
The exchange of the Original Certificates for the Exchange Certificates in
the Exchange Offer (see "The Exchange Offer") will not constitute a taxable
event to Non-Colombian Holders for Colombian income tax purposes.
UNITED STATES
In General
The following is the opinion of Dewey Ballantine LLP regarding certain
aspects of United States federal law relevant to the Senior Notes and the
Certificates. Dewey Ballantine LLP has not provided an opinion regarding the
tax laws of any jurisdiction other than the United States.
Under current law, the Trust will be classified as a grantor trust (and not
as an association taxable as a corporation) for United States federal income
tax purposes and each Exchange Certificateholder will be treated as the owner
of a pro rata undivided interest in the Senior Notes and any other property
owned by the Trust. Each Exchange Certificateholder will be required to report
on its United States federal income tax return its pro rata share of the
income from the Senior Notes and any other property owned by the Trust, in
accordance with the Exchange Certificateholder's method of accounting.
The following deals only with Exchange Certificates that are held as capital
assets by certain United States Holders, and does not address special aspects
of United States federal income taxation that may be applicable to Exchange
Certificateholders that are subject to special tax rules with respect to the
Exchange Certificates, such as dealers or traders in securities or currencies,
financial institutions, insurance companies, tax-exempt entities, persons
holding Exchange Certificates as a part of a "hedging," "conversion" or
"integrated" transaction or as a position in a straddle, or persons whose
"functional currency" is not the U.S. dollar. Moreover, this opinion does not
address the federal United States income tax treatment of Exchange
Certificateholders that do not acquire Exchange Certificates in exchange for
Original Certificates that were acquired as part of the initial distribution
at the initial issue price. The opinion below is based upon the provisions of
the United States Internal Revenue Code of 1986, as amended (the "Internal
Revenue Code"), and regulations, rulings and judicial decisions thereunder as
of the date hereof; any such authority may be repealed, revoked or modified,
perhaps with retroactive effect, so as to result in United States federal
income tax consequences different from those discussed below. This opinion
does not discuss the potential impact of state and local taxes on an Exchange
Certificateholder by reason of its exchange of an Original Certificate for an
Exchange Certificate or its ownership of an Exchange Certificate.
The Exchange
The exchange of Original Certificates for Exchange Certificates pursuant to
the Exchange Offer will not be a taxable event for United States federal
income tax purposes. Accordingly, an Exchange Certificateholder receiving
Exchange Certificates pursuant to the terms of the Exchange Offer will have
the same adjusted tax basis and holding period in Exchange Certificates, for
United States federal income tax purposes, as such Original Certificateholder
had in the Original Certificates tendered in exchange therefor.
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Reporting of Interest Income
Each United States Holder of an Exchange Certificate will be required to
report interest (including any Additional Amounts) with respect to such
Exchange Certificate on its United States federal income tax return when such
interest is received or accrued by the Exchange Certificateholder, depending
upon its method of accounting. Such interest will be considered "foreign
source income" and, in general, "passive income" and, in the case of certain
United States Holders, "financial services income," for purposes of
calculating the Exchange Certificateholder's limitation on foreign tax
credits. In the case of an Exchange Certificateholder other than a
corporation, such interest income will, in general, also constitute
"investment income" for purposes of determining the deduction allowable for
investment interest.
In the event that Colombian income or remittance taxes are withheld with
respect to a payment by the Trust to a United States Holder, such Exchange
Certificateholder may deduct the amount of such taxes from its income, or,
alternatively, may, subject to generally applicable limitations, elect to
credit the amount of such taxes against its United States tax liability under
the foreign tax credit provisions of the Internal Revenue Code.
Payments of interest on an Exchange Certificate to a non-United States
Holder generally will not be subject to United States federal income tax,
provided that the Exchange Certificateholder provides the Pass Through Trustee
with the appropriate certificate to establish exemption from United States
withholding tax.
Sale, Exchange or Retirement
Upon the sale, exchange or retirement of an Exchange Certificate, a United
States Holder will recognize taxable gain or loss equal to the difference, if
any, between the amount realized on the sale, exchange or retirement and the
United States Holder's adjusted tax basis in such Certificate. A United States
Holder's adjusted tax basis in an Exchange Certificate generally will equal
the cost of the Original Certificate to the United States Holder of the
Original Certificate for which such Exchange Certificate was exchanged. Such
gain or loss generally will be capital gain or loss (except to the extent
attributable to accrued but unpaid interest that has not been included in
income, which will be taxable as ordinary income), and will be long-term
capital gain or loss if the Exchange Certificate has been held for more than
one year at the time of such sale, exchange or retirement, which holding
period will include the holding period of the Original Certificate. Under
legislation enacted in 1997, the top net capital gain tax rate for individual
taxpayers has been lowered from 28% maximum rate to 20% for property held for
more than 18 months (but remains at a maximum rate of 28% for property held
for more than one year, but not more than 18 months). The maximum net capital
gain tax rate for corporate taxpayers remains at 35%. Any gain realized on a
sale, exchange or retirement of an Exchange Certificate by a United States
Holder generally will be treated as United States source income.
Any gain realized by a non-United States Holder upon the sale, exchange or
retirement of an Exchange Certificate generally will not be subject to United
States federal income tax.
United States Backup Withholding Tax and Information Reporting
A 31% backup withholding tax and information reporting requirements apply to
certain payments of principal of, and interest on, an obligation and to
proceeds of the sale or redemption of an obligation, to certain noncorporate
United States Holders. The payor will be required to withhold 31% of any such
payment within the United States on an Exchange Certificate to a United States
Holder (other than an "exempt recipient," such as a corporation) if such
United States Holder fails to furnish its correct taxpayer identification
number or otherwise fails to comply with, or establish an exemption from, such
backup withholding requirements. Payments of principal and interest to a non-
United States Holder will not be subject to backup withholding tax and
information reporting requirements if an appropriate certification is provided
by the Certificateholder to the payor and the payor does not have actual
knowledge that such certification is false.
Any such withheld amounts are allowed as a credit against the Exchange
Certificateholder's United States federal income tax liability and may entitle
the Exchange Certificateholder to a refund provided the required
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information is furnished to the IRS. In addition, certain penalties may be
imposed by the IRS on an Exchange Certificateholder who is required to supply
information but fails to do so or does so in an improper manner.
PROSPECTIVE EXCHANGE CERTIFICATEHOLDERS OF THE EXCHANGE CERTIFICATES ARE
URGED TO CONSULT THEIR TAX ADVISORS CONCERNING THE PARTICULAR TAX CONSEQUENCES
OF EXCHANGING ORIGINAL CERTIFICATES FOR THE EXCHANGE CERTIFICATES, INCLUDING
THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN INCOME AND OTHER
TAX LAWS.
CERTAIN ERISA CONSIDERATIONS
A fiduciary of an employee benefit plan subject to Title I of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), or a plan
subject to Section 4975 of the Internal Revenue Code, including an entity
whose underlying assets are deemed to include assets of such an employee
benefit plan or plan (collectively, an "employee benefit plan"), considering
the purchase of Exchange Certificates must determine that the purchase of the
Exchange Certificates is consistent with its fiduciary duties under Title I of
ERISA and does not result in a non-exempt prohibited transaction under Section
406 of ERISA or Section 4975 of the Internal Revenue Code. "Prohibited
transactions" within the meaning of ERISA and Section 4975 of the Internal
Revenue Code may result if the Exchange Certificates are acquired by an entity
using the assets of an employee benefit plan with respect to which the Company
or certain of its affiliates is a "party in interest" or "disqualified
person", as defined in ERISA and Section 4975 of the Internal Revenue Code,
respectively, unless the Exchange Certificates are acquired pursuant to an
applicable exemption. In addition, under certain circumstances, investments in
the Exchange Certificates by employee benefit plans might result in assets of
the Trust being deemed to constitute "plan assets" subject to the regulatory
restrictions of ERISA. The level of investment by employee benefit plans in
the Exchange Certificates will not be monitored or restricted for purposes of
determining whether the assets of the Trust may be deemed to constitute such
"plan assets" or avoiding such status. In light of the foregoing
considerations, any employee benefit plan or other entity subject to Title I
of ERISA or Section 4975 of the Internal Revenue Code proposing to acquire the
Exchange Certificates should consult with legal counsel.
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FOREIGN INVESTMENT AND EXCHANGE CONTROLS IN COLOMBIA
The current legal framework for foreign investment in Colombia was
established by Law 9 of 1991, Resolution 51 of October 1991, as amended by
subsequent regulations, particularly Decree 1295 of 1996 (the "Foreign
Investment Statute") of the CONPES, and Resolution 21 of 1993 ("Resolution
21"), as amended by several resolutions issued by the Central Bank. The
guiding principles of the current regulatory framework are: (i) equality of
treatment: foreign and domestic investment in Colombia must receive equal
treatment, and discrimination is illegal; (ii) freedom of access: foreign
investment is permitted in any sector of the economy with the exception of
defense, national security, the processing, disposal, and discharge of toxic,
hazardous, or radioactive waste not produced in Colombia, and real estate
companies; and (iii) automatic procedures: except in a limited number of
cases, foreign investors need not follow any special authorization procedure
to invest in Colombia.
Under Colombian law there are three types of foreign capital investment.
First, there is direct investment, which is defined as any contribution (i.e.,
cash and debt capitalization) made by a foreigner into the capital of an
existing or newly formed company in Colombia. Second, there are investments
involving any acts or contracts whereby a foreign investor makes a
contribution to a company without taking an equity position; provided that the
income derived by the foreign investor depends on the profits generated by the
Company, and third, portfolio investment, which is made through a foreign
capital investment fund for the acquisition of shares and other securities
traded on Colombian stock exchanges.
Resolution 21 established two distinct foreign exchange markets: (i) the
formal foreign exchange market, which is conducted through authorized
financial intermediaries (each an "Authorized Intermediary") and is subject to
the procedures established by Resolution 21, as amended, which requires
certain specified transactions to be carried out through such Authorized
Intermediaries; and (ii) the free market, which is available for all
transactions not required to be conducted through Authorized Intermediaries,
including the exchange of foreign currency relating to professional services,
donations and sales of goods and services to tourists.
Since October 1991, exchange rates have been freely set by the market.
External Resolution No. 5 of 1997 of the Central Bank (the "Resolution"),
dated May 20, 1997, introduced fundamental changes to the regulation of
foreign indebtedness in Colombia.
From May 20, 1997 until the law is modified or repealed, Colombian residents
who obtain credits denominated in foreign currencies must make a deposit with
the Central Bank, prior to each disbursement of funds. The requirement applies
to both private and public entities. The deposit must be for 30% of the value
of the funds to be disbursed, converted into Colombian pesos at the
Representative Market Rate on the date of the conversion. The term of the
deposit required is 18 months. The deposit requirement applies without regard
to the term of the credit, with limited exceptions. After 18 months, the
deposit will be returned at its nominal value in Colombian pesos, in other
words, without interest or adjustment for devaluation.
It is no longer necessary to register foreign credit agreements with the
Central Bank prior to disbursement. Instead, one must provide proof of having
made the required deposit to the Central Bank. The following credit operations
are exempted from the deposit requirement: (i) credits in foreign currency
intended to finance investment by Colombians outside of Colombia, or for
personal expenses using credit cards; (ii) credits in foreign currency granted
to finance exports, with a term of one year or less, by Authorized
Intermediaries using funds from BANCOLDEX (the Colombian Government Foreign
Trade Bank), up to a maximum limit of $550,000 or the equivalent in other
currencies; (iii) credit operations entered into by Authorized Intermediaries
with financial institutions outside of Colombia, for the purpose of
implementing the operations such Authorized Intermediaries are authorized to
perform; (iv) the granting of credit in foreign currency by Colombian
residents or Authorized Intermediaries to Colombian residents who are outside
of Colombia; such credit may be granted directly or using the funds of public
agencies which provide discounts; although it is not necessary to make the
deposit in such cases, one must inform the Central Bank; (v) the import
financing of certain specified capital goods (see below); and (vi) the
financing of imports for a value of less than $5,000 or the equivalent in
other currencies.
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The import financing of certain capital goods is exempt from the deposit
requirement. The list of capital goods to which this exemption applies has
been expanded by the Resolution, and exempted goods now include all goods
categorized as "machinery" or "equipment" in lists used by the Colombian
taxation authority and by INCOMEX (a Foreign Trade Governmental Agency).
Foreign credits obtained by the government of Colombia, the departments or
other territorial entities and other decentralized public agencies (except
those which are designated as foreign exchange intermediaries) are also
subject to the deposit requirement. The Resolution provides that the interest
rate on such credits may not exceed the maximum preferred interest rate in the
New York market plus 5%, or the London interbank rate for one month plus 3%.
Nevertheless, when the credit is granted by Authorized Intermediaries, the
interest rate may exceed this maximum by an amount not exceeding the
Authorized Intermediaries discount margin.
The Resolution provides that credits in foreign currency may be obtained by
the placement of securities in the international capital markets, prior to
making the required deposit, so long as the credits are among those authorized
by the Resolution.
Users of free trade zones who obtain financing for the purchase of
merchandise must also make the deposit whenever the value of the financing is
greater than $5,000 and the term of the financing is greater than six months
from the date of the shipment or waybill. If the financing is for the purchase
of capital goods which are exempted, the deposit is not required.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Certificates for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver this
Prospectus in connection with any resale of such Exchange Certificates. This
Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer who holds Original Certificates acquired for its own
account as a result of market-making activities or other trading activities (a
"Participating Broker-Dealer") in connection with resales of Exchange
Certificates received in exchange for Original Certificates. For a period of
180 days after the Expiration Date, the Company will make this Prospectus,
amended or supplemented, available to any Participating Broker-Dealer for use
in connection with any such resale, provided that such Participating Broker-
Dealer indicates in the Letter of Transmittal that it is a broker-dealer. In
addition, until , 1998, (90 days after the date of this Prospectus), all
dealers affecting transactions in the Exchange Certificates may be required to
deliver a prospectus.
The Company will not receive any proceeds from the exchange of Original
Certificates for Exchange Certificates by broker-dealers. Exchange
Certificates received by broker-dealers for their own account pursuant to the
Exchange Offer may be sold from time to time in one or more transactions in
the over-the-counter market, in negotiated transactions, through the writing
of options on the Exchange Certificates or a combination of such methods of
resale, at market prices prevailing at the time of resale, or at prices
related to such prevailing market prices or at negotiated prices. Any such
resale may be made directly to purchasers or to or through broker-dealers who
may receive compensation in the form of commissions or concessions from any
such broker-dealer and/or the purchasers of any Exchange Certificates. Any
broker-dealer that resells Exchange Certificates that were received by it for
its own account pursuant to the Exchange Offer and any person that
participates in the distribution of such Exchange Certificates may be deemed
an "underwriter" within the meaning of the Securities Act and any profit on
any such resale of Exchange Certificates and any commissions or concessions
received by any such broker-dealers may be deemed to be underwriting
compensation under the Securities Act. The Letter of Transmittal states that
by acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act.
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ENFORCEMENT OF FOREIGN JUDGMENTS IN COLOMBIA
The courts of Colombia give effect to and enforce judgments of non-Colombian
courts through a process known as exequatur provided under Colombian law,
subject to the provisions of Articles 693 through 695 of the Colombian Code of
Civil Procedure. Such articles provide for enforcement by Colombian courts of
foreign judgments that are obtained without fraud and rendered after due
notice, provided that either (i) Colombia and the country where the foreign
judgment has been issued are parties to a treaty which recognizes the
enforceability of foreign judgments; or (ii) a judgment rendered by a court of
Colombia would be enforceable on a reciprocal basis in the country where such
foreign judgment is obtained, and that the foreign judgment (A) does not
relate to "in rem" rights vested in assets that were located in Colombia at
the time the suit was filed; (B) does not contravene any public policy laws or
regulations of Colombia, other than those governing judicial procedures; (C)
is a final judgment not subject to appeal in accordance with the applicable
foreign laws and an original certified copy of such judgment together with a
Spanish translation provided by an official translator, is filed with the
court; (D) does not refer to any matter upon which Colombian courts have
exclusive jurisdiction; (E) does not refer to any matter subject to a lawsuit
presently ongoing in Colombia or already decided by any court of Colombia; (F)
was obtained upon compliance with the applicable foreign laws relating to
service of process to the defendant, which compliance is presumed if the
judgment is final; and (G) is submitted to the exequatur procedure before the
Supreme Court of Colombia, which requires that the party proposing to enforce
the foreign judgment give prior judicial notice to any person or entity that
may be affected by the judgment.
Of those requirements imposed by the Colombian Code of Civil Procedure, the
two issues which are most likely to generate controversy in exequatur
proceedings are: (i) whether there exists an applicable treaty or reciprocity
between the two countries, as described in the previous paragraph; and (ii)
whether the foreign judgment contravenes Colombia's public policy laws and
regulations. The Company has been advised by Cavelier Abogados that the United
States and Colombia do not have a treaty providing for reciprocal recognition
and enforcement of judgments in civil and commercial matters; however, there
is a precedent (a ruling issued on July 19, 1994) in which the Supreme Court
of Colombia recognized the existence of such reciprocity based upon: (A)
evidence that a court in the State of Florida had accepted the validity of a
Colombian judgment in a certain case; and (B) declarations by the United
States lawyers acting as expert witnesses to the effect that courts in the
State of Florida had enforced judgments issued in Latin American countries
other than Colombia and that judgments issued by Colombian courts would be
enforced under the same principles. The Company can provide no assurance,
however, that this interpretation will prevail in future exequatur
proceedings. The Company does not believe, in the case of the Exchange
Certificates or the Certificate Guarantee, that a foreign judgment ordering
the payment of money would conflict with any of Colombia's current public
policy laws or regulations.
The Company has been advised by Cavelier Abogados that there can be no
assurance as to the enforceability, in original actions, in Colombian courts
of liabilities predicated solely on the United States federal or other non-
Colombian securities laws.
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BOOK-ENTRY; DELIVERY AND FORM
GENERAL
The Original Certificates offered and sold in reliance on Regulation S under
the Securities Act were initially represented by a single, permanent Global
Certificate in definitive, fully registered book-entry form (the "Regulation S
Global Certificate") which was registered in the name of a nominee of DTC and
deposited on behalf of the purchasers of the Original Certificates represented
thereby with the Trustee as custodian for DTC for credit to the respective
accounts of the purchasers (or to such other accounts as they may direct) at
the Euroclear System ("Euroclear") or Cedel Bank S.A. ("CEDEL"). The Original
Certificates offered and sold to "qualified institutional buyers" ("QIBs") in
reliance on Rule 144A under the Securities Act were initially represented by a
single, permanent Global Certificate in definitive, fully registered book-
entry form (the "Rule 144A Global Certificate," and, together with the
Regulation S Global Certificate, the "Original Global Certificates") which was
registered in the name of a nominee of DTC and deposited on behalf of
purchasers of the Original Certificates represented thereby with the Trustee
as custodian for DTC for credit to the respective accounts of the purchasers
(or to such other accounts as they may direct) at DTC. Except as set forth
below, the Exchange Certificates issued pursuant to the Exchange Offer will be
issued in global form (the "Exchange Global Certificates," and together with
the Original Global Certificates, the "Global Certificates").
GLOBAL CERTIFICATES
Upon the issuance of the Exchange Global Certificates, DTC or its custodian
will credit, on its internal system, the respective principal amount of the
individual beneficial interests represented by such Exchange Global
Certificate to the accounts of persons who have accounts with such depositary.
Such accounts initially will be designated by the Exchange Agent. Ownership of
beneficial interests in an Exchange Global Certificate will be limited to
persons who are members of, or participants in, DTC (the "Agent Members") or
persons who hold interests through Agent Members. Ownership of beneficial
interests in the Exchange Global Certificates will be shown on, and the
transfer of that ownership will be effected only through, records maintained
by DTC or its nominee (with respect to interests of Agent Members) and the
records of Agent Members (with respect to interests of persons other than
Agent Members).
So long as DTC, or its nominee, is a registered holder of a Global
Certificate, DTC or such nominee, as the case may be, will be considered the
absolute owner or holder of the Certificates represented by such Global
Certificate for all purposes under the Indenture and the Certificates, and the
Agent Members, as well as any other persons on whose behalf Agent Members may
act (including Euroclear and CEDEL and account holders and participants
therein), will have no rights under the Indenture or under a Global
Certificate. Owners of beneficial interests in a Global Certificate will not
be considered to be the owners or holders of any Certificates under the
Indenture or the Certificates.
In addition, no beneficial owner of an interest in a Global Certificate will
be able to exchange or transfer that interest, except in accordance with the
applicable procedures of DTC (the "Applicable Procedures").
Payments in respect of each Global Certificate registered in the name of
DTC's nominee will be made to the order of DTC's nominee as the registered
owner of such Global Certificate. Neither the Company nor the Pass Through
Trustee will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial interests in the
Global Certificates or for maintaining, supervising or reviewing any records
relating to such beneficial interests.
The Company expects that DTC or its nominee, upon receipt of any payment of
principal or interest in respect of a Global Certificate, will immediately
credit the accounts of Agent Members with payments in the amounts
proportionate to their respective beneficial interests in the principal amount
of such Global Certificate as shown on the records of DTC or its nominee. The
Company also expects that payments by Agent Members to owners of beneficial
interests in such Global Certificate held through such Agent Members will be
governed by standing instructions and customary practices, as is now the case
with securities held for the accounts of
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customers registered in the names of nominees for such customers. Such
payments will be the responsibility of such Agent Members.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with the Applicable Procedures and will be settled in same-day
funds.
DTC has advised the Company that it will take any action permitted to be
taken by a Certificateholder only at the direction of one or more Agent
Members to whose account the DTC interests in the Global Certificates is
credited and only in respect of such portion of the aggregate principal amount
of Certificates as to which such Agent Member or Agent Members has or have
given such direction.
The Company understands: DTC is a limited purpose trust company organized
under the laws of the State of New York, a "banking organization" within the
meaning of New York Banking Law, a member of the federal Reserve System, a
"clearing corporation" within the meaning of the Uniform Commercial Code and a
"Clearing Agency" registered pursuant to the provisions of Section 17A of the
Exchange Act. DTC was created to hold securities for its participants and
facilitate the clearance and settlement of securities transactions between
participants through electronic book-entry changes in accounts of its
participants, thereby eliminating the need for physical movement of
certificates. Participants include securities brokers and dealers, banks,
trust companies and clearing corporations and certain other organizations.
Indirect access to the DTC system is available to others such as banks,
brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or indirectly
("indirect participants").
Although DTC is expected to follow the foregoing procedures in order to
facilitate transfers of interests in the Global Certificates among
participants of DTC, it is under no obligation to perform or continue to
perform such procedures, and such procedures may be discontinued at any time.
Neither the Company nor the Pass Through Trustee will have any responsibility
for the performance by DTC, its participants or indirect participants of their
respective obligations under rules and procedures governing its operations.
CERTIFICATED CERTIFICATES
Interests in a Global Certificate will be exchangeable or transferable, as
the case may be, for Exchange Certificates issued in the form of registered
definitive certificates ("Certificated Certificates") if (i) DTC notifies the
Company that it is unwilling or unable to continue as depositary for such
Global Certificates, or DTC ceases to be a "Clearing Agency" registered under
the Exchange Act, and a successor depositary is not appointed by the Company
within 90 days, or (ii) an Event of Default has occurred and is continuing
with respect to such Exchange Certificates and Exchange Certificateholders who
hold more than 25% in aggregate principal amount of the Exchange Certificates
at the time outstanding represented by the Global Certificates advise the
Trustee through DTC in writing that the continuation of a book-entry system
through DTC (or a successor thereto) with respect to the Global Certificates
is no longer required. Upon the occurrence of any of the events described in
the preceding sentence, the Company will cause the appropriate Certificated
Certificates to be delivered.
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LEGAL MATTERS
Certain legal matters with respect to the Senior Notes and the Exchange
Certificate Guarantee offered hereby will be passed upon for the Company by
Arrieta Mantilla & Asociados, Colombia, with respect to matters of Colombian
law. Certain legal matters with respect to Colombian tax law will be passed
upon for the Company by Lewin & Wills.
Certain legal matters with respect to the Exchange Certificate Guarantee
offered hereby will be passed upon for the Company by Dewey Ballantine LLP,
New York, New York with respect to matters of United States law.
Certain matters of Delaware law relating to the validity of the Exchange
Certificates, the enforceability of the Trust Agreement and the creation of
the Transtel Pass Through Trust will be passed upon by Richards, Layton &
Finger, special Delaware counsel to the Company and the Issuer. Richards,
Layton & Finger is also serving as counsel to Wilmington Trust Company in
connection with the issuance of the Exchange Certificates.
EXPERTS
The Consolidated Annual Financial Statements as of December 31, 1995, 1996
and 1997 and for each of the three years in the period ended December 31, 1997
included in this Prospectus, have been so included in reliance on the report
of Price Waterhouse, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
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GLOSSARY OF CERTAIN TELECOMMUNICATIONS TERMS
The following is a glossary of certain telecommunications terms appearing
elsewhere in this Prospectus.
Access Charges: The fees paid by IXCs to LECs for originating and
terminating long distance telephone calls on their local networks.
AIX Operating System: Refers to IBM's version of the UNIX operating system
to be used in conjunction with Transtel's Internet and voice mail platform.
ATM (Asynchronous Transfer Mode): A recently commercialized switching and
transmission technology that is one of a general class of packet technologies
that relay traffic by way of an address contained within the first five bits
of a standard fifty-three bit-long packet or cell. ATM switching was
specifically developed to allow switching and transmission of mixed voice,
data and video (sometimes referred to as "multimedia" information) at varying
rates. The ATM format can be used by many different information systems,
including LANs.
Broadband: Broadband communications systems can transmit large quantities of
voice, data and video by way of digital or analog signals. Examples of
broadband communications systems include DS-3 fiber-optic systems, which can
transmit 672 simultaneous voice conversations, or a broadcast television
station that transmits high-resolution audio and video signals into the home.
Broadband connectivity is also an essential element for interactive multimedia
applications.
CDMA (Code Division Multiple Access): A digital multiplexing scheme for
grouping/ungrouping numerous channels into a higher speed channel through code
division.
Central Offices: The switching centers or central switching facilities of
the LECs.
Centrex: Centrex is a service that offers features similar to those of a
Private Branch Exchange (PBX), except the equipment is located at the
carrier's premises and not at the premises of the customer. These features
include direct dialing within a given phone system, direct dialing of incoming
telephone calls, and automatic identification of outbound telephone calls.
This is a value-added service that carriers can provide to a wide range of
customers who do not have the size or the funds to support their own on-site
PBX.
DID (Direct Inward Dialing): Central Office service allowing for calls to be
made directly to the extension of a customer's PBX, without having to go
through an operator.
Digital: A method of storing, processing and transmitting information
through the use of distinct electronic or optical pulses that represent the
binary code digits 0 and 1. Digital transmission and switching technologies
employ a sequence of these pulses to represent information as opposed to the
continuously variable analog signal. Digital transmission and switching
technologies offer a threefold improvement in speed and capacity over analog
techniques, allowing much more efficient and cost-effective transmission of
voice, video and data.
DS-O, E-1, E-3: Standard telecommunications industry digital signal formats,
which are distinguishable by bit rate (the number of binary digits (0 and 1)
transmitted per second). DS-O service has a bit rate of 64 kilobits per
second. E-1 service has a bit rate of 2 megabits per second and E-3 service
has a bit rate of 34 megabits per second.
EWSD: Brand name for Siemens digital switching system used in both private
and public telecommunications networks.
Fiber Optics: Fiber-optic cable is the medium of choice for the
telecommunications and cable industries. Fiber is immune to electrical
interference and environmental factors that affect copper wiring and satellite
transmission. Fiber-optic technology involves sending laser light pulses
across glass strands in order to transmit
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digital information. A strand of fiber-optic cable is as thick as a human hair
yet has significantly greater bandwidth capacity than copper cable, which is
many times greater in size.
Fiber-Optic Ring Network: The Company has designed its networks in ring
configuration in order to ensure that, if one segment of a network is damaged
or cut, the traffic is simply re-routed and sent to its destination in the
opposite direction. The Company uses a "self-healing" optical fiber-ring
architecture in its networks.
Frame Relay: Frame relay is a high-speed data packet switching service used
to transmit data between computers. Frame Relay supports data units of
variable lengths at access speeds ranging from 56 kilobits to 1.5 megabits.
This service is ideal for connecting LANs, but is not appropriate for voice
and video applications due to the variable delays that can occur. Frame Relay
was designed to operate at higher speeds on modern fiber-optic networks.
HDSL (High Bit Rate Digital Subscriber Line): A modern technology typically
used for establishing T1/E1 trunk facilities between the Central Office and
the subscriber over copper cable facilities. HDSL modems utilize only a few
copper pairs to digitally transmit a large number of circuits.
IBM's Netview: A network management system for information systems which
monitors and controls the physical network elements including, among other
things, routers, access servers, bridges, hubs and servers.
IBM RS/6000: A scaleable hardware platform group based on open systems
architecture used in corporate information networks worldwide. The hardware
supports IBM's Unix.
IBM's Tivoli: A family of products (registered trademark of IBM) for network
computing management of the software and hardware elements of corporate
information networks. Examples of network management include centralized
backup, software distribution, hardware inventory management and other
functions.
ISDN (Integrated Services Digital Network): A switched digital service
allowing for the transmission of voice, data and/or video signals over the
public switched telecommunications network. Colombia utilizes the
international ISDN standard which allows for Basic Rate (two by kilobit
channels and one 16 kilobit data channel) over the same copper pairs used for
traditional telephone service, or Primary Rate (30 64 kilobit channels and one
16 kilobit data channel).
ISP (Internet Service Provider): An Internet service provider provides
customers with access to the Internet by linking its network directly or
through other ISPs to the Internet backbone network.
IXC (Interexchange Carriers): See Long Distance Carrier.
LANs (Local Area Network): Corporate node for client server applications
used for corporate communications.
LEC (Local Exchange Carrier): A company providing local telephone services.
Long Distance Carriers or IXCs (Interexchange Carriers): Long distance
carriers provide services between local exchanges. TELECOM is the sole
provider of these services and may offer service over its own facilities.
mHz: Megahertz.
Mode: An individual point of origination and termination of data on the
network transported using frame relay or similar technology.
OSP (Outside Plant): Refers to the external network of a telecommunications
company which links subscribers to Central Office switching systems, and
Central Offices to each other. This includes the cable,
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splices, distribution cabinets and terminals of both copper and fiber
networks. The Outside Plant technically ends at the cable vault of the Central
Office. The rest of the technologies in the Central Office are referred to as
inside plant.
PBX (Private Branch Exchange): A switching system within an office building
which allows telephone calls from outside to be routed directly to the
individual instead of through a central number. The PBX also allows for
calling within an office by way of four-digit extensions. Centrex is a service
which can simulate this service from an outside switching source, thereby
eliminating the need for a large capital expenditure on a PBX.
PCS (Personal Communications Service): A type of wireless telephone system
that uses light, inexpensive handheld sets and communicates via low-power
antennas.
PDH (Plesiochronous Digital Hierarchy): Refers to a transmission signaling
standard. This is a more inflexible transmission scheme which is acceptable
for point to point.
POPs (Points of Presence): Locations where a long distance carrier has
installed transmission equipment in a service area that serves as, or relays
telephone calls to, a network switching center of that long distance carrier.
Private Line: A private, dedicated telecommunications connection between
end-use locations (excluding long distance carrier POPs).
Route Miles: The number of miles of the telecommunications path in which
fiber-optic cables are installed as it would appear on a network map.
SAT (Telecommunications Administration System): Brand name of C-NIX's
software. A software subscriber data base and administration system used for
inputting new service orders, assigning new, billing, installation and a range
of other functions critical to telephone operations.
SDH (Synchronous Digital Hierarchy): Refers to a transmission signaling
standard which allows for the multiplexing and demultiplexing of
telecommunications traffic at multiple points along a transmission path.
SPC (Stored Program Control): Stored program control switching systems
including both earlier analog and more recent digital systems.
STM (Synchronous Transfer Mode): Refers to the European signaling rates of
the SDH standard starting at STM 1 or 155 Megabits.
Switch: A sophisticated computer that accepts instructions from a caller in
the form of a telephone number. Like an address on an envelope, the numbers
tell the switch where to route the call. The switch opens or closes circuits
or selects the path or circuits to be used for transmission of information.
Switching is a process of interconnecting circuits to form transmission path
between users. Switches allow local telecommunications service providers to
connect telephone calls directly to their destination, while providing
advanced features and recording connection information for future billing.
Switched Traffic: Telecommunications traffic along a switched network.
TDMA (Time Division Multiple Access): Refers to a multiplexing scheme for
grouping/ungrouping various circuits into higher speed facilities through the
division of these signals into digital time slots.
TMN (Telecommunications Management Network): Refers to an international
standard for integrated network management of all of the physical network
elements of a public telecommunications network. TMN software systems perform
such critical functions as: fault management; traffic management; customer
administration; billing; and work force management.
141
<PAGE>
ANNEX A
REPUBLIC OF COLOMBIA
The following information has been made public by the Republic of Colombia
and has not been prepared or independently verified by the Company or any of
its affiliates. The Company is including such information solely because it is
readily available and may be useful to a reader. Such information is not, nor
is its inclusion herein meant to suggest that it is, all the information
concerning Colombia that is or may be material to an investor. Moreover, such
information pertains to Colombia as a whole and is not specific to the
location of the Company's business and should not be viewed as reflective of
such region. The following information should be read in conjunction with the
information set forth under "Risk Factors--Colombian Political, Economic, and
Social Risks." Investors who wish to know more about Colombia are urged to
consult the wide variety of information available from public sources.
OVERVIEW
Since 1950, Colombia has enjoyed positive real economic growth in every year
(ranging from a low of 1.0% in 1982 to a high of 8.5% in 1978) and relatively
stable rates of inflation (with a low of 2.2% in 1955 and a high of 32.6% in
1963). Inflation (as measured by the Colombian consumer price index ("CPI"))
averaged 22.3% between 1992 and 1996. Unlike other major Latin American
countries, Colombia did not restructure its debt with foreign creditors during
the 1980s, and instead entered into voluntarily syndicated loan agreements to
refinance certain maturities of its commercial bank debt. During the same
period, Colombia maintained access to new borrowings through multilateral and
bilateral credits. Colombia has regularly paid all principal and interest
payments on its external debt for over 60 years.
In June 1994, Ernesto Samper Pizano, former Minister of Economic Development
in the previous administration of Cesar Gaviria and a former Senator, was
elected President of Colombia. President Samper proposed a four-year national
development plan, El Salto Social (The Social Leap), which was approved by the
Congress in June 1995. El Salto Social looked to continue the economic and
political reforms of the Gaviria administration's Apertura policy, under which
the Government removed restrictions on foreign investment, eliminated import
quotas and reduced tariffs, entered into free trade agreements with regional
trading partners, reduced foreign exchange controls, granted greater
independence to the Central Bank, encouraged private sector participation in
the management of pension system assets and began a privatization program with
respect to certain state-owned companies and financial institutions. At the
same time, El Salto Social aimed to secure the benefits of these reforms for a
larger segment of the population.
Under El Salto Social, the Government, among other measures, has set out to:
. Increase government expenditures directed toward the social sector,
including higher spending on health, education and job training programs
and the implementation of the Red de Solidaridad Social (Social
Solidarity Network), while maintaining current levels of expenditures on
defense and justice;
. Increase tax revenues by improving tax collections and reducing
exemptions;
. Improve and develop infrastructure by attracting private investment
through privatizations and concessions;
. Implement measures, together with the Central Bank, to reduce inflation,
including reaching agreement with labor and business to restrict wage and
price increases;
. Maintain competitiveness of the exchange rate by implementing measures,
in conjunction with the Central Bank (which is primarily responsible for
setting the foreign exchange rate policy), to limit short-term capital
inflows and an appreciation of the peso; and
. Strengthen domestic savings by developing the domestic capital market,
and carefully investing the proceeds from increased exports of oil in the
international markets.
142
<PAGE>
The Colombian government believes that a continuation of nearly balanced
public sector budgets and the policies outlined above, together with projected
growth in oil exports and other factors, should contribute toward continued
moderate real GDP growth over the medium term.
However, for the past two years, the fiscal deficit created by an increase
in public expenditures has resulted in an increase in interest rates from
19.46% in 1995 to 21.63% in 1996 and a slow down in the economy's growth.
In June 1998 Andres Pastrana Arango was elected President of the Republic of
Colombia and took power on August 7, 1998. President Pastrana announced an
aggressive plan oriented to adjust the country's economy in two years which
will allow: (i) the reduction of fiscal deficit; (ii) the reduction of
inflation and domestic rates; and (iii) the increase of the economy's growth
rates to higher than 5% annually.
Geography and Population
Colombia is the fourth largest country in South America, with a territory of
441,020 square miles (1,141,748 square kilometers). Located on the
northwestern corner of the South American continent, Colombia borders Panama
and the Caribbean Sea on the north, Peru and Ecuador on the south, Venezuela
and Brazil on the east, and the Pacific Ocean on the west.
In 1993, according to the census conducted in that year, Colombia's
population was 35.9 million, approximately 73% of whom lived in urban areas.
Over 6.3 million people live in the metropolitan area of Bogota, the capital
of Colombia. Cali and Medellin, the second and third largest cities, have
populations of approximately 1.95 million and 1.93 million, respectively. The
most important urban centers, with the exception of Barranquilla (the largest
port city), are located in the Andes range. The population grew at a rate of
2.2% per year from 1985 through 1993, down from approximately 3.1% per year in
the 1960s.
Government and Political Parties
The Republic of Colombia is one of the oldest democracies in the Americas,
with regular transitions of power between successive administrations since
1957. The main political parties are the Partido Liberal and the Partido
Social Conservador to which President Pastrana belongs. There are other
minority parties, including the Alianza Democratica M-19, a former guerrilla
organization that became a recognized political party at the end of the 1980s.
In 1991, a popularly elected Constitutional Assembly approved a new
Constitution, replacing the Constitution of 1886. The main features of the new
Constitution include further governmental decentralization, increased
Congressional powers and the creation of several new public agencies. A number
of judicial reforms were also introduced to improve the government's ability
to combat the guerrilla- and narcotics-related violence, and to enhance
control and supervision over public officials.
Foreign Affairs and International Organizations
Colombia has diplomatic ties with 154 countries. Colombia is a member of the
United Nations, the International Monetary Fund (the "IMF") and the
International Bank for Reconstruction and Development (the "World Bank"). In
October 1995, Colombia assumed the presidency of the Group of 77 (Non-Aligned
Nations). On the regional level, Colombia is a member of the Organization of
American States, the Inter-American Development Bank (the "IDB"), the
Caribbean Development Bank, the Latin American Economic System and the Andean
Development Bank. Colombia is also party to several trade and commodity
agreements, including the Andean Pact, the Latin American Integration
Association, the Union of Banana Exporting Countries, the International Sugar
Association, the General Agreement on Tariffs and Trade ("GATT") and the World
Trade Organization.
143
<PAGE>
In 1992, a free-trade zone was formed with Venezuela which has increased
commercial trade and financial activity between these two neighboring
countries. Colombia also has free trade agreements with Ecuador and Bolivia,
and a free trade agreement with Chile which became effective on January 1,
1994. The Andean Pact, which is designed to create a five-nation free-trade
zone, was revived in December of 1991. Pursuant to this agreement, Colombia,
Venezuela, Peru, Ecuador and Bolivia have implemented common external tariffs
as of February 1, 1995.
ECONOMY
Gross Domestic Product
Traditionally, agriculture has played a large role in the Colombian economy,
accounting for an estimated 18.6% of GDP in 1996 as compared to 17.9% of GDP
for industry. In 1996, agricultural activity increased by 0.2% in real terms
(despite a decrease in coffee production of 18.5%), industrial activity
increased by 2.9%, construction increased by 0.3%, and services increased by
4.7%. Between 1992 and 1996, GDP grew at an average annual rate of 4.7%. Real
GDP growth for 1996 was 2.1%, as compared with 5.4% in 1995, mainly as a
result of the strict monetary policy implemented in late 1994 to stabilize the
growth of aggregate demand and credit.
The following table sets forth the annual change in Colombia's real GDP by
sector for the periods indicated.
REAL GDP GROWTH BY SECTOR
<TABLE>
<CAPTION>
1992 1993 1994(1) 1995(1) 1996(2)
---- ----- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Agriculture, Livestock, Fishing,
Forestry and Hunting
Coffee............................ (1.1)% (15.1)% (12.6)% 14.1 % (18.5)%
Other Agriculture and Livestock... (2.1) 6.6 3.2 4.4 3.0
Fishing, Forestry and Hunting..... 1.3 (2.4) (9.4) (0.2) (10.1)
Total Agriculture................. (1.8) 3.2 0.9 5.2 0.6
Industry
Coffee Processing................. 22.9 (16.9) (10.7) (18.3) 8.7
Manufacturing..................... 1.9 4.8 3.2 3.2 (3.9)
Total Industry.................... 4.5 1.6 1.6 1.0 (2.9)
Mining(3)........................... (3.9) (1.7) 1.6 17.8 7.6
Construction........................ 7.3 18.2 19.2 5.2 0.3
Services
Transportation and Storage........ 5.6 4.4 7.7 4.3 1.5
Communications.................... 4.5 4.0 (1.1) 12.6 16.1
Retail, Restaurants and Hotels.... 2.6 9.1 6.1 5.2 (0.4)
Financial Services................ 4.1 6.4 18.8 6.4 4.7
Housing........................... 2.9 4.0 6.1 2.0 3.2
Personal Services................. 1.1 2.9 6.5 7.0 7.1
Government........................ 12.5 0.2 2.7 7.8 10.9
Domestic Services................. 0.3 2.4 2.4 3.0 1.8
Utilities......................... (5.8) 14.0 6.2 6.1 2.8
Total Services.................... 4.7 5.0 7.5 5.7 4.7
Subtotal............................ 2.9 4.0 5.1 5.1 2.3
Minus: Imputed Banking Services..... (3.6) 13.8 16.2 10.0 9.2
Plus: Duties and Tariffs on
Imports............................ 36.7 48.2 26.0 11.8 2.8
Real GDP............................ 4.0 5.4 5.8 5.4 2.1
</TABLE>
- --------
(1) Preliminary.
(2) Estimated.
(3) Includes petroleum.
Source: DANE and DNP.
144
<PAGE>
FOREIGN TRADE
Colombia's trade has historically been, and continues to be, dominated by
the export of raw materials and the import of intermediate and capital goods.
The following table shows the trends in the composition of Colombia's
exports over the years indicated.
TRENDS IN THE COMPOSITION OF EXPORTS
1980-1996
<TABLE>
<CAPTION>
1980 1985 1990 1995(1) 1996(2)
-------------- -------------- -------------- --------------- ---------------
(MILLIONS OF DOLLARS AND PERCENTAGE OF TOTAL EXPORTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Exports (FOB):
Oil and its
Derivatives........... $ 101.0 2.4% $ 451.3 11.6% $1,951.0 28.0% $ 2,189.9 21.3% $ 2,900.0 27.4%
Coffee................. 2,360.5 55.8 1,745.5 45.2 1,399.2 20.1 1,841.0 17.9 1,579.4 14.9
Coal................... 10.7 0.3 126.3 3.3 544.8 7.8 593.2 5.7 880.9 8.3
Nickel and Gold(3)..... 310.0 7.3 420.0 10.9 521.0 7.5 357.9 3.5 376.5 3.6
Nontraditional
Exports(4)............ 1,444.3 34.2 1,118.7 29.0 2,550.8 36.6 5,305.6 51.6 4,845.3 45.8
-------- ----- -------- ----- -------- ----- --------- ----- --------- -----
Total Exports.......... $4,226.5 100.0% $3,861.8 100.0% $6,966.8 100.0% $10,287.6 100.0% $10,582.1 100.0%
======== ===== ======== ===== ======== ===== ========= ===== ========= =====
</TABLE>
- --------
(1) Preliminary.
(2) Estimated.
(3) Includes domestic purchases of gold by the Central Bank.
(4) Includes emeralds.
Source: The Central Bank--Economic Studies.
In 1996, exports are estimated to have increased by 2.9%, primarily due to
increased exports of oil and its derivatives attributable to increased
production from the Cusiana oil field and higher international oil prices, as
well as to increased exports of coal. Exports in 1996 are estimated to have
totaled approximately $10.6 billion, including oil and its derivatives (27.4%
of total exports), coffee (14.9% of total exports), coal (8.3% of total
exports), nickel and gold (3.6% of total exports) and nontraditional exports
(45.8% of total exports). In 1996, the volume of exports of crude oil
increased by 3.1% and the international price of Colombian crude oil increased
by 26.8%.
145
<PAGE>
The following table shows the composition of Colombia's exports for the
periods indicated.
EXPORTS (FOB) BY GROUPS OF PRODUCTS
<TABLE>
<CAPTION>
% OF TOTAL
1992 1993 1994 1995(1) 1996(1) 1996
-------- -------- -------- --------- --------- ----------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C> <C>
Mining
Oil and its
Derivatives.......... $1,395.6 $1,323.0 $1,318.2 $ 2,189.9 $ 2,900.0 27.4%
Coal.................. 555.4 567.0 552.8 593.2 880.9 8.3
Emeralds.............. 179.7 399.6 422.3 452.4 174.7 1.7
Nickel................ 125.1 101.9 118.8 184.8 172.2 1.6
Gold(2)............... 363.5 312.5 304.6 173.1 204.3 1.9
Platinum.............. 0.1 15.4 37.2 NA NA NA
Others(3)............. 17.4 14.4 18.6 NA NA NA
-------- -------- -------- --------- --------- -----
Total Mining............ $2,636.8 $2,733.8 $2,772.5 $ 3,593.4 $ 4,332.1 40.9%
Agriculture, Livestock,
Forestry and Fishing,
except Coffee.......... 1,095.6 1,062.7 1,239.0 955.2 1,003.1 9.5
Coffee.................. 1,258.9 1,139.7 1,990.5 1,841.0 1,579.4 14.9
Industry
Foods, Beverages and
Tobacco.............. 345.1 334.1 425.3 932.9 774.2 7.3
Textiles and
Apparel(4)........... 905.8 1,042.8 1,033.9 1,096.0 951.0 9.0
Wood and its
Derivatives.......... 18.7 18.9 13.8 10.7 20.2 0.2
Paper and its
Byproducts........... 184.0 198.5 214.1 254.7 222.9 2.1
Chemicals............. 389.8 441.0 544.8 898.6 964.7 9.1
Non-metallic
Minerals............. 105.0 109.5 119.5 55.0 65.3 0.6
Iron and Steel
Industries........... 101.7 90.8 126.1 122.9 130.2 1.3
Machinery and
Equipment............ 152.5 155.9 164.0 292.8 324.0 3.1
Other Industries(5)... 69.8 101.3 110.3 234.4 215.0 2.0
-------- -------- -------- --------- --------- -----
Total Industry.......... $2,272.4 $2,492.8 $2,751.8 $ 3,898.0 $ 3,667.5 34.7%
-------- -------- -------- --------- --------- -----
Total Exports......... $7,263.7 $7,429.0 $8,753.8 $10,287.6 $10,582.1 100.0%
======== ======== ======== ========= ========= =====
</TABLE>
- --------
(1) Estimated.
(2) Includes domestic purchases of gold by the Central Bank.
(3) Includes salt, clay and sand mining and manufacture of fertilizers,
chemicals and other products.
(4) Includes leather, leather products and plastic.
(5) Includes jewelry, musical instruments, sporting goods and other products.
Source: Banco de la Republica, based on information provided by DANE.
Imports (FOB) increased by 17.0% in 1995 and 1.3% in 1996, due to a lowering
of tariffs and an appreciation of the peso in real terms. In 1996, imports
(FOB) are estimated to have totaled $13.7 billion, basically unchanged from
their level in 1995. Imports (FOB) of consumer goods are estimated to have
fallen by 4.1%, while imports of raw materials and intermediate goods are
estimated to have increased by 6.2% and imports of capital goods are estimated
to have fallen by 9.0%, from 1995 to 1996. Consumer goods are estimated to
have comprised 18.7%, raw materials and intermediate goods 47.8%, and capital
goods 33.5% of total imports (FOB) in 1996.
146
<PAGE>
The level of imports will continue to be affected by the opening of the
Colombian economy. The following table shows the composition of Colombia's
major imports for the periods indicated.
IMPORTS (CIF)
<TABLE>
<CAPTION>
% OF TOTAL
1992 1993 1994 1995(1) 1996(1) 1996
-------- -------- --------- --------- --------- ----------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Consumer Goods
Non-Durable........... $ 439.4 $ 676.7 $ 1,010.0 $ 1,252.9 $ 1,440.4 10.5%
Durable............... 473.0 1,138.7 1,325.0 1,418.6 1,120.6 8.2
-------- -------- --------- --------- --------- -----
Total Consumer Goods.. $ 912.4 $1,815.4 $ 2,335.0 $ 2,671.5 $ 2,561.0 18.7%
Raw Materials and
Intermediate Goods
Fuels(2).............. $ 344.3 $ 351.9 $ 322.0 $ 396.1 $ 412.7 3.0%
Agricultural.......... 297.2 228.4 296.0 338.1 481.3 3.5
Industrial............ 2,941.7 3,589.6 4,180.0 5,420.3 5,644.1 41.3
-------- -------- --------- --------- --------- -----
Total Raw Materials
and Intermediate
Goods................ $3,583.2 $4,169.9 $ 4,798.0 $ 6,154.5 $ 6,538.1 47.8%
Capital Goods
Construction
Materials............ $ 67.4 $ 119.4 $ 194.0 $ 259.3 $ 320.8 2.4%
Agricultural.......... 35.7 51.4 73.0 70.5 63.7 0.5
Industrial............ 1,490.5 2,237.5 2,723.0 3,394.6 3,200.1 23.4
Transportation........ 574.3 1,426.4 1,751.0 1,302.8 989.8 7.2
-------- -------- --------- --------- --------- -----
Total Capital Goods... $2,167.9 $3,834.7 $ 4,741.0 $ 5,027.2 $ 4,574.4 33.5%
-------- -------- --------- --------- --------- -----
Unclassified............ $ 5.3 $ 2.2 $ 9.0 -- -- NA
-------- -------- --------- --------- --------- -----
Total................... $6,668.8 $9,822.2 $11,883.0 $13,853.2 $13,673.5 100.0%
======== ======== ========= ========= ========= =====
</TABLE>
- --------
NA means not available
(1) Preliminary.
(2) Includes oil derivatives and coal.
Source: DANE
The United States is Colombia's most important trading partner. During the
first ten months of 1996, trade between the two countries accounted for
approximately 40% of Colombia's total trade (exports and imports). During the
first ten months of 1996, Venezuela was Colombia's second largest trading
partner, accounting for a further 8.3% of total trade. A key component of the
Apertura program of reforms involved reducing trade barriers by fostering
economic integration with other countries. The Samper administration has
continued former President Gaviria's policies of promoting bilateral and
multilateral trade agreements with regional trading partners.
From 1991 to 1996, growth in exports occurred mainly with countries that are
members of the Andean Pact--primarily Venezuela, Peru and Ecuador. Exports to
Venezuela have grown from $443 million in 1991 to $772 million in 1996.
Similarly, exports to Peru have grown to $610 million in 1996 from $213
million in 1991 and exports to Ecuador have grown to $420 million in 1996 from
$127 million in 1991. Imports from the Andean Pact countries have also
increased 271% from $482 million in 1991 to $1,791 million in 1996.
DIRECT FOREIGN INVESTMENT
Foreign investment in Colombia was traditionally directed towards the oil
and mining sectors. Previously, investment in sectors such as public services
was prohibited, and investments in the financial sector were limited to no
more than 49% foreign ownership of financial institutions. As part of the
Apertura process, the Gaviria administration enacted reforms designed to make
foreign investment in Colombia more attractive, such as the
147
<PAGE>
adoption of a legislative framework that ensures equal treatment of foreign
and local investors and foreign access to traditionally restricted economic
sectors.
The following table sets forth information on net foreign investment by
sector (excluding petroleum) for the periods indicated below.
NET DIRECT FOREIGN INVESTMENT BY SECTOR(1)
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996(2)
---- ---- ------ ------ -------
<S> <C> <C> <C> <C> <C>
Petroleum....................................... $440 $557 $ 825 $ 721 $1,101
Agriculture and Fishing......................... 5 13 12 30 26
Mining.......................................... 76 6 26 110 46
Manufacturing................................... 70 198 365 577 653
Public Services................................. 0 0 6 8 145
Construction.................................... 19 19 33 32 22
Commerce........................................ 19 31 81 132 151
Transportation and Communications............... 7 6 157 217 156
Finance(3)...................................... 154 159 701 441 959
Social Services................................. 0 1 2 9 11
Others.......................................... 0 3 6 8 1
---- ---- ------ ------ ------
Total........................................... $790 $993 $2,214 $2,285 $3,271
==== ==== ====== ====== ======
</TABLE>
- --------
Totals may differ due to rounding.
(1) Net foreign investment registered with the Central Bank, less remittances
of capital. The figures provided in this table represent the amount
officially registered for foreign investment with the Central Bank. In
contrast, the figures provided in the "Balance of Payments" table reflect
the amount actually invested in Colombia.
(2) Preliminary.
(3) Includes portfolio investment of $61 million in 1992, $44 million in 1993,
$588 million in 1994, $243 million in 1995 and $245 million in 1996.
Source: The Central Bank.
MONETARY SYSTEM AND MONETARY AGGREGATES
The Central Bank was chartered in 1923. Following ratification of the new
Constitution in 1991, the Central Bank was granted greater independence from
the government in the formulation of monetary policy.
Monetary and exchange rate policy is set by the Central Bank's Board of
Directors. The Board of Directors is composed of seven members, five of whom
are permanent members appointed by the President for four-year terms, although
at the expirations of their terms, the President may not replace more than two
such members. The Minister of Finance, the sixth member of the Board of
Directors, is the sole representative of the government on the Board of
Directors. The seventh member, who is the Governor of the Central Bank, is
elected by the other six members. Unless all seven members of the Board of
Directors vote to do so, the Central Bank may not finance the government's
budget deficits, and the Central Bank is prohibited from making loans to the
private sector (except to provide liquidity to the financial system or for
intermediation of foreign indebtedness).
148
<PAGE>
INFLATION AND INTEREST RATES
The following table shows changes in the CPI and the producer price index
("PPI") and average deposit rates for the periods indicated.
INFLATION AND INTEREST RATES
<TABLE>
<CAPTION>
SHORT-TERM
REFERENCE RATE
PERIOD CPI(1) PPI(1) (DTF)(2)
------ ------ ------ --------------
<S> <C> <C> <C>
1992......................................... 25.1% 17.9% 26.7%
1993......................................... 22.6 13.2 25.8
1994......................................... 22.6 20.7 29.4
1995......................................... 19.5 15.4 32.3
1996......................................... 21.6 14.5 31.1
January..................................... 20.2 17.7 32.5
February.................................... 20.8 17.4 33.1
March....................................... 20.2 16.3 33.6
April....................................... 19.9 14.6 33.6
May......................................... 19.8 14.6 32.1
June........................................ 19.7 13.0 32.1
July........................................ 20.6 13.8 32.4
August...................................... 21.1 14.0 30.4
September................................... 21.6 14.4 28.4
October..................................... 21.9 15.5 28.7
November.................................... 21.9 15.0 28.5
December.................................... 21.6 14.5 28.0
1997
January..................................... 20.6 12.7 26.5
February.................................... 19.6 12.2 25.4
March....................................... 18.9 14.0 25.5
April....................................... 18.5 14.9 24.7
May......................................... 18.6 14.9 23.6
June........................................ 18.7 17.1 23.2
July........................................ 17.9 15.5 23.2
August...................................... 18.0 15.3 23.0
</TABLE>
- --------
(1) For the annual periods, percentage change over the twelve months ending
December 31 of each year; for monthly periods in 1996, percentage change
over the previous twelve months at end of each month indicated.
(2) Average for each of the years 1992-1996, and for each month in 1996, of
the short-term composite reference rate (Depositos a Termino Fijo
("DTF")), as calculated by the Superintendency of Banks.
Source: Superintendencia Bancaria y Banco de la Republica.
FOREIGN EXCHANGE RATES
Colombia's official monetary unit is the peso, the value of which was
established against foreign currencies under a crawling peg system between
1967 and 1991. Under this system, the nominal exchange rate was determined by
the Central Bank.
In February 1994, the Central Bank instituted a mechanism, which consists of
a 15% band within which the exchange rate is allowed to fluctuate. The Central
Bank intervenes by selling or purchasing its debt securities in order to
maintain the exchange rate within the 15% band. Such a band is allowed to
depreciate by small amounts to meet an annual target devaluation rate. In
December 1994, the Central Bank narrowed the band to 14%, shifted
149
<PAGE>
the band downward by 7% and increased the rate at which it devalues the band
to meet an annual target devaluation rate of 13.6% for 1995. The band was set
to reflect a projected devaluation rate, in nominal terms, of 13.6% for 1996,
and 15.0% for 1997.
During the second half of 1996, the peso appreciated in relation to the
dollar, recovered its value and ended the year at the bottom of the exchange
rate band. During the first six months of 1997, the devaluation rate kept a
stable pace and the rate kept within the lower half of the band. For 1997, the
Government estimates a depreciation of the peso against the dollar of 15% in
nominal terms (a 1.3% appreciation in real terms), very similar to the
targeted depreciation of 13.6% in nominal terms for 1996.
INTERNATIONAL RESERVES
As of December 31, 1996, net international reserves were $9.9 billion,
representing coverage of approximately nine months of imports of goods and
approximately six months of imports of goods and services. Net international
reserves increased by $1.6 billion, or 18.9%, from December 31, 1995 to
December 31, 1996.
The following table shows the composition of international reserves of the
Central Bank at each of the dates indicated.
<TABLE>
<CAPTION>
1992 1993(1) 1994(2) 1995(2) 1996(2)
-------- -------- -------- -------- --------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
Gross International Reserves:
Monetary Gold.................. $ 172.2 $ 118.5 $ 111.9 $ 103.2 $ 95.7
Special Drawing Rights......... 47.9 158.1 169.9 176.6 176.3
Andean Pesos................... 20.0 20.0 20.0 20.0 20.0
Foreign Exchange............... 7,231.4 7,346.0 7,453.4 7,733.7 9,185.6
Others(3)...................... 256.5 289.8 348.2 423.8 462.6
-------- -------- -------- -------- --------
Total........................ $7,728.0 $7,932.4 $8,103.4 $8,457.3 $9,940.2
Less: Short and Medium-term
Liabilities of Banco de la
Republica....................... 14.8 63.3 101.1 132.9 43.6
-------- -------- -------- -------- --------
Net International Reserves....... $7,713.2 $7,869.1 $8,002.3 $8,324.4 $9,896.6
======== ======== ======== ======== ========
Reserves (Months of Imports
(FOB))
Goods.......................... 15.4 10.4 8.7 7.9 9.3
Goods and Services............. 8.8 6.8 5.7 5.1 5.8
</TABLE>
- --------
NA means not available
(1) Beginning in 1993, Colombia's method of valuing gold and foreign
currencies was changed from historical cost to market value at end of
period. In addition, the methodology for valuing international monetary
assets and liabilities was changed from a cash to an accrual basis. The
combined effect of these two changes was an increase in international
reserves of $254 million at December 31, 1993.
(2) Preliminary.
(3) Includes deposits in Latin American Reserve Fund and Andean Reserve Fund
and compensation agreements.
Source: The Central Bank.
SECURITIES MARKETS
Colombia has three stock exchanges, one located in each of the cities of
Bogota, Medellin and Cali. The stock exchanges are owned by member firms that
are responsible for developing and implementing regulations governing trade on
their exchanges. Although self-regulating, they remain subject to the approval
and supervision of the Superintendency of Securities, the principal securities
market regulatory agency. According to the Superintendency of Securities, the
market capitalization of the three exchanges as of December 31, 1996 was
150
<PAGE>
$16.4 billion. As of June 30, 1997 the total market capitalization was $19.6
billion (an increase of 34.3% from the same period in 1996, when it reached
$14.6 million).
The total value of securities traded on the three Colombian stock exchanges
during 1996 was Ps36,615 billion (approximately $36.6 billion), representing
nominal growth of 42% over the value of securities traded in 1995. Both debt
and equity securities are traded on the three stock exchanges, including
stocks and bonds of private-sector corporations, although the vast majority of
securities traded are fixed income debt securities.
151
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AUDITED CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
Report of Independent Accountants........................................ F-2
Consolidated Balance Sheets at December 31, 1995, 1996 and 1997.......... F-3
Consolidated Statements of Income for the Years Ended December 31, 1995,
1996 and 1997........................................................... F-4
Consolidated Statements of Changes in Shareholders' Equity for the Years
Ended December 31, 1995, 1996 and 1997.................................. F-5
Consolidated Statements of Changes in Financial Position for the Years
Ended December 31, 1995, 1996 and 1997.................................. F-6
Consolidated Statements of Cash Flows for the Years Ended December 31,
1995, 1996 and 1997..................................................... F-7
Notes to the Consolidated Financial Statements........................... F-8
UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Consolidated Balance Sheets at March 31, 1997 and 1998................... F-45
Consolidated Statements of Income for the Quarters Ended March 31, 1997
and 1998................................................................ F-46
Consolidated Statements of Changes in Shareholders' Equity for the
Quarters Ended March 31, 1997 and 1998.................................. F-47
Consolidated Statements of Changes in Financial Position for the Quarters
Ended March 31, 1997 and 1998........................................... F-48
Consolidated Statements of Cash Flows for the Quarters Ended March 31,
1997 and 1998........................................................... F-49
Notes to Interim Consolidated Financial Statements....................... F-50
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Transtel S.A.
We have audited the accompanying consolidated balance sheets of Transtel
S.A. and its subsidiaries as of December 31, 1996 and 1997, and the related
consolidated statements of income, of changes in shareholders' equity, of
changes in financial position and of cash flows for each of the three years in
the period ended December 31, 1997, all expressed in constant Colombian pesos
of December 31, 1997 purchasing power. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in Colombia, which are substantially consistent with those in the
United States of America. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements audited by us present
fairly, in all material respects, the financial position of Transtel S.A. and
its subsidiaries at December 31, 1996 and 1997, and the results of their
operations, the changes in their financial position and their cash flows for
each of the three years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles in Colombia, applied on a
consistent basis except for the change in depreciation method discussed in
Note 7.
Accounting principles generally accepted in Colombia, as described in Notes
2 and 3 to the financial statements, vary in certain significant respects from
accounting principles generally accepted in the United States of America. The
application of the latter would have affected the determination of
consolidated net income expressed in constant Colombian pesos of December 31,
1997 purchasing power for each of the three years in the period ended December
31, 1997, and the determination of consolidated shareholders' equity also
expressed in constant Colombian pesos of December 31, 1997 purchasing power at
December 31, 1995, 1996 and 1997 to the extent summarized in Note 31to the
consolidated financial statements.
PRICE WATERHOUSE
Cali, Colombia
April 20, 1998
F-2
<PAGE>
TRANSTEL S.A.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
1995 1996 1997 1997
------------- ------------- -------------- -----------
(THOUSANDS OF PESOS OF DECEMBER 31, 1997 (THOUSANDS
--NOTE 2) OF DOLLARS,
UNAUDITED
--NOTE 3)
<S> <C> <C> <C> <C>
ASSETS
Current
Cash................... Ps 720,644 Ps 13,781,984 Ps 2,788,918 $ 2,156
Short-term and
temporary investments
(Note 4).............. 10,077 5,283,331 104,867,416 81,068
Accounts receivable,
net (Note 5).......... 4,121,691 6,146,589 19,153,185 14,806
Inventories (Note 6)... 360,135 297,012 957,906 741
Prepaid expenses....... 119,413 166,001 517,257 400
------------- ------------- -------------- --------
Total current assets... 5,331,960 25,674,917 128,284,682 99,171
Noncurrent
Accounts receivable
(Note 5).............. 5,344,556 11,119,346 8,596
Properties, plant and
equipment, net (Note
7).................... 22,725,200 26,921,077 113,234,666 87,536
Deferred monetary
correction............ 700,613 489,193 2,363,451 1,827
Deferred costs (Note
8).................... 6,282,845 13,327,682 48,784,992 37,713
Long-term investments
(Note 4).............. 39,134 31,413,518 24,284
Other assets (Note 9).. 27,456 118,260 2,161,499 1,671
Reappraisal of assets
(Note 10)............. 14,514,909 15,893,281 12,286
------------- ------------- -------------- --------
Total assets........... Ps35,068,074 Ps86,429,728 Ps353,255,435 $273,084
============= ============= ============== ========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities
Short-term debt (Note
12)................... Ps 1,783,690 Ps 11,027,957 Ps 508,048 $ 393
Current portion of
other long-term debt
(Note 12)............. 870,447 6,808,148 13,089,034 10,118
Current portion of
capital lease
obligations (Note
19)................... 42,707 65,289 210,675 163
Accounts payable (Note
13)................... 2,065,927 3,503,183 20,269,005 15,669
Tax liabilities (Note
14)................... 225,174 838,304 2,562,217 1,981
Labor liabilities (Note
15)................... 54,638 133,754 427,313 330
Other liabilities (Note
16)................... 124,699 215,375 6,912,632 5,344
Accrued pension
obligations (Note
17)................... 534,531 413
------------- ------------- -------------- --------
Total current
liabilities........... 5,167,282 22,592,010 44,513,455 34,411
Long-term liabilities
12 1/2% Senior Notes
due 2007 (Note 12).... 194,037,000 150,000
Other long-term debt
(Note 12)............. 12,096,709 25,090,333
Capital lease
obligations (Note
19)................... 18,535 1,006,193 1,128,410 872
Deferred monetary
correction............ 1,029,413 783,548 4,481,301 3,465
Accrued pension
obligations (Note
17)................... 5,948,795 4,599
Other liabilities (Note
20)................... 136,578 73,293 7,705,835 5,957
------------- ------------- -------------- --------
Total liabilities...... 18,448,517 49,545,377 257,814,796 199,304
------------- ------------- -------------- --------
Minority interest (Note
21).................... 9,453,325 17,533,960 42,401,345 32,778
------------- ------------- -------------- --------
Commitments (Note 30)
Shareholders' equity
(Note 22):
Common stock, Ps1 par
value, 50 billion
shares authorized;
5,039,801,222 shares
issued and outstanding
(4,000,000,000 in 1995
and 1996)............. 6,393,043 6,393,043 38,422,935 29,703
Retained earnings...... 773,189 4,112,514 5,200,658 4,020
Surplus from
reappraisal of assets
(Note 10)............. 8,844,834 9,415,701 7,279
------------- ------------- -------------- --------
Total shareholders'
equity................ 7,166,232 19,350,391 53,039,294 41,002
------------- ------------- -------------- --------
Total liabilities and
shareholder's equity.. Ps35,068,074 Ps86,429,728 Ps353,255,435 $273,084
============= ============= ============== ========
Memorandum accounts
(Note 11).............. Ps 8,341,236 Ps31,410,777 Ps294,494,096 $227,658
============= ============= ============== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
TRANSTEL S.A.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
1995 1996 1997 1997
---------------------------- --------------- -------------
(THOUSANDS OF
DOLLARS,
(THOUSANDS OF PESOS OF DECEMBER 31, 1997 -- UNAUDITED
NOTE 2) --NOTE 3)
<S> <C> <C> <C> <C>
------------ -------------- --------------- --------
Costs and expenses:
Operating costs (Note
24).................. 702,445 2,527,161 6,637,717 5,131
Administrative
expenses (Note 25)... 365,165 3,844,986 8,725,135 6,745
Marketing expenses
(Note 26)............ 88,670 779,825 1,567,144 1,212
------------ -------------- --------------- --------
1,156,280 7,151,972 16,929,996 13,088
------------ -------------- --------------- --------
Operating income.... 1,270,188 4,738,417 9,633,268 7,447
------------ -------------- --------------- --------
Nonoperating income
(expenses)
Financial income (Note
27).................. 323,746 875,165 8,830,162 6,826
Financial expenses
(Note 27)............ (291,942) (2,268,004) (13,765,771) (10,642)
Other (Note 27)....... 49,504 328,937 (1,862,410) (1,439)
------------ -------------- --------------- --------
81,308 (1,063,902) (6,798,019) (5,255)
------------ -------------- --------------- --------
Net monetary inflation
adjustment income
(loss) (Note 28)....... (63,034) 2,288,167 3,531,809 2,730
------------ -------------- --------------- --------
Income before income
taxes and minority
interest........... 1,288,462 5,962,682 6,367,058 4,922
Income tax expense (Note
18).................... (372) (328,510) (1,164,366) (900)
------------ -------------- --------------- --------
Income before
minority interest.. 1,288,090 5,634,172 5,202,692 4,022
Minority interest....... (514,901) (2,294,847) (4,114,548) (3,181)
------------ -------------- --------------- --------
Net income (loss)... Ps 773,189 Ps 3,339,325 Ps 1,088,144 $ 841
------------ -------------- --------------- --------
Earnings (loss) per
share (in single Pesos
and single Dollars per
share)................. Ps 0.34 Ps 0.83 Ps 0.25 $ --
============ ============== =============== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
TRANSTEL S.A.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(THOUSANDS OF PESOS OF DECEMBER 31, 1997--NOTE 2, EXCEPT SHARES)
<TABLE>
<CAPTION>
COMMON SHARES
OUTSTANDING
------------------------ SURPLUS FROM TOTAL
NUMBER RETAINED REAPPRAISAL SHAREHOLDERS'
(NOTE 18) AMOUNT EARNINGS OF ASSETS EQUITY
----------- ------------ ----------- ------------ -------------
(THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1994................... 2,000,000 Ps 3,470,710 Ps -- Ps -- Ps 3,470,710
Shares issued for cash.. 2,000,000 2,922,333 2,922,333
Net income.............. 773,189 773,189
--------- ------------ ----------- ----------- ------------
Balance at December 31,
1995................... 4,000,000 6,393,043 773,189 7,166,232
Net income.............. 3,339,325 3,339,325
Increase during the
year................... 8,844,834 8,844,834
--------- ------------ ----------- ----------- ------------
Balance at December 31,
1996................... 4,000,000 Ps 6,393,043 Ps4,112,514 Ps8,844,834 19,350,391
Shares issued for cash.. 1,039,801 32,029,892 32,029,892
Net income.............. 1,088,144 1,088,144
Increase during the
year................... 570,867 570,867
--------- ------------ ----------- ----------- ------------
Balance at December 31,
1997................... 5,039,801 Ps38,422,935 Ps5,200,658 Ps9,415,701 Ps53,039,294
========= ============ =========== =========== ============
</TABLE>
Retained earnings balances consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1995 1996 1997
--------- ----------- -----------
<S> <C> <C> <C>
Legal reserve................................ Ps -- Ps 77,319 Ps 411,252
Appropriated for future construction......... 695,870 695,870
Appropriated for future acquisitions......... 3,339,325 3,005,392
Unappropriated retained earning.............. 773,189 1,088,144
--------- ----------- -----------
Ps773,189 Ps4,112,514 Ps5,200,658
========= =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
TRANSTEL S.A.
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------------------
1995 1996 1997 1997
-------------- -------------- -------------- -----------
(THOUSANDS
OF DOLLARS,
(THOUSANDS OF PESOS OF DECEMBER 31, 1997-- UNAUDITED
NOTE 2) --NOTE 3)
<S> <C> <C> <C> <C>
Sources of working
capital:
Net income............. Ps 773,189 Ps 3,339,325 Ps 1,088,144 $ 841
Items that do not
utilize (provide)
working capital:
Depreciation........... 318,011 228,805 528,287 408
Amortization........... 3,940 1,054,770 3,379,261 2,612
Deferred income
taxes................. (3,673) (3)
Allowance for
writedown of
properties, plant and
equipment............. 95,598 74
Gain on sale of
properties, plant and
equipment............. (8,736) (203,519)
Minority interest...... 514,901 2,294,847 4,114,548 3,181
Net inflation
adjustment from non-
current balance sheet
account............... 42,968 (2,081,707) (3,151,086) (2,436)
Deferred monetary
correction, net....... 299,257 (46,859) 639,840 495
------------- ------------- -------------- ---------
Working capital
provided by
operations............ 1,943,530 4,585,662 6,690,919 5,172
------------- ------------- -------------- ---------
Financial resources
generated otherwise:
Sales proceeds from
properties, plant and
equipment............. 15,144 2,827,169
Issuance of Senior
Notes due 2007........ 194,037,000 150,000
Accrued pension
obligations........... 5,948,795 4,599
Increase (decrease) in
other debt............ 12,096,709 12,993,624 (25,090,333) (19,396)
Capital lease
obligations........... 987,658 122,217 94
Increase in other
liabilities........... 7,632,542 5,900
Investment by minority
interest.............. 9,011,413 20,238,032 15,645
Shares issued for
cash.................. 2,922,333 32,029,892 24,761
------------- ------------- -------------- ---------
24,045,599 16,808,451 234,918,145 181,603
------------- ------------- -------------- ---------
Total financial
resources
generated........... 25,989,129 21,394,113 241,609,064 186,775
------------- ------------- -------------- ---------
Financial resources
utilized:
Purchases of
properties, plant and
equipment............. (25,165,806) (7,857,166) (92,474,480) (71,488)
Increase in deferred
costs................. (4,572,145) (6,964,502) (37,811,555) (29,230)
Increase in long-term
investments........... (27,456) (12,904) (31,271,276) (24,174)
Increase in other
assets................ (1,231) (111,413) (1,814,899) (1,403)
Non-current accounts
receivable............ (5,344,556) (5,774,790) (4,464)
Decrease in accounts
payable............... (96,160)
Decrease in other
liabilities........... (24,442) (63,285)
------------- ------------- -------------- ---------
(29,887,240) (20,353,826) (169,147,000) (130,759)
------------- ------------- -------------- ---------
Effect of revaluing to
constant pesos........ 2,046,374 1,877,942 8,226,256 6,360
------------- ------------- -------------- ---------
Increase (decrease)
in working capital.. Ps (1,851,737) Ps 2,918,229 Ps 80,688,320 $ 62,376
============= ============= ============== =========
Changes in working
capital components:
Cash................... Ps 714,383 Ps 13,061,340 Ps (10,993,066) $ (8,498)
Short-term and
temporary
investments........... (2,130,635) 5,273,254 99,584,085 76,983
Accounts receivable.... 4,040,260 2,024,898 13,006,596 10,055
Inventories............ 360,135 (63,123) 660,894 511
Prepaid expenses....... 119,413 46,588 351,256 272
Short-term debt........ (1,783,690) (9,244,267) 10,519,909 8,132
Current portion of
other long-term debt.. (870,447) (5,937,701) (6,280,886) (4,855)
Current portion of
capital lease
obligations........... (22,582) (145,386) (112)
Accounts payable....... (1,934,832) (1,437,256) (16,765,822) (12,961)
Tax liabilities........ (199,415) (613,130) (1,723,913) (1,333)
Labor liabilities...... (53,296) (79,116) (293,559) (227)
Accrued pension
obligations........... (534,531) (413)
Other liabilities...... (113,613) (90,676) (6,697,257) (5,178)
------------- ------------- -------------- ---------
Increase (decrease) in
working capital....... Ps (1,851,737) Ps 2,918,229 Ps 80,688,320 $ 62,376
============= ============= ============== =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
TRANSTEL S.A.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------------------
1995 1996 1997 1997
------------- ------------- -------------- -----------
(THOUSANDS OF PESOS OF DECEMBER 31, 1997-- (THOUSANDS
NOTE 2) OF DOLLARS,
UNAUDITED
--NOTE 3)
<S> <C> <C> <C> <C>
Cash flows from
operating activities:
Net income............ Ps 773,189 Ps 3,339,325 Ps 1,088,144 $ 841
Adjustments to
reconcile net income
with net cash
Provided by
operations:
Depreciation......... 318,011 228,805 528,287 408
Amortization......... 3,940 1,054,770 3,379,261 2,612
Deferred income
taxes............... (3,673) (3)
Allowance for
writedown of
property, plant and
equipment........... 95,598 74
Gain on sales of
properties, plant
and equipment....... (8,736) (203,519)
Minority interest.... 514,901 2,294,847 4,114,548 3,181
Net inflation
adjustment from
balance sheet
accounts............ 27,359 (2,159,351) (3,200,205) (2,474)
Deferred monetary
correction, net..... 299,257 (46,859) 463,667 358
Changes in operating
assets and
liabilities:
Accounts receivable.. (4,040,260) (7,369,453) (21,649,554) (16,736)
Inventories.......... (344,525) 140,768 (223,269) (173)
Prepaid expenses..... (119,413) (46,588) (343,138) (265)
Deferred costs....... (4,572,145) (6,964,501) (7,813,902) (6,041)
Other assets......... (27,456) (111,413) (241,943) (187)
Accounts payable..... 1,838,672 1,376,014 8,851,992 6,843
Labor liabilities.... 53,296 79,116 280,414 217
Tax liabilities...... 199,415 613,129 1,190,675 920
Other liabilities.... 87,941 27,389 2,805,224 2,169
------------- ------------- -------------- ---------
Net cash (used for)
provided by
operating
Activities......... (4,996,554) (7,747,521) (10,677,874) (8,256)
------------- ------------- -------------- ---------
Cash flows from
investing activities:
Purchases of
properties, plant and
equipment............ (16,154,395) (6,763,489) (45,588,202) (35,242)
Acquisition costs..... (3,179,648) (2,458)
Sales of properties,
plant and equipment.. 15,144 2,827,170
Purchases of
investments.......... (7,917,414) (16,925,848) (222,528,031) (172,025)
Proceeds from maturity
of short-term
investments.......... 10,048,049 11,639,690 89,352,042 69,073
Proceeds from sale of
temporary
investments.......... 2,733,805 2,114
------------- ------------- -------------- ---------
Net cash used by
investing
activities......... (14,008,616) (9,222,477) (179,210,034) (138,538)
------------- ------------- -------------- ---------
Cash flows from
financing activities:
Senior Notes due
2007................. 194,037,000 150,000
Issuance costs of
Senior Notes due
2007................. (26,818,005) (20,731)
Bank overdrafts
borrowings........... 1,284,067 6,476,485 16,577,218 12,815
Issuance of other
debt................. 18,247,738 42,465,936 110,314,384 85,278
Bank overdrafts
repayments........... (1,284,057) (2,570,729) (16,069,170) (12,422)
Repayments of other
debt................. (3,496,901) (18,196,101) (146,183,910) (113,006)
Shares issued for
cash................. 2,922,333 32,029,892 24,761
Sale of customer
accounts receivable.. 7,342,749 5,676
Repayments of capital
lease obligations.... (22,195) (561,571) (434)
------------- ------------- -------------- ---------
Net cash provided by
financing
activities......... 17,673,180 28,153,396 170,668,587 131,937
------------- ------------- -------------- ---------
Effect of revaluing to
constant pesos........ 2,046,374 1,877,942 8,226,256 6,359
------------- ------------- -------------- ---------
Net (decrease)
increase in cash..... 714,384 13,061,340 (10,993,066) (8,498)
Cash at beginning of
year................. 6,260 720,644 13,781,984 10,654
------------- ------------- -------------- ---------
Cash at end of year... Ps 720,644 Ps 13,781,984 Ps 2,788,918 $ 2,156
============= ============= ============== =========
Supplemental disclosure
of cash flows
information:
Cash paid during the
year for:
Interest.............. Ps 1,211,244 Ps 7,518,028 Ps 12,256,855 $ 9,475
============= ============= ============== =========
Income taxes.......... Ps 1,014 Ps 20,564 Ps 2,399,144 $ 1,855
============= ============= ============== =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-7
<PAGE>
TRANSTEL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(THOUSANDS OF PESOS OF DECEMBER 31, 1997--NOTE 2, UNLESS OTHERWISE SPECIFIED)
NOTE 1--REPORTING ENTITY
Transtel S.A. (hereafter, Transtel S.A. and its subsidiaries are referred to
as the "Company" or "Transtel") was created under Colombian law on August 23,
1993 for a term expiring on August 23, 2023; this term may be extended by an
amendment of the Company's bylaws. Transtel maintains its accounting records
and prepares its financial statements in Colombian pesos ("Pesos"). As more
fully explained in Note 2, the accompanying annual financial statements are
restated in constant Pesos of December 31, 1997 purchasing power.
The Company's business consists of the design, installation, operation and
ownership of fixed telephony networks in various areas of Colombia.
To date, Transtel has grown through the formation of subsidiaries with
municipalities as their minority shareholders. Transtel contributed cash
(except in the case of Caucatel where Transtel's contribution consisted of
cash and equipment) to each subsidiary in exchange for a majority ownership.
In exchange for a minority ownership position in the subsidiary, the relevant
municipality either (i) transferred its currently owned telecommunications
infrastructure along with its cooperation in various forms, including the
provision of its demographic information and the required civil works permits
on an expedited basis, or (ii) where such current infrastructure does not
exist, contributed nominal cash and demographic information and permits
cooperation only. Once the subsidiary structure is in place, Transtel then
focuses on expanding the subscriber base and either upgrading the current
infrastructure or building a new infrastructure, as the case may be.
As of December 31, 1997, Transtel has formed seven operating subsidiaries as
shown in the following chart:
<TABLE>
<CAPTION>
DATE
PRIMARY COMMERCIAL PERCENT
AREA DATE OPERATIONS OWNED BY
SUBSIDIARY SERVED INCORPORATED BEGAN TRANSTEL
---------- ------- ------------ ---------- --------
<S> <C> <C> <C> <C>
Empresa de Telefonos de
Jamundi S.A., E.S.P.
("TeleJamundi").............. Jamundi 9/29/93 6/1/97 70%
Unitel S.A. E.S.P.
("Unitel")................... Yumbo 3/11/94 6/1/97 95
Empresa de Telefonos de
Palmira S.A., E.S.P. Palmira and
("TelePalmira").............. Candelaria 5/31/95 9/1/95 60
Telefonos de Cartago S.A.,
E.S.P. ("TeleCartago")....... Cartago 1/3/97 4/1/97 65
Caucatel S.A., E.S.P.
("Caucatel")................. Popayan 4/30/97 5/1/97 51
Bugatel S.A., E.S.P.
("Bugatel").................. Buga 6/16/97 7/1/97 60
Empresa de Telecomunicaciones
de Girardot S.A. E.S.P.
("TeleGirardot")............. Girardot 12/31/97 1/1/98 60
</TABLE>
In addition to the above subsidiaries, Transtel formed TeleCauca S.A. E.S.P.
as a 98% owned subsidiary on December 27, 1996; however, it has had no
operations to date.
Transtel S.A. was in the preoperating stage until September 1, 1995. As of
December 31 1997, Transtel S.A. had no significant operations or assets and
liabilities except for its investments in its subsidiaries, the issuance of
the Senior Notes due 2007 and the investments of a portion of the proceeds
therefrom.
TeleJamundi and Unitel were formed by Transtel S.A. contributing cash of
Ps25,114 and Ps77,686, respectively, for a 70% and 80% interest, respectively.
Subsequently, Transtel made an additional investment in Unitel of Ps5,606,191
for another approximately 15% ownership in December 1997. The municipalities
of Jamundi and Yumbo contributed Ps10,763 and Ps19,422 in cash for their
minority interests in TeleJamundi and Unitel, respectively, as these
municipalities did not own existing telephony systems.
F-8
<PAGE>
TRANSTEL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
TelePalmira was formed by Transtel S.A. contributing cash of Ps13,814,278
for a 60% interest and the municipality of Palmira contributing a portion of
its telephony system with a fair value of Ps9,207,839 for a 40% minority
interest. Concurrently, TelePalmira purchased the remaining assets of
Palmira's telephony system for Ps12,432,867 in cash.
During the year ended December 31, 1997, Transtel S.A. acquired the
telephony operations of the municipalities of Cartago, Popayan, Buga and
Girardot. The acquisitions were effected by Transtel S.A. forming subsidiaries
with the municipalities having a minority interest as follows:
<TABLE>
<CAPTION>
TRANSTEL S.A. MUNICIPALITY
-------------------------- --------------------------
OWNERSHIP OWNERSHIP
INVESTMENT PERCENTAGE INVESTMENT PERCENTAGE
------------ ---------- ------------ ----------
<S> <C> <C> <C> <C>
TeleCartago........... Ps 4,295,475(1) 65% Ps 2,312,948(3) 35%
Caucatel.............. 7,933,514(2) 51 7,622,396(4) 49
Bugatel............... 6,303,840(1) 60 4,202,560(3) 40
TeleGirardot.......... 9,150,121(1) 60 6,100,128(4) 40
------------ ------------
Ps27,682,950 Ps20,238,032
============ ============
</TABLE>
--------
(1) Cash invested by Transtel S.A.
(2) Cash of Ps1,091,611 and equipment with a cost of Ps7,128,380 were
contributed by Transtel S.A.
(3) Portions of the telephony systems of Cartago and Buga were contributed
to the subsidiaries and recorded at estimated fair value.
(4) The entire telephony system was contributed to the subsidiary and
recorded at estimated fair value.
Upon formation, TeleCartago and Bugatel paid the municipalities of Cartago
and Buga Ps9,197,923 and Ps5,343,800, respectively, in cash for the portion of
their telephony systems not contributed in exchange for stock in the related
subsidiary. Transtel financed these acquisitions by borrowing Ps14,541,723
from banks.
On December 31, 1997, TeleGirardot was formed by Transtel contributing
Ps9,150,121 in cash for its 60% interest and the municipality of Girardot
contributing the net assets of its wholly-owned telephone subsidiary, Empresa
de Telecomunicaciones de Girardot E.S.P. ("Girardot Telephone") totaling
Ps6,100,081 for its 40% minority interest. Transtel used a portion of the
proceeds from the Senior Notes due 2007 (see Note 12) to finance its
investment in TeleGirardot. The transaction has been accounted for at the
municipality's historical book value plus Transtel's portion of the excess of
fair value over that book value since prior accounting records for Girardot
telephone are available.
Except for Girardot, separate financial information of the municipalities'
telephony operations prior to the acquisitions by the Company does not exist,
thus, no pro forma statement of income information is included herein for any
of the above acquisitions, except for TeleGirardot.
The following consolidated unaudited pro forma information of Transtel S.A.
is presented as if the acquisition of Girardot Telephone had occurred on
January 1, 1996:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1996 1997
------------ ------------
<S> <C> <C>
Revenues...................................... Ps19,579,069 Ps31,467,150
Net income (loss)............................. 4,513,879 (9,255,967)
Earnings (loss) per share (in single Pesos per
share)....................................... 1.13 (2.08)
</TABLE>
F-9
<PAGE>
TRANSTEL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2--BASIS OF FINANCIAL STATEMENT PRESENTATION
Consolidation
Companies in Colombia must keep their accounting records and prepare their
financial statements in conformity with rules prescribed by the Government of
Colombia. These are considered by law to be accounting principles generally
accepted in Colombia ("Colombian GAAP"). Consolidated financial statements in
Colombia include the subsidiaries in which the Company owns, directly or
indirectly, more than 50% of the common stock. All of the Company's
subsidiaries are consolidated, eliminating intercompany accounts and
transactions.
Inflation accounting
The consolidated financial statements, as required by law, have been
adjusted for the effects of inflation on the basis of changes in the official
Colombian middle-income consumer price index ("MCPI"). This index is applied,
on a one-month lagging basis, to nonmonetary assets and liabilities,
shareholders' equity (excluding the surplus from reappraisal of assets) and
revenue and expense accounts. Monetary balances have not been adjusted because
they reflect the purchasing power of the currency at the date of the balance
sheet. The Company's management considers that the application of the one-
month lagging basis in the inflation adjustments does not deviate materially
from the calculation performed on a current-month basis.
The adjusted costs of the non-monetary assets may not exceed the net
realizable value of the assets.
The exposure to inflation is reflected in each non-monetary item of the
consolidated financial statements. The net gain or loss from exposure to
inflation is reflected as "Net monetary inflation adjustment income (loss)" in
the consolidated statements of income. The individual components of the
consolidated statements of income have been adjusted to reflect the effect of
inflation during the year. The net effect of inflation during the year on
these revenue and expense components is recorded as a portion of the "Net
monetary inflation adjustment income (loss)" account.
Accordingly, the "Net monetary inflation adjustment income (loss)" shown in
the income statement of the Company is the result of netting or offsetting the
following items:
A. A credit (or income entry) for inflation affecting non-monetary assets;
B. A charge (or expense entry) for inflation affecting non-monetary
liabilities and shareholders' equity; and
C. Charges and credits (for expense and income entries) representing
inflation adjustments made to expenses and revenues, respectively. Since
monetary inflation adjustments are offset in the net monetary inflation
adjustment account in the statement of income, the net effect on net income
from the expense and income inflation adjustments is zero. The inflation
adjustments to revenue and expenses are included in the individual revenue
and expense captions in the consolidated income statements.
Because expense and revenue inflation adjustments net to zero, the only
impact on the consolidated statement of income of the effects of inflation is
attributable to the restatement of non-monetary assets and liabilities and
shareholders' equity accounts.
The financial statements for 1995 and 1996 have been restated to constant
pesos of purchasing power of December 31, 1997. The constant pesos amounts
have been determined by applying an index derived from the MCPI to the nominal
amounts reflected in the statutory financial statements prepared under
Colombian GAAP. The indexes applied to the nominal financial statements data
for 1995 and 1996 were 1.4330 and 1.1738, respectively. Some components of the
consolidated statements of cash flows, of changes in financial position
F-10
<PAGE>
TRANSTEL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
and of changes in shareholders' equity were restated using average indexes of
1.6180 and 1,3328 for 1995 and 1996, respectively.
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company's significant accounting policies and procedures are described
below:
Investments
Investments in equity securities in which ownership is temporary are carried
at cost. Investments in U.S. Treasury Bills and interest-only strips held in
the Escrow Account are held-to-maturity investments and are carried at
maturity value with unearned interest recorded as a liability (amortized
cost). Investments in Ordinary Common Funds (fiduciary managed unit
investments in debt securities) are carried at cost, including reinvested
interest income. Investments in the Refinancing Account consist of money
market funds and are carried at cost.
Inventories
Inventories of materials, cables, spare parts and other supplies are stated
at the lower of average cost adjusted for inflation or market.
Properties, plant and equipment
Except for TeleGirardot, the amounts recorded for telecommunications
equipment and networks that were contributed to subsidiaries by municipalities
and minority interest are valued at estimated fair value of the equipment and
networks and are in proportion to the cash or fair value of assets contributed
to the subsidiaries by Transtel since the historical book value records of
these municipalities are non-existent or unreliable. Since reliable historical
book value amounts are available for Girardot Telephone, the Company recorded
the net assets obtained in that acquisition at the municipality's historical
book value plus Transtel's portion of the excess of fair value over that book
value was recorded as goodwill. Other purchases from municipalities are
recorded at amounts payable in cash. Subsequently, these assets are adjusted
for inflation.
Other properties, plant and equipment are recorded at historical cost
adjusted for the effects of inflation. Sales and retirements of these assets
are removed at their net inflation-adjusted cost, and differences between sale
proceeds and net inflation-adjusted cost were recorded as gains or losses,
according to each case.
Disbursements for additions to and substantial improvements of assets are
capitalized and adjusted for inflation. Interest costs incurred during the
construction period are capitalized. Maintenance and repair expenditures are
expensed as incurred.
Depreciation is calculated on the basis of the cost of assets, adjusted for
inflation, over their estimated useful lives as follows:
<TABLE>
<CAPTION>
LIFE IN YEARS
-------------
<S> <C>
Buildings................................................... 20
Office equipment............................................ 10
Computer and communications equipment....................... 5
Telecommunication equipment................................. 20
External telephony networks................................. 20
Vehicles.................................................... 5
</TABLE>
F-11
<PAGE>
TRANSTEL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Prior to January 1, 1996, the Company used the straight-line method of
depreciation. As of January 1, 1996, TelePalmira changed to the reverse sum of
the years method of depreciation, a method acceptable in Colombia. All other
operating subsidiaries have used this method from inception.
Allowance for doubtful accounts
The allowance for doubtful accounts is reviewed and updated at the end of
each year on the basis of evaluations of collectibility based on agings of
customer receivables and management's judgment. Uncollectible balances are
periodically charged against the allowance account.
Deferred costs
Items recorded as deferred costs include disbursements for software,
leasehold improvements, organization costs, preoperating expenses until
Transtel S.A. and each subsidiary commences commercial operations, costs of
market and demand studies and investigations, costs related to several
acquisitions and Senior Notes issuance costs. Acquisition costs represent
payments made to certain municipalities in connection with the acquisition of
their telephony operations to pay severance and pension costs of certain
employees. In addition, the Company has recorded as deferred costs interest on
the financing of its investments in and advances to its subsidiaries until
their commercial operations commence, interest on equipment under installation
and interest and exchange losses on the financing of its expansion plan
projects from the date that the proceeds are obtained until the projects are
completed.
These deferred costs are adjusted for inflation with a credit to "Deferred
monetary correction," a liability, and, concurrently, the inflation adjustment
of the part of shareholders' equity used to finance such costs is deferred by
a debit to an asset account "Deferred monetary correction." All deferred
costs, except Senior Notes issuance costs, and expenses arising from monetary
correction are amortized over five years on a straight-line basis from the
acquisition date, the studies and investigations and expansion plan projects
completion date, or the date when commercial operations begin, as the case may
be. The Senior Notes issuance costs are amortized on a straight-line basis
over the life of the bonds.
Goodwill
Goodwill represents Transtels portion of the excess of the fair value over
the book value of the assets and liabilities acquired at the acquisition date
of Girardot Telephone. Goodwill will be amortized over five years on a
straight-time basis from the acquisition date.
Reappraisal of assets
Reappraisals of properties, plant and equipment, which increase
shareholders' equity are calculated as the excess of appraised values of
properties, plant and equipment (as periodically established by independent
appraisers) over their net adjusted book values. The initial reappraisal was
recorded in 1996. Such reappraisal amounts are not depreciated. A provision
charged to income is recorded when appraisals are lower than the net adjusted
book value of properties, plant and equipment.
Translation of foreign currency transactions and balances
Foreign currency transactions and balances are translated into Colombian
pesos at the representative market exchange rate. This representative rate for
the United States dollar in Colombian nominal pesos was Ps987.65, Ps1,005.33
and Ps1,293.58 per $1 at December 31, 1995, 1996 and 1997, respectively.
Foreign exchange differences are recognized as financial income or expense.
Foreign currency balances were borrowings from financial entities (Note 12),
other liabilities (Notes 16 and 20) and Senior Notes (Note 12) totaling
$15,171,541
F-12
<PAGE>
TRANSTEL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(Ps17,900,057) at December 31, 1996 and $161,890,794 (Ps209,418,693) at
December 31, 1997, and certificates of deposits and investments (Note 4) of
$2,000,000 (Ps2,361,287) at December 31, 1996 and $55,973,961 (Ps72,406,798)
at December 31, 1997.
Labor liabilities
Labor liabilities are adjusted at the end of each accounting period by
reference to legal provisions and labor agreements in force.
In accordance with the Colombian Labor Code, the Company is subject to Law
100, which requires that the Company and its employees contribute monthly to a
pension fund or the Social Security Institute based on a percentage of
salaries. On December 31, 1997, the Company assumed the defined benefit
pension liability of Girardot Telephone for certain personnel of the
municipality of Girardot that are retired or became employees of the Company.
The liability is recorded on the basis of actuarial studies and was assumed
totally amortized, thus, there are no deferred pension costs.
Under Colombian labor regulations, most Transtel employees other than
executives are entitled to receive one month's salary for each year of
service. The Company contributes these amounts within 30 days of its year-end
to a fund established by each employee. The Company is subject to Law 50.
Recognition of revenues, costs and expenses
Revenues for telephone services are recognized in the period during which
the services are provided. Revenues from settlement of traffic for national
and international long distance calls are recognized on a net basis and are
based on estimates of traffic volume and rates. Certain revenues subject to
final settlement are not recorded until realization is probable. Revenues for
connection fees for telephone lines are recognized upon payment in cash or the
execution of a promissory note (with a 10% down payment) by the customer and
the Company's assignment of a telephone number which is transferable to others
by the customer. Actual connection with a dial tone takes place within a day
to approximately three months depending on the customer's location in relation
to the buildup of the system. Costs and expenses are recorded on the accrual
basis.
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 at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Subsequent resolution of some matters
could differ from those estimates.
Income tax
The tax provision includes tax resulting from timing differences of items
which enter into taxable income in periods which differ from those recorded
for financial statement purposes. The tax benefit or expense relating to such
timing differences is recorded in net deferred income tax asset or liability
accounts.
Memorandum accounts
Items recorded as memorandum accounts include guarantees, remaining payments
on lease agreements and assets given as collateral. Contingent
responsibilities mainly represent the amounts of promissory notes receivable
from connection fees sold during 1997 to a financial institution with no
recourse to be collected on behalf of the financial institution. Memorandum
accounts called fiscal accounts are also recorded for differences between
financial statement data and data for income tax purposes. Nonmonetary
memorandum accounts are adjusted for inflation, with a charge or credit to
reciprocal memorandum accounts. Commitments represent the amount of
agreements/contracts entered into with third parties.
F-13
<PAGE>
TRANSTEL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Statement of cash flows
For purposes of reporting cash flows, cash and cash equivalents are defined
as cash and highly liquid debt instruments with an original maturity of three
months or less, other than those investments in Ordinary Common Funds, the
Escrow Account and the Refinancing Account which will be used for specific
purposes. The statements of cash flows are prepared substantially in
conformity with generally accepted accounting principles in the United States
("U.S. GAAP").
During 1995 and 1997, the Company recorded non-cash transactions for
properties, plant and equipment and minority interest of Ps9,011,413 and
Ps20,238,032, respectively, related to the acquisitions of the telephony
assets of municipalities. Additionally, the Company recorded non-cash
transactions for land, equipment, capital lease and other obligations of
Ps1,093,677 and Ps6,298,813 in 1996 and 1997, respectively.
Earnings per share
Earnings per share are computed by dividing net income applicable to common
shares by the weighted average number of subscribed and paid shares
outstanding for each year presented. Transtel's weighted average number of
shares used in the computation of earnings per share was 2,294,444,444;
4,000,000,000 and 4,433,250,509 in 1995, 1996 and 1997.
Convenience translation to U.S. dollars (unaudited)
The U.S. dollar ("Dollar") amounts presented in the financial statements and
accompanying notes have been translated from the Peso figures solely for the
convenience of the reader, at the exchange rate of 1,293.58 Pesos per Dollar,
which approximates the exchange rate which existed at December 31, 1997. Such
translation should not be construed as representations that the Peso amounts
represent, or have been or could be, converted into Dollars at that or any
other rate.
NOTE 4--INVESTMENTS
Short-term and temporary investments consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1995 1996 1997
-------- ----------- -------------
<S> <C> <C> <C>
Temporary investment--100% of the shares
of Gonzalo Caicedo Toro & Cia. S.C.S. (a
shareholder), at cost (see Note 29)..... Ps -- Ps2,733,805 Ps --
Certificates of deposits (includes
$2,000,000 in 1996 and $3,000,000 in
1997)................................... 10,077 2,549,526 43,391,074
Escrow Account ($18,750,000)............. 24,254,625
Refinancing Account ($15,323,961)........ 19,822,771
Investments in Ordinary Common Funds
(includes $150,000)..................... 17,398,946
-------- ----------- -------------
Ps10,077 Ps5,283,331 Ps104,867,416
======== =========== =============
Long-term investments consisted of the
following:
Escrow Account ($18,750,000)............. Ps -- Ps -- Ps 24,254,625
Certificates of deposits due in 2000..... 6,628,640
Other investments........................ 39,134 530,253
-------- ----------- -------------
Ps -- Ps 39,134 Ps 31,413,518
======== =========== =============
</TABLE>
F-14
<PAGE>
TRANSTEL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
On August 31, 1996, the Company received 100% of the shares of Gonzalo
Caicedo Toro & Cia. S.C.S. ("GCT & Cia.") from Mr. Gonzalo Caicedo Toro, a
shareholder of the Company, for Ps2,733,805 in payment of the Company's net
advances to him (see Notes 5 and 29). GCT & Cia. owns 6% of the Company and an
interest in Colombina S.A., a candy manufacturer in Colombia. The Company
pledged the shares of GCT & Cia. as collateral for certain of its borrowings.
On July 21, 1997, the Company sold the shares in GCT & Cia. to Mr. Caicedo for
cash equal to the price paid by the Company. Since the Company's ownership of
GCT & Cia. was temporary, the investment was recorded at cost as a temporary
investment at December 31, 1996.
The Escrow Account is a trustee administered account containing U.S.
Treasury Bills and interest-only strips that secures the interest payments on
the 12 1/2% Senior Notes due 2007 for the years ending December 31, 1998 and
1999. The Refinancing Account is also a trustee administered account that
contains a portion of the proceeds of the 12 1/2% Senior Notes due 2007 that
is required to be used to retire other borrowings. The investments in the
Refinancing Account consist of money market funds. On January 9, 1998, the
Company used Ps7,761,480 of the Refinancing Account to pay the remaining other
borrowings. The Company believes that the remaining balance in the Refinancing
Account may be used for other corporate purposes.
Balances in the Escrow Account and Refinancing Account partially secure the
Senior Notes due 2007.
Certificates of deposits earned interest at rates between 18% and 20% in
1995, 25% and 30% in 1996, and 20% and 22% in 1997.
The Ordinary Common Funds fund investments earned interest at an average
rate in 1997 of 21% for Peso balances and 6% for foreign currency balances.
NOTE 5--ACCOUNTS RECEIVABLE, NET
Accounts receivable consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1995 1996 1997
----------- ------------ ------------
<S> <C> <C> <C>
Subscribers........................ Ps1,725,357 Ps 5,959,494 Ps16,274,130
Shareholder (see Notes 4 and 29)... 1,718,129
Advances to Siemens S.A. (see Note
30)............................... 3,775,474 5,225,372
Advances to IBM for equipment
purchases......................... 936,994
Tax prepayments and other
advances.......................... 585,780 1,662,198 4,024,044
Employees.......................... 61,053 38,792 29,997
Global Telecommunications
Operations, Inc.,
a related party (see Note 30)..... 2,870,711
Other receivables.................. 31,372 67,884 2,310,839
----------- ------------ ------------
4,121,691 11,503,842 31,672,087
Less--Allowance for doubtful
accounts.......................... (12,697) (1,399,556)
----------- ------------ ------------
4,121,691 11,491,145 30,272,531
Less--Noncurrent portion-
subscribers....................... (1,568,927) (4,956,980)
Noncurrent advances to IBM and
Siemens S.A.................... (3,775,629) (6,162,366)
----------- ------------ ------------
Ps4,121,691 Ps 6,146,589 Ps19,153,185
=========== ============ ============
</TABLE>
F-15
<PAGE>
TRANSTEL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The activity in the allowance for doubtful accounts follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- -------
1996 1997
-------- -----------
<S> <C> <C> <C> <C> <C>
Balance at beginning of year.............. Ps -- Ps 12,697
Provision................................. 12,697 190,413
Balance from Girardot Telephone
acquisition.............................. 1,196,446
--- -------- -----------
Balance at end of year.................... Ps12,697 Ps1,399,556
======== ===========
</TABLE>
Receivables from subscribers at December 31, 1995, 1996 and 1997 include
Ps301,112, Ps4,328,820 and Ps6,298,463, respectively, for connection fees
represented by promissory notes payable over up to 36 months at 37.2% annual
interest. During 1997, the Company sold with recourse promissory notes from
subscribers totaling Ps7,342,749 (including Ps1,240,557 existing at December
31, 1996) to a financial institution at book value. The Company continues to
collect principal and interest from these subscribers and remits such amounts
to the financial institution. Although the Company is unable to estimate the
fair value of the servicing, it believes its cost of servicing these accounts
is nominal. The allowance for doubtful accounts at December 31, 1997 is
adequate to cover the Company's recourse obligation. The uncollected balance
of promissory notes sold to the financial institution at December 31, 1997 is
Ps5,988,574. Subsequent to December 31, 1997, the Company sold with no
recourse Ps353,899 of the December 31, 1997 balance from subscribers under
amendments dated December 17, 1997 to the existing agreements, which also
removed the recourse provisions for all outstanding receivables previously
sold to the financial institution.
NOTE 6--INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Materials...................................... Ps -- Ps -- Ps281,069
Cables......................................... 157,474 117,635 475,232
Spare parts.................................... 202,661 172,677 168,968
Other.......................................... 6,700 32,637
--------- --------- ---------
Ps360,135 Ps297,012 Ps957,906
========= ========= =========
</TABLE>
F-16
<PAGE>
TRANSTEL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7--PROPERTIES, PLANT AND EQUIPMENT, NET
Properties, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------
1995 1996 1997
------------ ------------ -------------
<S> <C> <C> <C>
Land............................ Ps 293,392 Ps 1,624,523 Ps 3,893,270
Construction in progress........ 3,384,199 1,488,412 28,300,261
Buildings....................... 594,511 2,431,845 5,436,946
Office and computer equipment... 419,451 528,682 2,058,217
Communications equipment........ 144,868 263,604 752,700
Telecommunications equipment.... 11,811,338 12,364,858 37,804,396
External telephony networks..... 6,421,697 8,790,022 35,816,175
Vehicles........................ 366,981
------------ ------------ -------------
23,069,456 27,491,946 114,428,946
Less--Accumulated depreciation.. (344,256) (570,869) (1,098,682)
------------ ------------ -------------
Ps22,725,200 Ps26,921,077 Ps113,330,264
Less--Allowance for writedown of
properties, plant and
equipment...................... (95,598)
------------ ------------ -------------
Ps22,725,200 Ps26,921,077 Ps113,234,666
============ ============ =============
</TABLE>
Land and buildings at December 31, 1996 and 1997 include Ps1,131,248 and
Ps327,300 capitalized under capital leases. Additionally, office and computer
equipment at December 31, 1995, 1996 and 1997 includes Ps95,357, Ps120,203 and
Ps195,448, respectively, capitalized under capital leases (see Note 19).
Construction in progress at December 31, 1997 consists primarily of external
telephony networks (Ps16,305,822), telecommunications equipment (Ps5,670,118)
and buildings (Ps6,324,321). The December 31, 1997 construction in progress--
external telephony networks includes Ps1,782,842 incurred under the Turn-Key
Arrangements with Siemens (see Note 30), as well as other equipment purchases.
The December 31, 1997 construction in progress--telecommunication equipment
primarily consists of a Ps4,794,098 project assumed in the Girardot Telephone
acquisition.
Depreciation expense for the years ended December 31, 1995, 1996 and 1997
amounted to Ps318,011, Ps228,805, and Ps528,287, respectively. As of January
1, 1996, TelePalmira changed to the reverse sum of the years method of
computing depreciation which had the effect of decreasing 1996 depreciation
and increasing 1996 income before income taxes and minority interest by
Ps940,841 and increasing 1996 net income by Ps564,504 (0.14 single Pesos per
share). There is no income tax benefit since TelePalmira was exempt from
income taxes in 1996.
Land and buildings at December 31, 1996 and 1997 include real estate
purchased by the Company in 1996 from Mr. Gonzalo Caicedo Toro, a shareholder,
for Ps86,750 and Ps1,673,634, respectively (see Note 29). The Company plans to
use this property in the near future for its expansion program.
F-17
<PAGE>
TRANSTEL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8--DEFERRED COSTS
Deferred costs consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------
1995 1996 1997
----------- ------------ ------------
<S> <C> <C> <C>
Software.......................... Ps 2,914 Ps 364,798 Ps 658,660
Leasehold improveents and other... 295,137 508,029 579,002
Organization costs................ 17,375 381,741
Preoperating expenses............. 2,929,349 2,929,349 3,067,622
Market and demand studies and
investigations................... 1,750,375 2,965,514 3,559,960
Interest costs of investments in
and advances to subsidiaries and
on installation of equipment..... 1,309,010 7,601,327 14,945,154
Interest costs of expansion plan
projects......................... 1,722,000
Exchange loss costs of expansion
plan projects.................... 239,000
Issuance costs of 12 1/2% Senior
Notes due 2007................... 24,857,004
Acquisition costs................. 3,179,648
----------- ------------ ------------
6,286,785 14,386,392 53,189,791
Less--Accumulated amortization.... (3,940) (1,058,710) (4,404,799)
----------- ------------ ------------
Ps6,282,845 Ps13,327,682 Ps48,784,992
=========== ============ ============
</TABLE>
NOTE 9--OTHER ASSETS
Other assets consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1995 1996 1997
-------- --------- -----------
<S> <C> <C> <C>
Goodwill................................... Ps -- Ps -- Ps1,572,957
Deferred income tax asset, net (see Note
18)....................................... 3,673
Other...................................... 27,456 118,260 618,041
-------- --------- -----------
27,456 118,260 2,194,671
Less--Accumulated amortization............. (33,172)
-------- --------- -----------
Ps27,456 Ps118,260 Ps2,161,499
======== ========= ===========
</TABLE>
At December 31, 1997, other assets primarily consist of prepaid Ps396,722
spectrum usage fees.
NOTE 10--REAPPRAISAL OF ASSETS
Reappraisal of certain assets consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1997
------------ ------------
<S> <C> <C>
Reappraisal of properties, plant and
equipment..................................... Ps14,514,909 Ps15,893,281
Less--Reappraisal related to minority
interest.................................... (5,670,075) (6,477,580)
------------ ------------
Total reappraisal of assets recorded in
shareholders' equity.......................... Ps 8,844,834 Ps 9,415,701
============ ============
</TABLE>
F-18
<PAGE>
TRANSTEL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 11--MEMORANDUM ACCOUNTS
Memorandum accounts consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1995 1996 1997
----------- ------------ -------------
<S> <C> <C> <C>
Debit fiscal (tax) accounts.......... Ps 4,267 Ps 664,172 Ps 8,102,592
Credit fiscal (tax) accounts......... 636,768 7,540,183
Pledged income (see Note 12)......... 5,700,000
Remaining payments on operating lease
agreements (see Note 19)............ 4,604,408 3,348,260 4,266,037
Commitments under the Global Lease
agreements (see Note 30)............ 23,561,313 150,730,881
Assets given as collateral........... 3,453,943 2,733,805 68,332,021
Commitments under contracts and
agreements.......................... 12,131,382
Commitments under IBM's lease
agreements (see Note 30)............ 4,367,345
Commitments under contracts with
Siemens (see Note 30)............... 22,896,366
Promissory notes sold without
recourse to be collected on behalf
of a financial institution (see Note
5).................................. 5,988,574
Other................................ 278,618 466,459 4,438,715
----------- ------------ -------------
Ps8,341,236 Ps31,410,777 Ps294,494,096
=========== ============ =============
</TABLE>
The assets given as collateral are summarized as following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1997
----------- ------------
<S> <C> <C>
Shares of Gonzalo Caicedo Toro & Cia. S.C.S. (see
Note 4)......................................... Ps2,733,805 Ps --
Escrow Account (see Note 4)...................... 48,509,250
Refinancing Account (see Note 4)................. 19,822,771
----------- ------------
Ps2,733,805 Ps68,332,021
=========== ============
</TABLE>
NOTE 12--DEBT
On October 28, 1997, the Company received the net proceeds from the sale of
$150 million (Ps194,037 billion) of its 12 1/2% Senior Notes due 2007. These
Senior Notes were sold to a pass through trust which issued certificates
("Certificates") representing pro rata interests in the Senior Notes to
qualified institutional buyers in the United States of America or non-U.S.
persons outside the United States. Interest payments on the Senior Notes are
due on May 1 and November 1, commencing May 1, 1998.
A portion of the net proceeds of the 12 1/2% Senior Notes due 2007 was used
to pay all existing short and long-term debt existing at October 28, 1997, and
other items, as follows:
<TABLE>
<S> <C>
Sale of 12 1/2% Senior Notes due 2007 ($150,000,000)........ Ps194,037,000
Payment of existing debt.................................... (42,386,782)
Escrow Account for first two years interest payments........ (45,668,811)
Central Bank's withdrawal fee............................... (13,255,752)
Costs of issuance........................................... (10,706,488)
-------------
Cash available for the Company's expansion plan............. Ps 82,019,167
=============
</TABLE>
F-19
<PAGE>
TRANSTEL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The indenture of the 12 1/2%Senior Notes due 2007 imposes certain
limitations on the ability of the Company and its subsidiaries to, among other
things, incur additional indebtedness, incur liens, pay dividends or make
certain other restricted payments, consummate certain asset sales, enter into
certain transactions with affiliates, issue preferred stock, merge or
consolidate with any other person or sell, assign, transfer, lease, convey, or
otherwise dispose of all or substantially all of the assets of the Company and
its subsidiaries. Under the most restrictive of these covenants, the Company
may not pay any dividends as of December 31, 1997.
Transtel S.A. is dependent upon the transfer of funds from its subsidiaries
to make the required interest and principal payments on the Senior Notes and
the Certificates. The subsidiaries have not guaranteed the payment of the
Senior Notes or the Certificates and have no obligations to remit dividends or
other distributions to Transtel S.A. for payment on the Senior Notes and the
Certificates.
Short-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1995 1996 1997
----------- ------------ ---------
<S> <C> <C> <C>
Bank overdrafts......................... Ps 10 Ps 3,905,756 Ps508,048
Borrowings from financial entities
Denominated in Pesos................... 1,518,805 6,568,725
Letters of credit....................... 98,585
Other................................... 264,875 454,891
----------- ------------ ---------
Total short-term debt................. Ps1,783,690 Ps11,027,957 Ps508,048
=========== ============ =========
</TABLE>
Approximately, Ps1,848,740 of short-term debt at December 31, 1996 were
secured by assets of Mr. Gonzalo Caicedo Toro, a shareholder of the Company.
Other long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Borrowings from financial
entities
Denominated in Dollars
($15,171,541 in 1996 and
$6,000,000 in 1997)........... Ps -- Ps17,900,057 Ps 7,761,480
Denominated in Pesos........... 12,967,156 13,998,424 5,327,554
------------ ------------ ------------
12,967,156 31,898,481 13,089,034
Less--Current portion............ (870,447) (6,808,148) (13,089,034)
------------ ------------ ------------
Total other long-term debt... Ps12,096,709 Ps25,090,333 Ps --
============ ============ ============
</TABLE>
Included in other long-term borrowings from financial entities are Ps7,773
million and Ps20,279 million at December 31, 1995 and 1996 respectively, which
were secured by assets of Mr. Caicedo (see Note 29). Additionally,
approximately Ps21,432,030 of other long-term debt at December 31, 1996 was
guaranteed by Mr. Caicedo.
The Ps7,761,480 borrowings were paid on January 9, 1998 from proceeds of the
12 1/2% Senior Notes due 2007, which were included in short-term and temporary
investments at December 31, 1997. The Ps5,327,554 borrowings were assumed in
the Girardot Telephone acquisition, were secured by a pledge of revenues of
Ps5,700,000 and were paid in January 1998 by the Company.
F-20
<PAGE>
TRANSTEL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 13--ACCOUNTS PAYABLE
Accounts payable consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1995 1996 1997
----------- ----------- ------------
<S> <C> <C> <C>
Accrued interest expense.............. Ps 374,503 Ps 799,467 Ps 4,305,874
Accrued costs and expenses............ 719,983 103,083 9,685,262
Empresa Nacional de
Telecomunicaciones--long distance.... 971,441 497,688 2,986,476
Suppliers and trade current accounts.. 2,081,112 3,291,393
Shareholder (see Note 25)............. 21,833
----------- ----------- ------------
Ps2,065,927 Ps3,503,183 Ps20,269,005
=========== =========== ============
</TABLE>
NOTE 14--TAX LIABILITIES
Tax liabilities consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1995 1996 1997
--------- --------- -----------
<S> <C> <C> <C>
Income tax withholdings..................... Ps107,085 Ps289,636 Ps 220,746
Value-added tax payable..................... 118,089 229,845 1,173,220
Income taxes payable........................ 220,066 1,168,039
Other....................................... 98,757 212
--------- --------- -----------
Ps225,174 Ps838,304 Ps2,562,217
========= ========= ===========
</TABLE>
NOTE 15--LABOR LIABILITIES
Labor liabilities consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------
1995 1996 1997
-------- --------- ---------
<S> <C> <C> <C>
Salaries payable............................... Ps -- Ps -- Ps 83,315
Accrued severance compensation................. 26,467 77,362 172,597
Interest on severance compensation............. 1,416 8,129 40,629
Accrued vacation............................... 26,755 48,263 129,310
Other.......................................... 1,462
-------- --------- ---------
Ps54,638 Ps133,754 Ps427,313
======== ========= =========
</TABLE>
F-21
<PAGE>
TRANSTEL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 16--OTHER CURRENT LIABILITIES
Other current liabilities consisted of:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1996 1997
--------- --------- -----------
<S> <C> <C> <C>
Payable to Siemens AG for Transtel-Siemens
Purchase Agreement (see Notes 20 and 30)
($284,421)................................. Ps -- Ps -- Ps 367,921
Payable to Siemens S.A. for Turn-Key
Arrangement ($303,542)..................... 392,656
Payable to Siemens AG for other equipment... 1,397,755
Payable to IBM ($76,200).................... 98,571
Spectrum usage fees payable to the Colombian
Ministry of Communications................. 396,722
Unearned interest income ($1,098,000)....... 1,420,220
Deferred income-connection fees 1,932,266
Other....................................... 124,699 215,375 906,521
--------- --------- -----------
Ps124,699 Ps215,375 Ps6,912,632
========= ========= ===========
</TABLE>
The payable to Siemens AG for the Transtel-Siemens Purchase Agreement
relates to equipment acquired by Transtel S.A., which was contributed to
Caucatel, after progress payments of Ps649,276 ($501,922) had been made (see
Notes 20 and 30). The payable to Siemens S.A. is for the May 23, 1997 Turn-Key
Arrangement to install this equipment after a progress payment of P$297,461
($229,952) (see Note 30). The liability to IBM relates to equipment acquired
directly by Caucatel.
Unearned interest represents the difference between the maturity value of
the Escrow Account of $37.5 million (Ps48,509,250) (see Note 4) and the cost
of the investments deposited with the Escrow Account trustee of $35.3 million
(Ps45,668,811), less accumulated amortization of Ps236,703. The balance of
Ps2,603,736 will be earned Ps1,420,220 in 1998 and Ps1,183,516 in 1999 (see
Note 20). Deferred income represents the connection fees billed to customers
by Girardot Telephone (see Note 1) for which promissory notes have not been
signed by the customers and a telephone number has not been assigned to
conform to the Company's accounting policy (see Note 2).
NOTE 17--ACCRUED PENSION OBLIGATIONS
The Company assumed the defined benefit pension liability of Girardot
Telephone of Ps6,483,326 as part of its acquisition of that company on
December 31, 1997.
The present value of the obligation for pensions at December 31, 1997 was
determined on the basis of actuarial calculations in conformity with legal
regulations. The significant assumptions utilized in the actuarial
calculations for the year ended December 31, 1997 were as follows:
<TABLE>
<S> <C>
Discount rate......................................................... 31%
Future pension increases.............................................. 25%
Number of covered employees:
Active.............................................................. 34
Retired............................................................. 36
</TABLE>
F-22
<PAGE>
TRANSTEL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 18--INCOME TAX
Consolidated income tax returns are not permitted in Colombia. The effective
statutory income tax rate for Transtel S.A. was 35% for 1995, 1996 and 1997.
Under Colombian law, Transtel S.A. must pay a minimum tax of 35% based on
income which is presumed to be not less than the greater of 5% (4% in 1995) of
shareholders' equity for tax purposes at the end of the immediately preceding
year or 1.5% of gross assets for tax purposes at the end of the immediately
preceding year; however, operating companies such as Transtel's subsidiaries
are not subject to such a minimum income tax.
In accordance with Law 142 of 1994 and Law 223 of 1995, entities which
render basic residential telephony services and which are mixed capital
companies (i.e., companies with both public and private capital, such as the
Company's subsidiaries) are exempt in 1995 and partially exempt from the
payment of income taxes for a term of seven years from 1996 with respect to
profits which are retained for upgrade, expansion or replacement of telephone
systems. These companies are exempt from taxes on 100% of income related to
basic telephony services for 1995 and 1996; thereafter, the exemption reduces
by 10 percentage points each taxable year through 2000 and then reduces by 20
percentage points in 2001 and 2002. After 2002, there is no exemption.
In July 1997, Law 383 of 1997 established that dividends declared from
companies similar to Transtel's subsidiaries and paid to government entities
are not taxable. As there is not a similar exclusion for private investors
such as Transtel S.A., the Company expects that future dividends or
distributions declared to Transtel S.A. will be taxable. Deferred income taxes
of Ps2,639,064 on Transtel S.A.'s distributable portion of net income earned
by its subsidiaries through December 31, 1997 have been netted against the tax
benefit of net operating loss carryforwards of Transtel S.A. of Ps2,642,737.
The following is a reconciliation of taxable income before taxes and
minority interest for the years ended December 31, 1995, 1996 and 1997:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Income before taxes and
minority interest............. Ps 1,288,462 Ps 5,962,682 Ps 6,367,058
Non-deductible expenses........ 352 315,032 2,367,943
Non-taxable income............. (52,506) (63,321)
Fiscal deduction............... (64,508)
Difference between adjustment
for inflation for tax purposes
and for financial reporting
purposes...................... 121,084 68,078 352,524
Other.......................... 13,603 45,241
------------ ------------ ------------
Adjusted income before taxes
and minority interest....... 1,358,993 6,338,527 9,024,204
Less--Exempt income............ (1,357,930) (5,399,927) (5,686,950)
------------ ------------ ------------
Taxable income................. 1,063 938,600 3,337,254
------------ ------------ ------------
Statutory tax rate............. 35% 35% 35%
------------ ------------ ------------
Current income tax expense..... 372 328,510 1,168,039
Deferred tax benefit........... (3,673)
------------ ------------ ------------
Income tax expense............. Ps 372 Ps 328,510 Ps 1,164,366
============ ============ ============
</TABLE>
The percentage of exempt income to the adjusted income before taxes and
minority interest was 99.9%, 85.2% and 63.0% for the years ended December 31,
1995, 1996 and 1997, respectively. These percentages vary from the statutory
exemptions for the operating subsidiaries discussed earlier (100% in 1995 and
1996 and 90%
F-23
<PAGE>
TRANSTEL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
in 1997) because the income of Transtel S.A. (unconsolidated) is not exempt
from income taxes; however, it is included in the consolidated adjusted income
before taxes and minority interest.
Transtel S.A. has tax loss carryforwards of Ps7,145,000 of which Ps2,337,000
expires in 2001 and Ps4,808 in 2002. Since consolidated returns are not
allowed, only Transtel S.A. may use these loss carryforwards.
The Company's income tax returns for 1995 and 1996 are subject to review and
acceptance by the tax authorities. The tax returns for the year ending December
31, 1997 of each company will be filed between April and June 1998. The
Company's management and its legal advisors believe that no material tax
liabilities in excess of those recorded will arise as a result of any such
eventual reviews. The Company and its subsidiaries do not have any pending
claims from the tax authorities.
NOTE 19--LEASES
Operating
Operating leases in effect at December 31, 1997 consisted of the following:
<TABLE>
<CAPTION>
NUMBER OF MONTHS REMAINING AMOUNTS
------------------------------ ---------------------------------------
CLASS OF ASSET ORIGINAL TERM REMAINING PERIOD AMOUNT PURCHASE OPTION TOTAL
-------------- ------------- ---------------- ----------- --------------- -----------
<S> <C> <C> <C> <C> <C>
Computer equipment...... 36 4-35 Ps 200,390 Ps 23,822 Ps 224,212
Computer equipment...... 24 3-22 70,421 1,660 72,081
Equipment for 11,000
lines.................. 60 45 2,275,844 23,459 2,299,303
Office equipment........ 24 14-16 20,447 488 20,936
Vehicles................ 24 6-22 10,099 2,004 12,103
Vehicles................ 36 4-35 1,111,955 339,838 1,451,793
Power station........... 36 27-32 167,450 18,159 185,609
----------- --------- -----------
Total................. Ps3,856,606 Ps409,430 Ps4,266,037
=========== ========= ===========
</TABLE>
Such operating lease amounts, including purchase options, are due as follows:
<TABLE>
<CAPTION>
PAYABLE IN THE YEARS
ENDING DECEMBER 31,
--------------------
<S> <C>
1998............................................................. Ps1,305,650
1999............................................................. 1,204,111
2000............................................................. 1,114,380
2001............................................................. 641,896
-----------
Ps4,266,037
===========
</TABLE>
Total rent expense was Ps41,695, Ps1,107,146 and Ps1,535,027 in 1995, 1996
and 1997, respectively.
Capital leases
The Company, in the ordinary course of business, has entered into two capital
lease arrangements with variable interest rates for the purchase of land.
Interest rates applicable to these capital leases were FTD (fixed
time deposit rate) + 6% and FTD + 6% at December 31, 1996 and 1997. Future
payments under the capital lease commitments are as follows:
F-24
<PAGE>
TRANSTEL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1995 1996 1997
--------- ------------ ------------
<S> <C> <C> <C>
Total minimum lease payments........ Ps 83,770 Ps 2,625,925 Ps 2,599,988
Less: Imputed interest.............. (22,528) (1,554,443) (1,260,903)
--------- ------------ ------------
Present values of minimum lease
payments........................... 61,242 1,071,482 1,339,085
Less: Current portion............... (42,707) (65,289) (210,675)
--------- ------------ ------------
Ps 18,535 Ps 1,006,193 Ps 1,128,410
========= ============ ============
</TABLE>
<TABLE>
<CAPTION>
PAYABLE IN THE YEARS
ENDING DECEMBER 31,
--------------------
<S> <C>
1998.......................................................... Ps 530,058
1999.......................................................... 630,125
2000.......................................................... 610,256
2001.......................................................... 598,023
2002.......................................................... 231,526
------------
Total minimum lease payments................................ Ps 2,599,988
============
</TABLE>
See Note 30 for additional commitments for leases with Global
Telecommunications Operations, Inc., a related party, as part of the Company's
expansion plan.
NOTE 20--OTHER NONCURRENT LIABILITIES
Other noncurrent liabilities consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1995 1996 1997
---------- --------- ------------
<S> <C> <C> <C>
Payable to Siemens AG for Transtel--
Siemens Purchase Agreement (see Note 16)
($2,559,801)............................. Ps -- Ps -- Ps 3,311,307
Payable to IBM (see Note 16) ($653,830)... 845,781
Unearned interest income ($915,000) (see
Note 16)................................. 1,183,516
Accrued litigation loss................... 2,200,000
Other..................................... 136,578 73,293 165,231
---------- --------- ------------
Ps 136,578 Ps 73,293 Ps 7,705,835
========== ========= ============
</TABLE>
Girardot Telephone was sued by TeleTequendama E.S.P., a local telephone
operator competitor, for Ps2,200,000 on June 4, 1997 for unfair competition in
TeleTequendama's zone of operations. Although the resolution and trial of this
lawsuit will not occur until after 1998, the Company and Girardot Telephone
agreed that Girardot Telephone would record, concurrently with the acquisition
of Girardot Telephone by the Company on December 31, 1997, Ps2,200,000 as an
estimate of the liability that is probable as a result of the litigation.
NOTE 21--MINORITY INTEREST
Minority interest in the net assets of subsidiaries consisted of the
following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1995 1996 1997
------------ ------------- -------------
<S> <C> <C> <C>
Capital........................... Ps 8,938,424 Ps 9,054,137 Ps 28,999,469
Retained earnings................. 514,901 2,809,748 6,924,296
Surplus from reappraisal of
assets........................... 5,670,075 6,477,580
------------ ------------- -------------
Ps 9,453,325 Ps 17,533,960 Ps 42,401,345
============ ============= =============
</TABLE>
F-25
<PAGE>
TRANSTEL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 22--SHAREHOLDERS' EQUITY
In July 1997, two of the existing shareholders subscribed to a total of
1,039,801,222 shares of the Company's common stock for a total of Ps32,029,892
(31 single Pesos per share). These shareholders paid Ps31,748,401 in July 1997
and the remaining unpaid balance of Ps281,491 was paid in October 1997. The
Company reduced a portion of its borrowings with the cash received.
As indicated Note 12, the Company may not pay any dividends as of December
31, 1997.
Legal reserve
Pursuant to Colombian law, 10% of the net profit of the parent company and
its Colombian subsidiaries in each year must be appropriated with a credit to
a "reserve fund" until it is equivalent to at least 50% of the subscribed
capital. This legal reserve may not be reduced to less than the indicated
percentage, except to cover losses in excess of undistributed profits.
Appropriated for future construction and acquisitions
Reserves other than the legal reserve, appropriated directly out of retained
earnings, are freely distributable by the shareholders in general meeting.
NOTE 23--REVENUES
Revenues consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1995 1996 1997
----------- ------------ ------------
<S> <C> <C> <C>
Connection fees....................... Ps 709,857 Ps 5,621,668 Ps11,506,950
Local usage charges................... 354,310 1,298,805 3,504,517
Basic charges......................... 337,581 1,124,278 2,433,706
Long distance charges................. 931,103 3,229,522 7,282,512
Telephone directory commissions....... 218,080 377,745
Sales of telephones................... 277,253 742,501
Other operating income................ 93,617 120,783 715,333
----------- ------------ ------------
Ps2,426,468 Ps11,890,389 Ps26,563,264
=========== ============ ============
</TABLE>
NOTE 24--OPERATING COSTS
Operating costs consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1995 1996 1997
--------- ----------- -----------
<S> <C> <C> <C>
Salaries, benefits and other labor
payments............................... Ps286,571 Ps1,221,579 Ps2,342,844
Pensions expenses....................... 18,068 73,874 149,430
Insurance............................... 56,546 104,567
Fees, studies and investigations........ 735 2,369 115,778
Rentals of space........................ 21,853 49,573 217,668
Other rent.............................. 450 559,183 736,893
Taxes other than income................. 287 24,190 181,494
Services, maintenance and repairs....... 65,678 92,700 749,593
Depreciation............................ 302,302 129,533 346,836
Amortization............................ 125,401 706,724
Cost of sales of telephones............. 174,809 437,188
Other................................... 6,501 17,404 548,702
--------- ----------- -----------
Ps702,445 Ps2,527,161 Ps6,637,717
========= =========== ===========
</TABLE>
F-26
<PAGE>
TRANSTEL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 25--ADMINISTRATIVE EXPENSES
Administrative expenses consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1995 1996 1997
--------- ----------- -----------
<S> <C> <C> <C>
Salaries, benefits and other labor
payments................................ Ps154,402 Ps877,723 Ps1,450,231
Pensions expenses........................ 8,247 36,324 80,805
Insurance................................ 24,031 64,769 108,619
Fees, studies and investigations......... 8,633 574,470 941,819
Travel expenses.......................... 1,439 75,787 184,436
Rentals of space......................... 10,297 200,602 237,275
Other rent............................... 8,470 271,421 316,119
Taxes other than income.................. 3,505 140,990 684,641
Services, maintenance and repairs........ 93,319 519,109 926,719
Depreciation............................. 15,709 74,693 180,203
Amortization............................. 3,940 847,308 2,185,278
Air transportation....................... 40,599 491,174
Provision for doubtful accounts.......... 12,697 190,413
Provision for writedown of properties,
plant and equipment..................... 95,598
Other.................................... 33,173 108,494 651,805
--------- ----------- -----------
Ps365,165 Ps3,844,986 Ps8,725,135
========= =========== ===========
</TABLE>
NOTE 26--MARKETING EXPENSES
Marketing expenses consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1996 1997
--------- ---------- -----------
<S> <C> <C> <C>
Salaries, benefits and other labor
payments................................ Ps 72,231 Ps 400,275 Ps 707,392
Pensions expenses........................ 4,450 24,054 48,353
Publicity................................ 3,269 139,945 31,043
Insurance................................ 5,304 6,279
Travel expenses.......................... 87 2,207 3,902
Rentals of space......................... 625 24,319 20,173
Other rent............................... 2,048 6,899
Services, maintenance and repairs........ 4,571 52,951 128,749
Depreciation............................. 24,579 1,248
Amortization............................. 82,061 487,259
Other.................................... 3,437 22,082 125,847
--------- ---------- -----------
Ps 88,670 Ps 779,825 Ps1,567,144
========= ========== ===========
</TABLE>
F-27
<PAGE>
TRANSTEL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 27--NONOPERATING INCOME (EXPENSES)
Financial income consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1995 1996 1997
---------- ------------ -------------
<S> <C> <C> <C>
Interest........................... Ps 316,931 Ps 564,293 Ps 5,645,798
Exchange gains..................... 306,892 3,026,145
Other financial income............. 6,815 3,980 158,219
---------- ------------ -------------
Ps 323,746 Ps 875,165 Ps 8,830,162
========== ============ =============
Financial expenses consisted of the following:
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1995 1996 1997
---------- ------------ -------------
<S> <C> <C> <C>
Interest........................... Ps(284,987) Ps(1,945,302) Ps (8,133,026)
Bank commissions................... (5,923) (133,950) (577,014)
Exchange losses.................... (65,615) (4,771,236)
Bank expenses...................... (700) (83,528) (15,121)
Other financial expenses........... (332) (39,609) (269,374)
---------- ------------ -------------
Ps(291,942) Ps(2,268,004) Ps(13,765,771)
========== ============ =============
Other income (expenses) consisted of the following:
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1995 1996 1997
---------- ------------ -------------
<S> <C> <C> <C>
Donations.......................... Ps -- Ps -- Ps (343,381)
Tax on foreign indebtedness........ (447,751)
Bonus to executive................. (428,561)
Other, net......................... 49,504 328,937 (642,717)
---------- ------------ -------------
Ps 49,504 Ps 328,937 Ps (1,862,410)
========== ============ =============
</TABLE>
Under legislation in effect for April through June 1997, the Colombian
Government taxed new foreign currency borrowings at 6% of the amount borrowed.
The Company incurred costs of Ps447,751 related to this tax.
F-28
<PAGE>
TRANSTEL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 28--NET MONETARY INFLATION ADJUSTMENT INCOME (LOSS)
The net monetary inflation adjustment income (loss) consisted of the
following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Inflation adjustment of:
Investments..................... Ps -- Ps 5,588 Ps 103,108
Inventories..................... 15,609 77,645 49,119
Properties, plant and
equipment...................... 698,669 3,978,141 5,514,651
Accumulated amortization........ (85,619)
Accumulated depreciation........ (74,243) (118,358)
Deferred charges................ 1,930 1,135,107 1,898,317
Deferred monetary correction--
debit.......................... (168,282) (92,363)
Other assets.................... 35 224,667
Deferred monetary correction--
credit......................... 155,866 88,803
Shareholders' equity............ (743,567) (2,950,506) (4,382,120)
------------ ------------ ------------
Subtotal...................... (27,359) 2,159,351 3,200,205
Revenues........................ (50,192) (727,833) (1,345,156)
Expenses........................ 432 711,754 1,138,981
Costs........................... 14,085 144,895 537,779
------------ ------------ ------------
Total......................... Ps (63,034) Ps 2,288,167 Ps 3,531,809
============ ============ ============
NOTE 29--RELATED PARTY TRANSACTIONS
The Company has had significant transactions with Mr. Gonzalo Caicedo Toro, a
shareholder (see Notes 4 and 5). The following table summarizes the significant
transactions with Mr. Caicedo:
<CAPTION>
BALANCE DUE FROM (TO) MR. CAICEDO
YEAR ENDED DECEMBER 31,
----------------------------------------
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Beginning of year................. Ps (96,159) Ps 1,718,129 Ps (21,833)
Loans made........................ 8,593,834 9,482,764 11,618,836
Payments received:
Cash............................ (6,779,546) (6,728,537) (4,012,180)
Land and building (see Note 7).. (1,760,384)
Shares of GCT & Cia. (see Note
4)............................. (2,733,805)
Cash received from fiduciary
rights to a trust set up to
manage the sale of certain
investments owned by Mr.
Caicedo........................ (6,450,558)
Debt assumed.................... (1,134,265)
------------ ------------ ------------
End of year (see Notes 5 and 13).. Ps 1,718,129 Ps (21,833) Ps --
============ ============ ============
</TABLE>
The loans were not interest bearing and had no maturity dates.
See Note 30 for transactions with Global Telecommunications Operations Inc.,
a related party.
F-29
<PAGE>
TRANSTEL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 30--COMMITMENTS
Global-Siemens Arrangements
Global Telecommunications Operations, Inc. ("Global") is a British Virgin
Islands company owned by the same shareholders who own Transtel. Global was
formed in January 1995 for the exclusive purpose of acting as a financing
vehicle for the purchase of telecommunications equipment from Siemens AG
("Siemens"). As part of the Company's expansion plan, Global has entered into
four purchase agreements with Siemens for the provision of certain equipment
necessary for the Company's expansion plan. Global has entered or intends to
enter into a lease agreement with each subsidiary other than Caucatel for the
lease of such telecommunications equipment to each subsidiary on terms
substantially similar to the financing to Global from Siemens. Transtel
purchased equipment to be used by Caucatel directly from Siemens ($3.4 million
switches and $533,494 for installation) and contributed it to Caucatel as part
of its capital. Caucatel is the only subsidiary that does not lease its
equipment from Global. Under these leases, if the subsidiaries default under
the leases, Global has the right to take action against the assets leased
thereunder including repossession or sale of the equipment. Global has
assigned to Siemens the lease payments under each of the leases in the event
of an event of default under the purchase agreements occurs and is continuing.
Upon commencement of the leases' lease terms, the following leasing
transactions with Global will be accounted for as capital leases under
Colombian GAAP since the Company expects to exercise the purchase options:
Global I Purchase Agreement. On May 2, 1996, Global entered into a purchase
agreement with Siemens (as amended on July 28, 1997, the "Global I Purchase
Agreement") to purchase certain landline telecommunications equipment to be
used for the development of each of TelePalmira's, TeleJamundi's and Unitel's
respective wireline networks for an aggregate amount of approximately $19.3
million, of which 16% (approximately $3.1 million) was paid upon execution of
the Global I Purchase Agreement. The remaining 84% of the price of equipment
delivered and installed by Siemens under the Global I Purchase Agreement is
payable by Global in 24 semi-annual payments. Global's obligations under the
Global I Purchase Agreement are secured by a pledge of the Global I Leases (as
defined below). Siemens' obligations for delivery and installation were
completed on April 19, 1998.
Global I Leases. On August 1, 1996, Global entered into a lease agreement,
as amended on April 12, 1998, for TelePalmira (the "Global--TelePalmira
Lease"). On April 19, 1998, Global entered into a lease agreement for
TeleJamundi (the "Global--TeleJamundi Lease") and for Unitel (the "Global--
Unitel I Lease") (the Global--TelePalmira Lease, Global--TeleJamundi Lease and
Global-Unitel I Lease are collectively referred to as the "Global I Leases").
The lease term of each lease commenced on April 19, 1998.
Global-TelePalmira Lease. Pursuant to the Global-TelePalmira Lease,
TelePalmira agreed to pay Global an aggregate amount of approximately $16.8
million to lease, for a 12-year term, certain switching and cable equipment
that Global purchased from Siemens under the Global I Purchase Agreement. The
Global-TelePalmira Lease includes an option to purchase the equipment for an
additional $285,000 at the end of the lease term.
Global-TeleJamundi Lease. Pursuant to the Global-TeleJamundi Lease,
TeleJamundi agreed to pay Global an aggregate amount of $5.9 million to lease,
for a 12-year term, certain switching and cable equipment that Global
purchased from Siemens under the Global I Purchase Agreement. The Global-
TeleJamundi Lease includes an option to purchase the equipment for an
additional $104,000 at the end of the lease term.
Global-Unitel I Lease. Pursuant to the Global-Unitel I Lease, Unitel agreed
to pay Global an aggregate amount of $4.4 million to lease, for a 12-year
term, certain switching and cable equipment that Global purchased from Siemens
under the Global I Purchase Agreement for its wireline applications. The
Global-Unitel I Lease includes an option to purchase the equipment for an
additional $73,000 at the end of the lease term.
F-30
<PAGE>
TRANSTEL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Global II Purchase Agreement. On May 30, 1997, Global entered into a
purchase agreement, as amended on July 28 and October 29, 1997 and April 1,
1998, with Siemens (the "Global II Purchase Agreement") to purchase certain
landline and wireless telecommunications equipment to be used for the
development of each of TeleCartago's, Bugatel's and Unitel Wireless'
respective networks for an aggregate amount of approximately $39.8 million, of
which approximately $3.7 million was paid upon execution of the Global II
Purchase Agreement. The remaining price of equipment delivered and installed
by Siemens under the Global II Purchase Agreement is payable by Global in 24
semi-annual payments. Global's obligations to Siemens under the Global II
Purchase Agreement are secured by a pledge of the lease payments under the
Global II Leases (as defined below). Due to the modification of the Company's
network plan with respect to Bugatel and TeleCartago, the Company and Siemens
amended on April 1, 1998 the Global II Purchase Agreement to increase the
amount of equipment and increase the amount of the financing that will be
provided by Siemens. Siemens' obligations for delivery and installation are
expected to be completed by late 1998 or early 1999.
Global II Leases. On July 28, 1997, Global entered into a lease agreement
with Unitel (the "Global-Unitel II Lease"), TeleCartago (the "Global-
TeleCartago Lease") and Bugatel (the "Global-Bugatel II Lease") for certain of
the equipment that is the subject of the Global II Purchase Agreement (the
Global-Unitel II Lease, the Global-TeleCartago Lease, and the Global-Bugatel
II Lease are collectively referred to herein as, the "Global II Leases"). The
lease term of each lease will commence upon completion of Siemens' delivery
and installation obligations.
Global-Unitel II Lease. Pursuant to the Global-Unitel II Lease, Unitel
agreed to pay Global an aggregate amount of $25.8 million to lease, for a 12-
year term, certain wireless telecommunications equipment that Global purchased
from Siemens under the Global II Purchase Agreement. The Global-Unitel II
Lease includes an option to purchase the equipment for an additional $525,000
at the end of the lease term. The Company expects to increase the Global-
Unitel II Lease to $36.9 million to reflect modifications to the lease.
Global-TeleCartago Lease. Pursuant to the Global-TeleCartago Lease,
TeleCartago agreed to pay Global an aggregate amount of $9.7 million to lease,
for a 12-year term, certain switching and cable equipment that Global
purchased from Siemens under the Global II Purchase Agreement. The Global-
TeleCartago Lease includes an option to purchase the equipment for an
additional $197,000 at the end of the lease term. The Company expects to
decrease the Global-TeleCartago Lease to $9.0 million to reflect modifications
to the lease.
Global-Bugatel II Lease. Pursuant to the Global-Bugatel II Lease, Bugatel
agreed to pay Global an aggregate amount of approximately $9.4 million to
lease, for a 12-year term, certain wireless telecommunications equipment that
Global purchased from Siemens under the Global II Purchase Agreement. The
Global-Bugatel II Lease includes an option to purchase the equipment for an
additional $190,000 at the end of the lease term. The Company expects to
decrease the Global-Bugatel II Lease to $8.7 million to reflect modifications
to the lease.
Global III Purchase Agreement. Global expects to enter into a purchase
agreement in June 1998 with Siemens (the "Global III Purchase Agreement") to
purchase certain landline and wireless telecommunications equipment to be used
for the development of each of TelePalmira's, Unitel's Wireless and
TeleJamundi's respective networks for an aggregate amount of approximately
$12.9 million. The payment terms are under negotiation, although the Company
expects that the payment terms will be similar to those used under the Global
I and Global II Purchase Agreements and that the lease terms between its
subsidiaries and Global will be similar to those under the Global I leases and
Global II leases. The total lease payments will be approximately $18.5 million
plus purchase options of approximately $129,000. The lease terms will commence
in the first half of 1999.
Global IV Purchase Agreement. Global expects to enter into a purchase
agreement in June 1998 with Siemens (the "Global IV Purchase Agreement") to
purchase certain landline and wireless telecommunications
F-31
<PAGE>
TRANSTEL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
equipment to be used for the development of each of TelePalmira's, Bugatel's,
TeleGirardot's and TeleCartago's respective networks for an aggregate amount
of approximately $11.0 million. The payment terms are under negotiation,
although the Company expects that the payment terms will be similar to those
under the Global I and Global II Purchase Agreements and that the lease terms
between its subsidiaries and Global will be similar to those under the Global
I leases and Global II leases. The total lease payments will be approximately
$15.8 million plus purchase options of approximately $110,000. The lease terms
will commence in the first half of 1999.
Transtel-Siemens Arrangement
On May 23, 1997, Transtel entered into a purchase agreement with Siemens
(the "Transtel-Siemens Purchase Agreement") for certain telecommunications
equipment to be used by Caucatel in the installation of approximately 23,000
lines for approximately $3.3 million payable semiannually over a ten-year
period at an interest rate of LIBOR plus 1% (6.9% at December 31, 1997),
commencing six months after the completion of the Turn-Key Arrangements. The
obligations of Transtel under the Transtel-Siemens Purchase Agreement are
secured by a promissory note from Transtel. Siemens completed the installation
of this equipment in December 1997 and the payment obligation to Siemens is
recorded as a liability at December 31, 1997 (see Notes 16 and 20).
IBM Arrangement
The Company has entered into an agreement with International Business
Machines Corp. ("IBM") whereby IBM has agreed to finance and to provide and
install all the Internet and voice mail related hardware and software for the
Company's telephone systems and the Company has agreed to pay IBM an aggregate
amount of $3.4 million for such equipment. On October 1 and October 28, 1997,
Unitel and Caucatel entered into 60 month leases with IBM for $2.8 million and
$532,008 respectively, for this equipment. The lease term of each lease is
expected to commence in June 1998. The leases will be capital leases under
Colombian GAAP as the Company expects to exercise the purchase options.
Construction Arrangements
On April 30, 1996, each of TelePalmira, Unitel (with respect to its wireline
applications) and TeleJamundi entered into turn-key arrangements (the "Turn-
Key Arrangements") with Siemens S.A., a Colombian corporation, to (i) install
the lines, switches and other equipment leased by each of these subsidiaries
from Global under the Global I Leases, (ii) put in operation such lines and
equipment, (iii) manage the "cut-over" to the new system lines, install air
conditioner equipment and train the personnel who will operate the switching
equipment, (iv) install a transmission signaling standard, (v) expand, replace
and install the outside plant, and (vi) complete expansion of the network. The
aggregate amount due to Siemens S.A. under these Turn-Key Arrangements is
approximately $8.3 million (Ps10.7 billion). Siemens S.A. has not completed
any phases of these arrangements at December 31, 1997; however, the Company
has advanced Ps3,775,474 ($2.9 million) and Ps4,427,655 ($3.4 million) at
December 31, 1996 and 1997, respectively, to Siemens S.A. (see Note 5).
For each of the Turn-Key Arrangements described in the paragraph above,
Siemens S.A. has provided the respective subsidiary with performance bonds
equivalent to (i) 10% of the amount of each Turn-Key Arrangement, (ii) 5% of
the services contracted under each Turn-Key Arrangement, (iii) 10% of the cost
of the outside plant civil works and (iv) up to $100,000 for personal or
property liability.
On June 18, 1997, June 30, 1997 and March 10, 1998 each of Transtel (in
place of Bugatel, which was not yet formed), TeleCartago and Unitel (with
respect to its wireless applications) entered into Turn-Key Arrangements with
Siemens S.A. to (i) install the lines, switches and other equipment leased by
Bugatel, TeleCartago and Unitel from Global under the Global II Leases, (ii)
put in operation such lines and
F-32
<PAGE>
TRANSTEL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
equipment, and (iii) expand, replace and install the outside plant for Bugatel
and TeleCartago. The aggregate amount due to Siemens under these Turn-Key
Arrangements is approximately $9.4 million. Siemens S.A. has provided
Transtel, TeleCartago, and Unitel with performance bonds substantially similar
to those provided to TelePalmira, Unitel and TeleJamundi. As of December 31,
1997, Siemens S.A. has been paid Ps1,782,842 for completed phases of the
arrangement (see Note 7). Additionally, the Company has advanced Ps797,717 to
Siemens S.A. (see Note 5) at December 31, 1997.
On May 23, 1997, Transtel entered into a Turn-Key Arrangement with Siemens
S.A. to (i) install the lines, switches and other equipment that Transtel
agreed to contribute to the capital of Caucatel as part of its capital
contribution and which the Company acquired from Siemens pursuant to the
Transtel-Siemens arrangements, and (ii) put in operation such lines and
equipment. The aggregate amount due to Siemens S.A. under this Turn-Key
Arrangement is $533,494. This equipment has been installed and the liability
to Siemens has been recorded at December 31, 1997 (see Notes 16 and 20).
DIAN Financing
The Departamento de Impuestos y Aduanas ("DIAN") allows for the deferral of
value-added taxes and duties related to the purchase of certain imported
telecommunications equipment by the Company through its operating subsidiaries
in its expansion plan. Based on the expected imported equipment to be
purchased under the expansion plan, the Company estimates that it will defer
approximately Ps29.9 billion ($23.1 million) of taxes and duties during the
expansion plan that will be paid over a five-year period commencing six months
from the date of incurrence (the "DIAN Financing"). The DIAN Financing does
not bear any interest and no amounts were due at December 31, 1997 as Siemens
had not yet completed the delivery and installation of the equipment to be
leased under the Global Leases. DIAN Financing consists of approximately
Ps21.8 billion ($17.6 million) of value-added tax and Ps7.1 billion ($5.5
million) of duty. The value-added tax, when paid, may be taken as a credit
against income taxes to the extent that income taxes are payable in a two year
period.
Events (unaudited) subsequent to date of the report of independent
accountants
On June 11, 1998, Global and Siemens entered into the Global III Purchase
Agreement and the Global IV Purchase Agreement, although the payment terms
remain under negotiation.
On August 27, 1998 the Company issued letters to Global and IBM stating that
it will exercise the purchase options under their respective leases. The
exercise of these purchase options will require that these leases be treated
as capital leases for income tax and Colombian GAAP purposes upon commencement
of the respective leases' lease terms.
NOTE 31--DIFFERENCES BETWEEN COLOMBIAN GAAP AND U.S. GAAP
The Company's financial statements are prepared in accordance with Colombian
GAAP. Because these principles differ in certain significant respects from
U.S. GAAP, this note presents restated U.S. GAAP balance sheets and statements
of income and a reconciliation to U.S. GAAP of net income and shareholders'
equity as of and for the years ended December 31, 1995, 1996 and 1997.
F-33
<PAGE>
TRANSTEL S.A.
CONSOLIDATED BALANCE SHEETS
(UNDER U.S. GAAP)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------
1995 1996 1997 1997
------------ ------------- -------------- -----------
(THOUSANDS OF PESOS OF DECEMBER 31, 1997) (THOUSANDS
OF DOLLARS-
UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current
Cash................... Ps 720,644 Ps 13,781,984 Ps 2,788,918 $ 2,156
Short-term and tempo-
rary investments...... 10,077 5,283,331 103,447,196 79,970
Accounts receivable,
net................... 4,121,691 6,146,589 19,153,185 14,806
Inventories............ 360,135 297,012 957,906 740
Prepaid expenses....... 119,413 166,001 517,257 400
------------ ------------- -------------- --------
Total current assets.. 5,331,960 25,674,917 126,864,462 98,072
Noncurrent
Accounts receivable.... 5,344,556 11,119,346 8,596
Properties, plant and
equipment, net........ 26,078,383 29,224,245 115,376,516 89,192
Deferred costs......... 274,067 732,348 28,667,963 22,162
Long-term investments.. 39,134 30,230,002 23,369
Income taxes........... 578,152 1,562,373 4,758,570 3,678
Other assets........... 27,456 118,260 2,161,499 1,671
------------ ------------- -------------- --------
Total assets.......... Ps32,290,018 Ps 62,695,833 Ps 319,178,358 $246,740
============ ============= ============== ========
LIABILITIES AND SHARE-
HOLDERS' EQUITY
Current liabilities
Short-term debt........ Ps 1,783,690 Ps 11,027,957 Ps 13,597,082 $ 10,511
Current portion of
other long-term debt.. 870,447 6,808,148
Current portion of cap-
ital lease obliga-
tions................. 437,553 611,170 1,131,833 875
Accounts payable....... 2,065,927 3,503,183 20,269,005 15,669
Tax liabilities........ 225,174 838,304 2,562,217 1,981
Labor liabilities...... 54,638 133,754 427,313 330
Other liabilities...... 124,699 215,375 5,492,412 4,245
Accrued pension obliga-
tions................. 534,531 413
Deferred income........ 610,990 5,007,087 4,152,415 3,210
------------ ------------- -------------- --------
Total current liabili-
ties................. 6,173,118 28,144,978 48,166,808 37,234
Long-term liabilities
12 1/2% Senior Notes
due 2007.............. 194,037,000 150,000
Other long-term debt... 12,096,709 25,090,333
Capital lease obliga-
tions................. 2,957,063 3,189,714 3,489,268 2,697
Accrued pension obliga-
tions................. 5,948,795 4,599
Other liabilities...... 136,578 73,293 6,522,319 5,042
------------ ------------- -------------- --------
Total liabilities..... 21,363,468 56,498,318 258,164,190 199,572
------------ ------------- -------------- --------
Minority interest....... 8,797,309 7,391,847 32,417,871 25,061
------------ ------------- -------------- --------
Shareholders' equity:
Common stock, Ps1 par
value, 50 billion
shares authorized;
5,039,801,222 shares
issued, and
outstanding
(4,000,000,000 in 1995
and 1996)............. 6,393,043 6,393,043 38,422,935 29,703
Retained earnings...... (4,263,802) (7,587,375) (9,826,638) (7,596)
------------ ------------- -------------- --------
Total shareholders'
equity............... 2,129,241 (1,194,332) 28,596,297 22,107
------------ ------------- -------------- --------
Total liabilities and
shareholder's equi-
ty................... Ps32,290,018 Ps 62,695,833 Ps 319,178,358 $246,740
============ ============= ============== ========
</TABLE>
F-34
<PAGE>
TRANSTEL S.A.
CONSOLIDATED STATEMENTS OF INCOME
(UNDER U.S. GAAP)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------
1995 1996 1997 1997
------------- ------------- ------------- ------------
(THOUSANDS OF PESOS OF DECEMBER 31, 1997) (THOUSANDS
OF DOLLARS--
UNAUDITED)
<S> <C> <C> <C> <C>
Revenues................ Ps 1,815,478 Ps 7,725,545 Ps 27,394,812 $ 21,178
Costs and expenses:
Operating costs....... 2,499,138 2,479,184 7,780,143 6,014
Administrative
expenses............. 612,509 4,511,307 11,198,837 8,657
------------- ------------- ------------- --------
Marketing expenses.... 1,077,801 915,228 2,011,453 1,555
------------- ------------- ------------- --------
4,189,448 7,905,719 20,990,433 16,226
------------- ------------- ------------- --------
Operating income
(loss)............. (2,373,970) (180,174) 6,404,379 4,952
Nonoperating income
Financial income...... 323,746 875,165 8,830,162 6,826
Financial expenses.... (1,630,383) (8,797,197) (18,525,950) (14,321)
Other................. 49,504 97,742 (1,839,285) (1,422)
------------- ------------- ------------- --------
(1,257,133) (7,824,290) (11,535,073) (8,917)
------------- ------------- ------------- --------
Net monetary inflation
adjustment income...... 210,659 2,838,949 5,940,292 4,591
------------- ------------- ------------- --------
Income (loss) before
income taxes and
minority interest.... (3,420,444) (5,165,515) 809,598 626
Income tax benefit...... 430,599 655,711 2,031,831 1,571
------------- ------------- ------------- --------
Income (loss) before
minority interest.... (2,989,845) (4,509,804) 2,841,429 2,197
Minority interest....... 27,426 1,521,175 (5,080,692) (3,928)
------------- ------------- ------------- --------
Net loss.............. Ps (2,962,419) Ps (2,988,629) Ps (2,239,263) (1,731)
============= ============= ============= ========
Earnings (loss) per
share (in single Pesos
and single Dollars per
share)................. Ps (1.29) Ps (0.75) Ps (0.51) $ --
============= ============= ============= ========
</TABLE>
F-35
<PAGE>
TRANSTEL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(A) RECONCILIATION OF NET INCOME:
The following summarizes the principal differences between accounting
practices under Colombian and U.S. GAAP and their effects on net income for
the years ended December 31, 1995, 1996 and 1997:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Consolidated net income under
Colombian GAAP.................. Ps 773,189 Ps 3,339,325 Ps 1,088,144
(i)Deferred income taxes....... 430,971 984,221 3,196,197
(ii)Surplus from reappraisal of
assets.................... -- -- --
(iii)Depreciation.............. (940,840) (2,742,136)
(iv)Capitalized interest....... 4,076 255,437 1,007,263
(v)Deferred costs.............. (4,391,418) (6,586,556) (7,521,695)
(vi)Capital leases............. 15,733 343,051 1,044,065
(vii)Revenue recognition....... (610,990) (4,164,844) 831,548
(viii)Reversal of deferred
monetary correction....... 273,693 (34,445) 1,823,495
(ix)Effect of the above
differences on minority
interest.................. 542,327 3,816,022 (966,144)
(x)Distribution to
shareholder............... -- -- --
------------ ------------ ------------
Consolidated net loss under U.S.
GAAP............................ Ps(2,962,419) Ps(2,988,629) Ps(2,239,263)
============ ============ ============
</TABLE>
(B) RECONCILIATION OF SHAREHOLDERS' EQUITY:
The following summarizes the principal differences between accounting
practices under Colombian GAAP and U.S. GAAP and their effects on
shareholders' equity at December 31, 1995, 1996 and 1997:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1995 1996 1997
------------ ------------- -------------
<S> <C> <C> <C>
Consolidated shareholders'
equity under Colombian GAAP... Ps 7,166,232 Ps 19,350,391 Ps 53,039,294
(i)Deferred income taxes..... 578,152 1,562,373 4,758,570
(ii)Surplus from reappraisal
of assets............... (8,844,834) (9,415,701)
(iii)Depreciation............ (940,840) (3,682,976)
(iv)Capitalized interest..... 4,076 259,513 1,266,776
(v)Deferred costs............ (6,008,778) (12,595,334) (20,117,029)
(vi)Capital leases........... 15,733 358,784 1,402,849
(vii)Revenue recognition..... (610,990) (4,775,834) (3,944,286)
(viii)Reversal of deferred
monetary correction..... 328,800 294,355 2,117,850
(ix)Effect of the above
differences on minority
interest................ 656,016 4,472,038 3,505,894
(x)Distribution to
shareholder............. -- (334,944) (334,944)
------------ ------------- -------------
Consolidated shareholders'
equity (deficit) under U.S.
GAAP.......................... Ps 2,129,241 Ps (1,194,332) Ps 28,596,297
============ ============= =============
</TABLE>
F-36
<PAGE>
TRANSTEL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(C) ANALYSIS OF CHANGES IN SHAREHOLDERS' EQUITY:
The following summarizes the changes in shareholders' equity (deficit) under
U.S. GAAP for the three years ended December 31, 1995, 1996 and 1997:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1995 1996 1997
----------- ------------ ------------
<S> <C> <C> <C>
Balance at beginning of period.... Ps2,169,327 Ps 2,129,241 Ps(1,194,332)
Shares issued..................... 2,922,333 32,029,892
Distribution to shareholder....... (334,944)
Net loss.......................... (2,962,419) (2,988,629) (2,239,263)
----------- ------------ ------------
Balance at end of period.......... Ps2,129,241 Ps(1,194,332) Ps28,596,297
=========== ============ ============
</TABLE>
(D) SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN COLOMBIAN AND U.S. GAAP:
(i) Deferred income taxes
Under Colombian GAAP, deferred income taxes are generally recognized for
timing differences in a manner similar to Accounting Principles Board Opinion
No. 11.
Under U.S. GAAP, Statement of Financial Accounting Standards ("SFAS") No.
109, "Accounting for Income Taxes", requires that deferred tax assets or
liabilities be recorded for the tax effects of temporary differences between
the financial and tax bases for assets and liabilities. A valuation allowance
is provided for deferred tax assets when it is considered more likely than not
that they will not be realized.
Total applicable income taxes (benefit) under U.S. GAAP are comprised of the
following components for 1995, 1996 and 1997:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1995 1996 1997
---------- ---------- ------------
<S> <C> <C> <C>
Current income tax expense (see Note
18)................................. Ps 372 Ps 328,510 Ps 1,168,039
Deferred income tax benefit.......... (430,971) (984,221) (3,199,870)
---------- ---------- ------------
Total benefit...................... Ps(430,599) Ps(655,711) Ps(2,031,831)
========== ========== ============
Temporary differences between the amounts reported in the financial
statements and the tax bases for assets and liabilities result in deferred
taxes. Tax losses in Colombian may be carried forward for five years; however,
consolidated tax returns and carrybacks are not allowed. The Company believes
there are no limitations which would preclude it from fully realizing the
established deferred tax asset. Deferred tax assets and liabilities at
December 31, 1995, 1996 and 1997 are as follows:
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1995 1996 1997
---------- ---------- ------------
<S> <C> <C> <C>
Deferred tax assets:
Depreciation....................... Ps -- Ps 235,548 Ps 1,195,295
Preoperating expenses.............. 546,802 1,058,819 3,945,988
Revenue recognition................ 145,768 116,665
Capital leases..................... 9,021 111,908 67,296
Inflation adjustment............... 23,237 68,455
Tax benefit of net operating loss
carryforwards..................... 2,642,737
---------- ---------- ------------
Total............................ 579,060 1,620,498 7,967,981
---------- ---------- ------------
</TABLE>
F-37
<PAGE>
TRANSTEL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------
1995 1996 1997
--------- ----------- -----------
<S> <C> <C> <C>
Deferred tax liabilities:
Capitalized interest.................. 908 58,125 344,939
Undistributed earnings of
subsidiaries......................... 2,639,064
Inflation adjustment.................. 221,735
--------- ----------- -----------
Total............................... 908 58,125 3,205,738
--------- ----------- -----------
Net deferred tax assets recorded under
U.S. GAAP.............................. 578,152 1,562,373 4,762,243
Deferred tax asset recorded under
Colombian GAAP......................... (3,673)
--------- ----------- -----------
Additional net deferred tax assets
recorded under U.S. GAAP............... Ps578,152 Ps1,562,373 Ps4,758,570
========= =========== ===========
</TABLE>
A portion of the deferred tax assets can be realized through reversals of
existing taxable temporary differences; the remainder will be dependent on
future income. Management believes that sufficient income will be earned in
the future to realize the remaining net deferred income tax assets.
Deferred tax benefit (expense) consisted of:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1995 1996 1997
--------- --------- -----------
<S> <C> <C> <C>
Depreciation............................ Ps -- Ps235,548 Ps 959,747
Preoperating expenses................... 399,618 512,017 2,887,169
Tax benefit of net operating loss
carryforwards.......................... 2,642,737
Revenue recognition..................... 145,768 (29,103)
Capital leases.......................... 9,022 102,887 (44,612)
Capitalized interest.................... (6,337) (57,217) (286,814)
Inflation adjustment.................... 28,668 45,218 (290,190)
Undistributed earnings of subsidiaries.. (2,639,064)
--------- --------- -----------
Ps430,971 Ps984,221 Ps3,199,870
========= ========= ===========
</TABLE>
The factors involved in the differences between the amount of income taxes
computed at the statutory regular tax rate of 35.0% and the applicable income
taxes for the years ended December 31, 1995, 1996 and 1997 under U.S. GAAP are
as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1995 1996 1997
------------------- ------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Tax expense (benefit) at
statutory rate......... Ps(1,197,155) (35.0)% Ps(1,807,930) (35.0)% Ps 283,359 35.0 %
Increase (decrease)
resulting from
permanent differences:
Monetary correction... (28,362) (.8) 32,837 .6 533,887 65.9
Exempt income of
telephony
subsidiaries......... 817,735 23.9 1,251,414 24.2 (2,536,761) (313.3)
Other, net............ (22,817) (.7) (132,032) (2.5) (312,316) (38.5)
------------ ----- ------------ ----- ------------ ------
Tax benefit............. Ps (430,599) (12.6)% Ps (655,711) (12.7)% Ps(2,031,831) (250.9)%
============ ===== ============ ===== ============ ======
</TABLE>
While the statutory income tax rate is 35%, as more fully explained in Note
18, the Company's operating subsidiaries were 100% exempt from income taxes in
1995 and 1996 and 90% exempt in 1997 and Transtel S.A.
F-38
<PAGE>
TRANSTEL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
and each subsidiary must file separate income tax returns. Such exemptions
decline though 2002. Transtel S.A. (the parent company) is subject to the 35%
income tax rate. The consolidated effective tax rate varies significantly from
the statutory rate because of these factors.
(ii) Surplus from reappraisal of assets
In accordance with Colombian GAAP, reappraisals of properties, plant and
equipment and long-term investments are made periodically and recorded in
offsetting accounts which are shown under the asset caption "Reappraisal of
assets" and the shareholders' equity caption "Surplus from reappraisals of
assets". Under U.S. GAAP, reappraisals of assets are not permitted.
For U.S. GAAP, the Company adopted SFAS 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" effective
January 1, 1996. In accordance with this standard, the Company periodically
evaluates the carrying value of long-lived assets to be held and used,
including goodwill and other intangible assets, when events and circumstances
warrant such a review. The carrying value of a long-lived asset is considered
impaired when the anticipated undiscounted cash flow from such asset is
separately identifiable and is less than its carrying value. In that event, a
loss is recognized based on the amount by which the carrying value exceeds the
fair market value of the long-lived asset. No loss was recorded in 1996;
however, an impairment loss of Ps95,598, which was recorded under Colombian
GAAP in 1997, was also recorded under U.S. GAAP.
(iii) Depreciation
Since January 1, 1996, the Company uses the reverse sum of the years method
of depreciation for Colombian GAAP purposes. The Company used the straight-
line method in 1995 for Colombian GAAP purposes. The straight-line method of
depreciation is used for U.S. GAAP in 1995, 1996 and 1997. Additional
depreciation expense of Ps940,840 and Ps2,742,136 is recorded under U.S. GAAP
in 1996 and 1997, respectively.
(iv) Capitalized interest
Under Colombian GAAP, the Company does not capitalize certain interest costs
on projects during construction which is required under U.S. GAAP. Under U.S.
GAAP the following adjustments to expenses are required:
<TABLE>
<CAPTION>
1995 1996 1997
------- --------- -----------
<S> <C> <C> <C>
Reduction in interest expense for amounts
capitalized as properties, plant and
equipment................................ Ps4,076 Ps264,383 Ps1,053,477
Less--Additional depreciation expense on
interest amounts capitalized............. (8,946) (46,214)
------- --------- -----------
Ps4,076 Ps255,437 Ps1,007,263
======= ========= ===========
</TABLE>
F-39
<PAGE>
TRANSTEL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(v) Deferred costs
The Company has deferred certain costs which are expensed as incurred under
U.S. GAAP. Under U.S. GAAP, the following deferred costs are expensed:
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Preoperating expenses................... Ps2,222,956 Ps -- Ps 138,273
Organization costs...................... 17,375 142,659
Market and demand studies and
investigations......................... 849,259 1,215,139 594,446
Interest costs of investments in and
advances to subsidiaries and on
installation of equipment.............. 1,300,421 6,293,494 7,343,827
Interest costs of expansion plan
projects............................... 1,722,000
Exchange loss costs of expansion plan
projects............................... 239,000
----------- ----------- -----------
Increase in expenses.................. 4,372,636 7,526,008 10,180,205
Less--Amortization recorded under
Colombian GAAP......................... (3,940) (1,054,770) (3,346,089)
Plus--Amortization required on items not
expensed under U.S. GAAP............... 22,722 115,318 687,579
----------- ----------- -----------
Net increase in expenses.............. Ps4,391,418 Ps6,586,556 Ps7,521,695
=========== =========== ===========
</TABLE>
The remaining deferred costs under U.S. GAAP consist of software, leasehold
improvements, acquisition costs and costs incurred in the issuance of the
Senior Notes which total Ps274,067, Ps732,348 and Ps28,667,963 at December 31,
1995, 1996 and 1997, respectively. The periods of amortization are the same
under Colombian and U.S. GAAP; however, the initial start date of amortization
in 1995 was earlier under U.S. GAAP.
(vi) Capital leases
All of the Company's operating leases for Colombian GAAP purposes, as
disclosed in Note 19, qualify as capital leases under U.S. GAAP. In addition
to the amounts shown under capital leases in Note 19, the following assets and
liabilities are recorded under U.S. GAAP; however, these U.S. GAAP amounts do
not include the Global Leases, the IBM Arrangement or the DIAN Financing
disclosed in Note 30, which will be recorded as liabilities under U.S. GAAP
when the related equipment is delivered, installed and tested:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Telephony networks.................... Ps2,893,811 Ps2,941,730 Ps3,638,870
Computer equipment.................... 102,548 174,386 402,758
Transport fleet and equipment......... 367,061 635,714 1,584,079
Generator............................. 164,531
----------- ----------- -----------
Total............................... 3,363,420 3,751,830 5,790,238
Less--Accumulated depreciation........ (14,302) (432,383) (897,244)
----------- ----------- -----------
Ps3,349,118 Ps3,319,447 Ps4,892,994
=========== =========== ===========
</TABLE>
F-40
<PAGE>
TRANSTEL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The above amounts include cumulative net inflation adjustments of Ps585,227
and Ps1,170,216 at December 31, 1996 and 1997, respectively.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Total minimum lease payments........ Ps4,517,503 Ps4,077,765 Ps4,266,037
Less--Imputed interest.............. (1,184,118) (1,348,355) (984,021)
----------- ----------- -----------
Present value of minimum lease
payments........................... 3,333,385 2,729,410 3,282,016
Less--Current portion............... (394,847) (545,883) (921,158)
----------- ----------- -----------
Long-term portion................... Ps2,938,538 Ps2,183,527 Ps2,360,858
=========== =========== ===========
Deferred income from sale
leaseback.......................... Ps 231,253 Ps 208,129
=========== ===========
</TABLE>
During 1996, TelePalmira sold recently acquired new equipment for 11,000
telephone lines to Banco Industrial Colombiano Panama for Ps2,829,919 and
leased the equipment back under a capital lease for U.S. GAAP purposes for
total payments of Ps4,506,744. The gain on the sale of Ps231,253 is being
amortized as a reduction of lease expense over five years. The remaining
payments of Ps2,299,303 are included in the following table.
The additional total minimum lease payments at December 31, 1997 are as
follows under U.S. GAAP:
<TABLE>
<CAPTION>
PAYABLE IN YEARS ENDING DECEMBER 31,
------------------------------------
<S> <C>
1998............................................................ Ps1,305,650
1999............................................................ 1,204,111
2000............................................................ 1,114,380
2001............................................................ 641,896
-----------
Total minimum lease payments.................................. Ps4,266,037
===========
</TABLE>
The following income statement effects are recorded under U.S. GAAP for the
above capital leases:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1995 1996 1997
--------- ---------- ------------
<S> <C> <C> <C>
Increase in interest expense........... Ps 42,045 Ps 499,721 Ps 349,724
Increase in depreciation expense....... 13,485 343,854 434,161
Decrease in (amortization of) gain from
sale of properties, plant and
equipment on leaseback................ 231,253 (23,124)
Increase in inflation adjustment income
on capital lease obligations.......... (585,227) (584,989)
--------- ---------- ------------
Total................................ 55,530 489,601 175,772
--------- ---------- ------------
Rent expense
Decrease in rent expense recorded
under Colombian GAAP................ (8,920) (753,064) (1,059,911)
Decrease in rent recorded as deferred
costs under Colombian GAAP and
reversed for U.S. GAAP purposes (see
v).................................. (62,343) (79,588) (159,926)
--------- ---------- ------------
(71,263) (832,652) (1,219,837)
--------- ---------- ------------
Net decrease in expenses............... Ps(15,733) Ps(343,051) Ps(1,044,065)
========= ========== ============
</TABLE>
F-41
<PAGE>
TRANSTEL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Under U.S. GAAP, there are no operating lease commitments at December 31,
1997 except short-term space rentals.
If the equipment under Global Leases, the IBM Arrangement and the related
DIAN Financing of the value-added tax and duty described in Note 30 had been
installed and accepted (and thus the lease terms commenced) at December 31,
1997, the following additional lease and tax obligations on an unaudited pro
forma U.S. GAAP basis would have been outstanding:
<TABLE>
<CAPTION>
IBM DIAN
GLOBAL LEASES ARRANGEMENT FINANCING TOTAL
------------- ------------ ------------ -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Total minimum lease or
tax and duty payments.. Ps150,730,881 Ps 4,367,345 Ps29,881,698 Ps184,979,924
Less--Imputed interest.. (43,315,920) (861,755) -- (44,177,675)
------------- ------------ ------------ -------------
Present value of minimum
lease payments......... 107,414,961 3,505,590 29,881,698 140,802,249
Less--Current portion (16,093,927) (1,032,145) (2,988,169) (20,114,241)
------------- ------------ ------------ -------------
Long--term portion...... Ps 91,321,034 Ps 2,473,445 Ps26,893,529 Ps120,688,008
============= ============ ============ =============
</TABLE>
The additional total minimum lease or tax and duty payments would have been
as follows under U.S. GAAP (unaudited):
<TABLE>
<CAPTION>
PAYABLE IN YEAR SENDING DECEMBER 31,
------------------------------------
<S> <C>
1998...................................................... Ps 20,114,242
1999...................................................... 20,295,596
2000...................................................... 19,714,206
2001...................................................... 19,093,051
2002...................................................... 17,392,064
Thereafter................................................ 88,370,765
-------------
Ps184,979,924
=============
</TABLE>
Additionally, the Company is negotiating other Global Leases with minimum
lease payments of approximately Ps17.6 billion to complete its expansion plan.
Such leases would be capital leases under U.S. GAAP; however, they are
excluded from the above pro forma presentation since no commitment has yet
been incurred by the Company or Global.
(vii) Revenue recognition
Under Colombian GAAP, revenues for connection fees for telephone lines are
recognized upon payment in cash or the execution of a promissory note (with a
10% down payment) by the customer and the Company's assignment of a telephone
number which is transferable to others by the customer. Under U.S. GAAP,
revenues from these connection fees are recorded at the date of actual
installation with a dial tone.
(viii) Deferred monetary correction
The deferred monetary correction asset and liability are reversed for U.S.
GAAP purposes.
(ix) Minority interest
The minority interests' share of the differences between Colombian GAAP and
U.S. GAAP are presented separately.
F-42
<PAGE>
TRANSTEL S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(x) Distribution to shareholder
Transtel purchased land and building from a major shareholder at appraised
value in August 1996. For U.S. GAAP, the difference between the amount paid
(Ps1,760,384) and the shareholder's historical basis (Ps1,425,763) is treated
as a distribution to the shareholder in 1996 and 1997.
(xi) Earnings per share
Under Colombian GAAP, earnings per share are computed by dividing net income
(loss) applicable to common shares by the weighted average number of common
shares outstanding for each period presented.
Under U.S. GAAP, earnings per share are calculated on the basis of the
weighted average number of common shares outstanding, adjusted for stock
dividends issued by the Company which are considered outstanding since the
beginning of the earliest period presented. For U.S. GAAP, the weighted
average number of shares were 2,294,444,444, 4,000,000,000 and 4,433,250,509
during 1995, 1996 and 1997, respectively, the same as under Colombian GAAP
since no stock dividends have yet been declared.
Basic and fully diluted loss per share under U.S. GAAP are the same and were
(1.29) Pesos, (0.75) and (0.51) Pesos in 1995, 1996 and 1997, respectively.
(e) Additional disclosures required by U.S. GAAP
Concentration of credit risk
Financial instruments which potentially subject the Company to concentration
of credit risk consist principally of accounts receivable resulting from
customer financing plans and sold to financial institutions. Concentration of
credit risk with respect to such receivables is limited to a large number of
customers comprising the Company's customer base; however, the Company's
customers are concentrated in Colombia and the ability of the customers to pay
amounts due depends, in part, upon the general condition of the Colombian
economy. Generally, the Company does not require collateral or other security
to support receivables.
Fair value of financial instruments
Cash, short-term and temporary investments and long-term investments except
the Escrow Account, current accounts receivable (except advances to IBM and
Siemens) and accounts payable: The carrying amounts approximate fair value
because of the short maturity of these instruments or, in the case of
temporary investments, the subsequent sales price.
Noncurrent receivables from customers: The carrying amounts approximate fair
value because of the market rates of interest charged by the Company.
Escrow Account: The quoted market values of these investments of Ps46
billion approximates their carrying value after the reclassification of
unearned income against the maturity value of the Escrow Account investments.
12 1/2% Senior Notes due 2007: The Senior Notes, which were issued on
October 28, 1997, had a fair value of Ps188 billion at December 31, 1997 based
on quoted market values.
Other long and short-term debt: Substantially all of the Company's other
long- and short-term debt is variable rate borrowings; thus, the carrying
amounts of the Company's borrowings under these credit agreements approximate
their fair value.
F-43
<PAGE>
TRANSTEL S.A.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Capital lease obligations: The Company's capital lease obligations contain
variable interest rates and approximate fair value.
Recent accounting pronouncements
SFAS No. 130, "Comprehensive Income", establishes standards for reporting
and display of comprehensive income and its components. This statement
requires that all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. Under this standard, future unrealized gains and losses in
investments securities available-for-sale would be included in comprehensive
income. This statement is effective for year ending December 31, 1998.
SFAS No. 132, "Employers' Disclosure about Pensions and Other Postretirement
Benefits", revises disclosures about pension plans; however, it does not
change the measurement or recognition of those plans. SFAS No. 132 will
require additional information on changes in the benefit obligation and fair
value of plan assets. This statement is effective for year ending December 31,
1998.
F-44
<PAGE>
TRANSTEL S.A.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31,
---------------------------------------------------
1997 1998 1998
------------------ ------------------ -------------
(THOUSANDS OF
(THOUSANDS OF PESOS OF MARCH 31, 1998 DOLLARS--
PURCHASING POWER) UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current
Cash..................... Ps 1,913,187 Ps 2,536,520 $ 1,868
Short-term and temporary
investments............. 15,068,319 80,245,551 59,090
Accounts receivable,
net..................... 13,556,354 25,317,501 18,643
Inventories.............. 438,101 1,043,577 768
Prepaid expenses......... 165,823 574,832 423
------------------ ------------------ --------
Total current assets... 31,141,784 109,717,981 80,792
Noncurrent
Accounts receivable...... 9,056,722 6,669
Properties, plant and
equipment, net.......... 29,743,674 139,680,302 102,855
Deferred monetary
correction.............. 620,776 2,765,763 2,037
Long-term investments.... 29,825,716 21,962
Deferred costs........... 18,304,598 57,590,597 42,407
Other assets............. 19,499,520 2,174,223 1,601
Reappraisal of assets.... 15,540,784 22,691,380 16,710
------------------ ------------------ --------
Total assets........... Ps 114,851,136 Ps 373,502,684 $275,033
================== ================== ========
LIABILITIES AND SHAREHOLD-
ERS' EQUITY
Current liabilities
Short-term debt.......... Ps 15,391,838 Ps 863,720 $ 636
Current portion of long-
term debt............... 6,176,059 -- --
Current portion of
capital lease
obligations............. 44,582 354,892 261
Accounts payable......... 3,612,731 29,134,686 21,454
Tax liabilities.......... 1,158,228 3,184,594 2,345
Labor liabilities........ 136,828 430,823 317
Other liabilities........ 663,351 5,079,852 3,741
Accrued pension
obligations............. 534,531 394
------------------ ------------------ --------
Total current
liabilities........... 27,183,617 39,583,098 29,148
Long-term liabilities
12 1/2% Senior Notes due
2007.................... 203,704,500 150,000
Other long-term debt..... 37,745,879 -- --
Capital lease
obligations............. 1,061,989 1,112,108 819
Deferred monetary
correction.............. 1,556,028 6,180,148 4,551
Accrued pension
obligations............. 6,327,421 4,659
Other liabilities........ 6,217,052 7,729,955 5,691
------------------ ------------------ --------
Total liabilities...... 73,764,565 264,637,230 194,868
------------------ ------------------ --------
Minority interest.......... 21,179,134 48,737,031 35,888
------------------ ------------------ --------
Commitments
Shareholders' equity:
Common stock, Ps1 par
value, 50 billion shares
authorized;
5,039,801,222 shares
issued and outstanding
(4,000,000,000 in
1997)................... 6,773,429 40,709,100 29,977
Retained earnings........ 3,760,944 5,655,205 4,165
Surplus from reappraisal
of assets............... 9,373,064 13,764,118 10,135
------------------ ------------------ --------
Total shareholders'
equity................ 19,907,437 60,128,423 44,277
------------------ ------------------ --------
Total liabilities and
shareholder's equity.. Ps 114,851,136 Ps373,502,684 $275,033
================== ================== ========
Memorandum accounts........ Ps 75,301,343 Ps174,063,912 $128,174
================== ================== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-45
<PAGE>
TRANSTEL S.A.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
-----------------------------------------------------------
1997 1998 1998
---------------- ----------------- -----------------------
(THOUSANDS OF PESOS OF MARCH 31, (THOUSANDS OF DOLLARS--
1998 PURCHASING POWER) UNAUDITED)
<S> <C> <C> <C>
Revenues................ Ps 2,836,168 Ps 10,932,728 $ 8,050
--------------- ----------------- -------
Costs and expenses:
Operating costs....... 876,123 3,474,839 2,559
Administrative
expenses............. 1,432,369 4,511,403 3,322
Marketing expenses.... 283,095 744,146 548
--------------- ----------------- -------
2,591,587 8,730,388 6,429
--------------- ----------------- -------
Operating income.... 244,581 2,202,340 1,621
--------------- ----------------- -------
Nonoperating income
(expenses)
Financial income...... 969,989 8,428,802 6,206
Financial expenses.... (2,094,881) (12,320,367) (9,072)
Other................. (214,388) 447,559 330
--------------- ----------------- -------
(1,339,280) (3,444,006) (2,536)
--------------- ----------------- -------
Net monetary inflation
adjustment income...... 1,183,615 4,271,571 3,145
--------------- ----------------- -------
Income before income
taxes and minority
interest............. 88,916 3,029,905 2,230
Income tax (expense)
benefit................ (580,697) (1,374,720) (1,012)
--------------- ----------------- -------
Income (loss) before
minority interest.. (491,781) 1,655,185 1,218
Minority interest....... (104,485) (1,510,077) (1,112)
--------------- ----------------- -------
Net (loss) income... Ps (596,266) Ps 145,108 $ 106
=============== ================= =======
Earnings per share (in
single Pesos and single
Dollars per share)..... Ps (0.15) Ps 0.03 $ --
=============== ================= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-46
<PAGE>
TRANSTEL S.A.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
SURPLUS FROM TOTAL
COMMON SHARES OUTSTANDING RETAINED REAPPRAISAL SHAREHOLDERS'
NUMBER AMOUNT EARNINGS OF ASSETS EQUITY
--------------------------- ----------- ------------ -------------
(THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1996................... 4,000,000 Ps 6,773,429 Ps4,357,209 Ps 9,371,102 Ps20,501,740
Net loss income......... (596,265) (596,265)
Movement during the
period................. 1,962 1,962
----------- -------------- ----------- ------------ ------------
Balance at March 31,
1997................... 4,000,000 Ps 6,773,429 Ps3,760,944 Ps 9,373,064 Ps19,907,437
=========== ============== =========== ============ ============
Balance at December 31,
1997................... 5,039,801 Ps40,709,100 Ps5,510,097 Ps 9,975,935 Ps56,195,132
Net income.............. 145,108 145,108
Movement during the
period................. 3,788,183 3,788,183
----------- -------------- ----------- ------------ ------------
Balance at March 31,
1998................... 5,039,801 Ps40,709,100 Ps5,655,205 Ps13,764,118 Ps60,128,423
=========== ============== =========== ============ ============
</TABLE>
Retained earnings balances at March 31 consist of the following:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Legal reserve......................................... Ps 81,919 Ps 700,133
Appropriated for future construction.................. 737,274 737,274
Appropriated for future acquisitions.................. 3,538,016 4,072,690
Unappropriated retained earning....................... (596,265) 145,108
----------- -----------
Ps3,760,944 Ps5,655,205
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-47
<PAGE>
TRANSTEL S.A.
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
------------------------------------------------
1997 1998 1998
---------------- ---------------- ------------
(THOUSANDS OF PESOS OF MARCH 31, (THOUSANDS
1998 PURCHASING POWER) OF DOLLARS--
UNAUDITED)
<S> <C> <C> <C>
Sources of working capital:
Net (loss) income........... Ps (596,264) Ps 145,108 $ 107
Items that do not utilize
(provide) working capital:
Depreciation................ 93,929 390,869 288
Amortization................ 373,234 2,105,225 1,550
Deferred income taxes....... 298,793 220
Allowance for writedown of
properties, plant and
equipment.................. 102,034 75
Allowance for doubtful ac-
counts..................... 77,930 57
Pension obligation accrual.. 385,579 284
Minority interest........... 104,485 1,510,077 1,112
Net inflation adjustment
from non-current balance
sheet accounts............. (1,038,936) (3,820,439) (2,813)
Deferred monetary correc-
tion, net.................. 623,352 (559,879) (412)
---------------- ---------------- --------
Working capital provided by
operations................. (440,200) 635,297 468
---------------- ---------------- --------
Financial resources gener-
ated otherwise:
Accrued Pension obliga-
tions...................... (360,906) (266)
Increase (decrease) in other
debt....................... 11,160,129
Capital lease obligations... (4,174) (83,442) (61)
Increase in other liabili-
ties....................... 6,139,390 (733,170) (540)
Investment by minority in-
terest..................... 2,524,379 2,302,729 1,696
---------------- ---------------- --------
19,819,724 1,125,211 829
---------------- ---------------- --------
Total financial resources
generated................. 19,379,524 1,760,508 1,297
---------------- ---------------- --------
Financial resources uti-
lized:
Purchases of properties,
plan and equipment......... (1,446,198) (20,535,825) (15,122)
Increase in deferred costs.. (12,144,373) (7,842,711) (5,775)
Increase in long-term in-
vestments.................. (5,051,125)
Increase in other assets.... (6,642,020)
Decrease in long-term in-
vestments.................. 3,500,792 2,578
Decrease in other assets.... 280,178 204
Non-current accounts receiv-
able....................... 2,724,225 2,006
---------------- ---------------- --------
(25,283,716) (21,873,341) (16,109)
---------------- ---------------- --------
Effect of revaluing to con-
stant pesos................ 932,604 1,570,031 1,157
---------------- ---------------- --------
Increase (decrease) in
working capital........... Ps (4,971,588) Ps(18,542,802) $(13,655)
================ ================ ========
Changes in working capital
components:
Cash........................ Ps(12,690,221) Ps (418,339) $ (308)
Short-term and temporary in-
vestments.................. 9,470,093 (30,861,476) (22,725)
Accounts receivable......... 1,380,320 5,102,631 3,757
Inventories................. 123,386 28,676 21
Prepaid expenses............ (10,071) 26,798 20
Short-term debt............. (3,706,600) 13,542,388 9,972
Short-term and current por-
tion of other long-term
debt....................... 1,037,862
Current portion of capital
lease obligations.......... 24,598 (131,682) (97)
Accounts payable............ 99,249 (7,659,675) (5,640)
Tax liabilities............. (269,960) (469,925) (346)
Labor liabilities........... 4,897 21,915 16
Accrued pension obliga-
tions...................... 31,805 23
Other liabilities........... (435,141) 2,244,082 1,652
---------------- ---------------- --------
Increase (decrease) in
working capital........... Ps (4,971,588) Ps(18,542,802) $(13,655)
================ ================ ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-48
<PAGE>
TRANSTEL S.A.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
------------------------------------------------
1997 1998 1998
---------------- ---------------- ------------
(THOUSANDS OF PESOS OF MARCH 31, (THOUSANDS
1998 PURCHASING POWER) OF DOLLARS--
UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating ac-
tivities:
Net income................... Ps (596,264) Ps 145,108 $ 107
Adjustments to reconcile net
income with net cash Pro-
vided by operations:
Depreciation................. 93,929 390,869 288
Amortization................. 373,234 2,105,225 1,550
Deferred income taxes........ 298,793 220
Allowance for writedown of
property, plant and equip-
ment........................ 102,034 75
Allowance for doubtful ac-
counts...................... 77,930 57
Pension obligation accrual... 385,579 284
Minority interest............ 104,485 1,510,077 1,112
Net inflation adjustment
from balance sheet Accounts
............................ (1,058,632) (3,877,555) (2,855)
Deferred monetary correc-
tion, net................... 623,352 (559,879) (412)
Changes in operating assets
and liabilities:
Accounts receivable.......... (1,380,321) (2,732,305) (2,011)
Inventories.................. (105,939) 28,440 21
Prepaid expenses............. 10,071 (26,798) (20)
Deferred costs............... (5,051,125) (7,842,712) (5,775)
Other assets................. (6,642,020) 280,178 206
Accounts payable............. (99,246) 7,659,675 5,640
Labor liabilities............ (4,897) (21,915) (16)
Tax liabilities.............. 269,960 469,926 346
Accrued pension obliga-
tions....................... (392,711) (289)
Other liabilities............ 204,203 (2,977,252) (2,193)
---------------- ---------------- --------
Net cash used for
operating activities.... (13,259,210) (4,977,293) (3,665)
---------------- ---------------- --------
Cash flows from investing ac-
tivities:
Purchases of properties,
plant and equipment......... (4,695,864) (17,918,695) (13,195)
Purchases of investments..... (9,467,845) (20,644,042) (15,201)
Proceeds from maturity of
short-term investments...... 55,006,310 40,504
---------------- ---------------- --------
Net cash provided by (used
for) investing activities... (14,163,709) 16,443,573 12,108
---------------- ---------------- --------
Cash flows from financing ac-
tivities:
Issuance of other debt....... 36,324,225 770,984 568
Repayments of other debt..... (22,495,358) (14,313,372) (10,540)
Repayments of capital lease
obligations................. (28,773) (266,161) (196)
Sale of customer accounts re-
ceivable.................... -- 353,899 261
---------------- ---------------- --------
Net cash provided by
financing activities.... 13,800,094 (13,454,650) (9,907)
---------------- ---------------- --------
Effect of revaluing to con-
stant pesos.................. 932,604 1,570,031 1,157
---------------- ---------------- --------
Net (decrease) increase in
cash........................ (12,690,221) (418,339) (307)
Cash at beginning of period.. 14,603,408 2,954,859 2,176
---------------- ---------------- --------
Cash at end of period........ Ps 1,913,187 Ps 2,536,520 $ 1,869
================ ================ ========
Supplemental disclosure of
cash flows information:
Cash paid during the year
for:
Interest..................... Ps 3,310,366 PS 891,118 $ 656
================ ================ ========
Income taxes................. Ps -- Ps 1,234,728 $ 913
================ ================ ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-49
<PAGE>
TRANSTEL S.A.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(THOUSANDS OF PESOS OF MARCH 31, 1998 PURCHASING POWER, UNLESS OTHERWISE
SPECIFIED)
(UNAUDITED)
NOTE 1--BASIS OF PRESENTATION
The interim consolidated financial statements as of and for the three months
ended March 31,1997 and 1998 are unaudited and have been prepared in
accordance with accounting principles generally accepted in Colombia. In the
opinion of management, such interim financial statements include all
adjustments, consisting only of normal recurring adjustments, necessary for
the fair presentation of the results for the interim periods. The results of
operations for the three months ended March 31, 1998 are not necessarily an
indication of the results to be expected for the full year. The interim
financial information has been presented in constant Colombian Pesos of March
31, 1998 purchasing power. Any amount in the consolidated annual financial
statements may be stated in constant pesos of March 31, 1998 purchasing power
by multiplying the amount by 1.0595. U.S. Dollar amounts are translated from
Peso amounts at the Representative Market Rate on March 31, 1998, which was
1,358.03 Pesos to one Dollar. No representation is made that the Peso or
Dollar amounts shown herein could have been or could be converted into Dollars
or Pesos, as the case may be, at any particular rate or at all.
These interim consolidated financial statements should be read in
conjunction with the Company's consolidated annual financial statements as of
and for the three years ended December 31, 1997 and the notes thereto. See
Note 4 for a description of the significant differences between Colombian and
U.S. GAAP.
NOTE 2--EARNINGS PER SHARE
Earnings per share were calculated on the basis of the weighted average
number of common shares outstanding of 5,039,801,222 and 4,000,000,000 shares
for the three months ended March 31, 1998 and 1997, respectively.
NOTE 3--SHAREHOLDERS' EQUITY
The capital of Transtel S.A. consisted of 5 billion authorized shares of
common stock with a par value of one nominal peso each at December 31, 1997,
of which 5 billion were issued and outstanding. On February 13 and July 7,
1997, the authorized shares were increased to 14 billion and 50 billion,
respectively.
F-50
<PAGE>
TRANSTEL S.A.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4--DIFFERENCES BETWEEN COLOMBIAN GAAP AND U.S. GAAP
The Company's financial statements are prepared in accordance with Colombian
GAAP. Because these principles differ in certain significant respects from
U.S. GAAP, this note presents reconciliation to U.S. GAAP of net income and
shareholders' equity as of and for the three month period ended March 31, 1997
and 1998:
(A) RECONCILIATION OF NET INCOME (LOSS):
The following summarizes the principal differences between accounting
practices under Colombian and U.S. GAAP and their effects on net income (loss)
for the three month period ended March 31, 1997 and 1998:
<TABLE>
<CAPTION>
1997 1998
------------- -------------
<S> <C> <C>
Consolidated net (loss) income under Colombian
GAAP......................................... Ps (596,266) Ps 145,108
(i) Deferred income taxes.................. 1,916,346 2,070,678
(ii) Surplus from reappraisal of assets..... -- --
(iii) Depreciation.......................... (196,614) (671,064)
(iv) Capitalized interest................... 23,270 604,084
(v) Deferred costs......................... (4,900,508) (6,480,931)
(vi) Capital leases......................... 256,964 (37,996)
(vii) Revenue recognition................... 58,843 (1,132,945)
(viii) Reversal of deferred monetary
correction........................... 20,417 1,170,523
(ix) Effect of the above differences on
minority interest...................... 483,302 (3,317)
(x) Distribution to shareholder............ -- --
------------- -------------
Consolidated net loss under U.S. GAAP......... Ps (2,934,246) Ps (4,335,860)
============= =============
(B) RECONCILIATION OF SHAREHOLDERS' EQUITY:
The following summarizes the principal differences between accounting
practices under Colombian GAAP and U.S. GAAP and their effects on
shareholders' equity at March 31, 1997 and 1998:
<CAPTION>
1997 1998
------------- -------------
<S> <C> <C>
Consolidated shareholders' equity under
Colombian GAAP............................... Ps 19,907,437 Ps 60,128,423
(i) Deferred income taxes.................. 3,571,679 7,112,383
(ii) Surplus from reappraisal of assets..... (9,373,064) (13,764,118)
(iii) Depreciation.......................... (1,193,434) (4,573,177)
(iv) Capitalized interest................... 298,224 1,946,233
(v) Deferred costs......................... (18,245,264) (27,794,923)
(vi) Capital leases......................... 637,095 1,448,322
(vii) Revenue recognition................... (5,001,153) (5,311,916)
(viii) Reversal of deferred monetary
correction........................... 332,286 3,414,385
(ix) Effect of the above differences on
minority interest...................... 5,221,426 3,711,177
(x) Distribution to shareholder............ (354,873) (354,873)
------------- -------------
Consolidated shareholders' equity (deficit)
under Colombian GAAP......................... Ps (4,199,641) Ps 25,961,916
============= =============
</TABLE>
F-51
<PAGE>
TRANSTEL S.A.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(C) ANALYSIS OF CHANGES IN SHAREHOLDERS' EQUITY:
The following summarizes the changes in shareholders' equity (deficit) under
U.S. GAAP for the three month period ended March 31, 1997 and 1998:
<TABLE>
<CAPTION>
1997 1998
------------ ------------
<S> <C> <C>
Balance at beginning of period................... Ps(1,265,395) Ps30,297,776
Net loss......................................... (2,934,246) (4,335,860)
------------ ------------
Balance at end of period......................... Ps(4,199,641) Ps25,961,916
============ ============
</TABLE>
(D) SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN COLOMBIAN AND U.S. GAAP:
(i) Deferred income taxes
Under Colombian GAAP, income taxes for interim financial statements are
calculated as if those financial statements were annual financial statements.
Under Colombian GAAP, deferred income taxes are generally recognized for
timing differences in a manner similar to Accounting Principles Board Opinion
No. 11.
Under U.S. GAAP, income taxes for interim financial statements are
calculated using the estimated effective tax rate for the year. Under U.S.
GAAP, Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes" requires that deferred tax assets or liabilities
be recorded for the tax effects of temporary differences between the financial
and tax bases for assets and liabilities. A valuation allowance is provided
for deferred tax assets when it is considered more likely than not that they
will not be realized.
(ii) Surplus from reappraisal of assets
In accordance with Colombian GAAP, reappraisals of properties, plant and
equipment and long-term investments are made periodically and recorded in
offsetting accounts which are shown under the asset caption "Reappraisal of
assets" and the shareholders' equity caption "Surplus from assets
reappraisals." Under U.S. GAAP, reappraisals of assets are not permitted.
(iii) Depreciation
The Company uses the reverse sum of the years method of depreciation for
Colombian GAAP purposes. The straight-line method is used for U.S. GAAP.
(iv) Capitalized interest
Under Colombian GAAP, the Company does not capitalize certain interest costs
on projects during construction which is required under U.S. GAAP. Under U.S.
GAAP, adjustments to expenses are required for interest capitalized net of
additional depreciation on interest amounts capitalized.
(v) Deferred costs
The Company has deferred certain expenses which are expensed as incurred
under U.S. GAAP. Under U.S. GAAP, an adjustment is required for the expensing
of amounts net of any amortization taken.
F-52
<PAGE>
TRANSTEL S.A.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(vi) Capital leases
Certain of the Company's operating leases for Colombian GAAP purposes
qualify as capital leases under U.S. GAAP. In addition to the amounts shown as
capital leases in the balance sheet, the following assets and liabilities are
recorded under U.S. GAAP:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
External telephony networks........................ Ps2,892,532 Ps3,855,392
Computer equipment................................. 286,075 426,659
Transport fleet and equipment...................... 930,907 1,828,489
Generator.......................................... 76,308 174,294
----------- -----------
Total............................................ 4,185,822 6,284,834
Less--Accumulated depreciation..................... (443,496) (1,337,378)
----------- -----------
Ps3,742,326 PS4,947,456
=========== ===========
</TABLE>
The above amounts include cumulative net inflation adjustments of Ps657,327
and Ps1,346,369 at March 31, 1997 and 1998, respectively.
<TABLE>
<S> <C> <C>
Total minimum lease payments....................... Ps3,625,280 Ps5,760,904
Less--Imputed interest............................. (761,980) (2,479,318)
----------- -----------
Present value of minimum lease payments............ 2,863,300 3,281,586
Less--Current portion.............................. (909,834) (842,847)
----------- -----------
Long-term portion.................................. 1,953,466 2,438,739
=========== ===========
Deferred income from sale lease back............... Ps 241,930 Ps 217,450
=========== ===========
</TABLE>
The additional total minimum lease payments at March 31, 1998 are as follows
under U.S. GAAP:
<TABLE>
<CAPTION>
PAYABLE IN TWELVE MONTHS ENDING MARCH 31,
-----------------------------------------
<S> <C>
1999............................................................ Ps1,172,951
2000............................................................ 1,740,291
2001............................................................ 2,847,662
-----------
Total minimum lease payments.................................. Ps5,760,904
===========
</TABLE>
The following income statement effects are recorded under U.S. GAAP for the
above capital leases:
<TABLE>
<CAPTION>
1997 1998
---------- ---------
<S> <C> <C>
Increase in interest expense......................... Ps 32,734 Ps147,610
Increase in depreciation expense..................... 145,787 266,134
Amortization of gain from sale of Properties, plant
and equipment on leaseback.......................... (3,062) (3,062)
Increase in inflation adjustment income on capital
Lease obligations................................... (37,279) (106,525)
---------- ---------
Total.............................................. 138,180 304,157
Rent expense
Decrease in rent expense recorded under Colombian
GAAP.............................................. (316,130) (245,120)
Decrease in rent recorded as deferred costs under
Colombian GAAP and reversed for U.S. GAAP purposes
.................................................. (79,014) (21,041)
---------- ---------
Net (decrease) increase in expenses................ Ps(256,964) Ps 37,996
========== =========
</TABLE>
F-53
<PAGE>
TRANSTEL S.A.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Under U.S. GAAP, there are no operating lease commitments at March 31, 1998.
(vii) Revenue recognition
Under Colombian GAAP, revenues for connection fees for telephone lines are
recognized upon payment in cash or the execution of a promissory note (with a
10% down payment) by the customer and the Company's assignment of a telephone
number which is transferable to others by the customer. Under U.S. GAAP,
revenues from these connection fees are recorded at the date of actual
installation with a dial tone.
(viii) Deferred monetary correction
The deferred monetary correction asset and liability are reversed for U.S.
GAAP purposes.
(ix) Minority interest
The minority interests' share of the differences between Colombian GAAP and
U.S. GAAP are presented separately.
(x) Distribution to shareholder
Transtel purchased land and building from a major shareholder in August
1996. For U.S. GAAP, the difference between the amount paid and the
shareholder's historical cost is treated as a distribution to the shareholder.
(xi) Earnings per share
Under Colombian GAAP, earnings per share are computed by dividing net income
(loss) applicable to common shares by the weighted average number of common
shares outstanding for each period presented.
Under U.S. GAAP, earnings per share are calculated on the basis of the
weighted average number of common shares outstanding, adjusted for stock
dividends issued by the Company which are considered outstanding since the
beginning of the earliest period presented. For U.S. GAAP, the weighted
average number of shares outstanding was 4,000,000,00 and 5,039,801,222 during
the three month period ended March 31, 1997 and 1998, the same under Colombian
GAAP since no stock dividends have yet been declared. The Company
retroactively adopted SFAS No. 128 for U.S. GAAP; however, SFAS No. 128 did
not change the manner that the Company previously used to compute earnings per
share. Basic and fully diluted loss per share under U.S. GAAP are the same and
were (0.73) Pesos and (0.86) Pesos for the three months ended March 31, 1997
and 1998, respectively.
F-54
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE-
SENTATIONS IN CONNECTION WITH THIS EXCHANGE OFFER OTHER THAN THOSE CONTAINED
IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION AND REPRE-
SENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UN-
DER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CON-
TAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER
TO BUY ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RE-
LATES. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Enforceability of Civil Liabilities...................................... 4
Available Information.................................................... 4
Forward-Looking Statements............................................... 5
Market and Population Data............................................... 5
Exchange Rates........................................................... 5
Prospectus Summary....................................................... 7
Risk Factors............................................................. 18
Deficiency of Earnings to Fixed Charges.................................. 28
Use of Proceeds.......................................................... 29
Capitalization........................................................... 31
The Exchange Offer....................................................... 34
Selected Financial and Other Data........................................ 41
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 44
Business................................................................. 61
Description of Existing Indebtedness..................................... 84
Industry Overview; Legal and Regulatory Environment...................... 87
Management............................................................... 89
Principal Shareholders................................................... 91
Certain Related Party Transactions....................................... 91
Description of the Certificates.......................................... 93
Description of the Guarantees............................................ 98
Description of the Senior Notes.......................................... 100
Taxation................................................................. 129
Certain ERISA Considerations............................................. 132
Foreign Investment and Exchange Controls in Colombia..................... 133
Plan of Distribution..................................................... 134
Enforcement of Foreign Judgments in Colombia............................. 135
Book-Entry; Delivery and Form............................................ 136
Legal Matters............................................................ 138
Experts.................................................................. 138
Glossary of Certain Telecommunications Terms............................. 139
Annex A--Republic of Colombia............................................ 142
Index to Financial Statements............................................ F-1
</TABLE>
UNTIL , ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
OFFER TO EXCHANGE ALL OUTSTANDING
12 1/2% PASS THROUGH TRUST CERTIFICATES DUE 2007,
FOR
12 1/2% PASS THROUGH EXCHANGE CERTIFICATES
DUE 2007,
IN EACH CASE REPRESENTING INTERESTS IN 12 1/2% SENIOR NOTES DUE 2007
ISSUED BY
TRANSTEL S.A.
---------------
PROSPECTUS
---------------
SEPTEMBER 4, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under both United States and Colombian law, the Company can indemnify its
directors and officers and purchase director and officer insurance. However
the Company's articles of incorporation and bylaws currently do not provide
for indemnification of any directors or officers, and the Company presently
does not have director and officer insurance.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
<C> <S>
3.1 Transtel S.A.'s estatutos sociales, currently in effect.*
4.1 Indenture, dated as of October 28, 1997, between the Company
and Marine Midland Bank, as Indenture Trustee, as amended by
First Amendment and Waiver to Indenture, dated as of July 13,
1998.
4.2 Form of Exchange Certificates.*
4.3 Pledge Agreement relating to Intercompany Notes pledged to
Noteholders by the Company.*
4.4 Trust Agreement of Transtel Pass Through Trust dated as of
October 20, 1997, by and between Transtel, as depositor, and
Wilmington Trust Company.*
4.5 Amended and Restated Pass Through Trust Agreement, dated as of
October 28, 1997, among the Company, as Depositor, Wilmington
Trust Company, as Pass Through Trustee, and Marine Midland
Bank, as Registrar and Paying Agent.*
4.6 Escrow and Disbursement Agreement, dated as of October 28,
1997, among the Company, Marine Midland Bank, as Escrow Agent
and Marine Midland Bank, as Indenture Trustee under the
Indenture, as amended by First Amendment and Waiver to Escrow
and Disbursement Agreement, dated as of July 13, 1998.
4.7 Form of Exchange Certificate Guarantee, by the Company in
favor of Marine Midland Bank and the Exchange
Certificateholders.*
5.1 Opinion of Dewey Ballantine LLP to Transtel S.A. as to
legality of the Exchange Certificate Guarantee.**
5.2 Opinion of Arrieta Mantilla & Asociados as to legality of the
Senior Notes and the Exchange Certificate Guarantee.**
5.3 Opinion of Richards, Layton & Finger as to legality of the
Exchange Certificates.**
8.1 Opinion of Dewey Ballantine LLP regarding United States tax
matters.**
8.2 Opinion of Lewin & Wills regarding Colombian tax matters.**
10.1 Public Deed of Incorporation of TeleGirardot and Adoption of
Bylaws.*
10.2 Registration Rights Agreement, dated as of October 28, 1997,
among the Company, Transtel Pass Through Trust, as the Issuer
and BT Alex. Brown Incorporated, as Initial Purchaser.*
10.3 Global Telecommunications Operations, Inc. (Contract Number
1--1996) dated as of May 2, 1996 between Global
Telecommunications Operations Inc. and Siemens
Aktiengesellschaft ("Global I Purchase Agreement").
10.4 Modification No. 1 to the Purchase and Sale Contract made by
and between Global Telecommunications Operations, Inc. and
Siemens Aktiengesellschaft dated as of July 28, 1997
("Amendment to Global I Purchase Agreement").
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
<C> <S>
10.5 International Leasing Contract between Global
Telecommunications Operations, Inc. and Palmira Telephone
Company S.A. Public Services Corporation - TelePalmira S.A.
E.S.P. dated as of August 1, 1996 ("Global - TelePalmina
Lease").
10.6 Supplementary International Leasing Contract Undersigned in
the 1st of August, 1998 between Global Communications
Operations, Inc. and TelePalmira S.A. E.S.P. ("Amendment to
Global--TelePalmina Lease").
10.7 International Leasing Contract between Global
Telecommunications Operations, Inc. and Jamundi Telephone
Company S.A. Public Services Corporation - TeleJamundi S.A.
E.S.P. dated as of August 1, 1996 ("Global - TeleJamundi
Lease).
10.8 Supplementary International Leasing Contract Undersigned on
the 1st of August, 1996 between Global Communications
Operations, Inc. and TeleJamundi S.A. E.S.P. ("Amendment to
Global TeleJamundi Lease").
10.9 International Leasing Contract between Global
Telecommunications Operations Inc. and Yumbo Telephone Company
S.A. Public Services Corporation - TeleYumbo S.A. E.S.P. dated
as of August 1, 1996 ("Global--Unitel I Lease").
10.10 Supplement to the International Leasing Contract by and
between Global Telecommunications Operations Inc. and Unitel
S.A. E.S.P. former TeleYumbo S.A. E.S.P. dated as of April 19,
1998 ("Amendment to Global--Unitel I Lease").
10.11 Global Telecommunications Operations, Inc. (Contract Number
2--1997) between Global Telecommunications Operations, Inc.
and Siemens Aktiengesellschaft dated as of May 30, 1997
("Global II Purchase Agreement").
10.12 Modification No. 1 to the Purchase and Sale Contract made by
and between Global Telecommunications Operations, Inc. and
Siemens Aktiengesellschaft dated as of July 28, 1997
("Amendment to Global II Purchase Agreement").
10.13 Modification No. 2-A to the Purchase and Sale Contract made by
and between Global Telecommunications Operations, Inc. and
Siemens Aktiengesellschaft dated as of October 29, 1997
("Amendment to Global II Purchase Agreement").
10.14 Modification No. 2-B to the Purchase and Sale Contract made by
and between Global Telecommunications Operations, Inc. and
Siemens Aktiengesellschaft dated as of April 1, 1998
("Amendment to Global II Purchase Agreement").
10.15 International Leasing Contract made by and between Global
Telecommunications Operations, Inc. and Sociedad Bugatel S.A.
E.S.P. dated as of July 28, 1997 ("Global-Bugatel Lease").
10.16 International Leasing Contract between Global
Telecommunications Operations Inc. and Unitel Corporation S.A.
E.S.P. dated as of July 28, 1997 ("Global-Unitel Lease").
10.17 International Leasing Contract made by and between Global
Telecommunications Operations Inc. and Sociedad Telefonos de
Cartago S.A. E.S.P. dated as of July 28, 1997 ("Global-
TeleCartago Lease").
10.18 Global Telecommunications Operations, Inc. (Contract No. 3-
1998) between Global Telecommunications Operations, Inc. and
Siemens Aktiengesellschaft dated as of June 1, 1998 ("Global
III Purchase Agreement").
10.19 Global Telecommunications Operations, Inc. (Contract No. 4-
1998) between Global Telecommunications Operations, Inc. and
Siemens Aktiengesellschaft dated as of June 11, 1998 ("Global
IV Purchase Agreement").
10.20 Special Administrative Unit National Tax and Customs Direction
Local Tax Administration of Cali dated as of September 18,
1997 (Resolution No. 0001) ("DIAN Financing").
10.21 D.I.A.N. National Tax and Customs Direction Local Customs
Administration of Cali dated as of October 3, 1997 ("DIAN
Financing").
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
<C> <S>
10.22 Special Administrative Unit National Tax and Customs Direction
Southwestern Tax and Customs Administration dated as of
November 20, 1997 ("DIAN Financing").
10.23 Special Administrative Unit National Tax and Customs Direction
Local Tax Administration of Cali dated as of August 30, 1996
(Resolution No. 0007) ("DIAN Financing").
10.24 Special Administrative Unit National Tax and Customs Direction
Local Tax Administration of Cali dated as of August 30, 1996
(Resolution No. 0008) ("DIAN Financing").
10.25 Special Administrative Unit National Tax and Customs Direction
Local Tax Administration of Cali dated as of August 30, 1996
(Resolution No. 0009) ("DIAN Financing").
10.26 Special Administrative Unit National Tax and Customs Direction
Southwestern Tax and Customs Administration dated as of
October 23, 1997 (Resolution No. 000005) ("DIAN Financing").
10.27 Supplement for Payment in Installments Orders as Per on Shore
Operation between Transtel S.A. and IBM de Colombia, S.A.
dated as of October 31, 1997 ("IBM Agreement").
12.1 Computation of ratios of earnings to fixed charges.
21.1 List of subsidiaries of Transtel S.A.
23.1 Consent of Price Waterhouse.
23.2 Consent of Dewey Ballantine LLP (included in 5.1).**
23.3 Consent of Arrieta Mantilla & Asociados (included in 5.2).**
23.4 Consent of Richards, Layton & Finger (included in 5.3).**
23.5 Consent of Lewin & Wills (included in 8.2).**
24.1 Power of Attorney of certain officers and directors of
Transtel S.A. (included on signature page).*
25.1 Form T-1 Statement of Eligibility of Marine Midland Bank to
act as trustee under the Indenture.*
25.2 Form T-1 Statement of Eligibility of Wilmington Trust Company
to act as trustee under the Amended and Restated Pass Through
Trust Agreement.*
25.3 Form T-1 Statement of Eligibility of Marine Midland Bank to
act as Guarantee Trustee under the Exchange Certificate
Guarantee.*
99.1 Form of Letter of Transmittal.*
99.2 Form of Notice of Guaranteed Delivery.*
99.3 Form of Exchange Agent Agreement.*
</TABLE>
- --------
* Previously filed.
** To be filed by amendment.
(b) Schedules
All supplementary schedules are omitted because they are not required or
the required information, where material, is contained in the consolidated
financial statements of Transtel S.A. or the Notes thereto.
II-3
<PAGE>
ITEM 22. UNDERTAKINGS.
(1) The undersigned Registrant hereby undertakes that 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 foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(2) The undersigned registrant hereby undertakes: (1) To file, during any
period in which offers or sales are being made, a post-effective amendment to
this registration statement: (i) To include any prospectus required by section
10(a)(3) of the Securities Act of 1933, (ii) To reflect in the prospectus any
facts or events arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range may
be reflected in the form of prospectus filed with the Commission pursuant to
Rule 424(b) ((S)230.424(b) of this chapter) if, in the aggregate, the changes
in volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement, (iii) To include any material
information with respect to the plan of distribution not previously disclosed
in the registration statement or any material change to such information in
the registration statement;
(3) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(4) To removed from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
(5) To file a post-effective amendment for the registration statement to
include any financial statements required by Rule 3-19 at the start of any
delayed offering or throughout a continuous offering. Financial statements and
information otherwise required by Section 10(a)(3) of the Securities Act of
1933 need not be furnished, provided, that the registrant includes in the
prospectus, by means of a post-effective amendment, financial statements
required pursuant to this paragraph (5) and other information necessary to
ensure that all other information in the prospectus is at least as current as
the date of those financial statements.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT DULY
CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN CALI, COLOMBIA, ON
SEPTEMBER 4, 1998.
Transtel S.A.
Registrant
/s/ Guillermo O. Lopez
By: ____________________________
GUILLERMO O. LOPEZ,DIRECTOR AND
PRESIDENT
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS AMENDMENT NO. 1 TO
THE REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN
THE CAPACITIES AND ON THE DATE INDICATED.
SIGNATURE TITLE DATE
* Director September 4,
- ------------------------------------- 1998
GONZALO CAICEDO TORO
* Director and September 4,
- ------------------------------------- President 1998
GUILLERMO O. LOPEZ
* Director and General September 4,
- ------------------------------------- Secretary 1998
VICTORIA E. MEZA
* Director and September 4,
- ------------------------------------- Financial Vice 1998
President
JORGE E. MARTINEZ
* Director and September 4,
- ------------------------------------- Technology and 1998
Planning Vice
ANIBAL E. PEREZ President
* Corporate September 4,
- ------------------------------------- Development Vice 1998
President
CARLOS A. ARANGO
/s/ Guillermo O. Lopez
(*) By: ________________________
Guillermo O. Lopez
Attorney-in-Fact
II-5
<PAGE>
EXHIBIT 4.1
================================================================================
TRANSTEL S.A.
12 1/2% Senior Notes due 2007
______________________________________
_____________________________
INDENTURE
Dated as of October 28, 1997
_____________________________
_____________________________
MARINE MIDLAND BANK
Indenture Trustee
_________________
================================================================================
<PAGE>
CROSS-REFERENCE TABLE*
<TABLE>
<CAPTION>
Trust Indenture
Act Section Indenture Section
<S> <C>
310(a)(1)................................................. 7.10
(a)(2).................................................. 7.10
(a)(3).................................................. N.A.
(a)(4).................................................. 7.10
(a)(5).................................................. N.A.
(b)..................................................... 7.10
(c)..................................................... N.A.
311(a).................................................... 7.11
(b)..................................................... 7.11
(c)..................................................... N.A.
312(a).................................................... 2.05
(b)..................................................... 11.03
(c)..................................................... 11.03
313(a).................................................... 7.06
(b)(1).................................................. 11.03
(b)(2).................................................. 7.06
(c)............................................... 7.06; 11.02
(d)..................................................... 11.06
314(a).............................................. 4.03; 11.02
(b)..................................................... N.A.
(c)(1).................................................. 12.04
(c)(2).................................................. 12.04
(c)(3).................................................. N.A.
(d).............................................. 10.03; 10.04
(e)..................................................... 11.05
(f)..................................................... N.A.
315(a).................................................... 7.01
(b)............................................... 7.05; 11.02
(c)..................................................... 7.01
(d)..................................................... 7.01
(e)..................................................... 6.11
316(a)(last sentence)..................................... 2.09
(a)(1)(A)............................................... 6.05
(a)(1)(B)............................................... 6.04
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
(a)(2).................................................. N.A.
(b)..................................................... 6.07
(c)..................................................... 2.13
317(a)(1)................................................. 6.08
(a)(2).................................................. 6.09
(b)..................................................... 2.04
318(a).................................................... 11.01
(b)..................................................... N.A.
(c)..................................................... 11.01
N.A. means not applicable.
</TABLE>
*This Cross-Reference Table is not part of the Indenture.
-ii-
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE....................... 1
Section 1.01. Definitions............................................... 1
Section 1.02. Other Definitions......................................... 25
Section 1.03. Incorporation by Reference of Trust Indenture Act......... 26
Section 1.04. Rules of Construction..................................... 27
ARTICLE 2 THE NOTES........................................................ 27
Section 2.01. Form and Dating........................................... 27
Section 2.02. Execution and Authentication; Aggregate Principal Amount.. 28
Section 2.03. Registrar and Paying Agent................................ 29
Section 2.04. Paying Agent To Hold Assets in Trust...................... 30
Section 2.05. Holder Lists.............................................. 30
Section 2.06. Transfer and Exchange..................................... 31
Section 2.07. Replacement Notes......................................... 32
Section 2.08. Outstanding Notes......................................... 32
Section 2.09. Treasury Notes............................................ 32
Section 2.10. Temporary Notes........................................... 33
Section 2.11. Cancellation.............................................. 33
Section 2.12. Defaulted Interest........................................ 34
Section 2.13. CUSIP Number.............................................. 34
Section 2.14. Deposit of Monies......................................... 35
Section 2.15. Restrictive Legends....................................... 35
Section 2.16. Book-Entry Provisions for Global Security................. 37
Section 2.17. Special Transfer Provisions............................... 39
ARTICLE 3 REDEMPTION....................................................... 42
Section 3.01. Notices to Indenture Trustee.............................. 42
Section 3.02. Selection of Notes to Be Redeemed......................... 42
Section 3.03. Notice of Redemption...................................... 42
Section 3.04. Effect of Notice of Redemption............................ 43
Section 3.05. Deposit of Redemption Price............................... 44
Section 3.06. Notes Redeemed in Part.................................... 44
Section 3.07. Optional Redemption....................................... 44
Section 3.08. Mandatory Redemption...................................... 45
</TABLE>
-iii-
<PAGE>
<TABLE>
<S> <C>
ARTICLE 4 COVENANTS........................................................ 45
Section 4.01. Payment of Notes.......................................... 45
Section 4.02. Maintenance of Office or Agency........................... 46
Section 4.03. Reports................................................... 47
Section 4.04. Compliance Certificate.................................... 47
Section 4.05. Taxes..................................................... 49
Section 4.06. Stay, Extension and Usury Laws........................... 49
Section 4.07. Limitation on Restricted Payments......................... 49
Section 4.08. Limitation on Indebtedness................................ 51
Section 4.09. Limitation on Liens....................................... 54
Section 4.10. Limitation on Issuance and Sale of Capital Stock of
Restricted Subsidiaries.................................. 54
Section 4.11. Limitation on Preferred Stock of Subsidiaries............. 55
Section 4.12. Limitation on Asset Sales................................. 56
Section 4.13. Limitation on Dividend and Other Payment Restrictions
Affecting Restricted Subsidiaries........................ 58
Section 4.14. Limitation on Transactions with Shareholders and
Affiliates............................................... 59
Section 4.15. Limitation on Issuances of Guarantees by Restricted
Subsidiaries............................................. 60
Section 4.16. Limitation on Modifications to Certain Documents.......... 61
Section 4.17. Conduct of Business....................................... 61
Section 4.18. Change of Control......................................... 62
Section 4.19. Disbursement of Funds; Escrow Account..................... 64
Section 4.20. Payment of Additional Amounts............................. 64
ARTICLE 5 SUCCESSORS....................................................... 65
Section 5.01. Merger, Consolidation or Sale of Assets................... 65
Section 5.02. Successor Corporation Substituted......................... 65
ARTICLE 6 DEFAULTS AND REMEDIES............................................ 66
Section 6.01. Events of Default......................................... 66
Section 6.02. Acceleration.............................................. 68
Section 6.03. Other Remedies............................................ 69
Section 6.04. Waiver of Past Defaults................................... 69
Section 6.05. Control by Majority....................................... 70
Section 6.06. Limitation on Suits....................................... 70
Section 6.07. Rights of Holders of Notes to Receive Payment............. 71
Section 6.08. Collection Suit by Indenture Trustee...................... 71
Section 6.09. Indenture Trustee May File Proofs of Claim................ 71
</TABLE>
-iv-
<PAGE>
<TABLE>
<S> <C>
Section 6.10. Priorities................................................ 72
Section 6.11. Undertaking for Costs.................................... 73
ARTICLE 7 INDENTURE TRUSTEE................................................ 73
Section 7.01. Duties of Indenture Trustee.............................. 73
Section 7.02. Rights of Indenture Trustee.............................. 75
Section 7.03. Individual Rights of Indenture Trustee................... 75
Section 7.04. Indenture Trustee's Disclaimer........................... 76
Section 7.05. Notice of Defaults....................................... 76
Section 7.06. Reports by Indenture Trustee to Holders of the Notes..... 76
Section 7.07. Compensation and Indemnity............................... 77
Section 7.08. Replacement of Indenture Trustee......................... 78
Section 7.09. Successor Indenture Trustee by Merger, etc............... 79
Section 7.10. Eligibility; Disqualification............................ 79
Section 7.11. Preferential Collection of Claims Against Company........ 80
Section 7.12. Appointment of Co-Trustee or Separate Trustee
ARTICLE 8 SATISFACTION AND DISCHARGE....................................... 81
Section 8.01. Satisfaction and Discharge of Indenture.................. 81
Section 8.02. Application of Monies for Satisfaction and Discharge..... 83
ARTICLE 9 AMENDMENT, SUPPLEMENT AND WAIVER................................. 83
Section 9.01. Without Consent of Holders of Notes...................... 83
Section 9.02. With Consent of Holders of Notes......................... 84
Section 9.03. Compliance with Trust Indenture Act...................... 86
Section 9.04. Revocation and Effect of Consents........................ 86
Section 9.05. Notation on or Exchange of Notes......................... 87
Section 9.06. Indenture Trustee to Sign Amendments, etc................ 87
ARTICLE 10 COLLATERAL AND SECURITY......................................... 87
Section 10.01. Escrow and Disbursement Agreement........................ 87
Section 10.02. Recording and Opinions................................... 88
Section 10.03. Release of Amounts Deposited in the Escrow Account or
the Refinancing Account................................. 89
Section 10.04. Certificates of the Company.............................. 90
Section 10.05. Authorization of Actions to be Taken by the Indenture
Trustee Under the Escrow and Disbursement Agreement..... 91
</TABLE>
-v-
<PAGE>
<TABLE>
<S> <C>
Section 10.06. Authorization of Receipt of Funds by the Indenture
Trustee Under the Escrow and Disbursement Agreement..... 91
Section 10.07. Termination of Security Interest......................... 91
ARTICLE 11 MISCELLANEOUS................................................... 92
Section 11.01. Trust Indenture Act Controls............................. 92
Section 11.02. Notices.................................................. 92
Section 11.03. Communication by Holders of Notes with Other Holders of
Notes................................................... 93
Section 11.04. Certificate and Opinion as to Conditions Precedent....... 93
Section 11.05. Statements Required in Certificate or Opinion............ 94
Section 11.06. Rules by Indenture Trustee and Agents.................... 94
Section 11.07. No Personal Liability of Partners, Directors, Officers,
Employees and Stockholders.............................. 94
Section 11.08. Governing Law............................................ 95
Section 11.09. No Adverse Interpretation of Other Agreements............ 96
Section 11.10. Successors............................................... 96
Section 11.11. Severability............................................. 96
Section 11.12. Counterpart Originals.................................... 96
Section 11.13. Table of Contents, Headings, etc......................... 96
</TABLE>
Exhibits
- --------
A - Form of Note
B - Form of Intercompany Note
C - Form of Pledge Agreement
D - Form of Subsidiary Guarantee
E - Form of Undertaking Letter
F - Form of Certificate to be delivered in connection with transfers to
Institutional Accredited Investors
G - Form of Certificate to be delivered in connection with transfers pursuant
to Regulation S
H - Form of Certificate to be delivered in connection with transfers pursuant
to Rule 144A
-vi-
<PAGE>
INDENTURE, dated as of October 28, 1997, between Transtel S.A., a
sociedad anonima organized under the laws of the Republic of Colombia (the
"Company"), and Marine Midland Bank, as trustee (the "Indenture Trustee").
The Company has duly authorized the creation of an issue of 12 1/2%
Senior Notes due 2007 (the "Notes") and, to provide therefor, the Company has
duly authorized the execution and delivery of this Indenture. All things
necessary to make the Notes, when duly issued and executed by the Company, and
authenticated and delivered hereunder, the valid obligations of the Company, and
to make this Indenture a valid and binding agreement of the Company, have been
done.
The Company and the Indenture Trustee agree as follows for the benefit
of each other and for the equal and ratable benefit of the Holders of the Notes
(initially the Transtel Pass Through Trust, a special purpose Delaware business
trust, will be the sole Holder of the Notes):
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
Section 1.01. Definitions.
"Acquired Debt" means, with respect to any specified Person,
Indebtedness of any other Person existing at the time such other Person merged
with or into or became a Restricted Subsidiary of such specified Person or
indebtedness incurred by such Person in connection with the acquisition of
assets, including, without limitation, Indebtedness incurred or assumed in
connection with, or in contemplation of, such other Person merging with or into
or becoming a Restricted Subsidiary of such specified Person or the acquisition
of such assets, as the case may be.
"Affiliate" means, as applied to any Person, any other Person directly
or indirectly controlling, controlled by, or under direct or indirect common
control with, such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as applied to any Person, is defined to mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
<PAGE>
"Affiliate Minority Shareholder" at any time shall mean any minority
shareholder of a Restricted Subsidiary which is an Affiliate (other than a
Restricted Subsidiary) or Related Person (other than a Restricted Subsidiary) of
the Company.
"Agent" means any Registrar, Paying Agent or Authenticating Agent.
"Annualized Pro Forma EBITDA" means with respect to any Person, such
Person's Pro Forma EBITDA for the latest fiscal quarter preceding the date of
calculation for which financial statements are then available multiplied by
four.
"Applicable Procedures" means, with respect to any transfer or
transaction involving a Global Note or beneficial interest therein, the rules
and procedures of the Depository for such Global Note, Euroclear and Cedel, in
each case to the extent applicable to such transaction and as in effect from
time to time.
"Asset Acquisition" means (i) an Investment by the Company or any of
its Restricted Subsidiaries in any other Person pursuant to which such Person
shall become a Restricted Subsidiary of the Company or shall be merged into or
consolidated with the Company or any of its Restricted Subsidiaries or (ii) an
acquisition by the Company or any of its Restricted Subsidiaries of the property
or assets of any Person other than the Company or any of its Restricted
Subsidiaries that constitute substantially all of a division or line of business
of such Person.
"Asset Sale" means any sale, transfer or other disposition (or series
of related sales, leases, transfers or dispositions) in one transaction or a
series of related transactions by the Company or any of its Restricted
Subsidiaries to any Person other than the Company or any of its Restricted
Subsidiaries of (i) any of the Capital Stock of any Restricted Subsidiary, (ii)
all or substantially all of the property or assets of an operating unit or
business of the Company (other than Capital Stock of the Company) or any of its
Restricted Subsidiaries or (iii) any other property or assets of the Company or
any of its Restricted Subsidiaries outside the ordinary course of business of
the Company or such Restricted Subsidiary and, in each case, that is not
governed by the provisions of this Indenture applicable to mergers,
consolidations and sales of assets of the Company; provided that (A) sales or
other dispositions of inventory, receivables and other current assets, (B) sales
or other dispositions of equipment that has become worn out, obsolete or damaged
or otherwise unsuitable for use in connection with the business of the Company
or its Restricted Subsidiaries, (C) sales and other dispositions constituting
Restricted Payments and Permitted Investments made in compliance with the terms
of this Indenture, (D) sales or other dispositions of assets with a Fair Market
Value (as certified in an Officers' Certificate) not in excess of $500,000 and
(E) issuances, sales or other dispositions of shares of Capital Stock of
Unrestricted
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Subsidiaries and issuances, sales or other dispositions of shares of Capital
Stock of Restricted Subsidiaries effected in accordance with Section 4.10;
provided, in each case set forth in clause (E), that the consideration received
therefor by the Company, the Unrestricted Subsidiary or the Restricted
Subsidiary, as the case may be, has at least substantially equal market value to
the Company, the Unrestricted Subsidiary or such Restricted Subsidiary as the
shares of Capital Stock so issued, sold or disposed of (as determined by the
Board of Directors whose good faith determination shall be conclusive and
evidenced by a Board Resolution) shall not be included within the meaning of
"Asset Sale."
"Average Life" means, at any date of determination with respect to any
debt security, the quotient obtained by dividing (i) the sum of the products of
(a) the number of years from such date of determination to the dates of each
successive scheduled principal payment of such debt security and (b) the amount
of such principal payment by (ii) the sum of all such principal payments.
"Bank Indebtedness" means loans made by banks, trust companies and
other institutions principally engaged in the business of lending money to
businesses to the Company or a Restricted Subsidiary under a credit facility,
loan agreement or similar agreement.
"Board of Directors" means the Board of Directors of the Company or
any committee of such Board of Directors duly authorized to act with respect to
this Indenture from time to time.
"Board Resolution" means a copy of a resolution, certified by the
secretary of the duly convened meeting or the legal representative or statutory
auditor of the Company to have been duly adopted by the Board of Directors and
to be in full force and effect on the date of such certification, and delivered
to the Indenture Trustee.
"Business Day" means a day (other than a Saturday or Sunday) on which
the Depository, Euroclear, Cedel and banks in New York, Delaware and Colombia
are open for business.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations, rights in or other equivalents (however designated,
whether voting or non-voting) in equity of such Person, whether outstanding at
the Issue Date or issued after the Issue Date, including, without limitation,
all Common Stock and Preferred Stock, and any and all rights, warrants or
options exchangeable for or convertible into any thereof.
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"Capitalized Lease" means, as applied to any Person, any lease or
license of, or other agreement conveying the right to use, any property (whether
real, personal or mixed, movable or immovable) of which the present value of the
obligations of such Person to pay rent or other amounts is required, in
conformity with U.S. GAAP, to be classified and accounted for as a finance lease
obligation; and "Capitalized Lease Obligation" is defined to mean the
capitalized present value of the obligations to pay rent or other amounts under
such lease or other agreement, determined in accordance with U.S. GAAP.
"Cash Equivalents" means (i) any evidence of Indebtedness with a
maturity of 365 days or less issued or directly and fully guaranteed or insured
by the United States of America or Colombia or any agency or instrumentality
thereof (provided that the full faith and credit of the United States of America
or Colombia, as the case may be, is pledged in support thereof); (ii)
certificates of deposit or acceptances with a maturity of 180 days or less of
any financial institution that is a member of the Federal Reserve System having
combined capital and surplus and undivided profits of not less than $500
million; (iii) commercial paper with a maturity of 180 days or less issued by a
corporation that is not an Affiliate of the Company and is organized under the
laws of any state of the United States or the District of Columbia and rated at
least A-1 by S&P or at least P-1 by Moody's; (iv) repurchase agreements and
reverse repurchase agreements relating to marketable direct obligations issued
or unconditionally guaranteed by the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, as
the case may be, in each case maturing within one year from the date of
acquisition; provided that the terms of such agreements comply with the
guidelines set forth in the United States Federal Financial Agreements of
Depository Institutions with Securities Dealers and Others, as adopted by the
United States Comptroller of the Currency; (v) Colombian Peso deposits, with
maturities of not more than 12 months from the date of acquisition, in (A) Banco
de Colombia, Banco Ganadero, Banco Industrial Colombiano or Banco de Bogota or
(B) any other bank or financial institution incorporated under the laws of
Colombia with total assets exceeding the equivalent of $350 million; provided
that the aggregate principal amount of any such deposits in banks described in
this subclause (B) shall not exceed the equivalent of $10 million at any time
outstanding; (vi) repurchase agreements and reverse repurchase agreements
relating to marketable direct obligations issued or unconditionally guaranteed
by Colombia and backed by the full faith and credit of Colombia maturing within
one year from the date of acquisition, in each case entered into with any of the
Colombian banks specified in the preceding clause (v); provided that such
agreement with banks described in subclause (v) (B) shall be deemed a deposit
for purposes of the $10 million limit in such subclause; and (vii) investments
in money market funds all of the assets of which consist of securities of the
types described in the foregoing clauses (i) through (vi).
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"Cedel" means Cedel Bank, societe anonyme.
"Certificate Guarantee" means the Guarantee, dated as of the date of
this Indenture, for the benefit of the holders of the Certificates, whereby the
Company has fully, irrevocably and unconditionally guaranteed all of the Trust's
obligations under the Certificates.
"Certificates" means the 12 1/2% Pass Through Trust Certificates due
2007 issued by the Trust, the gross proceeds of which are used by the Trust to
purchase the Notes from the Company.
"Change of Control" means the occurrence of any of the following
events:
(i) the sale, lease, transfer, conveyance or other disposition,
whether direct or indirect (by way of a merger, consolidation or
otherwise), by the Company or a Restricted Subsidiary of the Company, in
one or a series of related transactions, of all or substantially all of the
assets of the Company and its Restricted Subsidiaries taken as a whole, to
any Person other than a Restricted Subsidiary of the Company;
(ii) the adoption of a plan relating to the liquidation or
dissolution of the Company;
(iii) a "person" or "group" (within the meaning of Sections 13(d) and
14(d)(2) of the Exchange Act), other than the Permitted Holders, becomes
the ultimate "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act) of (a) more than 35% of the total voting rights of the Common
Stock of the Company and (b) a greater percentage of the voting power of
the total Common Stock of the Company than that represented by the voting
power of the Common Stock of the Company then beneficially owned, in the
aggregate, by the Permitted Holders; or
(iv) individuals who on the Issue Date constitute the Board of
Directors of the Company (together with any new directors whose election by
the Board of Directors or whose nomination for election by the Company's
shareholders was approved by a vote of at least a majority of the members
of the Board of Directors then in office who either were members of the
Board of Directors on the Issue Date or whose election or nomination for
election was previously so approved) cease for any reason to constitute a
majority of the members of the Board of Directors then in office.
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"Closing Price" on any Trading Day with respect to the per share price
of any shares of Capital Stock means the last reported sale price regular way
or, in case no such reported sale takes place on such day, the average of the
reported closing bid and asked prices regular way, in either case on the New
York Stock Exchange or, if such shares of Capital Stock are not listed or
admitted to trading on such exchange, on the principal national securities
exchange on which such shares are listed or admitted to trading or, if not
listed or admitted to trading on any national securities exchange, on the Nasdaq
National Market or, if such shares are not listed or admitted to trading on any
national securities exchange or quoted on such automated quotation system, the
average of the closing bid and asked prices in the over-the-counter market as
furnished by any New York Stock Exchange member firm that is selected from time
to time by the Company for that purpose and is reasonably acceptable to the
Indenture Trustee.
"Collateral Agent" means Marine Midland Bank, as Collateral Agent
under the Pledge Agreement, or any other successor thereto appointed pursuant to
such agreement.
"Commission" means the U.S. Securities and Exchange Commission.
"Common Stock" means, with respect to any Person, any and all shares,
interests or other participations in, and other equivalents (however designated
and whether voting or non-voting) of such Person's common stock or ordinary
shares, whether or not outstanding at the Issue Date. and includes, without
limitation, all series and classes of such common stock or ordinary shares.
"Consolidated EBITDA" for any period means the Consolidated Net Income
for such period plus to the extent deducted in calculating Consolidated Net
Income (i) Consolidated Income Tax Expense, (ii) net monetary inflation
adjustment, (iii) depreciation and amortization expenses, (iv) Net Financial
Expense, (v) minority interest, (vi) interest expense attributable to
Capitalized Leases in accordance with U.S. GAAP (whether or not in accordance
with GAAP) and (vii) all other non-cash charges (other than non-cash charges
which require an accrual of or reserve for cash charges in future periods), less
any non-cash items which have the effect of increasing Consolidated Net Income
for such period, plus (less) to the extent deducted (included) in Consolidated
Net Income, extraordinary losses (gains) and nonrecurring items (including gains
and losses on Asset Sales) deducted (included) in calculating Consolidated Net
Income, each (except with respect to (vi) above) determined in accordance with
GAAP.
"Consolidated Income Tax Expense" for any Person for any period means,
without duplication, the aggregate amount of net taxes based on income or
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profits for such period of the operations for such Person and its consolidated
Subsidiaries with respect to such period in accordance with GAAP.
"Consolidated Indebtedness" means the aggregate amount of Indebtedness
of the Company and its Restricted Subsidiaries on a consolidated basis.
"Consolidated Net Income" means, for any period, the aggregate net
income (or loss) of the Company and its Restricted Subsidiaries for such period
determined in conformity with GAAP; provided that the following items shall be
excluded in computing Consolidated Net Income (without duplication): (i) the net
income of any Person (other than net income attributable to a Restricted
Subsidiary) in which any Person (other than the Company or any of its Restricted
Subsidiaries) has a joint interest and the net income of any Unrestricted
Subsidiary, except to the extent of the amount of dividends or other
distributions actually paid to the Company or any of its Restricted Subsidiaries
by such other Person or such Unrestricted Subsidiary during such period; (ii)
the net income of any Restricted Subsidiary in which any Person other than the
Company or another Restricted Subsidiary has a minority interest shall be
excluded to the extent such net income is attributable to such minority
interests; (iii) the net income of any Restricted Subsidiary to the extent that
the declaration or payment of dividends or similar distributions by such
Restricted Subsidiary of such net income is not at the time permitted by the
operation of the terms of its charter or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to such
Restricted Subsidiary, except that (A) the Company's equity in the net income of
any such Restricted Subsidiary for such period shall be included in such
Consolidated Net Income up to the aggregate amount of cash actually distributed
by such Restricted Subsidiary during such period to the Company or another
Restricted Subsidiary as a dividend or other distribution (subject, in the case
of a dividend or other distribution to a Restricted Subsidiary, to the
limitation contained in this clause) and (B) the Company's equity in a net loss
of any such Subsidiary for such period shall be included in determining such
Consolidated Net Income; (iv) without duplication, any gains or losses (on an
after-tax basis) attributable to Asset Sales; (v) except for purposes of
calculating the amount of Restricted Payments that may be made pursuant to
clause (C) of the first paragraph of Section 4.07, any amount paid or accrued as
dividends on Preferred Stock of the Company owned by Persons other than the
Company and any of its Restricted Subsidiaries; and (vi) all extraordinary gains
and extraordinary losses.
"Corporate Trust Office of the Indenture Trustee" shall be at the
address of the Indenture Trustee specified in Section 11.02 or such other
address as to which the Indenture Trustee may give notice to the Company.
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"Currency Agreement" means any foreign exchange contract, currency
swap agreement or other similar agreement or arrangement designed to protect the
Company or any Restricted Subsidiary against fluctuations in currency values.
"Default" means any event that is, or after notice or passage of time
or both would be, an Event of Default.
"Depository" means The Depository Trust Company, or its nominee or
successors and assigns.
"DIAN Financing" means the financing provided by the Direccion de
Impuestos y Aduanas Nacionales (National Department of Taxes and Duties) in
Colombia to finance the taxes and duties payable by the Company on imported
telecommunications equipment.
"Disqualified Stock" means any Capital Stock that, by its terms (or by
the terms of any security into which it is convertible or for which it is
exchangeable) or upon the happening of any event, matures (other than any
maturity that results from an optional redemption by the issuer thereof) or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the option of the holder thereof, in whole or in part, on or
prior to the Stated Maturity of the Notes; provided, however, that any Capital
Stock that would not constitute Disqualified Stock but for provisions thereof
giving holders thereof the right to require the Company to repurchase or redeem
such Capital Stock upon the occurrence of a Change of Control occurring prior to
the Stated Maturity of the Notes shall not constitute Disqualified Stock if (i)
the change of control provisions applicable to such Capital Stock are not more
favorable to the holders of such Capital Stock than the provisions applicable to
the Notes contained in Section 4.18 and (ii) such Capital Stock specifically
provides that the Company will not repurchase or redeem any such stock pursuant
to such provisions prior to the Company's repurchase of Notes as are required to
be repurchased pursuant to Section 4.18.
"Eligible Institution" means a commercial banking institution that has
combined capital and surplus of not less than $500 million or its equivalent in
foreign currency, whose debt is rated "A" (or higher) by S&P or Moody's at the
time as of which any investment or rollover therein is made.
"Equity Market Capitalization" of any Person means, as of any day of
determination, the product of (a) the aggregate number of outstanding shares of
Common Stock of such Person on such day (which shall not include any options or
warrants on, or securities convertible or exchangeable into, shares of Common
Stock
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of such Person) and (b) the average Closing Price of such Common Stock over the
20 consecutive Trading Days immediately preceding such day. If no such Closing
Price exists with respect to shares of any such class, the value of such shares
for purposes of clause (b) of the preceding sentence shall be determined by an
independent internationally recognized investment banking firm.
"Escrow Account" means an escrow account for the deposit of
approximately $35 million of the net proceeds from the sale of the Notes under
the Escrow and Disbursement Agreement, representing funds sufficient to pay the
first four interest payments on the Notes.
"Escrow Agent" means Marine Midland Bank, as escrow agent under the
Escrow and Disbursement Agreement, or any successor thereto appointed pursuant
to such agreement.
"Escrow Account Available Funds" has the meaning provided in the
Escrow and Disbursement Agreement.
"Escrow and Disbursement Agreement" means the Escrow and Disbursement
Agreement, dated as of the date of this Indenture, by and among the Escrow
Agent, the Indenture Trustee and the Company, governing the disbursement of
funds from the Escrow Account and the Refinancing Account.
"Euroclear" means Morgan Guaranty Trust Company of New York, Brussels
office, as operator of the Euroclear system.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
(or any successor act), and the rules and regulations promulgated thereunder.
"Existing Indebtedness" means (i) the Indebtedness of the Company
under the Transtel-Siemens Purchase Agreement, (ii) the Obligations of the
Restricted Subsidiaries under the Global I Leases, Global II Leases and the
Global III Leases, (iii) the Obligations of the Company under the DIAN
Financing, (iv) the obligations of the Company under the IBM Financing, and (v)
the Other Existing Indebtedness.
"Fair Market Value" means, with respect to any asset or property, the
price that could be negotiated in an arm's-length free-market transaction, for
cash, between a willing seller and a willing buyer, neither of whom is under
pressure or compulsion to complete the transaction. Unless otherwise specified
in this Indenture, Fair Market Value shall be determined by the Board of
Directors acting in good faith and shall be evidenced by a Board Resolution
delivered to the Indenture Trustee.
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"GAAP" means, at any date of determination, generally accepted
accounting principles in Colombia as then in effect.
"Global" means Global Telecommunications Operations, Inc., a British
Virgin Islands Company owned by the same shareholders who own the Company.
"Global I Leases" means the lease agreements between Global and each
of the following operating companies of the Company: Empresa de Telefonos de
Palmira S.A. E.S.P, Empresa de Telefonos de Jamundi S.A. E.S.P. and Unitel S.A.
E.S.P., for telecommunication equipment to be used for the development of the
wireline networks of such operating companies, each dated August 1, 1996, and
each of which relate to the Global I Purchase Agreement.
"Global I Purchase Agreement" means the Purchase Agreement, dated May
2, 1996 and amended July 28, 1997, between Siemens and Global relating to the
purchase and financing of telecommunications equipment as described in the
Offering Memorandum.
"Global II Leases" means the lease agreements (i) between Global and
Telefonos de Cartago S.A. E.S.P., for telecommunications equipment, dated July
28, 1997; (ii) between Global and Bugatel S.A. E.S.P., for telecommunications
equipment, to be entered into upon terms and conditions similar to those of the
Global I Leases; and (iii) between Global and Unitel S.A. E.S.P., whereby
Global leases certain wireless telecommunications equipment to Unitel, dated
July 28, 1997, and each of which relate to the Global II Purchase Agreement.
"Global II Purchase Agreement" means the Purchase Agreement, dated May
30, 1997 and amended July 28, 1997 and October 17, 1997, between Siemens and
Global, relating to the purchase and financing of telecommunications equipment
as described in the Offering Memorandum.
"Global III Leases" means the lease agreements to be entered into
between Global and an operating company of the Company, relating to the letters
of intent, dated April 25, 1997 and September 25, 1997, which lease agreements
are for the purchase and financing of various telecommunications equipment to be
used by the Company to substantially complete its expansion plan as described in
the Offering Memorandum.
"Global Note" has the meaning provided in Section 2.01.
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"Global Undertaking Letter" means the Undertaking Letter, dated as of
the date of this Indenture, in the form Exhibit E.
"Guarantee" means any obligation, contingent or otherwise, of any
Person directly or indirectly guaranteeing any Indebtedness or other obligation
of any other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness or other obligation of such other Person (whether arising by virtue
of partnership arrangements, or by agreements to keep-well, to purchase assets,
goods, securities or services, to take-or-pay, or to maintain financial
statement conditions or otherwise) or (ii) entered into for purposes of assuring
in any other manner the obligee of such Indebtedness or other obligation of the
payment thereof or to protect such obligee against loss in respect thereof (in
whole or in part); provided that the term "Guarantee" shall not include
endorsements for collection or deposit in the ordinary course of business. The
term "Guarantee" used as a verb has a corresponding meaning.
"Holder" means a Person in whose name a Note is registered.
"IBM Financing" means the financing provided to the Company by IBM de
Colombia S.A. for the financing of telecommunications equipment under equipment
financing agreements as described in the Offering Memorandum.
"incur" means, with respect to any Indebtedness, to incur, create,
issue, assume, Guarantee or otherwise, contingently or otherwise, become liable,
directly or indirectly, for or with respect to, or become responsible for, the
payment of such Indebtedness, including an incurrence of Indebtedness by reason
of the acquisition of a Restricted Subsidiary. The term "incurrence" has a
corresponding meaning.
"Indebtedness" means, with respect to any Person at any date of
determination (without duplication), (i) any liability, contingent or otherwise,
of such Person for borrowed money, (ii) all obligations of such Person evidenced
by bonds, debentures, notes or other similar instruments, (iii) all obligations
of such Person in respect of letters of credit or other similar instruments
(including reimbursement obligations with respect thereto and purchase money
obligations), (iv) all obligations of such Person to pay the deferred and unpaid
purchase price of property or services, which purchase price is due more than
180 days after the date of placing such property in service or taking delivery
and title thereto or the completion of such services, except Trade Payables, (v)
all obligations of such Person as lessee under Capitalized Leases in accordance
with U.S. GAAP (whether or not in accordance with GAAP); (vi) all Indebtedness
of other Persons secured by a Lien on any asset of such Person, whether
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or not such Indebtedness is assumed by such Person, (vii) all Indebtedness of
other Persons Guaranteed by such Person to the extent such Indebtedness is
Guaranteed by such Person, (viii) to the extent not otherwise included in this
definition, the Net Obligation under Currency Agreements and Interest Rate
Agreements, (ix) all obligations of such Person to pay deferred Colombian taxes
and duties to DIAN (or any other Colombian taxing authority) with respect to
imported equipment purchases and leases and (x) any and all deferrals, renewals,
extensions and refundings of, or amendments of or supplements to, any liability
or obligation of the kind described in this definition. The amount of
Indebtedness of any Person at any date shall be the outstanding balance at such
date of all unconditional obligations as described above and, with respect to
contingent obligations, the maximum liability upon the occurrence of the
contingency giving rise to the obligation, provided that (A) the amount
outstanding at any time of any Indebtedness issued with original issue discount
is the face amount of such Indebtedness less the remaining unamortized portion
of the original issue discount of such Indebtedness at such time as determined
in conformity with GAAP and (B) the amount of Indebtedness for purposes of
clause (vi) above shall be the lesser of (x) the principal amount of the
Indebtedness secured by the assets of the relevant Person and (y) the Fair
Market Value (as determined by the board of directors of the relevant Person) of
the assets securing such Indebtedness.
"Indebtedness to Annualized EBITDA Ratio" means, as at any date of
determination, the ratio of (i) the aggregate amount of Consolidated
Indebtedness to (ii) the Annualized Pro Forma EBITDA of the Company, each
calculated on the date of the incurrence of Indebtedness.
"Indenture" means this Indenture, as amended or supplemented from time
to time.
"Indenture Trustee" means the party named as such above until a
successor replaces it in accordance with the applicable provisions of this
Indenture and thereafter means the successor serving hereunder.
"Initial Purchaser" means BT Alex. Brown Incorporated.
"Institutional Accredited Investor" means an institution that is an
"accredited investor" as that term is defined in Rule 501(a)(1), (2), (3) or (7)
under the Securities Act.
"Intercompany Note" means the promissory notes issued by a Restricted
Subsidiary to the Company in the form of Exhibit B hereto upon making an advance
or loan to such Restricted Subsidiary with the proceeds of the Notes, which
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Intercompany Notes shall (i) be pledged to the Collateral Agent pursuant to the
Pledge Agreement, (ii) have the same Stated Maturity as the Notes, (iii) contain
a provision that accelerates payment of the Intercompany Notes upon acceleration
of the Notes and (iv) state that they are senior unsecured obligations of the
respective Restricted Subsidiary and rank senior in right of payment to all
existing and future subordinated Indebtedness of such Restricted Subsidiary and
will rank pari passu with all Senior Indebtedness of such Restricted Subsidiary
(including the Indebtedness evidenced by the Global I Leases, Global II Leases
and Global III Leases).
"Interest Payment Date" means May 1 and November 1 of each year,
commencing May 1, 1998.
"Interest Rate Agreement" means any interest rate protection
agreement, interest rate future agreement, interest rate option agreement,
interest rate swap agreement, interest rate cap agreement, interest rate collar
agreement, interest rate hedge agreement or other similar agreement or
arrangement designed to protect the Company or any of its Restricted
Subsidiaries against fluctuations in interest rates in respect of Indebtedness
to or under which the Company or any of its Restricted Subsidiaries is a party
or a beneficiary on the date of this Indenture or becomes a party or a
beneficiary hereafter; provided that the Net Obligation thereof does not exceed
the principal amount of the Indebtedness of the Company and its Restricted
Subsidiaries that bears interest at floating rates.
"Investment" means, with respect to any Person, any advance, loan,
account receivable (other than an account receivable arising in the ordinary
course of business), or other extension of credit (including, without
limitation, by means of any Guarantee) or any capital contribution to (by means
of transfers of property to others, payments for property or services for the
account or use of others, or otherwise), or any purchase or ownership of any
stocks, bonds, notes, debentures or other securities of, any other Person, and
shall include the designation of a Restricted Subsidiary as an Unrestricted
Subsidiary. For purposes of the definition of "Unrestricted Subsidiary"
described below and Section 4.07, (i) "Investment" shall include the Fair Market
Value of the assets (net of liabilities) of any Restricted Subsidiary at the
time that such Restricted Subsidiary is designated an Unrestricted Subsidiary
and shall exclude the Fair Market Value of the assets (net of liabilities) of
any Unrestricted Subsidiary at the time that such Unrestricted Subsidiary is
designated a Restricted Subsidiary of the Company, and (ii) any property
transferred to or from an Unrestricted Subsidiary shall be valued at its Fair
Market Value at the time of such transfer, in each case as determined by the
Board of Directors in good faith.
"Issue Date" means the original date of issuance of the Notes.
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"Lien" means any mortgage, charge, pledge, security interest,
encumbrance, lien (statutory or other), hypothecation, assignment for security,
claim, or preference or priority or other encumbrance of any kind upon or with
respect to any property, it being understood that Lien includes any lien granted
in any future receivables (including, without limitation, any conditional sale
or other title retention agreement or lease in the nature thereof, any sale with
recourse against the seller or any Affiliate of the seller or any agreement to
give any security interest).
"Moody's" means Moody's Investors Service, Inc., and its successors.
"Municipal Shareholder" of a Restricted Subsidiary means the
shareholder of such Subsidiary that is a municipality in which such Restricted
Subsidiary conducts its business and such municipality's related entities.
"Net Cash Proceeds" means, (a) with respect to any Asset Sale, the
proceeds of such Asset Sale in the form of cash or Cash Equivalents, including
payments in respect of deferred payment obligations (to the extent corresponding
to the principal, but not interest, component thereof) when received in the form
of cash or Cash Equivalents (except to the extent such obligations are financed
or sold with recourse to the Company or any Restricted Subsidiary of the
Company) and proceeds from the conversion of other property received when
converted to cash or Cash Equivalents if converted within 12 months after
receipt, net of (i) brokerage commissions and other fees and expenses (including
fees and expenses of counsel and investment bankers) related to such Asset Sale,
(ii) provisions for all taxes (whether or not such taxes will actually be paid
or are payable) as a result of such Asset Sale without regard to the
consolidated results of operations of the Company and its Restricted
Subsidiaries, taken as a whole, (iii) payments made to repay Indebtedness or any
other obligation outstanding at the time of such Asset Sale (excluding the Notes
and the Bank Indebtedness incurred by the Company or a Restricted Subsidiary
pursuant to clause (iv) of the second paragraph Section 4.08) that either (A) is
secured by a Lien on the property or assets sold or (B) is required to be paid
as a result of such sale and (iv) appropriate amounts to be provided by the
Company or any Restricted Subsidiary of the Company as a reserve against any
liabilities associated with such Asset Sale, including, without limitation,
pension and other post-employment benefit liabilities, liabilities related to
environmental matters and liabilities under any indemnification obligations
associated with such Asset Sale, all as determined in conformity with GAAP and
(b) with respect to any issuance or sale of Capital Stock, the proceeds of such
issuance or sale in the form of cash or Cash Equivalents, including payments in
respect of deferred payment obligations (to the extent corresponding to the
principal, but not interest, component thereof) when received in the form of
cash or Cash Equivalents (except to the extent such obligations are financed or
sold with recourse to the
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Company or any Restricted Subsidiary of the Company) and proceeds from the
conversion of other property received when converted to cash or Cash
Equivalents, net of attorney's fees, accountants' fees, underwriters' or
placement agents' fees, discounts or commissions and brokerage, consultant and
other fees incurred in connection with such issuance or sale and net of taxes
paid or payable as a result thereof.
"Net Financial Expense" for any period means financial expenses, which
include interest expense, commissions, discounts and other fees and charges paid
or accrued with respect to letters of credit and bankers' acceptance financing,
and exchange losses less financial income, which includes interest income,
commercial discounts and exchange gains, all determined on a consolidated basis
in accordance with GAAP.
"Net Obligation" means, at any date of determination, the net amount,
exclusive of any commission or administrative fees that a Person would be
obligated to pay upon the termination of an Interest Rate Agreement or Currency
Agreement.
"Notes" mean Notes treated as a single class of securities, as amended
or supplemented from time to time in accordance with the terms hereof, that are
issued pursuant to this Indenture.
"Obligations" means any principal, interest, penalties, fees,
payments, indemnifications, reimbursements, damages and other liabilities
payable under the documentation governing any Indebtedness.
"Offering Memorandum" means the final Offering Memorandum dated
October 21, 1997 of the Company relating to the offering of the Certificates.
"Officer" means, with respect to any Person, other than the Indenture
Trustee, Authenticating Agent, Paying Agent, or Registrar, the Chairman of the
Board, the Chief Executive Officer, the President, the Chief Operating Officer,
the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the
Controller, the Secretary or any Vice President of such Person.
"Officers' Certificate" means a certificate signed by two Officers of
the Company, one of whom must be the principal executive officer, principal
financial officer, treasurer or principal accounting officer of the Company.
"Opinion of Counsel" means an opinion in writing signed by legal
counsel reasonably satisfactory to the Indenture Trustee.
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<PAGE>
"Other Existing Indebtedness" means Indebtedness outstanding on the
Issue Date owed to various financial institutions which will be repaid with
proceeds in the Refinancing Account.
"Pass Through Trustee" means Wilmington Trust Company, acting not in
its individual capacity but solely as trustee under the Trust Agreement.
"Paying Agent" means Marine Midland Bank, as Paying Agent under this
Indenture, or any successor thereto appointed pursuant to this Indenture.
"Permitted Holders" means Guillermo Lopez, Gonzalo Caicedo Toro,
Gonzalo Caicedo & Co., Maria Eugenia Caicedo Llano, Valentina Caicedo Toro or
any Person controlled by such Persons.
"Permitted Investment" means so long as no Default or Event of Default
shall have occurred and be continuing (i) an Investment by the Company in a
Restricted Subsidiary or a Person which will, upon the making of such
Investment, become a Restricted Subsidiary or be merged or consolidated with or
into, or transfer or convey all or substantially all its assets to, the Company
or a Restricted Subsidiary; provided that (A) such Restricted Subsidiary is a
Wholly-Owned Subsidiary or an empress mixta (mixed capital company) under Law
142 with no Affiliate Minority Shareholders and (B) if such Restricted
Subsidiary ceases to be a Restricted Subsidiary (except by reason of the sale by
the Company or its Restricted Subsidiary of the Capital Stock therein), then any
Investment in such Restricted Subsidiary will be deemed to be a Restricted
Payment at the time of such event determined in accordance with Section 4.07;
(ii) Cash Equivalents; (iii) payroll, travel and similar advances to cover
matters that are expected at the time of such advances ultimately to be treated
as expenses in accordance with GAAP; (iv) stock, obligations or securities
received in satisfaction of judgments; and (v) an Investment in any Person
(other than a Restricted Subsidiary) engaged in a Telecommunications Business
not to exceed $10.0 million in the aggregate for all Investments under this
clause (v) at any time outstanding (determined without regard to any write-downs
or write-offs thereof).
"Permitted Liens" means:
(i) Liens on (x) the Escrow Account and the Refinancing Account
and all funds and securities therein securing only the Notes and (y) the
Intercompany Notes securing only the Notes;
(ii) Liens to secure Bank Indebtedness incurred by the Company or
the Restricted Subsidiaries in compliance with clause (iv) or the second
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paragraph of Section 4.08 and Guarantees incurred by the Company or the
Restricted Subsidiaries in compliance with clause (iv) of the second
paragraph of Section 4.08 executed in connection therewith;
(iii) Liens on the property of the Company or its Restricted
Subsidiaries created solely for the purpose of securing purchase money
obligations incurred in compliance with Section 4.08; provided that (a)
such property so acquired is for use in lines of business related to the
Company's or its Restricted Subsidiaries' business as it exists immediately
prior to the issuance of the related Indebtedness, (b) no such Lien shall
extend to or cover other property or assets of the Company and its
Restricted Subsidiaries other than the respective property so acquired and
(c) the principal amount of Indebtedness secured by any such Lien shall at
no time exceed the original purchase price of such property or assets;
(iv) Liens on the property or assets of a Restricted Subsidiary
acquired after the Issue Date or on property or assets acquired in an asset
purchase transaction with a Person that is not an Affiliate created solely
to secure the Obligations that financed the acquisition of such Restricted
Subsidiary or such property or assets and which were incurred in compliance
with Section 4.08; provided that (a) no such Lien shall extend to or cover
property or assets of the Company and its Restricted Subsidiaries other
than the property or assets of the Restricted Subsidiary so acquired or the
property or assets so acquired and (b) no such Lien shall extend to the
Capital Stock of any Restricted Subsidiary so acquired and (c) the
principal amount of Indebtedness secured by any such Lien shall not exceed
the original purchase price of such Restricted Subsidiary or such property
or assets;
(v) Liens on assets of any entity existing at the time such entity
or assets are acquired by the Company or any of its Restricted
Subsidiaries, whether by merger, consolidation, purchase of assets or
otherwise; provided that such Liens (a) are not created, incurred or
assumed in connection with, or in contemplation of, such assets being
acquired by the Company or any of its Restricted Subsidiaries and (b) do
not extend to any other property of the Company or any of its Restricted
Subsidiaries;
(vi) Liens for taxes, assessments, governmental charges or claims
that are being contested in good faith by appropriate legal proceedings
promptly instituted and diligently conducted and for which a reserve or
other appropriate provision, if any, as shall be required in conformity
with GAAP shall have been made;
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(vii) statutory Liens of landlords and carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen or other similar Liens arising
in the ordinary course of business and with respect to amounts not yet
delinquent or being contested in good faith by appropriate legal
proceedings promptly instituted and diligently conducted and for which a
reserve or other appropriate provision, if any, as shall be required in
conformity with GAAP shall have been made;
(viii) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance
and other types of social security;
(ix) Liens on the Existing Indebtedness existing on the date of
this Indenture; provided such Liens on the Other Existing Indebtedness are
removed within 75 days after the Issue Date;
(x) Liens incurred or deposits made to secure the performance of
tenders, bids, leases, statutory or regulatory obligations, bankers'
acceptances, surety and appeal bonds, government contracts, performance and
return-of-money bonds and other obligations of a similar nature incurred in
the ordinary course of business (exclusive of obligations for the payment
of borrowed money);
(xi) easements, rights-of-way, municipal and zoning ordinances and
similar charges, encumbrances, title defects or other irregularities that
do not materially interfere with the ordinary course of business of the
Company or any of its Restricted Subsidiaries;
(xii) leases or subleases granted to others that do not materially
interfere with the ordinary course of business of the Company and its
Restricted Subsidiaries, taken as a whole;
(xiii) Liens encumbering property or assets under construction
arising from progress or partial payments by a customer of the Company or
its Restricted Subsidiaries relating to such property or assets;
(xiv) any interest or title of a lessor in the property subject to
any Capitalized Lease or operating lease;
(xv) Liens in favor of the Company or any Restricted Subsidiary;
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(xvi) Liens arising from the rendering of a final judgment or order
against the Company or any Restricted Subsidiary of the Company that does
not give rise to an Event of Default;
(xvii) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of customs duties in connection with the
importation of goods;
(xviii) Liens arising out of conditional sale, title retention,
consignment or similar arrangements for the sale of goods entered into by
the Company or any of its Restricted Subsidiaries in the ordinary course of
business of the Company and its Restricted Subsidiaries; and
(xix) Liens to secure Obligations under Capitalized Leases (except
in respect of sale lease back transactions) on real or personal property of
the Company to the extent consummated in compliance with this Indenture;
provided that (A) at the time such Lien attaches to the real or personal
property of the Company, the Company shall be permitted to incur at least
$1.00 of Indebtedness under the first paragraph of Section 4.08 (without
reliance upon any of the exceptions in clauses (a)(i) through (xi) under
Section 4.08).
"Person" means any individual, corporation, partnership, joint
venture, limited liability company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Physical Notes" has the meaning provided in Section 2.01.
"Pledge Agreement" means the Pledge Agreement, dated as of the date of
this Indenture, between the Company and the Collateral Agent in the form of
Exhibit C hereto, whereby the Company pledges the Intercompany Notes to the
Indenture Trustee.
"Preferred Stock" means, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated) of
such Person's preferred or preference stock, whether now outstanding, or issued
after the Issue Date, and including, without limitation, all classes and series
of preferred or preference stock of such Person.
"Private Placement Legend" means the legend initially set forth on the
Notes in the form set forth in Section 2.15.
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"Pro Forma EBITDA" means for any Person for any period the
Consolidated EBITDA of such Person after giving effect to the following: (i) if,
during the period commencing on the first day of the relevant period through the
Transaction Date (the "Reference Period"), the Company or any Restricted
Subsidiaries have engaged in any Asset Sale, Pro Forma EBITDA of the Company for
such period shall be reduced by an amount equal to the Consolidated EBITDA (if
positive), or increased by an amount equal to the Consolidated EBITDA (if
negative), directly attributable to the assets which are the subject of such
Asset Sale, (ii) if during such Reference Period the Company or any Restricted
Subsidiaries have effected any Asset Acquisition, Pro Forma EBITDA of the
Company for such period shall be calculated using the historical results of such
acquired entity on a pro forma basis as if such acquisition had occurred on the
first day of such Reference Period and (iii) if during such Reference Period,
(A) the Company designates a Restricted Subsidiary as an Unrestricted
Subsidiary, Pro Forma EBITDA for the Company shall be reduced by an amount equal
to the Consolidated EBITDA (if positive), or increased by an amount equal to the
Consolidated EBITDA (if negative), directly attributable to the designated
Unrestricted Subsidiary and (B) the Company designates an Unrestricted
Subsidiary as a Restricted Subsidiary, Pro Forma EBITDA for the Company shall be
increased by an amount equal to the Consolidated EBITDA (if positive), or
decreased by an amount equal to the Consolidated EBITDA (if negative), directly
attributable to the designated Restricted Subsidiary.
"Public Equity Offering" means underwritten public offerings or
quotations or placements of Common Stock of the Company (i) that have been
registered with the Commission under the Securities Act, (ii) that have been
registered with the Superintendency of Corporations so long as a Level 3
American Depositary Receipt Program is established in the United States in
conjunction therewith or (iii) that have been listed on the London Stock
Exchange or the Luxembourg Stock Exchange.
"Qualified Institutional Buyer" or "QIB" shall have the meaning
specified in Rule 144A under the Securities Act.
"Record Date" means each April 15 and October 15 of each year
immediately preceding each Interest Payment Date.
"Redemption Date" means any date on which the Notes are called for
redemption by the Company.
"Refinancing Account" means an escrow account for the deposit of
approximately $ 32,762,036 of the net proceeds from the sale of the Notes under
the Escrow and Disbursement Agreement.
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"Refinancing Account Available Funds" has the meaning provided in the
Escrow and Disbursement Agreement.
"Registrar" means Marine Midland Bank, as registrar under this
Indenture, or any successor thereto appointed pursuant to this Indenture.
"Regulation S" means Regulation S under the Securities Act.
"Related Person" means any holder (or any Affiliate of such holder) of
5% or more of any class of Capital Stock of the Company and any Affiliate of the
Company or any Restricted Subsidiary.
"Responsible Officer," when used with respect to this Indenture
Trustee, means any officer within the Corporate Trust Department of the
Indenture Trustee (or any successor group of the Indenture Trustee) or any other
officer of the Indenture Trustee customarily performing functions similar to
those performed by any of the above designated officers and also means, with
respect to a particular corporate trust matter, any other officer to whom such
matter is referred because of his knowledge of and familiarity with the
particular subject.
"Restricted Security" has the meaning assigned to such term in Rule
144(a)(3) under the Securities Act; provided, however, that the Indenture
-------- -------
Trustee shall be entitled to request and conclusively rely on an Opinion of
Counsel with respect to whether any Note constitutes a Restricted Security.
"Restricted Subsidiary" means any Subsidiary of the Company (including
any Subsidiary which has an outstanding Intercompany Note to the Company and
each newly acquired or newly formed Subsidiary of the Company) other than an
Unrestricted Subsidiary.
"Rule 144A" means Rule 144A under the Securities Act.
"S&P" means Standard & Poor's Corporation and its successors.
"Securities Act" means the Securities Act of 1933, as amended (or any
successor act), and the rules and regulations thereunder.
"Siemens" means Siemens A.G., a corporation incorporated in Germany.
"Siemens Financing" the financing provided by Siemens to Global under
the Global I Purchase Agreement, the Global II Purchase Agreement and the
purchase
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agreements to be entered into in connection with the Global III Leases for the
purchase of telecommunications equipment as described in the Offering
Memorandum.
"Stated Maturity" means, (i) with respect to any debt security, the
date specified in such debt security as the fixed date on which the final
installment of principal of such debt security is due and payable and (ii) with
respect to any scheduled installment of principal of or interest on any debt
security, the date specified in such debt security as the fixed date on which
such installment is due and payable.
"Strategic Equity Investor" means any Person (and any Subsidiary of
such Person) that, both as of the Trading Day immediately before the day of such
sale and the Trading Day immediately after the day of such sale, has an Equity
Market Capitalization of at least $1.0 billion (or the Peso equivalent on the
day of such sale) and is engaged in the Telecommunication Business.
"Subordination Agreement" means an agreement, which may be
incorporated into the terms of the respective Indebtedness, for the benefit of
the Holders of the Notes to the effect that (i) the Indebtedness subject to such
Subordination Agreement is subordinated in right of payment to the Notes, (ii)
in any bankruptcy, insolvency or similar proceeding with respect to the
respective obligor (or any guarantor) of such Indebtedness, no payment shall be
made thereon until the payment in full in cash of all principal, interest and
other amounts owing with respect to the Notes, (iii) if there is any default in
any payment when due of principal of, premium on, interest on or any other
amount owing with respect to any Notes, then until all such payment defaults
have been cured by the payment in full in cash of the amounts then due, no
payment shall be permitted to be made on the Indebtedness subject to the
Subordination Agreement and (iv) if any payments are received by a holder of
Indebtedness subject to a Subordination Agreement in contravention of the
provisions of the Subordination Agreement, such amount shall be held for the
benefit of, and shall be turned over to the Indenture Trustee for the benefit
of, the Holders of the Notes.
"Subsidiary" means, with respect to any Person, any corporation,
association or other business entity (i) of which outstanding Capital Stock
having at least a majority of the votes entitled to be cast in the election of
directors is owned, directly or indirectly, by such Person and/or one or more
other Subsidiaries of such Person, or (ii) of which at least a majority of
voting interest is owned, directly or indirectly, by such Person and one or more
other Subsidiaries of such Person.
"Subsidiary Guarantee" means the Guarantee of a Subsidiary in favor of
the Indenture Trustee for the benefit of the Holders substantially in the form
of Exhibit D.
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"Tax" means any tax, duty, fee, levy, impost, assessment or other
governmental charge (including penalties, interest, additions to tax and any
other liabilities related thereto).
"Taxing Authority" means any government or political subdivision or
territory or possession of Colombia, the United States, or any jurisdiction in
which the Trust, the Company or any of the Company's Restricted Subsidiaries is
organized or engaged in business for tax purposes or any authority or agency
therein or thereof having power to tax.
"Telecommunications Business" means the development, ownership and/or
operation of one or more telephone, telecommunications or information systems
and/or the provision of telephony, telecommunications and/or information
services and any related, ancillary or complementary business, including,
without limitation, local and long distance telephony, telecommunications and
other information and transmission services such as the Internet.
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code (S)(S)
77aaa-bbbb), as it may be amended from time to time.
"Trade Payables" means any accounts payable or other indebtedness or
monetary obligation to trade creditors created, assumed or Guaranteed by the
Company or any of its Restricted Subsidiaries arising in the ordinary course of
business in connection with the acquisition of goods or services.
"Trading Day" with respect to a securities exchange or automated
quotation system, means a day on which such exchange or system is open for a
full day of trading.
"Transaction Date" means, with respect to the incurrence of any
Indebtedness by the Company or any of its Restricted Subsidiaries, the date such
Indebtedness is incurred and, with respect to any Restricted Payment, the date
such Restricted Payment is made.
"Transtel-Siemens Purchase Agreement" means the Purchase Agreement
dated May 23, 1997 and amended October 17, 1997, between the Company and
Siemens, for the purchase of certain telecommunications equipment as described
in the Offering Memorandum.
"Treasury Rate" means the yield to maturity at the time of computation
of United States Treasury securities with a constant maturity (as compiled and
published
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in the most recent Federal Reserve Statistical Release H. 15 (519) which has
become publicly available at least two business days prior to the redemption
date (or, if such Statistical Release is no longer published, any publicly
available source or similar market data)) most nearly equal to the period from
the redemption date to November 1, 2002, provided, however, that if the period
from the redemption date to November 1, 2002 is not equal to the constant
maturity of a United States Treasury security for which a weekly average yield
is given, the Treasury Rate shall be obtained by linear interpolation
(calculated to the nearest one-twelfth of a year) from the weekly average yields
of United States Treasury securities for which such yields are given, except
that if the period from the redemption date to November 1, 2002 is less than one
year, the weekly average yield on actually traded United States Treasury
securities adjusted to a constant maturity of one year shall be used.
"Trust" means the Transtel Pass Through Trust, a special purpose
Delaware business trust created pursuant to a Trust Agreement, dated as of the
date of this Indenture.
"Trust Agreement" means the Amended and Restated Pass Through Trust
Agreement, dated as of the date hereof, among the Company, the Pass Through
Trustee and Marine Midland Bank, as registrar and paying agent thereunder.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that
at the time of determination shall be designated an Unrestricted Subsidiary by
the Board of Directors in the manner provided below and (ii) any Subsidiary of
an Unrestricted Subsidiary. The Board of Directors may designate any Restricted
Subsidiary of the Company (including any newly acquired or newly formed
Subsidiary of the Company), other than a Subsidiary that has given a Subsidiary
Guarantee or has Intercompany Notes outstanding, to be an Unrestricted
Subsidiary unless such Subsidiary owns any Capital Stock of, or owns or holds
any Lien on any property of, the Company or any Restricted Subsidiary; provided
that either (A) the Subsidiary to be so designated has total assets of $10,000
or less or (B) if such Subsidiary has assets greater than $10,000, (x) that such
designation shall be deemed to be at the time of such designation the making of
a Restricted Payment at the time of such designation in an amount equal to the
Investment in such Subsidiary subject to the restrictions contained in Section
4.07, (y) that no Default or Event of Default shall have occurred and be
continuing at the time of or after giving effect to such designation and (z) the
Company would be permitted to incur $1.00 of additional Indebtedness under
Section 4.08, assuming the effectiveness of such designation. The Board of
Directors may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary of the Company; provided that immediately after giving effect to such
designation (x) all Indebtedness of such Subsidiary could be incurred under
Section 4.08 and (y) no Default or Event of Default
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shall have occurred and be continuing or result from such designation (treating
all outstanding Indebtedness of the Unrestricted Subsidiary as incurred at the
time of such designation). Any such designation by the Board of Directors shall
be evidenced to the Indenture Trustee by promptly filing with the Indenture
Trustee a copy of the Board Resolution giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing provisions.
"U.S. GAAP" means, at any date of determination, generally accepted
accounting principles in the United States as then in effect.
"U.S. Government Securities" means securities that are (i) direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged or (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America, the payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States of America, which, in either case, are
not callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank (as defined in Section 3(a)(2) of
the Securities Act) as custodian with respect to any such U.S. Government
Obligation or a specific payment of principal of or interest on any such U.S.
Government Obligation held by such custodian for the account of the holder of
such depository receipt; provided that (except as required by law) such
custodian is not authorized to make any deduction from the amount payable to the
holder of such depository receipt from any amount received by the custodian in
respect of the U.S. Government Obligation or the specific payment of principal
of or interest on the U.S. Government Obligation evidenced by such depository
receipt.
"U.S. Legal Tender" means money of the United States that is legal
tender for payment of public and private debts.
"Wholly-Owned Subsidiary" means any Subsidiary of the Company, all of
the outstanding Capital Stock (other than directors' qualifying shares), or in
the case of a non-corporate Subsidiary, other equity interests having ordinary
voting power for the election of directors or other governing body of such
Subsidiary, of which is owned by the Company or another Wholly-Owned Subsidiary
of the Company or a combination thereof.
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Section 1.02. Other Definitions.
<TABLE>
<CAPTION>
Defined in
Term Section
<S> <C>
"144A Global Note"................. 2.01
"Additional Notes"................. 2.02
"Affiliate Transaction"............ 4.14
"Agent Members".................... 2.16
"Authenticating Agent"............. 2.02
"Authorized Agent"................. 11.08
"Bankruptcy Law"................... 4.01
"Change of Control Date"........... 4.18
"Change of Control Payment Date"... 4.18
"Custodian"........................ 6.01
"Default Interest Payment Date..... 2.12
"Event of Default"................. 6.01
"Guaranteed Indebtedness........... 4.15
"Initial Notes".................... 2.02
"Net Proceeds Offer"............... 4.12
"Net Proceeds Offer Amount"........ 4.12
"Net Proceeds Offer Payment Date".. 4.12
"Net Proceeds Offer Trigger Date".. 4.12
"Offer to Purchase................. 4.18
"Permitted Refinancing"............ 4.08
"Refinancing Indebtedness"......... 4.08
"Regulation S Global Note"......... 2.01
"Restricted Payments".............. 4.07
</TABLE>
Section 1.03. Incorporation by Reference of Trust Indenture Act.
This Indenture shall be governed by the provisions of the TIA.
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following
meanings:
"indenture securities" means the Notes;
"indenture security holder" means a Holder of a Note;
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"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Indenture
Trustee;
"obligor" on the Notes means the Company and any successor obligor
upon the Notes.
All other terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by Commission rule under
the TIA have the meanings so assigned to them.
Section 1.04. Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning assigned
to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the plural
include the singular; and
(5) provisions apply to successive events and transactions.
ARTICLE 2
THE NOTES
Section 2.01. Form and Dating.
The Notes and the Indenture Trustee's certificate of authentication
relating thereto shall be substantially in the form of Exhibit A hereto. The
Notes may have notations, legends or endorsements required by law, stock
exchange rule or depository rule or usage. The Company shall approve the form
of the Notes and any notation, legend or endorsement on them and shall furnish
the same to the Indenture Trustee, which shall be in form and substance
satisfactory to the Indenture Trustee. Each Note shall be dated the date of its
authentication.
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The terms and provisions contained in the Notes, annexed hereto as
Exhibit A, shall constitute, and are hereby expressly made, a part of this
Indenture and, to the extent applicable, the Company and the Indenture Trustee,
by their execution and delivery of this Indenture, expressly agree to such terms
and provisions and to be bound thereby.
Notes offered and sold in reliance on Rule 144A shall be issued
initially in the form of one or more permanent global Notes in registered form,
substantially in the form set forth in Exhibit A (a "144A Global Note"),
deposited with Marine Midland Bank, as custodian for the Depository, duly
executed by the Company and authenticated by the Indenture Trustee as
hereinafter provided and shall bear the legend set forth in Section 2.15. The
aggregate principal amount of a Rule 144A Global Note may from time to time be
increased or decreased by adjustments made on the records of the Indenture
Trustee, as custodian for the Depository, as hereinafter provided. Notes
offered and sold in offshore transactions in reliance on Regulation S shall be
issued in the form of one or more permanent global Notes in registered form in
substantially the form set forth in Exhibit A (a "Regulation S Global Note"),
deposited with Marine Midland Bank, as custodian for the Depository for the
operator of Euroclear and Cedel for credit to the respective accounts of the
beneficial owners of the Regulation S Global Note, duly executed by the Company
and authenticated by the Indenture Trustee as hereinafter provided. The
aggregate principal amount of a Regulation S Global Note may from time to time
be increased or decreased by adjustments made on the record of the Indenture
Trustee, as custodian for the Depositary, as hereinafter provided. The 144A
Global Notes and Regulation S Global Notes are sometimes collectively herein
referred to as the "Global Notes."
Notes offered and sold in reliance on any other exemption from
registration under the Securities Act other than as described in the preceding
paragraph shall be issued in the form of permanent certificated Notes in
registered form, in substantially the form set forth in Exhibit A (the "Physical
Notes") and shall bear the legend set forth in Section 2.15.
Section 2.02. Execution and Authentication; Aggregate Principal
Amount.
One Officer shall sign (who shall have been duly authorized by all
requisite corporate actions) the Notes for the Company by manual or facsimile
signature.
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If an Officer whose signature is on a Note was an Officer at the time
of such execution but no longer holds that office at the time the Indenture
Trustee authenticates the Note, the Note shall nevertheless be valid.
A Note shall not be valid until an authorized signatory of the
Indenture Trustee manually signs the certificate of authentication on the Note.
The signature shall be conclusive evidence that the Note has been authenticated
under this Indenture.
An Opinion of Counsel need not be provided for the authentication of
any Notes issued hereunder.
The Indenture Trustee shall authenticate Notes for original issue in
the aggregate principal amount not to exceed $150,000,000 (the "Initial Notes")
and from time to time additional Notes in an amount not to exceed $30,000,000
(the "Additional Notes"), upon a written order of the Company in the form of an
Officers' Certificate. The Officers' Certificate shall specify the amount of
Notes to be authenticated and the date on which the Notes are to be
authenticated, whether the Notes are to be issued as Physical Notes or a Global
Note and whether or not the Notes shall bear the Private Placement Legend, or
such other information as the Indenture Trustee may reasonably request. The
aggregate principal amount of Notes outstanding at any time may not exceed
$180,000,000, except as provided in this paragraph and in Section 2.07.
The Indenture Trustee may appoint an authenticating agent (the
"Authenticating Agent") reasonably acceptable to the Company to authenticate
Notes. Unless otherwise provided in the appointment, an Authenticating Agent
may authenticate Notes whenever the Indenture Trustee may do so. Each reference
in this Indenture to authentication by the Indenture Trustee includes
authentication by such Authenticating Agent. An Authenticating Agent has the
same rights as an Agent to deal with the Company or with any Affiliate of the
Company. The Indenture Trustee initially appoints, and the Company approves the
appointment of, Marine Midland Bank, as Authenticating Agent.
The Notes shall be issuable in fully registered form only, without
coupons, in denominations of $1,000 and any integral multiple thereof.
Section 2.03. Registrar and Paying Agent.
The Company shall maintain an office or agency (which shall be located
in the Borough of Manhattan in the City of New York, State of New York) where
(a)
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Notes may be presented or surrendered for registration of transfer or for
exchange, (b) Notes may be presented or surrendered for payment and (c) notices
and demands to or upon the Company in respect of the Notes and this Indenture
may be served. The Registrar shall keep a register of the Notes and of their
transfer and exchange. The Company, upon prior written notice to the Indenture
Trustee, may have one or more additional paying agents reasonably acceptable to
the Indenture Trustee. The term "Paying Agent" includes any additional Paying
Agent. The Company may act as its own Paying Agent, except that for the purposes
of payments on the Notes pursuant to Sections 3.07(b), 4.12 and 4.18 neither the
Company nor any Affiliate of the Company may act as Paying Agent.
The Company shall enter into an appropriate agency agreement with any
Agent not a party to this Indenture, which agreement shall incorporate the
provisions of the TIA and implement the provisions of this Indenture that relate
to such Agent. The Company shall notify the Indenture Trustee, in advance, of
the name and address of any such Agent. If the Company fails to maintain a
Registrar or Paying Agent, or fails to give the foregoing notice, the Indenture
Trustee shall act as such.
The Company initially appoints Marine Midland Bank as Registrar and,
Paying Agent until such time as Marine Midland Bank has resigned or a successor
has been appointed. Any of the Registrar, the Paying Agent or any other agent
may resign upon 30 days' written notice to the Company.
The Indenture Trustee is authorized to enter into a letter of
representation with the Depository in the form provided to the Indenture Trustee
by the Company and to act in accordance with such letter.
Section 2.04. Paying Agent To Hold Assets in Trust.
The Company shall require each Paying Agent other than the Indenture
Trustee to agree in writing that each Paying Agent shall hold in trust for the
benefit of the Holders or the Indenture Trustee all assets held by the Paying
Agent for the payment of principal of, or interest on, the Notes (whether such
assets have been distributed to it by the Company or any other obligor on the
Notes), and the Company and the Paying Agent shall notify the Indenture Trustee
of any Default by the Company (or any other obligor on the Notes) in making any
such payment. The Company at any time may require a Paying Agent to distribute
all assets held by it to the
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Indenture Trustee and account for any assets disbursed and the Indenture Trustee
may at any time during the continuance of any payment default under Article 6,
upon written request to a Paying Agent, require such Paying Agent to distribute
all assets held by it to the Indenture Trustee and to account for any assets
distributed. Upon distribution to the Indenture Trustee of all assets that shall
have been delivered by the Company to the Paying Agent, the Paying Agent shall
have no further liability for such assets.
Section 2.05. Holder Lists.
The Indenture Trustee shall preserve in as current a form as is
reasonably practicable the most recent list available to it of the names and
addresses of the Holders. The Company shall furnish or cause the Registrar to
furnish to the Indenture Trustee promptly after each Record Date and as of such
Record Date and at such other times as the Indenture Trustee may reasonably
request in writing a list as of such date and in such form as the Indenture
Trustee may reasonably require of the names and addresses of the Holders, which
list may be conclusively relied upon by the Indenture Trustee.
Section 2.06. Transfer and Exchange.
Subject to Section 2.17 hereof, when Notes are presented to the
Registrar with a request to register the transfer of such Notes or to exchange
such Notes for an equal principal amount of Notes of other authorized
denominations, the Registrar shall register the transfer or make the exchange as
requested if its requirements for such transaction are met; provided, however,
that the Notes presented or surrendered for registration of transfer or exchange
shall be duly endorsed or accompanied by a written instrument of transfer in
form satisfactory to the Company and the Registrar, duly executed by the Holder
thereof or his attorney duly authorized in writing. To permit registrations of
transfer and exchanges, the Company shall execute and the Indenture Trustee
shall authenticate Notes at the Registrar's request. No service charge shall be
made for any registration of transfer or exchange, but the Company may require
payment of a sum sufficient to cover any transfer tax or similar governmental
charge payable in connection therewith (other than any such transfer taxes or
similar governmental charge payable upon exchanges or transfers pursuant to
Sections 2.10, 3.06, 3.07(b), 4.12, 4.18 or 9.05, in which event the Company
shall be responsible for the payment of such taxes).
The Registrar shall not be required to register the transfer of or
exchange of any Note (i) during a period beginning at the opening of business 15
days before the mailing of a notice of redemption of Notes and ending at the
close of business on the day of such mailing and (ii) selected for redemption in
whole or in part pursuant to Article Three, except the unredeemed portion of any
Note being redeemed in part.
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Any Holder of the Global Note shall, by acceptance of such Global
Note, agree that transfers of beneficial interests in such Global Notes may be
effected only through a book entry system maintained by the Holder of such
Global Note (or its agent), and that ownership of a beneficial interest in the
Note shall be required to be reflected in a book entry system.
Section 2.07. Replacement Notes.
If a mutilated Note is surrendered to the Indenture Trustee or an
Agent or if the Holder of a Note claims that the Note has been lost, destroyed
or wrongfully taken, the Company shall issue and the Indenture Trustee shall
authenticate a replacement Note if the Indenture Trustee's requirements are met.
Such Holder must provide an indemnity bond or other indemnity of reasonable
tenor, sufficient in the reasonable judgment of the Company, such Agent and the
Indenture Trustee, to protect the Company, the Indenture Trustee or any Agent
from any loss which any of them may suffer if a Note is replaced. Every
replacement Note shall constitute an additional obligation of the Company.
Section 2.08. Outstanding Notes.
Notes outstanding at any time are all the Notes that have been
authenticated by the Indenture Trustee except those cancelled by it, those
delivered to it for cancellation and those described in this Section as not
outstanding. Subject to the provisions of Section 2.09, a Note does not cease to
be outstanding because the Company or any of its Affiliates holds the Note.
If a Note is replaced pursuant to Section 2.07 (other than a mutilated
Note surrendered for replacement), it ceases to be outstanding unless the
Indenture Trustee receives proof satisfactory to it that the replaced Note is
held by a bona fide purchaser. A mutilated Note ceases to be outstanding upon
surrender of such Note and replacement thereof pursuant to Section 2.07.
If on a Redemption Date or the Stated Maturity of the Notes the Paying
Agent holds U.S. Legal Tender or U.S. Government Securities sufficient to pay
all of the principal and interest due on the Notes payable on that date and is
not prohibited from paying such money to the Holders thereof pursuant to the
terms of this Indenture, then on and after that date such Notes cease to be
outstanding and interest on them ceases to accrue.
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Section 2.09. Treasury Notes.
In determining whether the Holders of the required principal amount of
Notes have concurred in any direction, waiver, consent or notice, Notes owned by
the Company or an Affiliate shall be considered as though they are not
outstanding, except that for the purposes of determining whether the Indenture
Trustee shall be protected in relying on any such direction, waiver or consent,
only Notes as to which a Responsible Officer of the Indenture Trustee has
received written notice of such ownership shall be so considered. The Company
shall notify the Indenture Trustee, in writing, when it or any of its Affiliates
repurchases or otherwise acquires Notes, of the aggregate principal amount of
such Notes so repurchased or otherwise acquired.
Section 2.10. Temporary Notes.
Until definitive Notes are ready for delivery, the Company may prepare
and the Indenture Trustee shall authenticate temporary Notes upon receipt of a
written order of the Company in the form of an Officers' Certificate. The
Officers' Certificate shall specify the amount of temporary Notes to be
authenticated, the date on which the temporary Notes are to be authenticated,
whether such Notes shall bear the Private Placement Legend. Temporary Notes
shall be substantially in the form of definitive Notes but may have variations
that the Company considers appropriate for temporary Notes and so indicates in
the Officers' Certificate. Without unreasonable delay, the Company shall prepare
and the Indenture Trustee shall authenticate upon receipt of a written order of
the Company pursuant to Section 2.02 definitive Notes in exchange for temporary
Notes.
Section 2.11. Cancellation.
The Company at any time may deliver Notes to the Indenture Trustee for
cancellation. The Registrar and the Paying Agent shall forward to the Indenture
Trustee any Notes surrendered to them for transfer, exchange or payment. The
Indenture Trustee, or at the direction of the Indenture Trustee, the Registrar
or the Paying Agent, and no one else, shall cancel and, at the written direction
of the Company, shall dispose of all Notes surrendered for transfer, exchange,
payment or cancellation. Subject to Section 2.07, the Company may not issue new
Notes to replace Notes that it has paid or delivered to the Indenture Trustee
for cancellation. If the Company shall acquire any of the Notes, such
acquisition shall not operate as a redemption or satisfaction of the
Indebtedness represented by such Notes unless and
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until the same are surrendered to the Indenture Trustee for cancellation
pursuant to this Section 2.11.
Section 2.12. Defaulted Interest.
If the Company defaults in a payment of interest on the Notes, it
shall pay the defaulted interest, plus (to the extent lawful) any interest
payable on the defaulted interest to the Persons who are Holders on a subsequent
special record date, which special record date shall be the fifteenth day next
preceding the date fixed by the Company for the payment of defaulted interest or
the next succeeding Business Day if such date is not a Business Day. The Company
shall notify the Indenture Trustee and Paying Agent in writing of the amount of
defaulted interest proposed to be paid on each Note and the date of the proposed
payment (a "Default Interest Payment Date"), and at the same time the Company
shall deposit with the Indenture Trustee or Paying Agent an amount of money
equal to the aggregate amount proposed to be paid in respect of such defaulted
interest or shall make arrangements satisfactory to the Indenture Trustee or
Paying Agent for such deposit prior to the date of the proposed payment, such
money when deposited to be held in trust for the benefit of the Persons entitled
to such defaulted interest as in this Section provided; provided that in no
event shall the Company deposit monies proposed to be paid in respect of
defaulted interest later than 10:00 a.m. New York time on the proposed Default
Interest Payment Date. At least 15 days before the subsequent special record
date, the Company shall mail (or cause to be mailed) to each Holder, as of a
recent date selected by the Company, with a copy to the Indenture Trustee and
Paying Agent, a notice that states the subsequent special record date, the
payment date and the amount of defaulted interest, and interest payable on such
defaulted interest, if any, to be paid. Notwithstanding the foregoing, any
interest which is paid prior to the expiration of the 30-day period set forth in
Section 6.01(b) shall be paid to Holders as of the regular record date for the
Interest Payment Date for which interest has not been paid. Notwithstanding the
foregoing, the Company may make payment of any defaulted interest in any other
lawful manner not inconsistent with the requirements of any securities exchange
on which the Notes may be listed, and upon such notice as may be required by
such exchange.
Section 2.13. CUSIP Number.
The Company in issuing the Notes may use a "CUSIP" number, and, if so,
the Indenture Trustee shall use the CUSIP number in notices of redemption or
exchange as a convenience to Holders; provided, however, that no representation
is hereby deemed to be made by the Indenture Trustee as to the correctness or
accuracy
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of the CUSIP number printed in the notice or on the Notes, and that reliance may
be placed only on the other identification numbers printed on the Notes. The
Company shall promptly notify the Indenture Trustee of any change in the CUSIP
number.
Section 2.14. Deposit of Monies.
Prior to 10:00 a.m. New York City time on each Interest Payment Date,
Stated Maturity of the Notes, Redemption Date, Change of Control Payment Date
and Net Proceeds Offer Payment Date, the Company shall have deposited with the
Paying Agent in immediately available funds money sufficient to make cash
payments, if any, due on such Interest Payment Date, Stated Maturity of the
Notes, Redemption Date, Change of Control Payment Date and Net Proceeds Offer
Payment Date, as the case may be, in a timely manner which permits the Paying
Agent to remit payment to the Holders on such Interest Payment Date, Stated
Maturity of the Notes, Redemption Date, Change of Control Payment Date and Net
Proceeds Offer Payment Date, as the case may be.
Section 2.15. Restrictive Legends.
Each Global Note and Physical Note that constitutes a Restricted
Security shall bear the following legend (the "Private Placement Legend") on the
face thereof until October 28, 1999, unless otherwise agreed by the Company and
the Holder thereof and unless specified in an Officers' Certificate delivered to
the Indenture Trustee and Registrar:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND, ACCORDINGLY, MAY
NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE
ACCOUNT OR BENEFIT OF, UNITED STATES PERSONS EXCEPT AS SET FORTH
BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A)
IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER
THE SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED
INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE
SECURITIES ACT) (AN "ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S.
PERSON AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION
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IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (2) AGREES THAT
IT WILL NOT RESELL OR OTHERWISE TRANSFER THIS SECURITY, EXCEPT (A) TO
THE ISSUER, OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO
A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE
SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN INSTITUTIONAL
ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES (OR HAS
FURNISHED ON ITS BEHALF BY A U.S. BROKER-DEALER) TO THE INDENTURE
TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND
AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS SECURITY
(THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE INDENTURE TRUSTEE
OR REGISTRAR), (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE
TRANSACTION IN COMPLIANCE WITH RULE 904 PROMULGATED UNDER THE
SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION
PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (F)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS
SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS
LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS SECURITY WITHIN TWO
YEARS AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY, IF THE PROPOSED
TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR, THE HOLDER MUST,
PRIOR TO SUCH TRANSFER, FURNISH TO THE INDENTURE TRUSTEE AND THE
ISSUER SUCH CERTIFICATIONS, WRITTEN LEGAL OPINIONS OR OTHER
INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO CONFIRM THAT
SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTIONS,"
"UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY
REGULATION S UNDER THE SECURITIES ACT.
Each Global Note shall also bear the following legend on the face
thereof:
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UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN
DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A
WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY, OR BY ANY SUCH
NOMINEE OF THE DEPOSITORY, OR BY THE DEPOSITORY OR NOMINEE OF SUCH
SUCCESSOR DEPOSITORY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR
A NOMINEE OF SUCH SUCCESSOR DEPOSITORY. UNLESS THIS CERTIFICATE IS
PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR ITS AGENT
FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS
IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT
HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED
BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER
USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL
INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR
THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS
GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH
THE RESTRICTIONS SET FORTH IN SECTION 2.17 OF THE INDENTURE.
Section 2.16. Book-Entry Provisions for Global Security.
(a) Each Global Note initially shall (i) be registered in the name of
the Depository or the nominee of such Depository, (ii) be delivered to the
Indenture Trustee as custodian for such Depository and (iii) bear legends as set
forth in Section 2.15. Each Global Note shall constitute a single Note for all
purposes of this Indenture.
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Members of, or participants in, the Depository ("Agent Members") shall
have no rights under this Indenture with respect to any Global Note held on
their behalf by the Depository, or the Indenture Trustee as its custodian, or
under a Global Note, and the Depository may be treated by the Company, the
Indenture Trustee and any Agent of the Company or the Indenture Trustee as the
absolute owner of a Global Note for all purposes whatsoever. Agent Members shall
hold their interest in a Global Note in accordance with the Applicable
Procedures. Accordingly, any Agent Member's beneficial interest in a Global Note
will be shown only on, and the transfer of such interest shall be effected only
through, records maintained by the Depositary or its nominee. Notwithstanding
the foregoing, nothing herein shall prevent the Company, the Indenture Trustee
or any Agent of the Company from giving effect to any written certification,
proxy or other authorization furnished by the Depository or impair, as between
the Depository and its Agent Members, the operation of customary practices
governing the exercise of the rights of a holder of any Note.
(b) Transfers of a Global Note shall be limited to transfers in
whole, but not in part, to the Depository, its successors or their respective
nominees. Interests of beneficial owners in a Global Note may be transferred or
exchanged for Physical Notes in accordance with the Applicable Procedures of the
Depository and, in the case of a transfer of a beneficial interest in a Global
Note to an Institutional Accredited Investor that is not a QIB, upon delivery of
a certificate in the form of Exhibit F by the transferee to the Registrar,
provided, however, that no Physical Note shall be issued in any denomination
less than the minimum authorized denomination therefor. In addition, Physical
Notes shall be transferred to all beneficial owners in exchange for their
beneficial interests in a Global Note if (i) the Depository notifies the Company
that it is unwilling or unable to continue as Depository for a Global Note and a
successor depositary is not appointed by the Company within 90 days of such
notice or (ii) an Event of Default has occurred and is continuing and the
Registrar has received a written request from the Depository to issue Physical
Notes.
(c) In connection with any transfer or exchange of a portion of the
beneficial interest in a Global Note to beneficial owners pursuant to paragraph
(b), the Registrar shall (if one or more Physical Notes are to be issued)
reflect on its books and records the date and a decrease in the principal amount
of such Global Note in an amount equal to the principal amount of the beneficial
interest in such Global Note to be transferred, and the Company shall execute,
and the Indenture Trustee shall authenticate and deliver, one or more Physical
Notes of like tenor and amount.
(d) In connection with the transfer of an entire Global Note to
beneficial owners pursuant to paragraph (b), such Global Note shall be deemed to
be surrendered to the Indenture Trustee for cancellation, and the Company shall
execute,
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and the Indenture Trustee shall authenticate and deliver, to each beneficial
owner identified by the Depository in exchange for its beneficial interest in
such Global Note, an equal aggregate principal amount of Physical Notes of
authorized denominations.
(e) Any Physical Note constituting a Restricted Security delivered in
exchange for an interest in a Global Note pursuant to paragraph (b) or (c)
shall, except as otherwise provided by paragraph (c) of Section 2.17, bear the
legend regarding transfer restrictions applicable to the Physical Notes set
forth in Section 2.15.
(f) The Holder of the Global Note may grant proxies and otherwise
authorize any person, including Agent members and persons that may hold
interests through Agent Members, to take any action which a Holder is entitled
to take under this Indenture or the Notes.
Section 2.17. Special Transfer Provisions.
(a) Notwithstanding any other provision of this Indenture, transfers
and exchanges of Notes and beneficial interests in a Global Note shall be made
only in accordance with this Section 2.17.
(i) Rule 144A Global Note to Regulation S Global Note. If the
-------------------------------------------------
beneficial owner of a Rule 144A Global Note wishes at any time to transfer
all or any portion of such interest to a Person who wishes to take delivery
thereof in the form of a beneficial interest in a Regulation S Global Note,
such transfer may be effected only in accordance with the provisions of
this clause (a)(i) and the Applicable Procedures. Upon receipt by the
Registrar of (A) a written order given in accordance with the Applicable
Procedures from the Depository or its authorized representative directing
the Registrar to credit or cause to be credited to a specified Depository
Agent Member's account a beneficial interest in the Regulation S Global
Note in a principal amount equal to the beneficial interest in the Rule 144
Global Note to be so transferred, and (B) the proposed transferor of the
beneficial interest of the Rule 144A Global Note delivers a certificate in
the form of Exhibit G to the Registrar, then the Registrar shall (1) reduce
the aggregate principal amount of the Rule 144A Global Note, (2) increase
the aggregate principal amount of the Regulation S Global Note by the
principal amount of such Notes so transferred, (3) endorse the appropriate
schedules of each such Global Note in the amount of such reduction and
increase, respectively, and (4) credit or cause to be credited to the
account of the Person specified in such instructions a beneficial interest
in the Regulation S Global Note having a principal amount equal to the
amount so transferred.
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(ii) Regulation S Global Note to Rule 144A Global Note. If the
-------------------------------------------------
beneficial owner of a Regulation S Global Note wishes at any time to
transfer all or any portion of such interest to a Person who wishes to take
delivery thereof in the form of a beneficial interest in a Rule 144A Global
Note, such transfer may be effected only in accordance with the provisions
of this clause (a)(ii) and subject to the Applicable Procedures. Upon
receipt by the Registrar of (A) a written order given in accordance with
the Applicable Procedures from a Depository Agent Member directing the
Registrar to credit or cause to be credited to a specified Depository Agent
Member's account a beneficial interest in the Rule 144A Global Note in the
principal amount equal to the beneficial interest in the Regulation S
Global Note to be so transferred, and (B) the proposed transferor of the
beneficial interest of the Regulation S Global Note delivers a certificate
in the form of Exhibit H to the Registrar, then the Registrar shall (1)
reduce the aggregate principal amount of the Regulation S Global Note, (2)
increase the aggregate principal amount of the Rule 144A Global Note by the
principal amount of such Notes so transferred, (3) endorse the appropriate
schedules of each such Global Note in the amount of such reduction and
increase, respectively, and (4) credit or cause to be credited to the
account of the Person specified in such instructions a beneficial interest
in the Rule 144A Global Note having a principal amount equal to the amount
so transferred.
(iii) Physical Note to a Global Note. If the Holder of a Physical
------------------------------
Note wishes at any time to transfer all or any portion of such Note to a
Person who wishes to take delivery thereof in the form of a beneficial
interest in a Global Note, such transfer may be effected only in accordance
with the provisions of this clause (a)(iii) and subject to the Applicable
Procedures. Upon receipt by the Registrar of (A) such Note as provided in
Section 2.06 and instructions satisfactory to the Registrar directing that
a specified principal amount not greater than the principal amount of such
Note be credited to a specified Depository Agent Member's account or
Euroclear or Cedel participant's account, as the case may be, and (B) the
proposed transferor of the Physical Note delivers a certificate in the form
of, in the case of sales under Rule 144A, Exhibit H, and in the case of
sales under Regulation S, Exhibit G, to the Registrar, then the Registrar
shall cancel such Physical Note (and issue a new Physical Note in respect
of any untransferred portion thereof) and increase the aggregate principal
amount of the Global Note by the principal amount of such Physical Note so
transferred.
(iv) Physical Note to Physical Note. A Physical Note may be
------------------------------
transferred, in whole or in part, to a Person who takes delivery in the
form of
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another Physical Note, provided that if the Physical Note to be transferred
--------
evidences Restricted Securities, then the Registrar shall have received a
certificate from the transferee in the form of Exhibit F from the
transferor.
(v) Global Note to Physical Note. A beneficial interest in a Global
----------------------------
Note may be exchanged for a Security that is not a Global Note only as
provided in Section 2.16.
(b) Notwithstanding any other provision of this Indenture, Notes or
portions thereof may be transferred or exchanged only in principal amounts of
not less than the minimum authorized denomination therefor, and only if,
following such transfer or exchange, each Holder would hold Notes with a
principal amount of not less than such minimum authorized denomination. Any
transfer, exchange or other disposition of Notes in contravention of this
Section 2.17(b) shall be deemed to be void and of no legal effect whatsoever,
any such transferee shall be deemed not to be the Holder or owner of any
beneficial interest in such Notes for any purpose, including but not limited to
the receipt of interest (including any Additional Interest) payable on such
Notes, and such transferee shall be deemed to have no interest whatsoever in
such Notes.
(c) Private Placement Legend. Upon the transfer, exchange or
replacement of Notes not bearing the Private Placement Legend, the Registrar
shall deliver Notes that do not bear the Private Placement Legend. Upon the
transfer, exchange or replacement of Notes bearing the Private Placement Legend,
the Registrar shall deliver only Notes that bear the Private Placement Legend
unless (i) the requested transfer is after October 28, 1999, or (ii) there is
delivered to the Registrar and the Indenture Trustee an Opinion of Counsel
reasonably satisfactory to the Company and the Indenture Trustee to the effect
that neither such legend nor the related restrictions on transfer are required
in order to maintain compliance with the provisions of the Securities Act.
(d) General. By its acceptance of any Note bearing the Private
Placement Legend, each Holder of such a Note acknowledges the restrictions on
transfer of such Note set forth in this Indenture and in the Private Placement
Legend and agrees that it will transfer such Note only as provided in this
Indenture.
The Registrar shall retain copies of all letters, notices and other
written communications received pursuant to Section 2.16 or this Section 2.17.
The Company shall have the right to inspect and make copies of all such letters,
notices or other written communications at any reasonable time during the
Registrar's normal business hours upon the giving of reasonable written notice
to the Registrar.
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The Indenture Trustee shall be under no duty to monitor compliance
with any federal, state or other securities laws.
ARTICLE 3
REDEMPTION
Section 3.01. Notices to Indenture Trustee.
If the Company elects to redeem Notes pursuant to the optional
redemption provisions of Section 3.07, it shall furnish to the Indenture
Trustee, Registrar and Paying Agent, at least 45 days (unless a shorter period
is acceptable to the Indenture Trustee) but not more than 60 days before a
redemption date, an Officers' Certificate setting forth (i) the redemption date,
(ii) the principal amount at maturity of Notes to be redeemed and (iii) the
redemption price.
Section 3.02. Selection of Notes to Be Redeemed.
If less than all of the Notes are to be redeemed, the Registrar or
Indenture Trustee shall select the Notes to be redeemed among the Holders of the
Notes on a pro rata basis, by lot or in accordance with any other method the
Indenture Trustee considers fair and appropriate, provided that no Notes of
$1,000 or less shall be redeemed in part. In the event of partial redemption by
lot, the particular Notes to be redeemed shall be selected, unless otherwise
provided herein, not less than 30 nor more than 60 days prior to the redemption
date by the Registrar or Indenture Trustee from the outstanding Notes not
previously called for redemption.
The Registrar shall promptly notify the Company in writing of the
Notes selected for redemption and, in the case of any Note selected for partial
redemption, the principal amount at maturity thereof to be redeemed. Notes and
portions of them selected shall be in amounts of $1,000 or whole multiples of
$1,000. Except as provided in the preceding sentence, provisions of this
Indenture that apply to Notes called for redemption also apply to portions of
Notes called for redemption.
Section 3.03. Notice of Redemption.
Subject to the provisions of Section 4.12, at least 30 days but not
more than 60 days before a redemption date, the Company shall mail or cause to
be mailed,
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by first class mail, a notice of redemption to each Holder whose Notes are to be
redeemed at its registered address.
The notice shall identify the Notes to be redeemed and shall state:
(a) the redemption date;
(b) the redemption price;
(c) if any Note is being redeemed in part, the portion of the
principal amount at maturity of such Note to be redeemed and that, after
the redemption date upon surrender of such Note, a new Note or Notes in
principal amount at maturity equal to the principal amount at maturity of
the unredeemed portion shall be issued;
(d) the name and address of the Paying Agent;
(e) that Notes called for redemption must be surrendered to the
Paying Agent to collect the redemption price;
(f) that, unless the Company defaults in making such redemption
payment, interest on Notes called for redemption ceases to accrue on and
after the redemption date;
(g) the paragraph of the Notes and/or Section of this Indenture
pursuant to which the Notes called for redemption are being redeemed; and
(h) the CUSIP number, and that no representation is made as to the
correctness or accuracy of the CUSIP number, if any, listed in such notice
or printed on the Notes.
At the Company's request, the Registrar shall give the notice of
redemption in the Company's name and at the Company's expense; provided,
however, that the Company shall have delivered to the Indenture Trustee and
Registrar, at least 45 days prior to the redemption date, an Officers'
Certificate requesting that the Indenture Trustee give such notice and setting
forth the information to be stated in such notice as provided in the preceding
paragraph.
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Section 3.04. Effect of Notice of Redemption.
Once notice of redemption is mailed in accordance with Section 3.03,
Notes called for redemption become due and payable on the redemption date at the
redemption price.
Section 3.05. Deposit of Redemption Price.
Prior to 10:00 a.m. New York time on any redemption date, the Company
shall deposit with the Indenture Trustee or with the Paying Agent money
sufficient to pay the redemption price of and accrued interest on all Notes to
be redeemed on that date. The Indenture Trustee or the Paying Agent shall
promptly return to the Company upon its written request any money deposited with
the Indenture Trustee or the Paying Agent by the Company in excess of the
amounts necessary to pay the redemption price of, and accrued interest on, all
Notes to be redeemed.
On and after the redemption date, interest shall cease to accrue on
the Notes or the portions of Notes called for redemption. If a Note is redeemed
on or after an interest record date but on or prior to the related interest
payment date, then any accrued and unpaid interest shall be paid to the Person
in whose name such Note was registered at the close of business on such record
date. If any Note called for redemption shall not be so paid upon surrender for
redemption because of the failure of the Company to comply with the preceding
paragraph, interest shall be paid on the unpaid principal, from the redemption
date until such principal is paid, and to the extent lawful on any interest not
paid on such unpaid principal, in each case at the rate provided in the Notes
and in Section 4.01.
Section 3.06. Notes Redeemed in Part.
Upon surrender of a Note that is redeemed in part, the Company shall
issue and the Indenture Trustee shall authenticate for the Holder of the Notes
at the expense of the Company a new Note equal in principal amount to the
unredeemed portion of the Note surrendered.
Section 3.07. Optional Redemption.
(a) Optional Redemption. The Notes will not be redeemable at the
Company's option prior to November 1, 2002. Thereafter, the Notes will be
subject
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to redemption at the option of the Company, in whole or in part, upon not less
than 30 nor more than 60 days notice, at the redemption prices (expressed as
percentages of principal amount) set forth below plus accrued and unpaid
interest thereon to the applicable redemption date, if redeemed during the
twelve-month period beginning on November 1 of the years indicated below:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2002................. 106.250%
2003................. 104.688%
2004................. 103.125%
2005................. 101.563%
2006 and thereafter.. 100.000%
</TABLE>
(b) Optional Redemption Upon Sale of Equity to Strategic Equity
Investor. Notwithstanding the foregoing, in the event of the sale by the
Company prior to November 1, 2000 of at least $25.0 million of its Capital Stock
(other than Disqualified Stock) in one or more Public Equity Offerings, or to
one or more Strategic Equity Investors, the Company may, at its option, use the
Net Cash Proceeds of such sale or sales of Capital Stock to redeem up to 35% of
the Notes at a redemption price equal to 112.50% of the principal amount thereof
plus accrued and unpaid interest thereon, if any, to the date of redemption;
provided that at least 65% of the initial principal amount of the Notes
(including in such initial principal amount, the initial principal amount of any
Additional Notes issued as contemplated by 2.02, if issued prior to the date of
redemption pursuant to this paragraph) remains outstanding immediately after
such redemption. In order to effect the foregoing redemption with the proceeds
of any such sale of Capital Stock (other than Disqualified Stock), the Company
shall make such redemption not more than 120 days after the consummation of any
such sale or sales of Capital Stock.
Section 3.08. Mandatory Redemption.
Except as set forth under Sections 4.12 and 4.18 of this Indenture,
the Company shall not be required to make mandatory redemption payments with
respect to the Notes. There are no sinking fund payments with respect to the
Notes.
ARTICLE 4
COVENANTS
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Section 4.01. Payment of Notes.
The Company shall pay or cause to be paid the principal of, premium,
if any, and interest on the Notes on the dates and in the manner provided in the
Notes. Principal, premium, if any, and interest shall be considered paid on the
date due if the Paying Agent, if other than the Company, holds as of 10:00 a.m.
Eastern Time on the due date money deposited by the Company in immediately
available funds and designated for and sufficient to pay all principal, premium,
if any, and interest then due.
The Company shall pay interest (including post-petition interest in
any proceeding under any Bankruptcy Law) on overdue principal and on overdue
installments of interest (without regard to any applicable grace period) from
time to time on demand at the rate borne by the Notes plus 2% per annum, to the
extent lawful.
The term "Bankruptcy Law" means the Law 222 of 1995 of Colombia, the
relevant provisions of the Codigo de Comercio (Colombian Commercial Code), and
any other similar Colombian law, administrative decree or order intended for the
relief of debtors as may be in force from time to time.
Section 4.02. Maintenance of Office or Agency.
The Company shall maintain an office or agency (which may be an office
of the Indenture Trustee or Registrar or an affiliate of the Indenture Trustee
or Registrar) where Notes may be surrendered for registration of transfer,
exchange or conversion and where notices and demands to or upon the Company in
respect of the Notes and this Indenture may be served. The Company shall give
prompt written notice to the Indenture Trustee of the location, and any change
in the location, of such office or agency. If at any time the Company shall
fail to maintain any such required office or agency or shall fail to furnish the
Indenture Trustee with the address thereof, such presentations, surrenders,
notices and demands may be made or served at the Corporate Trust Office of the
Indenture Trustee.
The Company shall give prompt written notice to the Indenture Trustee
of any such designation or rescission and of any change in the location of any
such other office or agency.
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The Company hereby designates the Corporate Trust Office of the
Indenture Trustee as one such office or agency of the Company in accordance with
Section 2.03.
Section 4.03. Reports.
For so long as any of the Notes remain outstanding, the Company (at
its own expense) shall file with the Indenture Trustee: (i) within 120 days
after the end of each fiscal year, (a) audited year-end consolidated financial
statements prepared in accordance with GAAP and reconciled to U.S. GAAP and (b)
the information described in Item 303 of Regulation S-K under the Securities
Act, (ii) by January 30, 1998, (a) unaudited quarterly consolidated financial
statements prepared in accordance with GAAP and reconciled to U.S. GAAP and (b)
the information described in Item 303 of Regulation S-K under the Securities Act
with respect to the quarter ending September 30, 1997 and (iii) thereafter,
through and including the quarter ending September 30, 1999, within 75 days
after the end of each of the first three fiscal quarters of each fiscal year
(year to date only), (a) unaudited quarterly consolidated financial statements
prepared in accordance with GAAP and reconciled to U.S. GAAP (provided, that,
such quarterly financial statements and reconciliation to U.S. GAAP shall
continue to be provided for a period to be agreed to between the Company and the
Holders if 66 2/3% in principal amount of the outstanding Senior Notes request)
and (b) the information described in Item 303 of Regulation S-K under the
Securities Act, with respect to such period. Upon qualification of this
Indenture under the TIA, the Company shall also comply with the provisions of
TIA Section 314(a). In the event that the Company is not required or shall
cease to be required to file reports with the Commission pursuant to the
Exchange Act, the Company shall nevertheless continue to file such reports with
the Commission and the Indenture Trustee. If the Indenture Trustee (at the
Company's request and expense) is to mail the foregoing information to the
Holders, the Company shall supply such information to the Indenture Trustee at
least five days prior thereto. The Company shall provide to the Holders or
prospective purchasers any information concerning the Company reasonably
requested by the Holders or such prospective purchasers (including financial
statements) necessary in order to permit such Holder or such prospective
purchasers to sell or transfer Notes in compliance with Rule 144A promulgated
under the Securities Act (including, without limitation. the information
specified in Rule 144A(d)(4)).
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Section 4.04. Compliance Certificate.
(a) The Company shall deliver to the Indenture Trustee, within 120
days after the end of each fiscal year, an Officers' Certificate stating that a
review of the activities of the Company and its Subsidiaries during the
preceding fiscal year has been made under the supervision of the signing
Officers with a view to determining whether the Company has kept, observed,
performed and fulfilled, and has caused each of its Subsidiaries to keep,
observe, perform and fulfill, its obligations under this Indenture and the
Escrow and Disbursement Agreement, and further stating, as to each such Officer
signing such certificate, that to the best of his or her knowledge the Company
has kept, observed, performed and fulfilled, and has caused each of its
Subsidiaries to keep, observe, perform and fulfill, each and every covenant
contained in this Indenture and the Escrow and Disbursement Agreement and no
such Person is in default in the performance or observance of any of the terms,
provisions and conditions of this Indenture or the Escrow and Disbursement
Agreement to be performed or observed by it, without regard to any period of
grace or requirement of notice provided under this Indenture, including, without
limitation, a default in the performance or breach of Sections 4.07 through 4.19
(or, if a Default or Event of Default shall have occurred, describing all such
Defaults or Events of Default of which he or she may have knowledge and what
action each is taking or proposes to take with respect thereto) and that to the
best of his or her knowledge no event has occurred and remains in existence by
reason of which payments on account of the principal of or interest, if any, on
the Notes is prohibited or if such event has occurred, a description of the
event and what action each is taking or proposes to take with respect thereto.
The Company's fiscal year ends on December 31st of each year.
(b) So long as not contrary to the then current recommendations of
the American Institute of Certified Public Accountants, the year-end financial
statements delivered pursuant to Section 4.03 above shall be accompanied by a
written statement of the Company's independent public accountants (who shall be
a firm of established national reputation) that in making the examination
necessary for certification of such financial statements, nothing has come to
their attention which would lead them to believe that the Company has violated
any provisions of Article Four or Article Five of this Indenture or, if any such
violation has occurred, specifying the nature and period of existence thereof,
it being understood that such accountants shall not be liable directly or
indirectly to any Person for any failure to obtain knowledge of any such
violation.
(c) The Company shall, so long as any of the Notes are outstanding,
deliver to the Indenture Trustee, forthwith upon any Officer becoming aware of
(i) any Default or Event of Default, (ii) any default under the Escrow and
Disbursement
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Agreement or (iii) any default under any Indebtedness referred to in Section
6.01(f), an Officers' Certificate specifying such Default, Event of Default or
default and what action the Company is taking or proposes to take with respect
thereto.
Section 4.05. Taxes.
The Company shall pay, and shall cause each of its Restricted
Subsidiaries to pay, prior to delinquency, all material taxes, assessments, and
governmental levies imposed on it or any of its Restricted Subsidiaries, as the
case may be, except as contested in good faith and by appropriate proceedings or
where the failure to effect such payment is not adverse in any material respect
to the Holders of the Notes.
Section 4.06. Stay, Extension and Usury Laws.
The Company covenants (to the extent that it may lawfully do so) that
it shall not at any time insist upon, plead or in any manner whatsoever claim or
take the benefit or advantage of, any stay, extension or usury law wherever
enacted, now or at any time hereafter in force, that may affect the covenants or
the performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it shall not, by resort to any such law, hinder, delay
or impede the execution of any power herein granted to the Indenture Trustee,
but shall suffer and permit the execution of every such power as though no such
law has been enacted.
Section 4.07. Limitation on Restricted Payments.
So long as any of the Notes are outstanding, the Company and its
Restricted Subsidiaries shall not, directly or indirectly, (i) declare or pay
any dividend or make any distribution on Capital Stock of the Company or any of
its Restricted Subsidiaries (other than dividends or distributions payable
solely in shares of such Capital Stock held by holders of such Capital Stock or
in options, warrants, or other rights to acquire such shares of Capital Stock),
(ii) repurchase, redeem, retire or otherwise acquire for value any shares of
Capital Stock of the Company or any of its Restricted Subsidiaries (including
options, warrants or other rights to acquire such shares of Capital Stock) held
by any Person (other than any such Capital Stock owned by the Company), (iii)
make any voluntary or optional principal payment, or voluntary or optional
redemption, repurchase, defeasance, or other acquisition or retirement for
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value, of Indebtedness of the Company that is subordinated in right of payment
to the Notes or Indebtedness of Restricted Subsidiaries that is subordinated to
the Intercompany Notes, or (iv) make any Investment in any Person (such payments
or any other actions described in clauses (i) through (iv) being collectively
"Restricted Payments") if, at the time of, and after giving effect to, the
proposed Restricted Payment: (A) a Default or Event of Default shall have
occurred and be continuing, (B) the Company could not incur at least $1.00 of
Indebtedness under the first paragraph of Section 4.08 (without reliance upon
any of the exceptions in clauses (a)(i) through (xi) under Section 4.08) or (C)
the aggregate amount expended for all Restricted Payments (the amount so
expended, if other than in cash, to be determined in good faith by the Board of
Directors, whose determination shall be conclusive and evidenced by a Board
Resolution) after the Issue Date shall exceed the sum of (1) 50% of the
aggregate amount of the Consolidated Net Income (or, if the Consolidated Net
Income is a loss, minus 100% of such loss) accrued on a cumulative basis during
the period (taken as one accounting period) beginning on the first day of the
fiscal quarter immediately following the Issue Date and ending on the last day
of the last fiscal quarter preceding the Transaction Date for which annual or
interim financial statements of the Company have been delivered to the Indenture
Trustee in compliance with Section 4.03, plus (2) 100% of the aggregate Net Cash
Proceeds received by the Company after the Issue Date from the issuance and sale
permitted by this Indenture of (A) its Capital Stock (other than Disqualified
Stock) to a Person who is not a Subsidiary of the Company, or (B) the issuance
to a Person who is not a Subsidiary of the Company of Indebtedness of the
Company that has been exchanged for or converted into Capital Stock of the
Company, plus without duplication of amounts included pursuant to clause (1)
above, (3) an amount equal to the net reduction in Investments (other than
reductions in Permitted Investments) in any Person resulting from payments of
dividends, repayments of loans or advances, or other transfers of assets, in
each case to the Company or any Restricted Subsidiary, or designations of
Unrestricted Subsidiaries as Restricted Subsidiaries (valued in each case as
provided in the definition of "Investments"), in the aggregate under this
subclause (3) not to exceed the amount of Investments previously made by the
Company and its Restricted Subsidiaries in such Person.
The foregoing provision shall not be violated by reason of. (i) the
payment of any dividend within 60 days after the date of declaration thereof if,
at said date of declaration, such payment would comply with the foregoing
paragraph; (ii) the payment of dividends or distributions by a Restricted
Subsidiary on its Capital Stock to the Company or any other Restricted
Subsidiary that owns equity interests in the Restricted Subsidiary making the
respective payment; (iii) in connection with a payment of dividends or
distributions by a Restricted Subsidiary to its shareholders generally, the
payment to the minority shareholders, if any, of such Restricted Subsidiary of
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dividends or distributions (not to exceed their proportionate share of the
dividends or distributions so paid); provided that in no case shall any
Affiliate Minority Shareholder be entitled to receive dividends or distributions
pursuant to this clause (iii); (iv) so long as no Default or Event of Default
shall have occurred and be continuing, the making of any principal payment or
repurchase, redemption, retirement, defeasance or other acquisition for value of
Indebtedness of the Company which is subordinated in right of payment to the
Notes, in exchange for, or out of the proceeds of a substantially concurrent
issuance of, shares of the Capital Stock of the Company; (v) so long as no
Default or Event of Default shall have occurred and be continuing, a Permitted
Refinancing; or (vi) Permitted Investments; provided, that, with respect to
Investments by the Company in a Restricted Subsidiary, no more than an aggregate
principal amount of $35.0 million of the gross proceeds of the Initial Notes
shall be applied to make Investments in the Capital Stock of Restricted
Subsidiaries; and provided, further that the aggregate Investment in any
Restricted Subsidiary in the form of Intercompany Notes shall not exceed 20% of
the gross proceeds of the Notes. The amounts referred to in clauses (i), (iii)
and (iv) shall be included as Restricted Payments in any computation made
pursuant to the first paragraph above.
Not later than the making of any Restricted Payment, the Company shall
deliver to the Indenture Trustee an Officers' Certificate stating that such
Restricted Payment is permitted and setting forth the basis upon which the
calculations required by this Section were computed.
Section 4.08. Limitation on Indebtedness.
(a) The Company shall not, and shall not permit any Restricted
Subsidiary to, incur any Indebtedness; provided that the Company and its
Restricted Subsidiaries may incur Indebtedness if, after giving effect to the
incurrence of such Indebtedness and the receipt and application of the proceeds
therefrom, (i) no Default or Event of Default shall have occurred and be
continuing and (ii) the Indebtedness to Annualized EBITDA Ratio as of the date
of such incurrence shall not exceed (x) 6.0 to 1.0 if such incurrence occurs on
or prior to the second anniversary of the Issue Date, (y) 5.5 to 1.0 if such
incurrence occurs after the second anniversary of the Issue Date and on or prior
to the third anniversary of the Issue Date and (z) 5.0 to 1.0 if such incurrence
occurs thereafter.
The foregoing limitation shall not apply to: (i) Indebtedness
evidenced by the Initial Notes; (ii) the Existing Indebtedness, consisting of
(A) Indebtedness of the Company under the Transtel-Siemens Purchase Agreement in
an amount not to exceed $3.4 million; and (B) the Obligations of the Restricted
Subsidiaries under the
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Global I Leases, Global II Leases and Global III Leases, which in the aggregate
shall not exceed $95.0 million; (C) Obligations of the Company under the DIAN
Financing in an amount not to exceed $25.0 million; (D) Obligations of the
Company under the IBM Financing in an amount not to exceed $3.4 million; (E)
Obligations of the Company under the purchase money financing existing on the
Issue Date in an amount not to exceed $6.5 million; and (F) Obligations of the
Company under the Certificate Guarantee; (iii) the Other Existing Indebtedness;
(iv) the incurrence by the Company or its Restricted Subsidiaries of Bank
Indebtedness in an aggregate principal amount at any one time outstanding,
together with Indebtedness incurred under clause (xi) below, not to exceed $25.0
million, as such amount may be permanently reduced as specified in Section 4.12;
provided that the use of the proceeds of such Bank Indebtedness shall not be
used to make Investments; (v) (A) the Guarantee by Restricted Subsidiaries of
Bank Indebtedness permitted to be incurred by the Company and (B) the Guarantee
by the Company of Bank Indebtedness permitted to be incurred by Restricted
Subsidiaries, in each case pursuant to clause (iv) above; (vi) Indebtedness of
the Company to any Restricted Subsidiary; provided that (a) any such
Indebtedness is unsecured and subordinated, pursuant to a Subordination
Agreement, in right of payment to the Notes and (b) any subsequent issuance or
transfer of any Capital Stock which results in any such Restricted Subsidiary
ceasing to be a Restricted Subsidiary or any subsequent transfer of such
Indebtedness to a Person not a Restricted Subsidiary shall be deemed, in each
case, to constitute an incurrence of such Indebtedness not permitted by this
clause (vi); (vii) Indebtedness of a Restricted Subsidiary issued to and held by
the Company; provided that (a) any subsequent issuance or transfer of any
Capital Stock which results in any such Restricted Subsidiary ceasing to be a
Restricted Subsidiary or any subsequent transfer of such Indebtedness to a
Person not a Restricted Subsidiary shall be deemed, in each case, to constitute
an incurrence of such Indebtedness not permitted by this clause (vii) and (b) if
such Indebtedness arises from loans or advances made to a Restricted Subsidiary
by the Company with the proceeds of the Notes, such Indebtedness shall be
evidenced by an Intercompany Note; (viii) the incurrence by the Company or its
Restricted Subsidiaries of additional Indebtedness in an aggregate principal
amount not to exceed $10.0 million at any one time outstanding; (ix) the
incurrence (a "Permitted Refinancing") by the Company or its Restricted
Subsidiaries of Indebtedness issued in exchange for, or the proceeds of which
are used to extend, refinance, renew, replace or refund Indebtedness incurred
pursuant to the first paragraph of this clause (a) or pursuant to clauses (i)
(but, only as to clause (i), only to the extent the proceeds thereof are used to
purchase Notes tendered in an Offer to Purchase made as a result of a Change of
Control), (ii), (iv), (v), (vii) and (viii) above or theretofore incurred
pursuant to this clause (ix) ("Refinancing Indebtedness"); provided that: (a)
the net proceeds of such Refinancing Indebtedness shall not exceed the principal
amount of and required premium, if any, and accrued interest on the Indebtedness
so extended, refinanced, renewed, replaced, substituted or refunded (or
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if such Indebtedness was issued at an original issue discount, the face amount
of such Indebtedness less the remaining unamortized portion of the original
issue discount of such Indebtedness at the time of the repayment of such
Indebtedness) and reasonable expenses incurred in connection therewith; (b) the
Refinancing Indebtedness shall have a final maturity not sooner than, and an
Average Life equal to or greater than, the final maturity and remaining Average
Life of the Indebtedness being extended, refinanced, renewed, replaced or
refunded; (c) if the Indebtedness being extended, refinanced, renewed, replaced
or refunded is subordinated in right of payment to the Notes, the Refinancing
Indebtedness shall be subordinated in right of payment to the Notes pursuant to
a Subordination Agreement; (d) the obligor with respect to the Refinancing
Indebtedness shall be the same as the obligor with respect to the Indebtedness
being extended, refinanced, renewed or replaced or refunded, and there shall be
no additional guarantors (direct or indirect) with respect to any such
Refinancing Indebtedness; and (e) the Refinancing Indebtedness shall be
unsecured, secured in compliance with Section 4.09, or, if the Indebtedness
being extended, refinanced, renewed, replaced or refunded is secured, the
respective Refinancing Indebtedness may be secured, but only to the same extent
as the Indebtedness being refinanced, renewed, replaced or refunded; (x)
Indebtedness of the Company or any Restricted Subsidiary (A) in respect of
performance, surety or appeal bonds provided in the ordinary course of business,
(B) in respect of Currency Agreements or Interest Rate Agreements incurred for
the purpose of hedging against currency or interest rate risks with respect to
Indebtedness incurred in accordance with the first paragraph of clause (a) of
this Section and which the Company in good faith determines is non-speculative
in nature and is a bona fide hedge against fluctuations in currency values or
interest rates, respectively; provided, that in the case of Currency Agreements
that relate to other Indebtedness, such Currency Agreement does not increase the
Indebtedness of the obligor outstanding at any time other than as a result of
fluctuations in foreign currency exchange rates or by reasons of fees,
indemnities and compensation payable thereunder and in the case of Interest Rate
Agreements, the notional amount of such Interest Rate Agreement does not exceed
the underlying obligation or amount to which such Interest Rate Agreement
relates; and (C) arising from agreements providing for indemnification,
adjustment of purchase price or similar obligations, or from Guarantees or
letters of credit, surety bonds or performance bonds securing any obligations of
the Company or any of its Restricted Subsidiaries pursuant to such agreements,
in any case incurred in connection with the disposition of any business, assets
or Restricted Subsidiary of the Company (other than Guarantees of Indebtedness
incurred by any Person acquiring all or any portion of such business, assets or
Restricted Subsidiary of the Company for the purpose of financing such
acquisition), in a principal amount not to exceed the gross proceeds actually
received by the Company or any Restricted Subsidiary in connection with such
disposition; and (xi) Guarantees by the Company of operating leases expensed
under GAAP of its Restricted Subsidiaries; provided that the Company's
Obligations
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under such Guarantees and Indebtedness incurred under clause (iv) shall not
exceed $25.0 million. The Company and its Subsidiaries may incur Acquired Debt
only in compliance with this covenant.
(b) For purposes of determining any particular amount of Indebtedness
under this Section, Liens on such Persons' assets or obligations of such Persons
with respect to letters of credit supporting Indebtedness otherwise included in
the determination of such particular amount shall not be included. For purposes
of determining compliance with this Section, (A) in the event that an item of
Indebtedness meets the criteria of more than one of the types of Indebtedness
described in the above paragraph, the Company shall classify such item of
Indebtedness and only be required to include the amount of such Indebtedness in
one of such types of Indebtedness and (B) the amount of Indebtedness issued at a
price that is less than the principal amount thereof shall be equal to the
amount of the liability in respect thereof determined in conformity with GAAP.
Notwithstanding any other provision of this Section, the maximum amount of
Indebtedness that the Company or a Restricted Subsidiary may incur pursuant to
this Section shall not be deemed to be exceeded due solely to the result of
fluctuations in the exchange rates of currencies after the date of the
respective incurrence of Indebtedness otherwise in conformity with the
provisions of this Section.
Section 4.09. Limitation on Liens.
The Company shall not, and shall not permit any Restricted Subsidiary
to, create, incur, assume or suffer to exist any Lien on any of its assets or
properties of any character, or any shares of Capital Stock or Indebtedness of
any Restricted Subsidiary, except for Permitted Liens.
If the Company or any of its Restricted Subsidiaries shall create,
incur, assume or suffer to exist any Lien, other than a Permitted Lien, on any
assets or other property to secure Indebtedness in violation of this covenant,
the Company or such Restricted Subsidiary, as the case may be, shall make
effective provision for securing the Notes equally and ratably with such
Indebtedness as to such assets or other property for so long as such
Indebtedness shall be so secured.
Notwithstanding the foregoing, Permitted Liens may not extend to the
Escrow Account, the Refinancing Account, the Escrow and Disbursement Agreement
or the Intercompany Notes.
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Section 4.10. Limitation on Issuance and Sale of Capital Stock of
Restricted Subsidiaries.
The Company shall not sell, and shall not permit any Restricted
Subsidiary, directly or indirectly, to issue or sell any shares of Capital Stock
of a Restricted Subsidiary (including options, warrants or other rights to
purchase shares of such Capital Stock) except (i) to the Company, a Wholly-Owned
Subsidiary or, in the case of Restricted Subsidiaries, the Municipal
Shareholders of such Restricted Subsidiary so long as such Restricted Subsidiary
remains a Subsidiary of the Company; (ii) if, immediately after giving effect to
such issuance or sale, such Restricted Subsidiary would no longer constitute a
Restricted Subsidiary; (iii) issuances or sales to foreign nationals of shares
of Capital Stock of Restricted Subsidiaries, to the extent required by
applicable law; and (iv) issuances or sales of Capital Stock of Restricted
Subsidiaries to persons who after such issuance or sale will hold a minority
interest in such Restricted Subsidiary, provided that in the case of clauses
(ii) and (iv), the Company or such Restricted Subsidiary applies the Net Cash
Proceeds, if any, of any such sale in accordance with Section 4.12.
Section 4.11. Limitation on Preferred Stock of Subsidiaries.
The Company shall not permit any of its Subsidiaries to issue,
directly or indirectly, any Preferred Stock, except (i) Preferred Stock of
Subsidiaries outstanding on the Issue Date, (ii) Preferred Stock issued to and
held by the Company or a Subsidiary, except that any subsequent issuance or
transfer of any Capital Stock which results in any Wholly-Owned Subsidiary
ceasing to be a Wholly-Owned Subsidiary or any transfer of such Preferred Stock
to a Person not a Wholly-Owned Subsidiary will be deemed an issuance of
Preferred Stock; (iii) Preferred Stock issued by a Person prior to the time (a)
such Person became a Subsidiary, (b) such Person merges with or into a
Subsidiary or (c) another Person merges with or into such Person (in a
transaction in which such Person becomes a Subsidiary), in each case if such
Preferred Stock was not issued in anticipation of such transaction; and (iv)
Preferred Stock issued in exchange for, or the proceeds of which are used to
refund Indebtedness or refinance Preferred Stock referred to in clause (i) or
issued pursuant to clauses (ii) or (iii) (other than Preferred Stock which by
its terms (or by the terms of any security into which it is convertible or for
which it is exchangeable) is redeemable at the option of the holder thereof or
is otherwise redeemable, pursuant to sinking fund obligations or otherwise,
prior to the date of redemption or maturity of the Preferred Stock or
Indebtedness being so refunded or refinanced); provided that (a) the liquidation
value of such Preferred Stock so issued shall not exceed the principal amount or
the liquidation value of the Indebtedness or Preferred Stock, as the case may
be, so refunded or refinanced and (b)
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the Preferred Stock so issued (1) shall have a stated maturity not earlier than
the stated maturity of the Indebtedness or Preferred Stock being refunded or
refinanced and (2) shall have a Weighted Average Life to Maturity equal to or
greater than the remaining Weighted Average Life to Maturity of the Indebtedness
or Preferred Stock being refunded or refinanced.
Section 4.12. Limitation on Asset Sales.
The Company shall not, and shall not permit any Restricted Subsidiary
to, consummate any Asset Sale, unless (i) the consideration received by the
Company or such Restricted Subsidiary is at least equal to the Fair Market Value
of the assets sold or disposed of (as determined in good faith by the Company's
Board of Directors or if the Fair Market Value of such assets (A) exceeds $10.0
million but is less than $25.0 million, the Company shall receive from an
independent internationally recognized investment banking firm or independent
Colombian investment banking firm or (B) exceeds $25.0 million, the Company
shall receive from an independent internationally recognized investment banking
firm, a written opinion in customary form as to the fairness, to the Company, of
such Asset Sale) and (ii) at least 75% of the consideration received consists of
cash or Cash Equivalents.
Upon the consummation of an Asset Sale, the Company may apply, or
cause such Restricted Subsidiary to apply, the Net Cash Proceeds relating to
such Asset Sale within 270 days of receipt thereof either to (A) permanently
prepay any Bank Indebtedness and, in the case of any Bank Indebtedness
outstanding under a revolving credit facility, to effect a permanent reduction
in the availability under such revolving credit facility, (B) invest in property
or assets that are used in a Telecommunications Business, or the acquisition of
Capital Stock of any Person primarily engaged in a Telecommunications Business
if, as a result of such acquisition, such Person would become a Restricted
Subsidiary and such acquisition is in compliance with Section 4.07 or (C) a
combination of prepayment and investment permitted by the foregoing clauses (A)
and (B). On the 271st day after an Asset Sale or such earlier date, if any, as
the Board of Directors of the Company or of such Restricted Subsidiary
determines not to apply any portion of the Net Cash Proceeds relating to such
Asset Sale as set forth in Clauses (A), (B) or (C) of the preceding sentence
(each, a "Net Proceeds Offer Trigger Date"), such aggregate amount of Net Cash
Proceeds which have not been applied on or before such Net Proceeds Offer
Trigger Date as permitted in clauses (A), (B) or (C) of the preceding sentence
(each a "Net Proceeds Offer Amount") shall be applied by the Company to make an
offer to purchase (the "Net Proceeds Offer") on a date (the "Net Proceeds Offer
Payment Date") not less than 30 nor more than 45 days following the applicable
Net Proceeds Offer Trigger Date, from the Holders on a pro rata basis
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that amount of Notes equal to the Net Proceeds Offer Amount at a price equal to
100% of the principal amount of the Notes to be purchased, plus accrued and
unpaid interest thereon, if any, to the date of purchase; provided, however,
that if at any time any non-cash consideration received by the Company or any
Restricted Subsidiary of the Company, as the case may be, in connection with any
Asset Sale is converted into or sold or otherwise disposed of for cash (other
than interest received with respect to any such non-cash consideration), then
such conversion or disposition shall be deemed to constitute an Asset Sale under
this Indenture and the Net Cash Proceeds thereof shall be applied in accordance
with this covenant.
Notwithstanding the foregoing, if a Net Proceeds Offer Amount is less
than $5.0 million, the application of the Net Cash Proceeds constituting such
Net Proceeds Offer Amount to a Net Proceeds Offer may be deferred until such
time as such Net Proceeds Offer Amount plus the aggregate amount of all Net
Proceeds Offer Amounts arising subsequent to the Net Proceeds Offer Trigger Date
relating to such initial Net Proceeds Offer Amount from all Asset Sales by the
Company and its Restricted Subsidiaries aggregates at least $5.0 million, at
which time the Company shall apply all Net Cash Proceeds constituting all Net
Proceeds Offer Amounts that have been so deferred to make a Net Proceeds Offer
(the first date the aggregate of all such deferred Net Proceeds Offer Amounts is
equal to $5.0 million or more shall be deemed to be a Net Proceeds Offer Trigger
Date).
Each Net Proceeds Offer shall be mailed within not less than 30 nor
more than 45 days following the applicable Net Proceeds Offer Trigger Date to
the record Holders as shown on the register of Holders, with a copy to the Pass
Through Trustee and the Indenture Trustee, and shall comply with the procedures
set forth in this Indenture. Upon receiving notice of the Net Proceeds Offer,
Holders may elect to tender its Notes in whole or in part in integral multiples
of $1,000 in exchange for cash. To the extent Holders properly tender Notes in
an amount exceeding the Net Proceeds Offer Amount, Notes of tendering Holders
shall be purchased on a pro rata basis (based on amounts tendered). A Net
Proceeds Offer shall remain open for a period of 20 Business Days or such longer
period as may be required by law.
The Company shall comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder in
connection with the repurchase of Notes (and the repurchase by the Trust of the
Certificates) pursuant to a Net Proceeds Offer (whether or not such rule by its
terms would be applied to such offer as a matter of law). To the extent that
the provisions of any securities laws or regulations conflict with the "Asset
Sale" provisions of this Indenture, the Company shall comply with the applicable
securities laws and regulations and shall
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not be deemed to have breached its obligations under the "Asset Sale" provisions
of this Indenture by virtue thereof
Section 4.13. Limitation on Dividend and Other Payment Restrictions
Affecting Restricted Subsidiaries.
So long as any of the Notes are outstanding, the Company shall not,
and shall not permit any Restricted Subsidiary to, create or otherwise cause or
suffer to exist or become effective any consensual encumbrance or consensual
restriction of any kind on the ability of any Restricted Subsidiary to (i) pay
dividends or make any other distributions permitted by applicable law on any
Capital Stock of such Restricted Subsidiary owned by the Company or any other
Restricted Subsidiary, (ii) pay any Indebtedness owed to the Company or any
other Restricted Subsidiary, (iii) make loans or advances to the Company or any
other Restricted Subsidiary or (iv) transfer any of its property or assets to
the Company or any other Restricted Subsidiary.
The foregoing provisions shall not restrict any encumbrances or
restrictions: (i) existing on the Issue Date, including those in this Indenture
or in the Existing Indebtedness, and any Permitted Refinancings thereof,
provided that the encumbrances and restrictions in any such Permitted
Refinancings are in the aggregate not materially more restrictive than those
encumbrances or restrictions that are then in effect and that are being
extended, refinanced, renewed or replaced; (ii) existing under or by reason of
applicable law and not due to any contractual arrangement; (iii) in the case of
clause (iv) of the first paragraph of this covenant, (A) that restrict in a
customary manner the subletting, assignment or transfer of any property or asset
that is a lease, license, conveyance or contract or similar property or asset,
(B) existing by virtue of any transfer of, agreement to transfer, option or
right with respect to, or Lien on, any property or assets of the Company or any
Restricted Subsidiary not otherwise prohibited by this Indenture, (C) arising or
agreed to in the ordinary course of business, not relating to any Indebtedness
for borrowed money, and that do not, individually or in the aggregate, detract
from the value of property or assets of the Company or any Restricted Subsidiary
in any manner material to the Company or any Restricted Subsidiary, (D) existing
pursuant to any purchase money obligations for property solely with respect to
the property acquired or (E) existing pursuant to any mortgage or construction
financing that imposes restrictions solely on the real property acquired or
improved; (iv) with respect to a Restricted Subsidiary and imposed pursuant to
an agreement that has been entered into for the sale or disposition of all or
substantially all of the Capital Stock of, or property or assets of, such
Restricted Subsidiary; or (v) included in Bank Indebtedness or Guarantees
incurred pursuant to clauses (iv) and (v) of the second paragraph of Section
4.08, respectively, so long as, in the case of this
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clause (v), the relevant restrictions in no event restrict payments to the
Company to be used by it to make payments of principal, interest or other
amounts as required pursuant to the terms of the Notes or this Indenture other
than to require that no such payment be made if there is a default or event of
default with respect to the Bank Indebtedness or Guarantees. Nothing contained
in this Section shall prevent the Company or any Restricted Subsidiary from (1)
creating, incurring, assuming or suffering to exist any Liens otherwise
permitted in Section 4.09 or (2) restricting the sale or other disposition of
property or assets of the Company or any of its Restricted Subsidiaries that
secure Indebtedness of the Company or any of its Restricted Subsidiaries.
Section 4.14. Limitation on Transactions with Shareholders and
Affiliates.
The Company shall not, and shall not permit any Restricted Subsidiary
to, directly or indirectly, enter into, renew or extend any transaction
(including, without limitation, the purchase, sale, lease or exchange of
property or assets, or the rendering of any service) with any legal or
beneficial owner (or any Affiliate of such holder) of 5% or more of any class of
Capital Stock of the Company or with any Affiliate of the Company or any
Restricted Subsidiary (each of the foregoing, an "Affiliate Transaction"),
unless: (i) such Affiliate Transaction is on terms that are no less favorable to
the Company or such Restricted Subsidiary than those that would have been
obtained at the time of such transaction or at the time of the execution of the
agreement providing therefor in a comparable arm's-length transaction with a
Person that is not such a Related Person and (ii) the Company delivers to the
Indenture Trustee: (x) with respect to any Affiliate Transaction involving
aggregate payments in excess of $250,000 but less than $2.5 million, a
resolution of the Board of Directors of the Company set forth in an Officers'
Certificate certifying that such Affiliate Transaction complies with clause (i)
above, (y) with respect to any Affiliate Transaction involving aggregate
payments equal to or greater than $2.5 million but less than $15.0 million, a
resolution of the Board of Directors of the Company set forth in an Officers'
Certificate certifying that such Affiliate Transaction complies with clause (i)
above and (A) that such Affiliate Transaction has been approved by at least
three disinterested directors of the Board of Directors of the Company and, in
any case, by a majority of the disinterested directors of the Board of Directors
of the Company or (B) a written opinion as to the fairness to the Company or
such Restricted Subsidiary from a financial point of view issued by an
independent internationally recognized investment banking firm or independent
Colombian investment banking firm with respect to any such Affiliate
Transaction, and (z) with respect to any Affiliate Transaction involving
aggregate payments equal to or greater than $15.0 million, a resolution of the
Board of Directors of the Company set forth in an Officers' Certificate
certifying that such Affiliate Transaction complies with clause (i) above and a
written opinion as to the
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fairness to the Company or such Restricted Subsidiary from a financial point of
view issued by an independent internationally recognized investment banking firm
with respect to any such Affiliate Transaction.
Notwithstanding the foregoing, the following shall not be deemed
Affiliate Transactions: (i) any transaction between the Company and any of its
Restricted Subsidiaries or between Restricted Subsidiaries, provided such
transaction complies with clause (i) in the first paragraph above (other than
for amounts paid by a Restricted Subsidiary to the Company in respect of
corporate overhead); (ii) the payment of reasonable and customary regular fees
to directors of the Company who are not employees of the Company; (iii) any
payments or other transactions pursuant to any tax-sharing agreement between the
Company and any other Person with which the Company files a consolidated tax
return or with which the Company is part of a consolidated group for tax
purposes; (iv) Global I Leases, Global II Leases and Global III Leases, and any
extension, amendment, replacement or renewal thereof on substantially similar
terms; (v) any Restricted Payments not prohibited by Section 4.07; or (vi)
equipment leases with Affiliates entered into after the Issue Date; provided
such leases comply with clause (i) in the first paragraph above and the Company
delivers to the Indenture Trustee a resolution of the Board of Directors of the
Company set forth in an Officer's Certificate certifying that such Affiliate
Transaction complies with clause (i) in the first paragraph above, and contains
terms substantially similar to the terms of Global I leases, Global II Leases
and Global III Leases, and any extension, amendment, replacement or renewal
thereof.
Section 4.15. Limitation on Issuances of Guarantees by Restricted
Subsidiaries.
The Company shall not permit any Restricted Subsidiary, directly or
indirectly, to Guarantee any Indebtedness of the Company ("Guaranteed
Indebtedness"), unless (i) such Restricted Subsidiary simultaneously executes
and delivers a Subsidiary Guarantee and (ii) such Restricted Subsidiary waives
and shall not in any manner whatsoever claim or take the benefit or advantage
of, any rights of reimbursement, indemnity or subrogation or any other rights
against the Company or any other Restricted Subsidiary as a result of any
payment by such Restricted Subsidiary under its Subsidiary Guarantee; provided
that this paragraph shall not be applicable to any Guarantee of any Restricted
Subsidiary that (A) (x) existed at the time such Person became a Restricted
Subsidiary and (y) was not incurred in connection with, or in contemplation of,
such Person becoming a Restricted Subsidiary or (B) Guarantees of Bank
Indebtedness incurred by the Company pursuant to clause (iv) of the second
paragraph of Section 4.08. If the Guaranteed Indebtedness is (A) pari passu
with the
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Notes, then the Guarantee of such Guaranteed Indebtedness shall be pari passu
with, or subordinated to, the Subsidiary Guarantee or (B) subordinated to the
Notes, then the Guarantee of such Guaranteed Indebtedness shall be subordinated
to the Subsidiary Guarantee at least to the extent that the Guaranteed
Indebtedness is subordinated to the Notes.
Notwithstanding the foregoing, any Subsidiary Guarantee by a
Restricted Subsidiary shall provide by its terms that it shall be automatically
and unconditionally released and discharged upon (i) any sale, exchange or
transfer, to any Person not an Affiliate of the Company, of all of the Company's
and each Wholly-Owned Subsidiary's Capital Stock in such Restricted Subsidiary
(which sale, exchange or transfer is not prohibited by this Indenture) or (ii)
the release or discharge of the Guarantee or other Indebtedness which resulted
in the creation of such Subsidiary Guarantee, except a release or discharge by
or as a result of payment under such Guarantee.
Under certain circumstances, the Company may cause the execution and
delivery of Subsidiary Guarantees. Each Subsidiary Guarantee delivered by a
Restricted Subsidiary is limited to such amount as will not, after giving effect
thereto, and to all other liabilities of such Restricted Subsidiary, result in
such amount constituting a fraudulent transfer or conveyance.
Section 4.16. Limitation on Modifications to Certain Documents.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to: (a) after the issuance thereof, amend or modify (or permit the
amendment or modification of) any of the terms or provisions of the Intercompany
Notes in any manner adverse to the interests of the Holders and the Indenture
Trustee under the Pledge Agreement, or forgive or reduce (except to extent
resulting from actual repayment to the Company in cash) the principal amount of
the Indebtedness evidenced thereunder, or (b) amend or modify any of the terms
or provisions of its estatutos sociales or other charter documents and, in the
case of the Restricted Subsidiaries, any lease agreement to which an Affiliate
of such Restricted Subsidiary or an Affiliate of the Company is a party, in any
manner adverse to the interests of the Holders.
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Section 4.17. Conduct of Business.
The Company and its Restricted Subsidiaries may not, directly or
indirectly, engage in any business other than the Telecommunications Business in
Latin America; provided that in the event a Change of Control occurs in which
one or more Strategic Equity Investors gain control of the Company this covenant
shall no longer be of force or effect.
Section 4.18. Change of Control.
(a) Upon the occurrence of a Change of Control, the Company shall be
required to offer to repurchase (the "Offer to Purchase") all or a portion of
each Holder's Notes, in integral multiples of $1,000 pursuant to the offer
described in paragraph (b) below, at a purchase price equal to 101% of the
aggregate principal amount thereof plus accrued and unpaid interest, if any, to
the date of repurchase. The Offer to Purchase shall remain open for at least 20
Business Days and until the close of business on the second Business Day prior
to the Change of Control Payment Date.
(b) Within 30 days following the date upon which the Change of
Control occurred (the "Change of Control Date"), the Company shall send, by
first class mail, a notice to each Holder, with a copy to the Indenture Trustee
and Paying Agent, which notice shall govern the terms of the Offer to Purchase.
The notice to the Holders shall contain all instructions and materials necessary
to enable such Holders to tender Notes pursuant to the Offer to Purchase. Such
notice shall state:
(1) that the Change of Control Offer is being made pursuant to this
Section 4.18 and that all Notes tendered and not withdrawn will be accepted
for payment;
(2) the purchase price (including the amount of accrued interest) and
the purchase date (which shall be no earlier than 30 days nor later than 45
days from the date such notice is mailed, other than as may be required by
law) (the "Change of Control Payment Date");
(3) that any Note not tendered will continue to accrue interest;
(4) that, unless the Company defaults in making payment therefor, any
Note accepted for payment pursuant to the Offer to Purchase shall cease to
accrue interest after the Change of Control Payment Date;
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(5) that Holders electing to have a Note purchased pursuant to a
Change of Control Offer will be required to surrender the Note, with the
form entitled "Option of Holder to Elect Purchase" on the reverse of the
Note completed, to the Paying Agent at the address specified in the notice
prior to the close of business on the third Business Day prior to the
Change of Control Payment Date;
(6) that Holders will be entitled to withdraw their election if the
Paying Agent receives, not later than the second Business Day prior to the
Change of Control Payment Date, a telegram, telex, facsimile transmission
or letter, signature guaranteed, setting forth the name of the Holder, the
principal amount of the Notes the Holder delivered for purchase and a
statement that such Holder is withdrawing his election to have such Notes
purchased;
(7) that Holders whose Notes are purchased only in part will be
issued new Notes in a principal amount equal to the unpurchased portion of
the Notes surrendered; provided, however, that each Note purchased and each
new Note issued shall be in an original principal amount of $1,000 or
integral multiples thereof; and
(8) the circumstances and relevant facts regarding such Change of
Control.
On or before the Change of Control Payment Date, the Company shall (i)
accept for payment Notes or portions thereof tendered pursuant to the Offer to
Purchase, (ii) deposit with the Paying Agent in accordance with Section 2.14,
U.S. Legal Tender sufficient to pay the purchase price plus accrued interest, if
any, of all Notes so tendered, (iii) deliver to the Indenture Trustee Notes so
accepted together with an Officers' Certificate stating the Notes or portions
thereof being purchased by the Company and (iv) deliver to the Paying Agent an
Officers' Certificate specifying the Notes or portions thereof being purchased
by the Company and the payees of the purchase price. Upon receipt by the Paying
Agent of the monies specified in clause (ii) above and a copy of the Officers'
Certificate specified in clause (iii) above, the Paying Agent shall promptly
mail to the Holders of Notes so accepted payment in an amount equal to the
purchase price plus accrued interest, if any, and the Indenture Trustee shall
promptly authenticate and mail to such Holders new Notes equal in principal
amount to any unpurchased portion of the Notes surrendered. Any Notes not so
accepted shall be promptly mailed by the Company to the Holder thereof. For
purposes of this Section 4.18, the Indenture Trustee shall act as the Paying
Agent.
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Any amounts remaining after the purchase of Notes pursuant to a Offer
to Purchase shall be returned by the Paying Agent (i) to the Company upon its
written request if, immediately prior to such Offer to Purchase, the balance of
the Escrow Account Available Funds in the Escrow Account equalled zero, or (ii)
to the Escrow Agent if the Escrow Account Available Funds from the Escrow
Account have been used, in whole or in part, to make such Change of Control
Offer and any such funds remain, as the case may be.
The Company shall comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes and the repurchase by the Trust of the Certificates)
pursuant to a Offer to Purchase. To the extent that the provisions of any
securities laws or regulations conflict with the foregoing provisions of this
Indenture, the Company shall comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations under the
foregoing provisions of this Indenture by virtue thereof.
Section 4.19. Disbursement of Funds; Escrow Account.
The Company shall, on the date of this Indenture, enter into the
Escrow and Disbursement Agreement and, pursuant thereto, shall place the Escrow
Amount in the Escrow Account held by the Escrow Agent for the benefit of the
Holders of the Notes and the Indenture Trustee (in its capacity as such).
Section 4.20. Payment of Additional Amounts.
For so long as the Trust is required to pay any amounts on the
Certificates, the Company shall pay to the Trust as additional sums on the Notes
(a) such amounts as may be required so that the payments payable by the Trust
will not be reduced as a result of any Taxes imposed by any Taxing Authority on
payments to the Trust under the Indenture except to the extent that the Trust
would not have been obligated to pay Additional Amounts with respect to such
amounts if such payment had been made directly by the Trust to the
Certificateholder, and (b) such amounts as may be necessary in order to satisfy
the obligation of the Trust to pay any (i) Additional Amounts in respect of the
Certificates, and (ii) any stamp, issue, transfer, sales, use, value-added
property, registration, documentary, enforcement or other similar taxes and
other duties (including interest and penalties) payable to any Taxing Authority
in respect of the creation, issue or offering of the Certificates or any other
documents directly related to such creation, issue or offering; and (c) such
amounts as may be required so
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that the payments payable by the Trust will not be reduced as a result of any
Taxes or other liabilities imposed on the Trust, except to the extent that the
Company is required to pay such Taxes pursuant to (a) or (b) of this section
4.20.
ARTICLE 5
SUCCESSORS
Section 5.01. Merger, Consolidation or Sale of Assets.
The Company shall not consolidate with, merge with or into, or sell,
convey, transfer, lease or otherwise dispose of all or substantially all of its
property or assets (as an entirety or substantially an entirety in one
transaction or a series of related transactions) to, any Person or permit any
Person to merge with or into the Company (other than a consolidation or merger
with or into a Restricted Subsidiary with a positive net worth where minority
shareholders of Restricted Subsidiaries receive only stock of the surviving
entity; provided that, in connection with any such merger or consolidation,
clauses (i) and (iv) below are complied with and no consideration (other than
Common Stock in the surviving Person or the Company) shall be issued or
distributed to the shareholders of the Company) unless: (i) the Company shall be
the surviving Person, or the Person (if other than the Company) formed by such
consolidation or into which the Company is merged or that acquired or leased
such property and assets of the Company shall be a corporation organized and
validly existing under the laws of Colombia or the United States of America, any
State thereof or the District of Columbia, and shall expressly assume, by a
supplemental indenture, executed and delivered to the Indenture Trustee, all of
the obligations of the Company under the Notes and this Indenture; (ii)
immediately after giving effect to such transaction, no Default or Event of
Default shall have occurred and be continuing; (iii) immediately after giving
effect to such transaction on a pro forma basis, the Company, or any Person
becoming the successor obligor of the Notes, could incur at least $1.00 of
Indebtedness under the first paragraph of clause (a) of Section 4.08 (without
reliance upon any of the exceptions in (a)(i) through (xi) under Section 4.08);
and (iv) the Company delivers to the Indenture Trustee an Officers' Certificate
(attaching, if applicable, the arithmetic computations to demonstrate compliance
with clause (iii)) and Opinion of Counsel, in each case stating that such
consolidation, merger or transfer and such supplemental indenture complies with
this provision and that all conditions precedent provided for herein relating to
such transaction have been complied with.
Section 5.02. Successor Corporation Substituted.
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Upon any consolidation, combination or merger or any transfer of all
or substantially all of the assets of the Company in accordance with Section
5.01, the surviving entity shall succeed to, and be substituted for, and may
exercise every right and power of, the Company under this Indenture and the
Notes with the same effect as if such surviving entity had been named as such;
provided that solely for purposes of computing amounts described in clause (C)
of the first paragraph of Section 4.07, any such surviving entity to the Company
shall only be deemed to have succeeded to and be substituted for the Company
with respect to periods subsequent to the effective time of such merger,
consolidation, combination or transfer of assets.
ARTICLE 6
DEFAULTS AND REMEDIES
Section 6.01. Events of Default.
Each of the following constitutes a "Event of Default":
(a) default in the payment of principal of, or premium, if any, on,
the Notes when the same becomes due and payable at maturity, upon acceleration,
redemption or otherwise;
(b) default in the payment of interest on the Notes when the same
becomes due and payable and such default continues for a period of 30 days;
(c) failure to perform or comply with the provisions described under
Sections 4.12 and 4.18, or the failure by the Company to deposit the amounts
required to be deposited in the Escrow Account and Refinancing Account, each in
accordance with the Escrow and Disbursement Agreement;
(d) failure to comply with the provisions of Article 5;
(e) the Company defaults in the performance of or breaches any other
covenant or agreement of the Company in this Indenture, the Notes or the Escrow
and Disbursement Agreement and such default or breach continues for a period of
30 consecutive days after written notice by the Indenture Trustee or the Holders
of 25% or more in aggregate principal amount of the Notes outstanding (other
than those refer-red to in (a), (b), (c) or (d));
(f) there occurs with respect to (A) any issue or issues of
Indebtedness (other than Intercompany Notes) of the Company or any Subsidiary
having
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an outstanding principal amount of $5 million or more in the aggregate for all
such issues of all such Persons or (B) any Intercompany Note of any Restricted
Subsidiary, in each case, whether such Indebtedness now exists or shall
hereafter be created, (I) an event of default that has caused the holder thereof
to declare such Indebtedness to be due and payable prior to its final Stated
Maturity and such Indebtedness has not been discharged in full or such
acceleration has not been rescinded or annulled within 30 days following such
acceleration and/or (II) the failure to make a principal payment at the final
Stated Maturity and such defaulted payment shall not have been made, waived or
extended within 30 days of such payment default or any longer grace period
provided for in such Indebtedness;
(g) one or more final judgments rendered against the Company or any
of its Subsidiaries (other than any judgment as to which a reputable insurance
or bonding company has accepted full liability in writing) aggregating in excess
of $5.0 million which judgments are not stayed within 60 days after their entry;
(h) the Company or any Subsidiary of the Company pursuant to or
within the meaning, of any Bankruptcy Law:
(i) commences a voluntary case, including a "concordato" proceeding
or a voluntary liquidation;
(ii) consents to the entry of an order for relief against it in an
involuntary case;
(iii) consents to the appointment of a Custodian of it or for all or
substantially all of its property; or
(iv) makes a general assignment for the benefit of its creditors;
(i) a court or administrative authority of competent jurisdiction
enters an order or decree under any Bankruptcy Law that:
(i) is for relief against the Company or any Subsidiary of the
Company in an involuntary case;
(ii) appoints a Custodian of the Company or any Subsidiary of the
Company or for all or substantially all of the property of the Company or
any Subsidiary of the Company; or
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(iii) orders the liquidation of the Company or any Subsidiary of the
Company,
and the order or decree remains unstayed and in effect for 60 consecutive days.
The term "Custodian" means any receiver, trustee, assignee, liquidator or
similar official under any Bankruptcy Law;
(j) there occurs with respect to the Global I Purchase Agreement,
the Global II Purchase Agreement, the purchase agreements to be entered into in
connection with the Global III Leases, or any future Global arrangements
permitted under this Indenture an event of default that has caused Siemens to
declare Global's Obligations under such purchase agreements to be due and
payable prior to such Obligations' Stated Maturity and (A) such Obligations have
not been discharged in full, or (B) such acceleration has not been rescinded or
annulled within 10 days following such acceleration; and
(k) failure by Global to perform or comply with the Global
Undertaking Letter, or Global rejects being bound by the terms of the Global
Undertaking or repudiation by the Company of its obligations under the Escrow
and Disbursement Agreement for any reason.
Section 6.02. Acceleration.
If any Event of Default (other than an Event of Default specified in
clauses 6.01(h) that occurs with respect to the Company and (i) above) occurs
and is continuing under this Indenture, the Indenture Trustee or the Holders of
at least 25% in principal amount of the then outstanding Notes may declare all
the Notes to be immediately due and payable at 100% of the unpaid principal
thereof plus accrued and unpaid interest thereon, if any, by notice in writing
to the Company and the Indenture Trustee specifying the respective Event of
Default and that it is a "notice of acceleration" (the "Acceleration Notice").
Upon such declaration, the principal of, premium, if any, and accrued interest
on the Notes shall become immediately due and payable. Notwithstanding the
foregoing, in the case of an Event of Default specified in clause (h) or (i)
with respect to the Company or (j) of Section 6.01, the foregoing amount shall
ipso facto become due and payable without further action or notice. No premium
is payable upon acceleration of the Notes except that in the case of an Event of
Default that is the result of an action or inaction by the Company or any of its
Subsidiaries intended to avoid premiums related to redemptions of the Notes
contained in this Indenture or the Notes, the amount declared due and payable
will include the
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premium that would have been applicable on a voluntary prepayment of the Notes
or, if voluntary prepayment is not then permitted, the premium set forth in this
Indenture.
At any time after a declaration of acceleration with respect to the
Notes as described in the preceding paragraph, but before a judgment or decree
for the payment of money due has been obtained by the Indenture Trustee, the
Holders of at least a majority in principal amount of the Notes may rescind and
cancel such declaration and its consequences (i) if the rescission would not
conflict with any judgment or decree, (ii) if all existing Events of Default
have been cured or waived except non payment of principal or interest that has
become due solely because of the acceleration, (iii) to the extent the payment
of such interest is lawful, interest on overdue installments of interest and
overdue principal, which has become due otherwise than by such declaration of
acceleration, has been paid, (iv) if the Company has paid the Indenture Trustee
its reasonable compensation and reimbursed the Indenture Trustee for its
expenses, disbursements and advances and (v) in the event of the cure or waiver
of an Event of Default specified in clause (h) of Section 6.01, the Indenture
Trustee shall have received an Officers' Certificate and an Opinion of Counsel
that such Event of Default has been cured or waived.
Section 6.03. Other Remedies.
If an Event of Default occurs and is continuing, the Indenture Trustee
may pursue any available remedy to collect the payment of principal, premium, if
any, and interest on the Notes or to enforce the performance of any provision of
the Notes or this Indenture or the Escrow and Disbursement Agreement.
The Indenture Trustee may maintain a proceeding even if it does not
possess any of the Notes or does not produce any of them in the proceeding. A
delay or omission by the Indenture Trustee or any Holder of a Note in exercising
any right or remedy accruing upon an Event of Default shall not impair the right
or remedy or constitute a waiver of or acquiescence in the Event of Default.
All remedies are cumulative to the extent permitted by law.
Section 6.04. Waiver of Past Defaults.
The Holders of a majority in aggregate principal amount of the Notes
then outstanding, by notice to the Indenture Trustee, may on behalf of the
Holders of all of the Notes waive any existing Default or Event of Default and
its consequences under this Indenture, except a continuing Default or Event of
Default in the payment
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of interest or premium on, or the principal of, the Notes, or in respect of a
covenant or a provision which cannot be amended or modified without the consent
of all Holders.
Upon any such waiver, such Default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other Default or impair any right consequent thereon.
Section 6.05. Control by Majority.
Subject to 2.09, holders of a majority in principal amount of the then
outstanding Notes may direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Indenture Trustee or
exercising any trust or power conferred on it. However, the Indenture Trustee
may refuse to follow any direction that conflicts with the law or this Indenture
that the Indenture Trustee determines may be unduly prejudicial to the rights of
other Holders of Notes or that may involve the Indenture Trustee in personal
liability.
Section 6.06. Limitation on Suits.
A Holder of a Note may pursue a remedy with respect to this Indenture
or the Notes only if:
(a) the Holder of a Note gives to the Indenture Trustee written
notice of a continuing Event of Default,
(b) the Holders of at least 25% in principal amount of the then
outstanding Notes make a written request to the Indenture Trustee to pursue the
remedy;
(c) such Holder of a Note or Holders of Notes offer and, if
requested, provide to the Indenture Trustee indemnity satisfactory to the
Indenture Trustee against any loss, liability or expense;
(d) the Indenture Trustee does not comply with the request within 15
days after receipt of the request and the offer and, if requested, the provision
of indemnity; and
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(e) during such 15-day period the Holders of a majority in principal
amount of the then outstanding Notes do not give the Indenture Trustee a
direction inconsistent with the request.
A Holder of a Note may not use this Indenture to prejudice the rights of another
Holder of a Note or to obtain a preference or priority over another Holder of a
Note.
Section 6.07. Rights of Holders of Notes to Receive Payment.
Notwithstanding any other provision of this Indenture, the right of
any Holder of a Note to receive payment of principal, premium, if any, and
interest on the Note, on or after the respective due dates expressed in the
Note, or to bring suit for the enforcement of any such payment on or after such
respective dates, shall not be impaired or affected without the consent of the
Holder of the Note.
Section 6.08. Collection Suit by Indenture Trustee.
If an Event of Default specified in Section 6.01(a) or (b) occurs and
is continuing, the Indenture Trustee is authorized to recover judgment in its
own name and as trustee of an express trust against the Company for the whole
amount of principal of, premium, if any, and interest remaining unpaid on the
Notes and interest on overdue principal and, to the extent lawful, interest and
such further amount as shall be sufficient to cover the costs and expenses of
collection, including the reasonable compensation, expenses, disbursements and
advances of the Indenture Trustee, its agents and counsel.
Section 6.09. Indenture Trustee May File Proofs of Claim.
The Indenture Trustee is authorized to file such proofs of claim and
other papers or documents as may be necessary or advisable in order to have the
claims of the Indenture Trustee (including any claim for the reasonable
compensation, expenses, disbursements and advances of the Indenture Trustee, its
agents and counsel) and the Holders of the Notes allowed in any judicial
proceedings relative to the Company (or any other obligor upon the Notes), the
Company's creditors or the Company's property and shall be entitled and
empowered to participate as a member, voting or otherwise, of any official
committee of creditors appointed in such matter and to collect, receive and
distribute any money or other property payable or deliverable on any such claims
and any custodian in any such judicial proceeding is hereby authorized by each
Holder
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of a Note to make such payments to the Indenture Trustee, and in the event that
the Indenture Trustee shall consent to the making of such payments directly to
the Holders of the Notes, to pay to the Indenture Trustee any amount due to it
for the reasonable compensation, expenses, disbursements and advances of the
Indenture Trustee, its agents and counsel, and any other amounts due the
Indenture Trustee under Section 7.07. To the extent that the payment of any such
compensation, expenses, disbursements and advances of the Indenture Trustee, its
agents and counsel, and any other amounts due the Indenture Trustee under
Section 7.07 out of the estate in any such proceeding, shall be denied for any
reason, payment of the same shall be secured by a Lien on, and shall be paid out
of, any and all distributions, dividends, money, securities and other properties
which the Holders of the Notes may be entitled to receive in such proceeding
whether in liquidation or under any plan of reorganization or arrangement or
otherwise. Nothing herein contained shall be deemed to authorize the Indenture
Trustee to authorize or consent to or accept or adopt on behalf of any Holder of
a Note any plan of reorganization, arrangement, adjustment or composition
affecting the Notes or the rights of any Holder of a Note thereof, or to
authorize the Indenture Trustee to vote in respect of the claim of any Holder of
a Note in any such proceeding.
Section 6.10. Priorities.
If the Indenture Trustee collects any money pursuant to this Article,
it shall pay out the money in the following order:
First: to the Indenture Trustee, the Agents, and their agents and
attorneys for amounts due under Section 7.07, including payment of all
compensation, expense and liabilities incurred, and all advances made, by the
Indenture Trustee and the costs and expenses of collection;
Second: to Holders of Notes, for amounts due and unpaid on such
Notes for principal, premium, if any, and interest, ratably, without preference
or priority of any kind to the extent of moneys and securities collected under
the Escrow and Disbursement Agreement according to the amounts due and payable
on the Notes for principal, premium, if any, and interest, respectively; and
Third: to the Company or to such party as a court of competent
jurisdiction shall direct.
The Indenture Trustee may fix a record date and payment date for any
payment to Holders of Notes.
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Section 6.11. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Indenture Trustee for any action taken or
omitted by it as a Indenture Trustee, a court in its discretion may require the
filing by any party litigant in the suit of an undertaking to pay the costs of
the suit, and the court in its discretion may assess reasonable costs, including
reasonable attorneys' fees, against any party litigant in the suit, having due
regard to the merits and good faith of the claims or defenses made by the party
litigant. This Section does not apply to a suit by the Indenture Trustee, a
suit by a Holder of a Note pursuant to Section 6.07 or a suit by Holders of more
than 10% in principal amount of the then outstanding Notes.
ARTICLE 7
INDENTURE TRUSTEE
Section 7.01. Duties of Indenture Trustee.
(a) If an Event of Default has occurred and is continuing, the
Indenture Trustee shall exercise such of the rights and powers vested in it by
this Indenture, and use the same degree of care and skill in their exercise, as
a prudent man would exercise or use under the circumstances in the conduct of
his own affairs.
(b) Except during the continuance of an Event of Default:
(i) the duties of the Indenture Trustee and the Agents shall be
determined solely by the express provisions of this Indenture and the
Indenture Trustee and the Agents need perform only those duties that are
specifically set forth in this Indenture and no others, and no implied
covenants or obligations shall be read into this Indenture against the
Indenture Trustee and the Agents, and
(ii) in the absence of bad faith on their part, the Indenture Trustee
and the Agents may conclusively rely, as to the truth of the statements and
the correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Indenture Trustee and the Agents and conforming
to the requirements of this Indenture. However, the Indenture Trustee
shall examine the certificates and opinions to determine whether or not
they conform to the requirements of this Indenture but shall not be
obligated to verify the accuracy of the contents thereof.
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(c) The Indenture Trustee may not be relieved from liabilities for
its own negligent action, its own negligent failure to act or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of paragraph (b) of
this Section;
(ii) neither the Indenture Trustee nor any Agent shall be liable for
any error of judgment made in good faith by a Responsible Officer, unless
it is proved that the Indenture Trustee or such Agent was negligent in
ascertaining the pertinent facts; and
(iii) the Indenture Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 6.05.
(d) Whether or not therein expressly so provided, every provision
of this Indenture that in any way relates to the Indenture Trustee or any Agent
is subject to paragraphs (a), (b), and (c) of this Section.
(e) No provision of this Indenture shall require the Indenture
Trustee to expend or risk its own funds or incur any liability. The Indenture
Trustee shall be under no obligation to exercise any of its rights and powers
under this Indenture at the request of any Holders of Notes, unless such Holder
shall have offered to the Indenture Trustee security and indemnity satisfactory
to the Indenture Trustee against any loss, liability or expense including
attorneys fees that might be incurred by it in compliance with such request or
direction.
(f) Neither the Indenture Trustee nor any Agent shall be liable for
interest on any money received by it except as the Indenture Trustee or such
Agent, as the case may be, may agree in writing with the Company. Money held in
trust by the Indenture Trustee or such Agent, as the case may be, need not be
segregated from other funds except to the extent required by law.
(g) Each Holder of Notes, by its acceptance thereof, consents and
agrees to the terms of the Escrow and Disbursement Agreement as provided in
Section 10.01 and the Global Undertaking Letter. Each Holder of Notes, by its
acceptance thereof, authorizes and directs the Indenture Trustee to enter into
the Escrow and Disbursement Agreement and the Global Undertaking Letter and to
perform its obligations and exercise its rights thereunder in accordance
therewith.
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Section 7.02. Rights of Indenture Trustee.
(a) The Indenture Trustee and each Agent may conclusively rely upon
any document believed by them to be genuine and to have been signed or presented
by the proper Person. Neither the Indenture Trustee nor any Agent need
investigate any fact or matter stated in the document.
(b) Before the Indenture Trustee or any Agent acts or refrains from
acting, it may require an Officers' Certificate or an Opinion of Counsel or
both. Neither the Indenture Trustee nor any Agent shall be liable for any
action it takes or omits to take in good faith in reliance on such Officers'
Certificate or Opinion of Counsel. The Indenture Trustee or any Agent may
consult with counsel and the advice of such counsel or any Opinion of Counsel
shall be full and complete authorization and protection from liability in
respect of any action taken, suffered or omitted by it hereunder in good faith
and in reliance thereon.
(c) The Indenture Trustee and any Agent may act through their
attorneys and agents and shall not be responsible for the misconduct or
negligence of any agent appointed with due care.
(d) The Indenture Trustee and any Agent shall not be liable for any
action they take or omit to take in good faith which they believe to be
authorized or within their rights or powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this Indenture, any
demand, request, direction or notice from the Company shall be sufficient if
signed by two Officers of the Company.
(f) The Indenture Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture at the request or
direction of any of the Holders unless such Holders shall have offered to the
Indenture Trustee reasonable security or indemnity against the costs, expenses
and liabilities that might be incurred by it in compliance with such request or
direction.
Section 7.03. Individual Rights of Indenture Trustee.
The Indenture Trustee in its individual or any other capacity may
become the owner or pledge of Notes and may otherwise deal with the Company or
any Affiliate of the Company with the same rights it would have if it were not
Indenture Trustee, including (i) acting as escrow agent pursuant to the Escrow
and Disbursement
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Agreement dated as of October 28, 1997 among the Indenture Trustee, in its
capacity as such and as escrow agent, and the Company, (ii) acting as collateral
agent pursuant to the Pledge Agreement, dated as of October 28, 1997, between
the Indenture Trustee, in its capacity as collateral agent, and the Company and
(iii) acting as Guarantee Trustee under the Guarantee (as defined in the Trust
Agreement). However, in the event that the Indenture Trustee acquires any
conflicting interest it must eliminate such conflict within 90 days, apply to
the Commission for permission to continue as trustee or resign. Any Agent may
do the same with like rights and duties. The Indenture Trustee is also subject
to Sections 7.10 and 7.11.
Section 7.04. Indenture Trustee's Disclaimer.
The Indenture Trustee and the Agents shall not be responsible for and
make no representation as to the validity or adequacy of this Indenture, the
Pledge Agreement, the Escrow and Disbursement Agreement, the Global Undertaking
Letter the Guarantee or the Notes, shall not be accountable for the Company's
use of the proceeds from the Notes or any money paid to the Company or upon the
Company's direction under any provision of this Indenture, shall not be
responsible for the use or application of any money received by any Paying Agent
other than the Indenture Trustee and shall not be responsible for any statement
or recital herein or any statement in the Notes or any other document in
connection with the sale of the Notes or pursuant to this Indenture other than
its certificate of authentication.
Section 7.05. Notice of Defaults.
If a Default or Event of Default occurs and is continuing and if it is
known to a Responsible Officer of the Indenture Trustee, the Indenture Trustee
shall mail to Holders of Notes a notice of the Default or Event of Default
within 90 days after it occurs. Except in the case of a Default or Event of
Default in payment of principal of, premium, if any, or interest on any Note,
the Indenture Trustee may withhold the notice if and so long as a committee of
its Responsible Officers in good faith determines that withholding the notice is
in the interests of the Holders of the Notes.
Section 7.06. Reports by Indenture Trustee to Holders of the Notes.
Within 60 days after each April 15 beginning with the April 15
following the date of this Indenture, the Indenture Trustee shall mail to the
Holders of the Notes
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a brief report dated as of such reporting date that complies with TIA (S) 313(a)
(but if no event described in TIA (S) 313(a) has occurred within the twelve
months preceding the reporting date, no report need be transmitted). The
Indenture Trustee also shall comply with TIA (S) 313(b)(2). The Indenture
Trustee shall also transmit by mail all reports as required by TIA (S) 313(c).
A copy of each report at the time of its mailing, to the Holders of
Notes shall be mailed to the Company and filed with the Commission and each
stock exchange on which the Notes are listed. The Company shall promptly notify
the Indenture Trustee when the Notes are listed on any stock exchange.
Section 7.07. Compensation and Indemnity.
The Company shall pay to the Indenture Trustee and the Agents from
time to time reasonable compensation as agreed in writing from time to time for
their acceptance of this Indenture and services hereunder. The Indenture
Trustee's and the Agents' compensation shall not be limited by any law on
compensation of a trustee of an express trust. The Company shall reimburse the
Indenture Trustee and the Agents promptly upon request for all reasonable
disbursements, advances and expenses incurred or made by them in addition to the
compensation for their services. Such expenses shall include the reasonable
compensation, disbursements and expenses of the Indenture Trustee's and the
Agents' agents and counsel.
The Company shall indemnify the Indenture Trustee and the Agents
against any and all losses, liabilities or expenses incurred by them arising out
of or in connection with the acceptance or administration of their duties under
this Indenture, the Notes, or the Escrow and Disbursement Agreement, except any
such loss, liability or expense as may be attributable to the negligence or bad
faith of the Indenture Trustee or such Agent. The Indenture Trustee or such
Agent shall notify the Company promptly of any claim for which it may seek
indemnity. Failure by the Indenture Trustee or such Agent to so notify the
Company shall not relieve the Company of its obligations hereunder. The Company
shall defend the claim and the Indenture Trustee shall cooperate in the defense.
The Indenture Trustee may have separate counsel and the Company shall pay the
reasonable fees and expenses of such counsel. The Company need not pay for any
settlement made without its consent, which consent shall not be unreasonably
withheld.
The obligations of the Company under this Section 7.07 shall survive
the satisfaction and discharge of this Indenture.
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To secure the Company's payment obligations in this Section, the
Indenture Trustee and the Agents shall have a lien prior to the Notes on all
money or property held or collected by the Indenture Trustee and the Agents,
except that held in trust to pay principal, premium, if any, and interest on
particular Notes. Such lien shall survive the satisfaction and discharge or
termination of this Indenture (including any termination under any Bankruptcy
Law) or the resignation or removal of any Agent or the Indenture Trustee, as the
case may be.
When the Indenture Trustee or any Agent incurs expenses or renders
services after an Event of Default specified in Section 6.01(h) or (i) occurs,
the expenses and the compensation for the services (including the fees and
expenses of its agents and counsel) are intended to constitute expenses of
administration under any Bankruptcy Law.
Section 7.08. Replacement of Indenture Trustee.
A resignation or removal of the Indenture Trustee and appointment of a
successor Indenture Trustee shall become effective only upon the successor
Indenture Trustee's acceptance of appointment as provided in this Section.
The Indenture Trustee may resign in writing at any time and be
discharged from the trust hereby created by so notifying the Company. The
Holders of Notes of a majority in principal amount of the then outstanding Notes
may remove the Indenture Trustee by so notifying the Indenture Trustee and the
Company in writing. The Company may remove the Indenture Trustee if:
(a) the Indenture Trustee falls to comply with Section 7.10;
(b) the Indenture Trustee is adjudged a bankrupt or an insolvent or an
order for relief is entered with respect to the Indenture Trustee under any
Bankruptcy Law;
(c) a Custodian or public officer takes charge of the Indenture
Trustee or its property; or
(d) the Indenture Trustee becomes incapable of acting,
If the Indenture Trustee resigns or is removed or if a vacancy exists
in the office of Indenture Trustee for any reason, the Company shall promptly
appoint a successor Indenture Trustee. Within one year after the successor
Indenture Trustee
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takes office, the Holders of a majority in principal amount of the then
outstanding Notes may appoint a successor Indenture Trustee to replace the
successor Indenture Trustee appointed by the Company.
If a successor Indenture Trustee does not take office within 60 days
after the retiring Indenture Trustee resigns or is removed, the retiring
Indenture Trustee, the Company, or the Holders of Notes of at least 10% in
principal amount of the then outstanding Notes may petition any court of
competent jurisdiction for the appointment of a successor Indenture Trustee.
If the Indenture Trustee after written request by any Holder of a Note
who has been a Holder of a Note for at least six months fails to comply with
Section 7.10, such Holder of a Note may petition any court of competent
Jurisdiction for the removal of the Indenture Trustee and the appointment of a
successor Indenture Trustee.
A successor Indenture Trustee shall deliver a written acceptance of
its appointment to the retiring Indenture Trustee and to the Company.
Thereupon, the resignation or removal of the retiring Indenture Trustee shall
become effective, and the successor Indenture Trustee shall have all the rights,
powers and duties of the Indenture Trustee under this Indenture. The successor
Indenture Trustee shall mail a notice of its succession to Holders of the Notes.
The retiring Indenture Trustee shall promptly transfer all property held by it
as Indenture Trustee to the successor Indenture Trustee, provided all sums owing
to the Indenture Trustee hereunder have been paid and subject to the Lien
provided for in Section 7.07. Notwithstanding replacement of the Indenture
Trustee pursuant to this Section 7.08, the Company's obligations under Section
7.07 shall continue for the benefit of the retiring Indenture Trustee.
Section 7.09. Successor Indenture Trustee by Merger, etc.
If the Indenture Trustee consolidates, merces or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation, the successor corporation without any further act shall be the
successor Indenture Trustee.
Section 7.10. Eligibility; Disqualification.
There shall at all times be an Indenture Trustee hereunder which shall
be a corporation organized and doing business under the laws of the United
States of America or of any state thereof authorized under such laws to exercise
corporate trustee
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power, shall be subject to supervision or examination by Federal or state
authority and shall have a combined capital and surplus of at least $25 million
as set forth in its most recent published annual report of condition.
This Indenture shall always have a Indenture Trustee who satisfies the
requirements of TIA (S) 310(a)(1), (2) and (5). The Indenture Trustee is
subject to TIA (S) 310(b).
Section 7.11. Preferential Collection of Claims Against Company.
The Indenture Trustee is subject to TIA (S) 311(a), excluding any
creditor relationship listed in TIA (S) 311(b). A Indenture Trustee who has
resigned or been removed shall be subject to TIA (S) 311(a) to the extent
indicated therein.
Section 7.12. Appointment of Co-Trustee or Separate Trustee
Notwithstanding any other provisions hereof, at any time, for the
purpose of meeting any legal requirements of any jurisdiction the Indenture
Trustee shall have the power and shall execute and deliver all instruments to
appoint one or more Persons to act (at the expense of the Company) as co-trustee
or co-trustees, jointly with the Indenture Trustee, or to act as separate
trustee or separate trustees, and to vest in such Person or Persons, in such
capacity, such title to the property of the Trust, or any part thereof, and,
subject to the other provisions of this Section 7.12, such powers, duties,
obligations, rights and trusts as the Indenture Trustee may consider necessary
or desirable. Except as required by applicable law, the appointment of a co-
trustee or separate trustee shall not relieve the Indenture Trustee of its
responsibilities hereunder. No co-trustee or separate trustee hereunder shall
be required to meet the terms of eligibility as a successor Trustee under
Section 7.09 hereunder and no notice to Holders of Notes of the appointment of
co-trustee(s) or separate trustee(s) shall be required hereunder.
In the case of any appointment of a co-trustee or separate trustee
pursuant to this Section 7.12, all rights, powers, duties and obligations
conferred or imposed upon the Indenture Trustee shall be conferred or imposed
upon and exercised or performed by the Indenture Trustee and such separate
trustee or co-trustee jointly (it being understood that such separate trustee or
co-trustee is not authorized to act separately without the Indenture Trustee
joining in such act), except to the extent that under any law of any
jurisdiction in which any particular act or acts are to be performed, the
Indenture Trustee shall be incompetent or unqualified to perform such
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act or acts, in which event such rights, powers, duties and obligations
(including the holding of title to the property of the Trust or any portion
thereof in any such jurisdiction) shall be exercised and performed by such
separate trustee or co-trustee solely at the direction of the Indenture Trustee.
No trustee under this Indenture shall be personally liable by reason
of any act or omission of any other trustee under this Indenture, unless such
act or omission results from the negligence or willful misconduct of such
trustee. The Indenture Trustee may at any time accept the resignation of or
remove any separate trustee or co-trustee.
Any notice, request or other writing given to the Indenture Trustee
shall be deemed to have been given to each of the then separate trustees and co-
trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Indenture and
the conditions of this Article 7. Every such instrument shall be filed with the
Indenture Trustee. Each separate trustee and co-trustee, upon its acceptance of
the trusts conferred shall be vested with the estates or property specified in
its instrument of appointment, either jointly with the Indenture Trustee or
separately, as may be provided therein, subject to all the provisions of this
Indenture, specifically including every provision of this Indenture relating to
the conduct of, affecting the liability of, or affording protection to, the
Indenture Trustee.
Any separate trustee or co-trustee may, at any time, constitute the
Indenture Trustee its agent or attorney-in-fact, with full power and authority,
to the extent not prohibited by law, to do any lawful act under or in respect of
this Indenture on its behalf and in its name. If any separate trustee or co-
trustee shall die, become incapable of acting, resign or be removed, all of its
estates, properties, rights, remedies and trusts shall vest in and be exercised
by the Indenture Trustee, to the extent permitted by law, without the
appointment of a new or successor trustee. The appointment of a co-trustee or
separate trustee shall not relieve the Indenture Trustee of its duties
hereunder.
ARTICLE 8
SATISFACTION AND DISCHARGE
Section 8.01. Satisfaction and Discharge of Indenture.
This Indenture shall cease to be of further effect (except as to any
surviving rights of registration of transfer or exchange of Notes herein
expressly
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provided for), and the Indenture Trustee, on demand of and at the expense of the
Company, shall execute instruments in form and substance satisfactory to the
Indenture Trustee and the Company acknowledging satisfaction and discharge of
this Indenture, when
(1) either
(A) the Company shall have irrevocably paid in full all
Guaranteed Obligations (as such term is defined in the Certificate
Guarantee) to the Guarantee Trustee (as such term is defined in the
Certificate Guarantee) pursuant to the terms of the Certificate
Guarantee; or
(B) all Notes theretofore authenticated and issued (other than
(i) Notes which have been destroyed, lost or stolen and which have
been replaced or paid as provided in Section 2.07 and (ii) Notes for
whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Company and thereafter repaid to
the Indenture Trustee or discharged from such trust, as provided in
Section 2.04) have been delivered to the Indenture Trustee for
cancellation; or
(C) all such Notes not theretofore delivered to the Indenture
Trustee for cancellation
(i) have become due and payable; or
(ii) will become due and payable within one year,
and the Company, in the case of (C)(i) or (ii) above, has deposited or
caused to be deposited with the Indenture Trustee as trust funds in
trust an amount sufficient to pay and discharge the entire
indebtedness on such Notes not theretofore delivered to the Indenture
Trustee for cancellation, for principal of, premium, if any, and
interest on the Notes to the date of such deposit (in the case of
Notes which have become due and payable) together with irrevocable
instructions from the Company directing the Indenture Trustee to apply
such funds to the payment thereof at maturity or redemption, as the
case may be;
(2) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
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(3) the Company has delivered to the Indenture Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent herein provided for relating to the satisfaction and discharge of
this Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Indenture Trustee and the Agents under Section
7.07, the obligations of the Indenture Trustee to any Authenticating Agent under
Section 2.02 and, if money shall have been deposited with the Indenture Trustee
pursuant to subclause (C) of clause (1) of this Section 8.01, the obligations of
the Indenture Trustee under Section 7.05 shall survive.
Section 8.02. Application of Monies for Satisfaction and Discharge.
All money deposited with the Indenture Trustee pursuant to Section
8.01 shall be held in trust and applied by it, in accordance with the provisions
of the Securities and this indenture, to the payment, either directly or through
any Paying Agent (including the Company acting as its own Paying Agent) as the
Indenture Trustee may determine, to the Persons entitled thereto, of the
principal and interest for whose payment such money has been deposited with the
Indenture Trustee.
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
Section 9.01. Without Consent of Holders of Notes.
From time to time, the Company and the Indenture Trustee, without the
consent of the Holders of the Notes, may amend this Indenture for the following
purposes, so long as such change does not adversely affect the rights of any of
the Holders. The Indenture Trustee will be entitled to rely on such evidence as
it deems appropriate, including, without limitation, solely on an Opinion of
Counsel that such change does not adversely affect the rights of any Holder, in
executing any supplemental indenture.
Notwithstanding Section 9.02 of this Indenture, the Company and the
Indenture Trustee may amend or supplement this Indenture, the Notes or the
Escrow and Disbursement Agreement without the consent of any Holder of a Note:
(a) to cure any ambiguity, defect or inconsistency;
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(b) to provide for uncertificated Notes in addition to or in place of
certificated Notes;
(c) to provide for the assumption of the Company's obligations to the
Holders of the Notes in the case of a merger or consolidation pursuant to
Article 5;
(d) to execute and deliver any documents necessary or appropriate to
release Liens on the Escrow Account and the Refinancing Account as permitted by
Section 10.03;
(e) to make any change that would provide any additional rights or
benefits to the Holders of the Notes or that does not adversely affect the legal
rights hereunder of any Holder of the Notes; or
(f) to comply with requirements of the Commission in order to effect
or maintain the qualification of this Indenture under the TIA.
Upon the written request of the Company accompanied by a resolution of the Board
of Directors of the Company authorizing the execution of any such amended or
supplemental Indenture, and upon receipt by the Indenture Trustee of the
documents described in Section 9.06, the Indenture Trustee shall join with the
Company in the execution of any amended or supplemental Indenture authorized or
permitted by the terms of this Indenture and to make any further appropriate
agreements and stipulations which may be therein contained, but the Indenture
Trustee shall not be obligated to enter into such amended or supplemental
Indenture which affects its own rights, duties or immunities under this
Indenture or otherwise.
Section 9.02. With Consent of Holders of Notes.
The Company and the Indenture Trustee may amend or supplement this
Indenture, the Notes or the Escrow and Disbursement Agreement or any amended or
supplemental Indenture with the written consent of the Holders of Notes of not
less than a majority in aggregate principal amount of the Notes then
outstanding, and any existing Default and its consequences or compliance with
any provision of this Indenture, the Notes or the Escrow and Disbursement
Agreement may be waived with the consent of the Holders of a majority in
principal amount of the then outstanding Notes.
Upon the request of the Company accompanied by a resolution of the
Board of Directors of the Company authorizing the execution of any such amended
or supplemental Indenture, and upon the filing with the Indenture Trustee of
evidence
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satisfactory to the Indenture Trustee of the consent of the Holders of Notes as
aforesaid, and upon receipt by the Indenture Trustee of the documents described
in Section 9.06, the Indenture Trustee shall join with the Company in the
execution of such amended or supplemental Indenture unless such amended or
supplemental Indenture affects the Indenture Trustee's own rights, duties or
immunities under this Indenture or otherwise, in which case the Indenture
Trustee may in its discretion, but shall not be obligated to, enter into such
amended or supplemental Indenture.
It shall not be necessary for the consent of the Holders of Notes
under this Section 9.02 to approve the particular form of any proposed amendment
or waiver, but it shall be sufficient if such consent approves the substance
thereof.
After an amendment, supplement or waiver under this Section becomes
effective, the Company shall mail to the Holders of Notes affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such amended notice, or any defect therein, shall not,
however, in any way impair or affect the validity of any such amended or
supplemental Indenture or waiver. Subject to Sections 6.04 and 6.07, the
Holders of a majority in aggregate principal amount of the Notes then
outstanding may waive compliance in a particular instance by the Company with
any provision of this Indenture or the Notes. However, without the consent of
each Holder affected thereby, an amendment or waiver may not (with respect to
any Notes held by a non-consenting Holder of Notes):
(a) reduce the principal amount of Notes whose Holders must consent to
an amendment, supplement or waiver;
(b) reduce the principal of or change or have the effect of changing
the fixed maturity of any Note or change the date on which any Note may be
subject to redemption or repurchase, or reduce the redemption or repurchase
price thereof;
(c) reduce the rate of or change or have the effect of changing the
time for payment of interest, including defaulted interest, on any Notes;
(d) waive a Default or Event of Default in the payment of principal of
or premium, if any, or interest on the Notes (except a rescission of
acceleration of the Notes by the Holders of at least a majority in
aggregate principal amount of the Notes and a waiver of the payment default
relating solely to the principal or interest that has become due solely
because of the acceleration);
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(e) make any Note payable in money other than that stated in the
Notes;
(f) make any change in the provisions of this Indenture relating to
waivers of past Defaults or the rights of Holders of Notes to receive
payments of principal of or interest on the Notes on or after the due date
thereof or to bring suit to enforce such payment;
(g) waive a redemption payment with respect to any Note (other than a
payment required by Section 4.12 and 4.18);
(h) amend, change or modify in any material respect the obligation of
the Company to make and consummate a Change of Control Offer in the event
of a Change of Control or make and consummate a Net Proceeds Offer with
respect to any Asset Sale that has been consummated or modify any of the
provisions or definitions with respect thereto;
(i) make any change in the foregoing amendment and waiver provisions;
or
(j) directly or indirectly release Liens on all or substantially all
of the collateral except as permitted by the Escrow and Disbursement
Agreement.
Section 9.03. Compliance with Trust Indenture Act.
Every amendment or supplement to this Indenture or the Notes shall be
set forth in an amended or supplemental Indenture that complies with the TIA as
then in effect.
Section 9.04. Revocation and Effect of Consents.
Until an amendment, supplement or waiver becomes effective, a consent
to it by a Holder of a Note is a continuing consent by the Holder of a Note and
every subsequent Holder of a Note or portion of a Note that evidences the same
debt as the consenting Holder's Note, even if notation of the consent is not
made on any Note. However, any such Holder of a Note or subsequent Holder of a
Note may revoke the consent as to its Note if the Indenture Trustee receives
written notice of revocation before the date the waiver, supplement or amendment
becomes effective. An
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amendment, supplement or waiver becomes effective in accordance with its terms
and thereafter binds every Holder of a Note.
The Company may fix a record date for determining which Holders of the
Notes must consent to such amendment, supplement or waiver. If the Company
fixes a record date, the record date shall be fixed at (i) the later of 30 days
prior to the first solicitation of such consent or the date of the most recent
list of Holders of Notes furnished to the Indenture Trustee prior to such
solicitation pursuant to Section 2.05 or (ii) such other date as the Company
shall designate.
Section 9.05. Notation on or Exchange of Notes.
The Indenture Trustee may place an appropriate notation about an
amendment, supplement or waiver on any Note thereafter authenticated. The
Company in exchange for all Notes may issue and the Indenture Trustee shall
authenticate new Notes that reflect the amendment, supplement or waiver.
Failure to make the appropriate notation or issue a new Note shall not
affect the validity and effect of such amendment, supplement or waiver.
Section 9.06. Indenture Trustee to Sign Amendments, etc.
The Indenture Trustee shall sign any amended or supplemental Indenture
authorized pursuant to this Article 9 if the amendment or supplement does not
adversely affect the rights, duties, liabilities or immunities of the Indenture
Trustee. If it does, the Indenture Trustee may but need not sign it. In
signing such amendment the Indenture Trustee shall be entitled to receive
indemnity reasonably satisfactory to it and to receive, and (subject to Section
7.01) shall be fully protected in relying upon, an Officers' Certificate and an
Opinion of Counsel stating that such amendment is authorized or permitted by
this Indenture.
ARTICLE 10
COLLATERAL AND SECURITY
Section 10.01. Escrow and Disbursement Agreement.
The due and punctual payment of the principal of and interest on the
Notes when and as the same shall be due and payable, whether on an Interest
Payment
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Date, at the Stated Maturity, by acceleration, repurchase, redemption or
otherwise, and interest on the overdue principal of and interest (to the extent
permitted by law), if any, on the Notes and performance of all other obligations
of the Company to the Holders of Notes or the Indenture Trustee under this
Indenture with respect to the Notes, and the Notes, according to the terms
hereunder or thereunder, shall be secured as provided in the Escrow and
Disbursement Agreement which the Company, the Escrow Agent and the Indenture
Trustee have entered into simultaneously with the execution of this Indenture.
Each Holder of Notes, by its acceptance thereof, consents and agrees to the
terms of the Escrow and Disbursement Agreement (including, without limitation,
the provisions providing for foreclosure and disbursement of the amounts
deposited in the Escrow Account or the Refinancing Account) as the same may be
in effect or may be amended from time to time in accordance with its terms and
authorizes and directs the Escrow Agent and the Indenture Trustee to enter into
the Escrow and Disbursement Agreement and to perform its obligations and
exercise its rights thereunder in accordance therewith. The Company shall
deliver to the Indenture Trustee copies of the Escrow and Disbursement
Agreement, and shall do or cause to be done all such acts and things as may be
necessary or proper, or as may be required by the provisions of the Escrow and
Disbursement Agreement, to assure and confirm to the Indenture Trustee the
security interest in the Escrow Account and the Refinancing Account contemplated
by the Escrow and Disbursement Agreement or any part thereof, as from time to
time constituted, so as to render the same available for the security and
benefit of this Indenture with respect to, and of, the Notes, according to the
intent and purposes expressed in the Escrow and Disbursement Agreement. The
Company shall take any and all actions reasonably required to cause the Escrow
and Disbursement Agreement to create and maintain (to the extent possible under
applicable law), as security for the obligations of the Company hereunder, a
valid and enforceable perfected first priority Lien in and on all the amounts
deposited in the Escrow Account and Refinancing Account, in favor of the
Indenture Trustee for the benefit of the Holders of Notes, superior to and prior
to the rights of all third Persons and subject to no other Liens.
Section 10.02. Recording and Opinions.
(a) The Company shall furnish to the Indenture Trustee simultaneously
with the execution and delivery of this Indenture an Opinion of Counsel either
(i) stating that in the opinion of such counsel all action has been taken with
respect to the recording, registering and filing of this Indenture, financing
statements or other instruments necessary to make effective the Lien intended to
be created by the Escrow and Disbursement Agreement, and reciting with respect
to the security interests in the Escrow Account and Refinancing Account, the
details of such action, or (ii)
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stating that, in the opinion of such counsel, no such action is necessary to
make such Lien effective.
(b) The Company shall furnish to the Escrow Agent and the Indenture
Trustee on October 28, 1997, and on each October 28 thereafter until the date
upon which the balance of Escrow Account Available Funds and Refinancing Account
Available Funds shall have been reduced to zero, an Opinion of Counsel, dated as
of such date, either (i) stating that (A) in the opinion of such counsel, action
has been taken with respect to the recording, registering, filing, re-recording,
re-registering and refiling of all supplemental indentures, financing
statements, continuation statements or other instruments of further assurance as
is necessary to maintain the Lien of the Escrow and Disbursement Agreement and
reciting with respect to the security interests in the Escrow Account and the
Refinancing Account the details of such action or referring to prior Opinions of
Counsel in which such details are given and (B) based on relevant laws as in
effect on the date of such Opinion of Counsel, all financing statements and
continuation statements have been executed and filed that are necessary as of
such date and during the succeeding 12 months fully to preserve and protect, to
the extent such protection and preservation are possible by filing, the rights
of the Holders of Notes and the Indenture Trustee hereunder and under the Escrow
and Disbursement Agreement with respect to the security interests in the Escrow
Account and the Refinancing Account or (ii) stating that, in the opinion of such
counsel, no such action is necessary to maintain such Lien and assignment.
Section 10.03. Release of Amounts Deposited in the Escrow Account or
the Refinancing Account.
(a) Subject to subsections (b), (c) and (d) of this Section 10.03,
amounts in the Escrow Account or the Refinancing Account may be released from
the Lien and security interest created by the Escrow and Disbursement Agreement
only in accordance with the provisions of the Escrow and Disbursement Agreement.
(b) Except to the extent that any Lien on proceeds of the Escrow
Account or the Refinancing Account is automatically released by operation of
Section 9-306 of the Uniform Commercial Code or other similar law, no amounts
deposited in the Escrow Account or the Refinancing Account shall be released
from the Lien and security interest created by the Escrow and Disbursement
Agreement pursuant to the provisions of the Escrow and Disbursement Agreement,
other than pursuant to the terms thereof, unless there shall have been delivered
to the Indenture Trustee the certificate required by Section 10.03(d) and
Section 10.04.
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(c) At any time when an Event of Default shall have occurred and be
continuing and the maturity of the Notes issued on the Issue Date shall have
been accelerated (whether by declaration or otherwise), no amounts deposited in
the Escrow Account or the Refinancing Account shall be released pursuant to the
provisions of the Escrow and Disbursement Agreement, and no release of amounts
deposited in the Escrow Account or the Refinancing Account in contravention of
this Section 10.03(c) shall be effective as against the Holders of Notes, except
for the disbursement of all Escrow Account Available Funds and Refinancing
Account Available Funds to the Indenture Trustee pursuant to Section 6(b) of the
Escrow and Disbursement Agreement.
(d) The release of any amounts deposited in the Escrow Account or the
Refinancing Account from the Liens and security interests created by this
Indenture and the Escrow and Disbursement Agreement shall not be deemed to
impair the security under this Indenture in contravention of the provisions
hereof if and to the extent the amounts deposited in the Escrow Account or the
Refinancing Account are released pursuant to the terms hereof or, subject to
complying with the requirements of this Section 10.03, pursuant to the terms of
the Escrow and Disbursement Agreement. To the extent applicable, the Company
shall cause TIA (S) 314(d) relating to the release of property or securities
from the Lien and security interest of the Escrow and Disbursement Agreement to
be complied with. Any certificate or opinion required by TIA (S) 314(d) may be
made by an Officer of the Company except in cases where TIA (S) 314(d) requires
that such certificate or opinion be made by an independent Person, which Person
shall be an independent engineer, appraiser or other expert selected or approved
by the Indenture Trustee in the exercise of reasonable care.
Section 10.04. Certificates of the Company.
The Company shall furnish to the Indenture Trustee, prior to any
proposed release of the amounts in the Escrow Account or the Refinancing Account
other than pursuant to the express terms of the Escrow and Disbursement
Agreement, (i) all documents required by Section 314(d) of the TIA and (ii) an
Opinion of Counsel, which may be rendered by internal counsel to the Company, to
the effect that such accompanying documents constitute all documents required by
Section 314(d) of the TIA. The Indenture Trustee may, to the extent permitted
by Sections 7.01 and 7.02, accept as conclusive evidence of compliance with the
foregoing provisions the appropriate statements contained in such documents and
such Opinion of Counsel.
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Section 10.05. Authorization of Actions to be Taken by the Indenture
Trustee Under the Escrow and Disbursement Agreement.
Subject to the provisions of Section 7.01 and 7.02, the Indenture
Trustee may, without the consent of the Holders of Notes, on behalf of the
Holders of Notes, take all actions it deems necessary or appropriate in order to
(a) enforce any of the terms of the Escrow and Disbursement Agreement and (b)
collect and receive any and all amounts payable in respect of the Obligations of
the Company hereunder. The Indenture Trustee shall have power to institute and
maintain such suits and proceedings as it may deem expedient to prevent any
impairment of the Escrow Account or the Refinancing Account by any acts that may
be unlawful or in violation of the Escrow and Disbursement Agreement or this
Indenture, and such suits and proceedings as the Indenture Trustee may deem
expedient to preserve or protect its interests and the interests of the Holders
of Notes in the Escrow Account and the Refinancing Account (including power to
institute and maintain suits or proceedings to restrain the enforcement of or
compliance with any legislative or other governmental enactment, rule or order
that may be unconstitutional or otherwise invalid if the enforcement of, or
compliance with, such enactment, rule or order would impair the security
interest hereunder or be prejudicial to the interests of the Holders of Notes or
of the Indenture Trustee).
Section 10.06. Authorization of Receipt of Funds by the Indenture
Trustee Under the Escrow and Disbursement Agreement.
The Indenture Trustee is authorized to receive any funds for the
benefit of the Holders of Notes disbursed under the Escrow and Disbursement
Agreement, and to make further distributions of such funds to the Holders of
Notes according to the provisions of this Indenture.
Section 10.07. Termination of Security Interest.
Upon the earliest to occur of (i) the date upon which the balance of
Escrow Account Available Funds and Refinancing Account Available Funds shall
have been reduced to zero, and (ii) the payment in full of all obligations of
the Company under this Indenture and the Notes, the Indenture Trustee shall, at
the written request and cost of the Company, release the Liens pursuant to this
Indenture and the Escrow and Disbursement Agreement upon the Company's
compliance with the provisions of the TIA pertaining to release of collateral.
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ARTICLE 11
MISCELLANEOUS
Section 11.01. Trust Indenture Act Controls.
If any provision of this Indenture limits. qualifies or conflicts with
the duties imposed by TIA (S) 318(c), the imposed duties shall control.
Section 11.02. Notices.
Any notice or communication by the Company or the Indenture Trustee to
the other is duly given if in writing and delivered in Person, by telex,
facsimile or overnight air courier guaranteeing next day delivery, to the
other's address:
If to the Company:
Transtel S.A.
Calle 19N, No. 2-29
40th Floor
Cali, Colombia
Facsimile No.: (572) 667-5423
Attention: Guillermo Lopez, President
If to the Indenture Trustee:
Marine Midland Bank
140 Broadway
12th Floor
New York, New York 10005
Facsimile No.: (212) 658-6425
Attention: Corporate Trust Department - Transtel
The Company or the Indenture Trustee, by notice to the other may
designate additional or different addresses for subsequent notices or
communications.
All notices and communications hereunder shall be deemed to have been
duly given: at the time delivered by hand, if personally delivered; when
answered back, if telexed; when receipt acknowledged, if sent by facsimile; and
upon acknowledgment of receipt by the recipient thereof, if sent by overnight
air courier.
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Any notice or notification to a Holder of a Note shall be given by
overnight air courier guaranteeing next day delivery or by hand to its address
shown on the register kept by the Registrar. Any notice or communication shall
also be so delivered to any Person described in TIA (S) 313(c), to the extent
required by the TIA. Failure to deliver a notice or communication to a Holder
of a Note or any defect in it shall not affect its sufficiency with respect to
other Holders of Notes.
If the Company delivers a notice or communication to Holders of Notes,
it shall deliver a copy to the Indenture Trustee and each Agent at the same
time.
All notices and communications hereunder shall be in English or
accompanied by an English translation.
Section 11.03. Communication by Holders of Notes with Other Holders
of Notes.
Holders of the Notes may communicate pursuant to TIA (S) 312(b) with
other Holders of Notes with respect to their rights under this Indenture or the
Notes. The Company, the Indenture Trustee, the Registrar and anyone else shall
have the protection of TIA (S) 312(c).
Section 11.04. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company to the Indenture
Trustee or any Agent to take any action under this Indenture, the Company shall
furnish to the Indenture Trustee or such Agent:
(a) an Officers' Certificate in form and substance reasonably
satisfactory to the Indenture Trustee or such Agent (which shall include
the statements set forth in Section 11.05) stating that, in the opinion of
the signers, all conditions precedent and covenants, if any, provided for
in this Indenture relating to the proposed action have been satisfied; and
(b) an Opinion of Counsel in form and substance reasonably
satisfactory to the Indenture Trustee or such Agent (which shall include
the statements set forth in Section 11.05) stating that, in the opinion of
such counsel, all such conditions precedent and covenants have been
satisfied.
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Section 11.05. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(a) a statement that the Person making such certificate or opinion has
read such covenant or condition;
(b) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he has made such
examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
satisfied; and
(d) a statement as to whether or not, in the opinion of such Person,
such condition or covenant has been satisfied.
Section 11.06. Rules by Indenture Trustee and Agents.
The Indenture Trustee may make reasonable rules for action by or at a
meeting of Holders of Notes. The Registrar or Paying Agent may make reasonable
rules and set reasonable requirements for its functions.
Section 11.07. No Personal Liability of Partners, Directors,
Officers, Employees and Stockholders.
No director, officer, employee, incorporator or stockholder of the
Company, as such, shall have any liability for any obligations of the Company
under the Notes, this Indenture or the Escrow and Disbursement Agreement or for
any claim based on, in respect of, or by reason of, such obligations or their
creation. Each Holder of the Notes, by accepting a Note, waives and releases
all such liability. The waiver and release are part of the consideration for
issuance of the Notes.
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Section 11.08. Governing Law.
THE LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE
THIS INDENTURE AND THE NOTES WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS.
EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO THE JURISDICTION OF ANY NEW YORK
STATE OR U.S. FEDERAL COURT SITTING IN THE BOROUGH OF MANHATTAN, NEW YORK CITY,
NEW YORK, U.S.A., IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
INDENTURE.
The Company has appointed CT Corporation Systems, Inc., 1633 Broadway,
New York, New York 10019, as its authorized agent ("Authorized Agent") to
receive on its behalf service of copies of the summons and complaints and any
other process which may be served in any legal suit, action or proceeding
arising out of or relating to this Indenture or the Notes which may be
instituted in any federal or state court sitting in The City of New York,
expressly consents to the jurisdiction of any such court in respect of any such
action, and waives any other requirements of or objections to personal
jurisdiction with respect thereto. Such appointment shall be irrevocable for a
period of three years from the Stated Maturity of the Notes. Such service may
be made by delivering a copy of such process to the Company in care of the
Authorized Agent at the address specified above for the Authorized Agent and
obtaining a receipt therefor, and the Company hereby irrevocably authorizes and
directs such Authorized Agent to accept such service on its behalf. The Company
represents and warrants that the Authorized Agent has agreed to act as said
agent for service of process, and agrees that service of process in such manner
upon the Authorized Agent shall be deemed in every respect effective service of
process upon the Company in any such suit, action or proceeding. The Company
further agrees to take any and all actions as may be necessary to maintain such
designation and appointment of such Authorized Agent in full force and effect.
If the Authorized Agent shall cease to act as the Company's agent in The City of
New York for service of process, the Company shall appoint without delay another
such agent and notify the Indenture Trustee of such appointment.
To the extent that the Company or any of its revenues, assets or
properties shall be entitled, with respect to any proceeding at any time brought
against the Company or any of its revenues, assets or properties or with respect
to any suit, action or proceeding at any time brought for the purpose of
enforcing or executing any judgment in any jurisdiction in which any specified
court or other court is located, to any immunity from suit, from the
jurisdiction of any such court, from attachment prior to judgment, from
attachment in aid of execution of judgment, from execution of a judgment or from
any other legal or judicial process or remedy, to the extent of such immunity,
the Company irrevocably agrees not to claim and irrevocably waives such
-95-
<PAGE>
immunity to the fullest extent permitted by the laws of such jurisdiction
(including without limitation, the Foreign Sovereign Immunities Act of 1976 of
the United States).
Section 11.09. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret another indenture, loan or
debt agreement of the Company or its Subsidiaries. Any such indenture, loan or
debt agreement may not be used to interpret this Indenture.
Section 11.10. Successors.
All agreements of the Company in this Indenture and the Notes shall
bind its successors. All agreements of the Indenture Trustee in this Indenture
shall bind its successor.
Section 11.11. Severability.
In case any provision in this Indenture or in the Notes shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
Section 11.12. Counterpart Originals.
The parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together represent the same
agreement.
Section 11.13. Table of Contents, Headings, etc.
The Table of Contents, Cross-Reference Table and Headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part of this Indenture and shall in
no way modify or restrict any of the terms or provisions hereof.
-96-
<PAGE>
SIGNATURES
TRANSTEL S.A.
By: /s/ Guillermo O. Lopez
__________________________________
Name: Guillermo O. Lopez
Title: President and Chief Executive Officer
MARINE MIDLAND BANK
By: /s/ Robert A. Conrad
__________________________________
Name: Robert A. Conrad
Title: Vice President
<PAGE>
EXHIBIT A
---------
CUSIP No.: ___________
TRANSTEL S.A.
12 1/2% SENIOR NOTE DUE 2007
No. ______
TRANSTEL S.A., a sociedad anonima organized under the laws of the
Republic of Colombia (the "Company", which term includes any successor entity),
for value received promises to pay to or registered assigns,
the principal sum of Dollars, on November 1, 2007.
Interest Payment Dates: May 1 and November 1
Record Dates (whether or not a Business Day): April 15 and October 15
Reference is made to the further provisions of this Note contained
herein, which will for all purposes have the same effect as if set forth at this
place.
[The following legend to be placed on each Note that constitutes a Restricted
Security:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD
WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, UNITED STATES
PERSONS EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER (1)
REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE
144A UNDER THE SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED
INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES
ACT) (AN "ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING
THIS SECURITY IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE
SECURITIES ACT, (2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THIS
SECURITY, EXCEPT (A) TO THE ISSUER, OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE
UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A
UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN INSTITUTIONAL
ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES (OR HAS FURNISHED ON
ITS BEHALF BY A U.S. BROKER-DEALER) TO THE INDENTURE TRUSTEE A SIGNED LETTER
CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS
ON TRANSFER OF THIS SECURITY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE
INDENTURE TRUSTEE OR REGISTRAR), (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE
TRANSACTION IN COMPLIANCE WITH RULE 904 PROMULGATED UNDER THE SECURITIES ACT,
(E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE
SECURITIES ACT (IF AVAILABLE) OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT AND (3) AGREES THAT IT WILL GIVE TO EACH
PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE
A-1
<PAGE>
EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS SECURITY WITHIN
TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY, IF THE PROPOSED
TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR TO
SUCH TRANSFER, FURNISH TO THE INDENTURE TRUSTEE AND THE ISSUER SUCH
CERTIFICATIONS, WRITTEN LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF THEM
MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO
AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE
TRANSACTIONS," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM
BY REGULATION S UNDER THE SECURITIES ACT.]
[The following legend to be placed on each Global Note:
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN
DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE
DEPOSITORY TO A NOMINEE OF THE DEPOSITORY, OR BY ANY SUCH NOMINEE OF THE
DEPOSITORY, OR BY THE DEPOSITORY OR NOMINEE OF SUCH SUCCESSOR DEPOSITORY OR ANY
SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A NOMINEE OF SUCH SUCCESSOR
DEPOSITORY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"),
TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT,
AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH
OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY
PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY
AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF
FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT
NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN
SECTION 2.17 OF THE INDENTURE.]
A-2
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Note to be signed
manually or by facsimile by its duly authorized officers and a facsimile of its
corporate seal to be affixed hereto or imprinted herein.
TRANSTEL S.A.
By:___________________________________________
Name:
Title:
Dated: ______ __, ____
CERTIFICATE OF AUTHENTICATION
This is one of the 12 1/2% Senior Notes due 2007 referred to in the
within-mentioned Indenture.
MARINE MIDLAND BANK, as Authenticating Agent
By:___________________________________________
Authorized Signatory
A-3
<PAGE>
(REVERSE OF SECURITY)
12 1/2% Senior Note due 2007
The Company acknowledges that the initial Holder of the Notes is the
Transtel Pass Through Trust, a special purpose Delaware business trust (the
"Trust"). The Trust will purchase the Notes with the proceeds of the sale of
its 12 1/2% Pass Through Trust Certificates due 2007 (the "Certificates").
1. Interest. TRANSTEL S.A., a Sociedad anonima organized under the
law of the Republic of Colombia (the "Company"), promises to pay interest on the
principal amount of this Note at the rate per annum shown above. If the Company
fails to fulfill its obligations under Section 2 or Section 3 of the
Registration Rights Agreement, dated as of October 28, 1997, among the Company,
the Trust and the Initial Purchaser (as defined in the Indenture) (the
"Registration Rights Agreement"), the Company shall pay, as liquidated damages,
additional interest on the Notes ("Additional Interest") as follows (each such
-------------------
event referred to in clauses (i) through (iii) below, a "Registration Default"
--------------------
and each of which shall be given independent effect):
(i) if the Exchange Offer Registration Statement (as defined in the
Registration Rights Agreement) has not been filed on or prior to the 150th
day following the Issue Date, then commencing on the 151st day after the
Issue Date, Additional Interest shall accrue on the Notes over and above
the accrued interest at a rate of 0.50% per annum for the first 90 days
immediately following such 151st day;
(ii) if the Exchange Offer Registration Statement is not declared
effective by the SEC on or prior to the 210th day following the Issue Date,
then commencing on the 211th day after the Issue Date, Additional Interest
shall accrue on the Notes included or which should have been included in
such Registration Statement over and above the accrued interest at a rate
of 0.50% per annum for the first 90 days immediately following such 211th
day; and
(iii) if (A) the Trust has not exchanged Exchange Certificates (as
defined in the Registration Rights Agreement) for all Certificates validly
tendered in accordance with the terms of the Exchange Offer (as defined in
the Registration Rights Agreement), (B) the Shelf Registration Statement
(as defined in the Registration Rights Agreement) is not filed on or prior
to the 30th day following delivery of the Shelf Notice (as defined in the
Registration Rights Agreement), (C) the Shelf Registration Statement is not
declared effective on or prior to the 60th day following the delivery of
the Shelf Notice or (D) the Exchange Offer Registration Statement or the
Shelf Registration Statement, as the case may be, has been declared
effective and ceases to be effective, then Additional Interest shall accrue
on the
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<PAGE>
Notes over and above the accrued interest at a rate of 0.50% per annum for
the first 90 days commencing on the day after such Registration Default;
such Additional Interest rate, in the case of each of (i), (ii) and (iii) above,
to increase by an additional 0.50% per annum at the beginning of each subsequent
90-day period; provided, however, that in no event shall the amount of
-------- -------
Additional Interest exceed 2.00% in the aggregate pursuant to this Section 1;
provided further, that (1) upon the filing of the Exchange Offer Registration
- ----------------
Statement (in the case of clause (i) of this Section 1), (2) upon the
effectiveness of the Exchange Offer Registration Statement (in the case of
clause (ii) of this Section 1), or (3) upon the exchange of Exchange
Certificates for all Certificates tendered (in the case of clause (iii)(A) of
this Section 1), the filing of the Shelf Registration Statement (in the case of
clause (iii)(B) of this Section 1), the effectiveness of the Shelf Registration
Statement (in the case of clause (iii)(C) of this Section 1), or upon the
effectiveness of the Exchange Offer Registration Statement or the Shelf
Registration Statement, as the case may be, which had ceased to remain effective
(in the case of clause (iii)(D) of this Section 1), Additional Interest on the
Notes as a result of such clause (or the relevant subclause thereof), as the
case may be, shall cease to accrue; provided, however, that at such time as the
Shelf Registration Statement or the Exchange Offer Registration Statement, as
the case may be, shall again cease to remain effective, Additional Interest
shall resume to accrue in the manner and for the time periods specified above.
Interest on the Notes will accrue from the most recent date on which
interest has been paid or, if no interest has been paid, from October 28, 1997.
The Company will pay interest and Additional Interest, if any, semi-annually in
arrears on each Interest Payment Date, commencing May 1, 1998. Interest will be
computed on the basis of a 360-year of twelve 30-day months and, in the case of
a partial month, the actual number of days elapsed. The Company shall pay
interest on overdue principal and on overdue installments of interest (without
regard to any applicable grace periods) from time to time on demand at the rate
borne by the Notes plus 2% per annum, to the extent lawful.
2. Method of Payment. The Company shall pay interest on the Notes
(except defaulted interest) or on Additional Interest, if any, in respect of the
Notes to the Persons who are the registered Holders at the close of business on
the Record Date immediately preceding the Interest Payment Date even if the
Notes are canceled on registration of transfer or registration of exchange after
such Record Date. Holders must surrender Notes to a Paying Agent to collect
principal payments. The Company shall pay principal and interest in money of
the United States that at the time of payment is legal tender for payment of
public and private debts ("U.S. Legal Tender"). However, the Company may pay
principal and interest by its check payable in such U.S. Legal Tender. The
Company may deliver any such interest payment to the Paying Agent or to a Holder
at the Holder's registered address.
A-5
<PAGE>
3. Paying Agent and Registrar. Initially, Marine Midland Bank will
act as Paying Agent and Registrar. The Company may change any Paying Agent or
Registrar without notice to the Holders.
4. Indenture. The Company issued the Notes under an Indenture,
dated as of October 28, 1997 (the "Indenture"), between the Company and Marine
Midland Bank, as Indenture Trustee (the "Indenture Trustee"). This Note is one
of a duly authorized issue of Notes of the Company designated as its 12 1/2%
Senior Notes due 2007 (the "Notes"). The Notes are limited in aggregate
principal amount to $180,000,000, except as otherwise provided in the Indenture.
The Notes are treated as a single class of securities under the Indenture.
Capitalized terms herein are used as defined in the Indenture unless otherwise
defined herein. The terms of the Notes include those stated in the Indenture
and those made part of the Indenture by reference to the Trust Indenture Act of
1939 (15 U.S. Code (S)(S) 77aaa-77bbbb) (the "TIA"), as in effect on the date of
the Indenture. Notwithstanding anything to the contrary herein, the Notes are
subject to all such terms, and Holders of Notes are referred to the Indenture
and said Act for a statement of them. The Notes are general unsecured
obligations of the Company.
5. Optional Redemption. (a) The Notes will not be redeemable at the
Company's option prior to November 1, 2002. Thereafter, the Notes will be
subject to redemption at the option of the Company, in whole or in part, upon
not less than 30 nor more than 60 days notice, at the redemption prices
(expressed as percentages of principal amount) set forth below plus accrued and
unpaid interest thereon to the applicable redemption date, if redeemed during
the twelve-month period beginning on November 1 of the years indicated below:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2002...................... 106.250%
2003...................... 104.688%
2004...................... 103.125%
2005...................... 101.565%
2006 and thereafter....... 100.000%.
</TABLE>
(b) Optional Redemption Upon Sale of Equity to Strategic Equity
Investor. Notwithstanding the foregoing, in the event of the sale by the
Company prior to November 1, 2000 of at least $25.0 million of its Capital Stock
(other than Disqualified Stock) in one or more Public Equity Offerings, or to
one or more Strategic Equity Investors, the Company may, at its option, use the
Net Cash Proceeds of such sale or sales of Capital Stock to redeem up to 35% of
the Notes at a redemption price equal to 112.50% of the principal amount thereof
plus accrued and unpaid interest thereon, if any, to the date of redemption;
provided that at least 65% of the initial principal amount of the Notes
(including in such initial principal amount, the initial principal amount of any
Additional Notes issued as contemplated by Section 2.02 of the Indenture, if
issued prior to the date of redemption pursuant to this paragraph) remains
outstanding immediately after such redemption. In
A-6
<PAGE>
order to effect the foregoing redemption with the proceeds of any such sale of
Capital Stock (other than Disqualified Stock), the Company shall make such
redemption not more than 120 days after the consummation of any such sale of
Capital Stock.
The Notes are not entitled to the benefit of any sinking fund.
6. Notice of Redemption. Notice of redemption will be mailed at
least 30 days but not more than 60 days before the Redemption Date to each
Holder of Notes to be redeemed at such Holder's registered address. Notes in
denominations larger than $1,000 may be redeemed in part.
Except as set forth in the Indenture, if monies for the redemption of
the Notes called for redemption shall have been deposited with the Paying Agent
for redemption on such Redemption Date, then, unless the Company defaults in the
payment of such Redemption Price plus accrued interest, if any, the Notes called
for redemption will cease to bear interest from and after such Redemption Date
and the only right of the Holders of such Notes will be to receive payment of
the Redemption Price plus accrued interest, if any.
7. Offers to Purchase. Sections 4.12 and 4.18 of the Indenture
provide that, after certain Asset Sales (as defined in the Indenture) and upon
the occurrence of a Change of Control (as defined in the Indenture) subject to
further limitations contained therein, the Company will make an offer to
purchase certain amounts of the Notes in accordance with the procedures set
forth in the Indenture.
8. Denominations; Transfer; Exchange. The Notes are in registered
form, without coupons, in denominations of $1,000 and integral multiples of
$1,000. A Holder shall register the transfer of or exchange Notes in accordance
with the Indenture. The Registrar may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and to pay certain
transfer taxes or similar governmental charges payable in connection therewith
as permitted by the Indenture. The Registrar need not resister the transfer of
or exchange of any Notes or portions thereof selected for redemption.
9. Persons Deemed Owners. The registered Holder of a Note shall be
treated as the owner of it for all purposes.
10. Unclaimed Money. If money for the payment of principal or
interest remains unclaimed for two years after such principal or interest has
become due and payable, the Indenture Trustee and the Paying Agent will pay such
money back to the Company. After that, all liability of the Indenture Trustee
and such Paying Agent with respect to such money shall cease.
11. Discharge Prior to Redemption or Maturity. If the Company at any
time deposits with the Indenture Trustee U.S. Legal Tender or U.S. Government
Obligations sufficient
A-7
<PAGE>
to pay the principal of and interest on the Notes to redemption or maturity and
complies with the other provisions of the Indenture relating thereto, the
Company will be discharged from certain provisions of the Indenture and the
Notes (including certain covenants, but excluding its obligation to pay the
principal of and interest on the Notes).
12. Amendment; Supplement; Waiver. Subject to certain exceptions set
forth in the Indenture, the Indenture or the Notes may be amended or
supplemented with the written consent of the Holders of not less than a majority
in aggregate principal amount of the Notes then outstanding, and any past
Default or Event of Default or noncompliance with any provision may be waived
with the written consent of the Holders of not less than a majority in aggregate
principal amount of the Notes then outstanding. Without notice to or consent of
any Holder, the parties thereto may amend or supplement the Indenture or the
Notes to, among, other things, cure any ambiguity, defect or inconsistency,
provide for uncertificated Notes in addition to or in place of certificated
Notes, or comply with Article 5 of the Indenture or make any other change that
does not adversely affect the rights of any Holder of a Note.
13. Restrictive Covenants. The Indenture imposes certain limitations
on the ability of the Company and its Subsidiaries to, among other things, incur
additional Indebtedness, make payments in respect of its Capital Stock or
certain Indebtedness, make certain Investments, incur liens, enter into
transactions with Affiliates, create dividend or other payment restrictions
affecting Subsidiaries, issue Preferred Stock of its Subsidiaries, merge or
consolidate with any other Person, sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of its assets or adopt a plan of
liquidation. Such limitations are subject to a number of important
qualifications and exceptions. Pursuant to Section 4.04 of the Indenture, the
Company must annually report to the Indenture Trustee on compliance with such
limitations.
14. Successors. When a successor assumes, in accordance with the
Indenture, all the obligations of its predecessor under the Notes and the
Indenture, the predecessor, subject to certain exceptions, will be released from
those obligations.
15. Defaults and Remedies. If an Event of Default occurs and is
continuing, the Indenture Trustee or the Holders of not less than 25% in
aggregate principal amount of Notes then outstanding may declare all the Notes
to be due and payable in the manner, at the time and with the effect provided in
the Indenture. Holders of Notes may not enforce the Indenture or the Notes
except as provided in the Indenture. The Indenture Trustee is not obligated to
enforce the Indenture or the Notes unless it has received indemnity reasonably
satisfactory to it. The Indenture permits, subject to certain limitations
therein provided, Holders of a majority in aggregate principal amount of the
Notes then outstanding to direct the Indenture Trustee in its exercise of any
trust or power. The Indenture Trustee may withhold from Holders of Notes notice
of any continuing Default or Event of Default (except a Default in payment of
principal or interest when due, for any reason or a Default in compliance with
Article 5 of the Indenture) if it determines that withholding notice is in their
interest.
A-8
<PAGE>
16. Indenture Trustee Dealings with Company. The Indenture Trustee
under the Indenture, in its individual or an other capacity, may become the
owner or pledgee of Notes and may otherwise deal with the Company, its
Subsidiaries or their respective Affiliates as if it were not the Indenture
Trustee.
17. No Recourse Against Others. No stockholder, director, officer,
employee or incorporator, as such, of the Company shall have any liability for
any obligation of the Company under the Notes or the Indenture or for any claim
based on, in respect of or by reason of, such obligations or their creation.
Each Holder of a Note by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for the
issuance of the Notes.
18. Authentication. This Note shall not be valid until the Indenture
Trustee or Authentication Agent manually signs the certificate of authentication
on this Note.
19. Governing Law. This Note and the Indenture shall be governed by
and construed in accordance with the laws of the State of New York, without
regard to principles of conflict of laws.
20. Abbreviations and Defined Terms. Customary abbreviations may be
used in the name of a Holder of a Note or an assignee, such as: TEN COM (=
tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint
tenants with right of survivorship and not as tenants in common), CUST (=
Custodian), and U/G/M/A (Uniform Gifts to Minors Act).
21. CUSIP Numbers. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Notes as a convenience to the Holders of the
Notes. No representation is made as to the accuracy of such numbers as printed
on the Notes and reliance may be placed only on the other identification numbers
printed hereon.
22. Indenture. Each Holder, by accepting a Note, agrees to be bound
by all of the terms and provisions of the Indenture, as the same
may be amended from time to time.
The Company will furnish to any Holder of a Note upon written request
and without charge a copy of the Indenture, which has the text of this Note in
larger type. Requests may be made to: Transtel S.A., Calle 19N, No. 2-29, 40th
Floor, Cali, Colombia, Attention: Guillermo Lopez, President.
A-9
<PAGE>
ASSIGNMENT FORM
If you the Holder want to assign this Note, fill in the form below and
have your signature guaranteed:
I or we assign and transfer this Note to:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Print or type name, address and zip code and
social security or tax ID number of assignee)
and irrevocably appoint ________________________________, agent to transfer this
Note on the books of the Company. The agent may substitute another to act for
him.
Dated: ___________________ Signed: ____________________
NOTICE: The signature to any endorsement hereon must
correspond with the name as written upon the face of the
Note in every particular, without alteration or enlargement
or any change whatever.
If the endorsement be executed by an attorney, executor,
administrator, trustee or guardian, the person executing the
endorsement must give his full title in such capacity and
proper evidence of authority to act in such capacity, if not
on file with the Note, must be forwarded with this Note.
(Sign exactly as your name appears
on the other side of this Note)
Signature guarantee: __________________
All endorsements or assignments of the Note must be
guaranteed by an "eligible guarantor institution"
(including, but not limited to, a
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<PAGE>
New York Stock Exchange member firm or member of the
Clearing House of the American Stock Exchange Clearing
Corporation or by bank or trust company having an office or
correspondent in The City of New York) meeting the
requirements of the Indenture Trustee, which requirements
will include membership or participation in STAMP or such
other "signature guarantee program" as may be determined by
the Indenture Trustee in addition to, or in substitution
for, STAMP, all in accordance with the Securities Exchange
Act of 1934, as amended.
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<PAGE>
[OPTION OF HOLDER TO ELECT PURCHASE]
If you want to elect to have this Note purchased by the Company
pursuant to Section 4.12 or 4.18 of the Indenture, check the appropriate box:
Section 4.12 [ ]
Section 4.18 [ ]
If you want to elect to have only part of this Note purchased by the
Company pursuant to Section 4.12 or 4.18 of the Indenture, state the amount you
elect to have purchased:
$___________________
Dated: _____________ ______________________________
NOTICE: The signature to any endorsement hereon must
correspond with the name as written upon the face of
the Note in every particular, without alteration or
enlargement or any change whatever.
If the endorsement be executed by an attorney,
executor, administrator, trustee or guardian, the
person executing the endorsement must give his full
title in such capacity and proper evidence of
authority to act in such capacity, if not on file with
the Note, must be forwarded with this Note.
Signature guarantee: ____________________________________
All endorsements or assignments of the Note must be
guaranteed by an "eligible guarantor institution"
(including, but not limited to, a New York Stock
Exchange member firm or member of the Clearing House
of the American Stock Exchange Clearing Corporation or
by bank or trust company having an office or
correspondent in The City of New York) meeting the
requirements of the Indenture Trustee, which
requirements will include membership or participation
in STAMP or such other "signature guarantee program"
as may be determined by the Indenture Trustee in
addition to, or in substitution for, STAMP, all in
accordance with the Securities Exchange Act of 1934,
as amended.
A-12
<PAGE>
EXHIBIT B
FORM OF INTERCOMPANY NOTE
In the city of Cali, Colombia, this ___ ( ) day of the month of ______, of
one thousand nine hundred and ninety seven (1997), the undersigned, [NAME OF
RESTRICTED SUBSIDIARY], (hereinafter referred to as "THE COMPANY"), incorporated
on ________, through Public Deed No.___ issued by the _________ Notary Public
Office of _______, and registered before the Mercantile Registry of the Chamber
of Commerce of _____ on ____________________ under number ______, Volume ___,
being represented in this act by ____________________ identified with
citizenship identification card No. _______________________ of legal age,
domiciled in the city of _____, in his capacity as its manager and legal
representative pursuant to the corporate by-laws of the corporation as evidenced
in the certificate of compliance which is attached hereto as an integral part of
this Promissory Note, shall pay unconditionally to TRANSTEL S.A. or to its
order, the sum of ____________ DOLLARS OF THE UNITED STATES OF AMERICA ( ), on
____ of ________, one thousand nine hundred ninety _________ ( ), unless the
payment of this Promissory Note is accelerated prior thereto as described below.
[The rate of exchange to be used to be defined].
The COMPANY promises to pay ________ ( %) interest on the unpaid principal
amount hereof in like manner at the offices of TRANSTEL S.A. in Cali, Colombia
from the date hereof until the principle amount hereof is fully paid.
In the event of delayed payment, the COMPANY shall pay interest at the rate of
_________ percent ( %) from the date on which payment is due until the amount
due is fully paid.
This Promissory Note evidences certain permitted Intercompany Indebtedness
referred to in the Indenture dated as of October 28, 1997 between TRANSTEL S.A.
and Marine Midland Bank as trustee (as amended modified or supplemented from
time to time, the Indenture) and is subject to the provisions thereof, and shall
be pledged by TRANSTEL S.A. pursuant to the PLEDGE AGREEMENT (as defined in the
Indenture). The COMPANY hereby acknowledges and agrees that the PLEDGEE pursuant
to and as
<PAGE>
defined in the PLEDGE AGREEMENT as in effect from time to time, may exercise all
rights provided therein with respect to this Promissory Note.
This Promissory Note shall automatically become due and payable upon the
acceleration of the 12.5% Senior Notes due 2007 issued by TRANSTEL S.A. under
the Indenture.
This Promissory Note represents a senior unsecured obligation of the COMPANY and
ranks senior in right of payment to all existing and future subordinated
indebtedness of the company and ranks pari passu with all existing and future
senior indebtedness of the COMPANY.
In witness whereof, this negotiable instrument is executed on the date above
written.
The Restricted Subsidiary,
____________________________________
Name of the Restricted Subsidiary
MMI/SJS
10355/201
<PAGE>
EXHIBIT C
PLEDGE AGREEMENT
This PLEDGE AGREEMENT (the "AGREEMENT") is made and entered into as of the 28th
day of the month of October, of one thousand nine hundred and ninety seven
(1997), by and between MARINE MIDLAND BANK, not in its individual capacity but
solely as collateral agent for the benefit of the holders of the Senior Notes
(hereinafter referred to as the "PLEDGEE") a banking corporation and trust
company domiciled in 140 Broadway, New York, NY 10005, United States of
America, incorporated under the laws of the State of New York, United States of
America, on December 31, 1993, being represented in this act by Robert Conrad,
of legal age, domiciled in the city of New York, in his capacity as (capacity
of the person executing the pledge) pursuant to the corporate by-laws of the
corporation; and, TRANSTEL S.A., (hereinafter referred to as the "PLEDGOR"), a
corporation domiciled in Cali, Colombia, incorporated on August 23, 1993,
through Public Deed No. 3097 issued by the Fourteenth Notary Public Office in
Cali, and registered before the Mercantile Registry of the Chamber of Commerce
of Cali on September 10, 1993 under number 69826, Volume IX, and Tax
Identification Number 800.206.541-0, being represented in this act by GUILLERMO
O. LOPEZ ESQUIVEL, of legal age, domiciled in the city of Cali, identified with
citizen identification card number 16.614.481 issued in Cali, in his capacity
as manager and legal representative of the corporation pursuant to the
corporate by-laws of the corporation as evidenced in the certificate of
compliance which is attached hereto as an integral part of this AGREEMENT.
<PAGE>
-2-
WHEREAS, the PLEDGOR has entered into an Indenture, dated as of October 28,
1997, (as amended, modified or supplemented from time to time, the "Indenture"),
with Marine Midland Bank, as trustee (together with any successor thereto
pursuant to the terms of the Indenture, the "Trustee"), providing for the
issuance by the PLEDGOR of up to $180.000.000 principal amount of its 12.5k
Senior Notes due 2007 (as amended, modified or supplemented from time to time,
the "Senior Notes"), the holders from time to time of the Senior Notes being
hereinafter called the "Noteholders";
WHEREAS, the PLEDGOR has issued initially US$150.000.000 principal amount
of Senior Notes, under a private placement in the State of New York, United
States of America, the 28th day of the month of October, of one thousand nine
hundred and ninety seven (1997) (hereinafter referred to as the "Issue");
WHEREAS, the net proceeds of the Issue will be used by the PLEDGOR as
described in the final Offering Memorandum, dated October 21, l997, including
the making of intercompany loans to its Restricted Subsidiaries (as defined in
the Indenture);
WHEREAS, the PLEDGOR will grant to the PLEDGEE for the benefit of the
Noteholders, in order to secure the PLEDGOR's obligations under the Senior
Notes, a pledge of all of the Intercompany Notes (as defined in the Indenture
issued by its Restricted Subsidiaries to secure loans made by the PLEDGOR to
such Restricted Subsidiaries with the proceeds of the Senior Notes;
<PAGE>
-3-
WHEREAS, these Intercompany Notes evidence certain permitted Intercompany
Indebtedness of each Restricted Subsidiary:
WHEREAS, it is a condition precedent to the issuance of the Senior Notes
pursuant to the Indenture, that the PLEDGOR shall have executed and delivered to
the PLEDGEE this AGREEMENT;
WHEREAS, the PLEDGOR desires to execute this AGREEMENT to satisfy the
conditions described in the preceding paragraph;
THE PLEDGOR AND THE PLEDGEE; HEREBY AGREE; AS FOLLOWS:
All capitalized words not defined herein shall have the meaning assigned to
them in the Indenture.
CLAUSE ONE (1): The PLEDGOR in accordance with the Colombian Commercial
Code (articles 1200 to 1206) hereby constitute a Closed Pledge with Tenancy in
favor of THE PLEDGEE over all INTERCOMPANY NOTES at any time issued to the
PLEDGOR by its Restricted Subsidiaries, which INTERCOMPANY NOTES shall be in the
form of Exhibit A hereto.
Thus, the PLEDGOR assigns to the PLEDGEE the power to collect the same at
their maturity with the specific purpose that said sums secure the prompt
payment of any and all amounts owed under the Senior Notes including, without
limitation, principal, interest, default interest, taxes, commissions, and all
other expenses incurred by the PLEDGEE (including attorneys fees in the event of
a judicial claim).
<PAGE>
-4-
The PLEDGEE is expressly and irrevocably authorized to apply any amounts that
it receives, to the payment o$ any obligations under the Senior Notes. However
if the amounts recovered under this Pledge are insufficient to pay the
obligations under the Senior Notes THE PLEDGOR shall be obligated to pay such
amounts as remain outstanding
CLAUSE TWO (2): This AGREEMENT shall secure the obligation consisting of
the full and prompt payment when due by the PLEDGOR of: (i) the principal amount
of the Senior Notes, payable on November 1, 2007, or in the event of a
redemption or acceleration or otherwise, each in accordance with the terms of
the Indenture, and (ii) the semi-annual payment of the interest accrued on the
Senior Notes at the rate of 12.5%, commencing on May 1, 1998. However, this
pledge shall be in effect for so long as there are any amounts outstanding under
the Senior Notes.
CLAUSE THREE (3): The signatories of this AGREEMENT agree that the
following shall constitute events of default under this AGREEMENT ( each such
event hereinafter referred to as an "Event of) Default"): (i) an Event of
Default (as defined in the Indenture) occurs under the Indenture and such Event
of Default is continuing, (ii) if in the opinion of the PLEDGEE, there is any
deterioration of the value of the Intercompany Notes given in pledge. and (iii)
if there shall be any material adverse change in the financial condition of the
PLEDGOR.
CLAUSE FOUR (4): Upon the occurrence of any Event of Default, the PLEDGEE
may exercise any and all of the following rights and remedies: (i) declare all
indebtedness secured hereby, or any part thereof, immediately due and
<PAGE>
-5-
payable without demand or notice and proceed to collect the same, this exercise
any or all of the rights, powers and remedies with respect to the Intercompany
Notes available under the Colombian Commercial Code or Civil Procedure Code,
(iii) receive directly all amounts payable in respect of the Intercompany Notes
to the PLEDGOR, (iv) transfer all or any part of the Intercompany Notes into the
PLEDGEE's name or the name of its nominee or nominees, and (v) accelerate any
Intercompany Note which may be accelerated in accordance with its terms, and
take any other action to collect upon any Intercompany Note (including without
limitation to make any demand for payment thereon).
CLAUSE FIVE (5): The PLEDGOR hereby represents and warrants to the PLEDGEE
that: (i) it is the legal owner of record and beneficial owner of, and has a
good and marketable title to, all Intercompany Notes pledged by it hereunder,
subject to no pledge, lien, mortgage, hypothecation or security interest, except
as created by this AGREEMENT; (ii) it has full power, authority, and legal right
to pledge all of the Intercompany Notes pledged by it pursuant to this
AGREEMENT, (iii) this AGREEMENT has been duly authorized, executed and delivered
by the PLEDGOR and constitutes a legal, binding obligation of the PLEDGOR
enforceable in accordance with its terms, (iv) no consent of any other party
(including without limitation, any stockholder or creditor of the PLEDGOR or any
of its Restricted Subsidiaries) and its consent, license, permit, approval, or
authorization of exemption by, notice or report to, or registration, filing or
declaration with any governmental authority is required to be obtained by the
PLEDGOR in connection with the execution, delivery or performance of this
AGREEMENT, (iv) the execution, delivery and performance of this AGREEMENT does
not violate any provision of
<PAGE>
-6-
any applicable law or regulation or of any order of any judge, arbitrator or
governmental authority, domestic or foreign, or of the by-laws of the PLEDGOR
or its Restricted Subsidiaries, or of any mortgage, indenture, lease, deed of
trust, loan agreement, credit agreement, or other material agreement,
instrument or undertaking to which the Pledgor or any of its Restricted
Subsidiaries is a party or which purports to be binding upon the PLEDGOR or any
of its Restricted Subsidiaries or upon any of their respective assets, and will
not result in the creation or impression of any lien or encumbrance on any of
the assets of the PLEDGOR or any of its Restricted Subsidiaries except as
contemplated by this AGREEMENT, each of the Intercompany Notes when executed by
the relevant Restricted Subsidiary thereof will be a legal valid and binding
obligation of such Restricted Subsidiary, and (vi) the pledge of the
Intercompany Notes to the PLEDGEE pursuant to this AGREEMENT, together with the
delivery of the Intercompany Notes to the PLEDGEE pursuant to this AGREEMENT,
creates a valid and perfected first priority security interest in such
Intercompany Notes and the proceeds thereof, subject to no prior lien or
encumbrance or to any agreement purporting to grant to any third party a lien
or encumbrance on the property or assets of the PLEDGOR which would include the
Intercompany Notes.
CLAUSE SIX (6): The PLEDGOR covenants and agrees that it will defend the
PLEDGEE's right, title, and security interest in and to the Intercompany Notes
and the proceeds thereof against the claims and demands of all persons
whomsoever.
CLAUSE SEVEN (7): when all the liabilities specified in CLAUSE TWO (2)
hereof shall have been paid in full, this AGREEMENT shall terminate, and the
PLEDGEE shall
<PAGE>
-7-
deliver to the PLEDGOR the pledged Intercompany Notes then held by it.
CLAUSE EIGHT (8): This AGREEMENT shall in a11 respects be construed in
accordance with and governed by the laws of the Republic of Colombia.
CLAUSE NINE (9): The PLEDGOR agrees that it will join with the PLEDGEE in
executing and, at the PLEDGOR's own expense, file such documents ae the PLEDGEE
may deem necessary or sand wherever required or permitted by law in order to
perfect and preserve the PLEDGEE's security interest in the Intercompany Notes,
and agrees to do such further acts and things and to execute and deliver to the
PLEDGEE such additional conveyances, assignments, agreements, and instruments as
the PLEDGEE may reasonably require or deem advisable to carry into effect the
purposes of this AGREEMENT or to further assure and confirm unto the PLEDGEE its
rights, powers and remedies hereunder.
IN WITNESS WHEREOF the parties hereto have executed this AGREEMENT THE DAY AND
YEAR FIRST ABOVE WRITTEN.
<PAGE>
-8-
TRANSTEL, S.A.,
/s/ GUILLERMO O. LOPEZ ESQUIVEL
- ----------------------------------------
GUILLERMO O. LOPEZ ESQUIVEL
Legal Representative
MARINE MIDLAND BANK, as collateral
agent for the benefit of the holders
of the Senior Notes.
/s/ ROBERT A. CONRAD
- ----------------------------------------
ROBERT A. CONRAD
Vice President
<PAGE>
EXHIBIT D
---------
FORM OF SUBSIDIARIES GUARANTEE
------------------------------
SUBSIDIARIES GUARANTEE, dated as of __________, __ _____ (as amended,
modified or supplemented from time to time, this "Guarantee"), made by
____________ (the "Guarantor"). Except as otherwise defined herein, capitalized
terms used herein and defined in the Indenture (as defined below) shall be used
herein as thereon defined.
W I T N E S S E T H:
-------------------
WHEREAS, this agreement is entered into in connection with the Indenture,
dated as of October 28, 1997, between Transtel S.A., a Colombian corporation
(the "Borrower"), and Marine Midland Bank, as trustee (the "Indenture Trustee"),
pursuant to which the Borrower issued its 12 1/2% Senior Notes due 2007 (the
"Notes");
WHEREAS, under Section 4.15 of the Indenture, the Guarantor is not
permitted to guarantee any indebtedness of the Borrower, unless, among other
things, the Guarantor simultaneously executes and delivers a guarantee in the
form of this Guarantee in favor of the Indenture Trustee for the benefit of the
Holders (the "Secured Creditors"), under which the Guarantor (i) guarantees the
due, full and punctual payment of the principal, premium, if any, and interest
on the Notes, whether at stated maturity or interest payment date, by
acceleration, call for redemption or otherwise, (b) the due and punctual payment
of interest on the overdue principal of and interest, if any, on the Notes, to
the extent lawful, and (c) in case of any extension of time of payment or
renewal of any Notes, the same will be promptly paid in full when due or
performed in accordance with the terms of the extension or renewal, whether at
stated maturity by acceleration or otherwise and (ii) agrees to pay any and all
costs and expenses (including reasonable attorneys' fees) incurred by the
Indenture Trustee or any Holder in enforcing any rights under this Guarantee
(together, the "Indenture Obligations").
WHEREAS, the Guarantor is a direct or indirect Subsidiary of the Borrower;
WHEREAS, the Guarantor desires to execute this Guarantee in order to
satisfy the conditions described in the preceding paragraphs;
<PAGE>
EXHIBIT D
Page 2
NOW, THEREFORE, in consideration of the foregoing and other benefits
accruing to the Guarantor, the receipt and sufficiency of which are hereby
acknowledged, the Guarantor hereby makes the following representations and
warranties to the Secured Creditors and hereby covenants and agrees with each
Secured Creditor as follows:
1. The Guarantor irrevocably, absolutely and unconditionally
guarantees: to the Secured Creditors the full and prompt payment when due
(whether at the stated maturity, by acceleration or otherwise) of the Indenture
Obligations and all other obligations, liabilities and indebtedness owing by the
Borrower to the Secured Creditors under the Indenture (including, without
limitation, indemnities, fees and interest thereon), whether now existing or
hereafter incurred under, arising out of or in connection with the Indenture and
the due performance and compliance by the Borrower with all of the terms,
conditions and agreements contained in the Indenture (all such principal,
interest, liabilities, indebtedness and obligations being herein collectively
called the "Guaranteed Obligations"), whether now in existence or hereafter
arising. The Guarantor understands, agrees and confirms that the Secured
Creditors may enforce this Guarantee up to the full amount of the Guaranteed
Obligations against the Guarantor without proceeding against any other
guarantor, the Borrower, against any security for the Guaranteed Obligations, or
under any other guaranty covering all or a portion of the Guaranteed
Obligations. This Guarantee shall constitute a guaranty of payment, and not of
collection.
2. The liability of the Guarantor hereunder is primary, absolute and
unconditional and is exclusive and independent of any security for or other
guaranty of the indebtedness of the Borrower or any Subsidiary thereof whether
executed by the Guarantor, any other guarantor or by any other party, and the
liability of the Guarantor hereunder shall not be affected or impaired by any
circumstance or occurrence whatsoever, including, without limitation: (a) any
direction as to application of payment by the Borrower or any Subsidiary thereof
or by any other party, (b) any other continuing or other guaranty, undertaking
or maximum liability of a guarantor or of any other party as to the Guaranteed
Obligations, (c) any payment on or in reduction of any such other guaranty or
undertaking, (d) any dissolution, termination or increase, decrease or change in
personnel by the Borrower or any Subsidiary thereof, (e) any payment made to any
Secured Creditor which such Secured Creditor repays the Borrower or any
Subsidiary thereof pursuant to court order in any bankruptcy, reorganization,
arrangement, moratorium or other debtor relief proceeding, and the Guarantor
waives any right to the deferral or modification of its obligations hereunder by
reason of any such proceeding, (f) any action or inaction by the Secured
Creditor as contemplated in Section 5 hereof or (g) any invalidity, irregularity
or unenforceability of all or any part of the Guaranteed Obligations or of any
security therefor.
3. The obligations of the Guarantor hereunder are independent of the
obligations of any other guarantor, the Borrower or any Subsidiary thereof, and
a separate
<PAGE>
EXHIBIT D
Page 3
action or actions may be brought and prosecuted against the Guarantor whether or
not action is brought against any other guarantor, the Borrower or any
Subsidiary thereof and whether or not any other guarantor, the Borrower or any
Subsidiary thereof be joined in any such action or actions. The Guarantor
waives, to the fullest extent permitted by law, the benefits of any statute of
limitations affecting its liability hereunder or the enforcement thereof. Any
payment by the Borrower or any Subsidiary thereof or other circumstance which
operates to toll any statute of limitations as to the Borrower or any such
Subsidiary shall operate to toll the statute of limitations as to the Guarantor.
4. The Guarantor hereby waives notice of acceptance of this
Guarantee and notice of any liability to which it may apply, and waives
promptness, diligence, presentment demand of payment, protest, notice of
dishonor or nonpayment of any such liabilities, suit or taking of other action
by the Indenture Trustee or any other Secured Creditor against, and any other
notice to, any party liable thereon (including the Guarantor, any other
guarantor, the Borrower or any Subsidiary thereof).
5. Any Secured Creditor may at any time and from time to time
without the consent of, or notice to, the Guarantor, without incurring
responsibility to the Guarantor, without impairing or releasing the obligations
of the Guarantor hereunder, upon or without any terms or conditions and in whole
or in part:
(a) exercise or refrain from exercising any rights against the
Borrower, any guarantor (including the Guarantor), any Subsidiary thereof
or otherwise act or refrain from acting;
(b) apply any sums by whomsoever paid or howsoever realized to any
liability or liabilities of the Borrower or any Subsidiary thereof to the
Secured Creditors regardless of what liabilities of the Borrower or such
Subsidiary remain unpaid;
(c) consent to or waive any breach of, or any act, omission or
default under, the Indenture or any of the instruments or agreements
referred to therein;
(d) act or fail to act in any manner referred to in this Guarantee
which may deprive the Guarantor of its right to subrogation against the
Borrower or any Subsidiary thereof to recover full indemnity for any
payments made pursuant to this Guarantee; and/or
(e) take any other action which would, under otherwise applicable
principles of common law, give rise to a legal or equitable discharge of
the Guarantor from its liabilities under this Guarantee.
<PAGE>
EXHIBIT D
Page 4
6. This Guarantee is a continuing one and all liabilities to which
it applies or may apply under the terms hereof shall be conclusively presumed to
have been created in reliance hereon. No failure or delay on the part of any
Secured Creditor in exercising any right, power or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, power or privilege hereunder preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein expressly specified are cumulative and not exclusive of any
rights or remedies which any Secured Creditor would otherwise have. No notice to
or demand on the Guarantor in any case shall entitle the Guarantor to any other
further notice or demand in similar or other circumstances or constitute a
waiver of the rights of any Secured Creditor to any other or further action in
any circumstances without notice or demand. It is not necessary for any Secured
Creditor to inquire into the capacity or powers of the Borrower or any
Subsidiary thereof or the officers, directors, partners or agents acting or
purporting to act on its behalf, and any indebtedness made or created in
reliance upon the professed exercise of such powers shall be guaranteed
hereunder.
7. Any indebtedness of the Borrower or any Subsidiary thereof now or
hereafter held by the Guarantor is hereby subordinated to the indebtedness of
the Borrower or such Subsidiary to the Secured Creditors, and such indebtedness
of the Borrower or such Subsidiary to the Guarantor, if the Indenture Trustee,
after the occurrence and during the continuance of an Event of Default, so
requests, shall be collected, enforced and received by the Guarantor as trustee
for the Secured Creditors and be paid over to the Secured Creditors on account
of the indebtedness of the Borrower or such Subsidiary to the Secured Creditors,
but without affecting or impairing in any manner the liability of the Guarantor
under the other provisions of this Guarantee. Without limiting the generally of
the foregoing, the Guarantor hereby agrees with the Secured Creditors that it
will not exercise any right of subrogation which it may at any time otherwise
have as a result of this Guarantee until all Guaranteed Obligations have been
irrevocably paid in full in cash.
8. (a) The Guarantor waives any right (except as shall be required by
applicable law and cannot be waived) to require the Secured Creditors to: (i)
proceed against the Borrower, any Subsidiary thereof, any other guarantor of the
Guaranteed Obligations or any other party; (ii) proceed against or exhaust any
security held from the Borrower, any Subsidiary thereof, any other guarantor of
the Guaranteed Obligations or any other party; or (iii) pursue any other remedy
in the Secured Creditors' power whatsoever. The Guarantor waives any defense
based on or arising out of any defense of the Borrower, any Subsidiary thereof,
any other guarantor of the Guaranteed Obligations or any other party other than
payment in full of the Guaranteed Obligations, including, without limitation,
any defense based on or arising out of the disability of the Borrower, any
Subsidiary thereof, any other guarantor of the Guaranteed Obligations or any
other party, or the unenforceability of the Guaranteed Obligations or any part
thereof from any cause,
<PAGE>
EXHIBIT D
Page 5
or the cessation from any cause of the liability of the Borrower or any
Subsidiary thereof other than payment in full of the Guaranteed Obligations. The
Secured Creditors may, at their election, foreclose on any security held by the
Indenture Trustee or the other Secured Creditors by one or more judicial or
nonjudicial sales, whether or not every aspect of any such sale is commercially
reasonable, or exercise any other right or remedy the Secured Creditors may have
against the Borrower or any Subsidiary thereof or any other party, or any
security, without affecting or impairing in any way the liability of the
Guarantor hereunder except to the extent the Guaranteed Obligations have been
paid in full. The Guarantor waives any defence arising out of any such election
by the Secured Creditors, even though such election operates to impair or
extinguish any right of reimbursement or subrogation or other right or remedy of
the Guarantor against the Borrower or any Subsidiary thereof or any other party
or any security.
(b) The Guarantor waives all presentments, demands for performance,
protests and notices, including, without limitation, notices of nonperformance,
notices of protest, notices of dishonor, notices of acceptance of this
Guarantee, and notices of the existence, creation or incurring of new or
additional indebtedness. The Guarantor assumes all responsibility for being and
keeping itself informed of the Borrower's and each of its Subsidiary's financial
condition and assets, and of all other circumstances bearing upon the risk of
nonpayment of the Guaranteed Obligations and the nature, scope and extent of the
risks which the Guarantor assumes and incurs hereunder, and agrees that the
Secured Creditors shall have no duty to advise the Guarantor of information
known to them regarding such circumstances or risks.
9. The Secured Creditors agree that this Guarantee may be enforced
only by the action of the Indenture Trustee and that no other Secured Creditors
shall have any right individually to seek to enforce or enforce this Guarantee.
The Secured Creditors further agree that this Guarantee may not be enforced
against any director, officer, employee, partner or stockholder of the Guarantor
(except to the extent such partner or stockholder is also a Guarantor
hereunder).
10. The Guarantor represents, warrants and covenants that:
(a) It (i) is a duly organized and validly existing corporation or
partnership in good standing under the laws of the jurisdiction of its
organization, (ii) has the corporate or partnership power and authority to
own its property and assets and to transact the business in which it is
engaged and presently proposes to engage and (iii) is duly qualified and is
authorized to do business and is in good standing in each jurisdiction
where the conduct of its business requires such qualification except for
failures to be so qualified which, individually or in the aggregate, could
not reasonably be expected to have a material adverse effect on the
business, opera-
<PAGE>
EXHIBIT D
Page 6
tions property, assets, liabilities, conditions (financial or otherwise) or
prospects of the Borrower or of the Borrower and its Subsidiaries taken as
a whole.
(b) It has the corporate or partnership power and authority to
execute, deliver and perform the terms and provisions of this Guarantee and
has taken all necessary corporate or partnership actions to authorize the
execution, delivery and performance by it of this Guarantee. The Guarantor
has duly executed and delivered this Guarantee, and this Guarantee
constitutes the legal, valid and binding obligation of the Guarantor
enforceable in accordance with its terms, except to the extent that the
enforceability hereof or thereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws generally
affecting creditors' rights and by equitable principles (regardless of
whether enforcement is sought in equity or at law).
(c) Neither the execution, delivery or performance by the Guarantor
of this Guarantee, nor compliance by it with the terms and provisions
hereof, will (i) contravene any provision of any applicable law, statute,
rule or regulation or any applicable order, writ, injunction or decree of
any court or governmental instrumentality, (ii) conflict with or result in
any breach of any of the terms, covenants, conditions or provisions of, or
constitute a default under, or result in the creation or imposition of (or
the obligation to create or impose) any Lien upon any of the property or
assets of the Guarantor or any of its Subsidiaries pursuant to the terms of
any indenture, mortgage, deed of trust, loan agreement, credit agreement,
or any other material agreement, contract or instrument to which the
Guarantor or any of its Subsidiaries is a party or by which it or any of
its property or assets is bound or to which it may be subject or (iii)
violate any provision of the certificate of incorporation or by-laws (or
equivalent organizational documents) of the Guarantor or any of its
Subsidiaries.
(d) No order, consent, approval, license, authorization or validation
of, or filing, recording or registration with (except as have been obtained
or made), or exemption by, any governmental or public body or authority, or
any subdivision thereof, is required to authorize, or is required for, (i)
the execution, delivery and performance of this Guarantee by the Guarantor
or (ii) the legality, validity, binding effect or enforceability of this
Guarantee to which the Guarantor is a party.
(e) There are no actions, suits or proceedings pending or threatened
(i) with respect to this Guarantee or (ii) with respect to the Guarantor
that could reasonably be expected to materially and adversely affect (a)
the business, operations, property, assets, liabilities, condition
(financial or otherwise) or prospects of the Borrower or of the Borrower
and its Subsidiaries taken as a whole or (b) the rights or remedies
<PAGE>
EXHIBIT D
Page 7
of the Secured Creditors hereunder or the ability of the Guarantor to
perform its respective obligations to the Secured Creditors hereunder.
11. The Guarantor hereby agrees to pay all reasonable out-of-pocket
costs and expenses of each Secured Creditor in connection with the enforcement
of this Guarantee and of the Indenture Trustee in connection with any amendment,
waiver or consent relating hereto (including in each case, without limitation,
the reasonable fees and disbursements of counsel employed by each Secured
Creditor).
12. This Guarantee shall be binding upon the Guarantor and its
successors and assigns and shall inure to the benefit of the Secured Creditors
and their successors and assigns.
13. Neither this Guarantee nor any provision hereof may be changed,
waived, discharged or terminated except with the written consent of the
Guarantor and with the written consent of the holders of a majority of the
outstanding principal amount of the Notes at any time after the Issue Date.
14. The Guarantor acknowledges that an executed (or conformed) copy of
the Indenture has been made available to its principal executive officers and
such officers are familiar with the contents thereof.
15. In addition to any rights now or hereafter granted under
applicable law and not by way of limitation of any such rights, upon the
occurrence and during the continuance of an Event of Default (such term to mean
and include any "Event of Default" as defined in the Indenture), each Secured
Creditor is hereby authorized, at any time or from time to time, without notice
to the Guarantor or to any other Person, any such notice being expressly waived,
to set off and to appropriate and apply any and all deposits (general or
special) and any other indebtedness at any time held or owing by such Secured
Creditor to or for the credit or the account of the account of the Guarantor,
against and on account of the obligations and liabilities of the Guarantor to
such Secured Creditor under this Guarantee, irrespective of whether or not such
Secured Creditor shall have made any demand hereunder and although said
obligations, liabilities, deposits or claims, or any of them, shall be
contingent or unmatured.
16. The Guarantor hereby confirms that it is its intention that this
Guarantee not constitute a fraudulent transfer or conveyance for purposes of the
Bankruptcy Law, the Uniform Fraudulent Conveyance Act, Title 11 of the United
States Code entitled "Bankruptcy", or any similar Federal or state law. To
effectuate the foregoing intention, the Guarantor hereby irrevocably agrees that
the Guaranteed Obligations guaranteed by the Guarantor shall be limited to such
amount as will, after giving effect to such maximum
<PAGE>
EXHIBIT D
Page 8
amount and all other (contingent or otherwise) liabilities of the Guarantor that
are relevant under such laws, result in the Guaranteed Obligations of the
Guarantor in respect of such maximum amount not constituting a fraudulent
transfer or conveyance.
17. All notices, requests, demands or other communications pursuant hereto
shall be deemed to have been duly given or made when delivered to the Person to
which such notice, request, demand or other communication is required or
permitted to be given or made under this Guarantee, addressed to such party at
(i) in the case of the Indenture Trustee, as provided in the Indenture, (ii) in
the case of the Guarantor, as provided in the Indenture and (iii) in the case of
any Holder, at such address as such Holder shall have specified in writing to
the Indenture Trustee; or in any case at such other address as any of the
Persons listed above may hereafter notify the others in writing.
18. If claim is ever made upon any Secured Creditor for repayment or
recovery of any amount or amounts received in payment or on account of any of
the Guaranteed Obligations and any of the aforesaid payees repays all or part of
said amount by reason of (i) any judgment, decree or order of any court or
administrative body having jurisdiction over such payee or any of its property
or (ii) any settlement or compromise of any such claim effected by such payee
with any such claimant (including the Borrower or any Subsidiary thereof), then
and in such event the Guarantor agrees that any such judgment, decree, order,
settlement or compromise shall be binding upon thee Guarantor, notwithstanding
any revocation hereof or other instrument evidencing any liability of the
Borrower or any Subsidiary thereof, and the Guarantor shall be and remain liable
to the aforesaid payees hereunder for the amount so repaid or recovered to the
same extent as if such amount had never originally been received by any such
payee.
19. (a) THIS GUARANTEE AND THE RIGHTS AND OBLIGATIONS OF THE SECURED
CREDITORS AND OF THE UNDERSIGNED HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK. Any legal action or proceeding
with respect to this Guarantee may be brought in the courts of the State of New
York or of the United States of America for the Southern District of New York,
and, by execution and delivery of this Guarantee, the Guarantor hereby
irrevocably accepts for itself and in respect of its property, generally and
unconditionally, the jurisdiction of the aforesaid courts. The Guarantor hereby
further irrevocably waives any claim that any such court lacks personal
jurisdiction over the Guarantor, and agrees not to plead or claim in any legal
action or proceeding with respect to this Guarantee brought in any of the
aforesaid courts that any such court lacks personal jurisdiction over the
Guarantor. The Guarantor further irrevocably consents to the service of process
out of any of the aforementioned courts in any such action or proceeding by the
mailing of copies thereof by registered or certified mail, postage prepaid, to
the Company as set forth in the Indenture. The Guarantor hereby
<PAGE>
EXHIBIT D
Page 9
irrevocably waives any objection to such service of process and further
irrevocably waives and agrees not to plead or claim in any action or proceeding
commenced hereunder that such service of process was in any way invalid or
ineffective. Nothing herein shall affect the right of any of the Secured
Creditors to serve process in any other manner permitted by law or to commence
legal proceedings or otherwise proceed against the Guarantor in any other
jurisdiction.
(b) The Guarantor hereby irrevocably waives (to the fullest extent
permitted by applicable law) any objection which it may now or hereafter have to
the laying of venue of any of the aforesaid actions or proceedings arising out
of or in connection with this Guarantee brought in the courts referred to in
clause (a) above and hereby further irrevocably waives and agrees not to plead
or claim in any such court that such action or proceeding brought in any such
court has been brought in an inconvenient forum.
(c) THE GUARANTOR AND EACH SECURED CREDITOR (BY ITS ACCEPTANCE OF THE
BENEFITS OF THIS GUARANTEE) HEREBY IRREVOCABLY WAIVES ALL RIGHTS TO A TRIAL BY
JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO
THIS GUARANTEE, THE OTHER CREDIT DOCUMENTS TO WHICH THE GUARANTOR IS A PARTY OR
THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
20. In the event that all of the capital stock of the Guarantor is
sold or otherwise disposed of or liquidated in compliance with the requirements
of Section 4.10 of the Indenture and the proceeds of such sale, disposition or
liquidation are applied in accordance with the provisions of the Indenture, to
the extent applicable, the Guarantor shall upon consummation of such sale or
other disposition (except to the extent that such sale or disposition is to the
Borrower or another Subsidiary thereof) be released from this Guarantee
automatically and without further action and this Guarantee shall, as to the
Guarantor, terminate, and have no further force or effect (it being understood
and agreed that the sale of one or more Persons that own, directly or
indirectly, all of the capital stock or partnership interests of the Guarantor
shall be deemed to be a sale of the Guarantor for the purposes of this Section
21).
21. This Guarantee may be executed in any number of counterparts and
by the different parties hereto on separate counteparts, each of which when so
executed and delivered shall be an original, but all of which shall together
constitute one and the same instrument. A set of counterparts executed by all
the parties hereto shall be lodged with the Guarantor and the Indenture Trustee.
<PAGE>
EXHIBIT D
Page 10
22. All payments made by the Guarantor hereunder will be made without
setoff, counterclaim or other defense.
***
<PAGE>
EXHIBIT D
Page 11
IN WITNESS WHEREOF, the Guarantor has caused this Guarantee to be
executed and delivered as of the date first above written.
[NAME OF GUARANTOR]
By:_____________________________
Name:
Title:
<PAGE>
EXHIBIT E
---------
FORM OF UNDERTAKING LETTER
_______________
Marine Midland Bank,
as Indenture Trustee (as defined below)
140 Broadway, 12th Floor
New York, New York 10005
Siemens A.G.
[Address]
Germany
Ladies & Gentlemen:
This letter confirms the agreements made by the undersigned, Global
Telecommunications Operations, Inc., a British Virgin Islands company
("Global"), in connection with the offering by Transtel S.A., a Colombian
corporation ("Transtel"), of 12 1/2% Senior Notes due 2007 (the "Senior Notes"),
as described in the Offering Memorandum, dated October 21, 1997 (the "Offering
Memorandum"). Global is owned by the same shareholders who own Transtel (the
"Shareholders"). The Senior Notes will be issued under the Indenture, dated as
of October 28, 1997, between Transtel and Marine Midland Bank, as indenture
trustee for the benefit of the holders of the Senior Notes (the "Indenture
Trustee").
BACKGROUND
Global was formed by the Shareholders in January 1995 for the exclusive
purpose of acting as a financing vehicle for the purchase of telecommunications
equipment from Siemens A.G. ("Siemens") to be used by the subsidiaries of
Transtel (the "Operating Subsidiaries") for the
E-1
<PAGE>
Marine Midland Bank and Siemens A.G.
development of their telephone networks. Generally, Siemens finances its sale
of equipment to Global (the "Siemens Financing"), and then Global on-leases such
equipment to an Operating Subsidiary pursuant to a lease agreement (each, a
"Lease") with terms substantially similar to the Siemens Financing.
As part of the Expansion Plan (as defined and described in the Offering
Memorandum), Global has entered into the purchase agreements described in
Exhibit A hereto and has signed the letters of intent described in Exhibit A
hereto which is intended to result in one or more additional purchase agreement
(such purchase agreements and the letters of intent, are referred to herein as
the "Purchase Agreements"). For purposes of this letter agreement, all
telecommunications equipment purchased by Global from Siemens prior to and after
the date hereof under any of the Purchase Agreements, and all replacements and
upgrades of such equipment, is referred to herein as the "Equipment".
In consideration for Siemens agreeing to modify certain terms to the
existing Purchase Agreements, the Company has agreed to guaranty Global's
obligations under the Siemens Financing. In addition, Global has agreed to
assign to Siemens the lease payments under each of the Leases in the event of an
event of default under the Purchase Agreements.
It is a condition to the issuing of the Senior Notes under the Indenture
that Global shall have executed and delivered this letter agreement. Global
will obtain benefits from the issuance of the Senior Notes by Transtel and
desires to execute this letter agreement in order to satisfy the condition
described in the preceding sentence.
AGREEMENTS
Subject to the terms of this letter agreement, for so long as the Senior
Notes are outstanding, Global hereby agrees to the following:
1. Not to, directly or indirectly, engage in any business other than the
business of purchasing telecommunications equipment and the leasing of such
telecommunications equipment to Transtel or an Operating Subsidiary.
2. Not to incur any indebtedness ("Global Indebtedness"), unless Transtel
and the Operating Subsidiaries are in compliance with Section 4.08 of the
Indenture after giving effect to any lease or guaranty arrangements entered into
by Transtel or any Operating Subsidiary which constitute the incurrence of
Indebtedness (as defined in the Indenture) under the Indenture in connection
with such Global Indebtedness and such Global Indebtedness is used for the
purchase of telecommunications equipment to be leased to an Operating
Subsidiary.
E-2
<PAGE>
Marine Midland Bank and Siemens A.G.
3. To the extent it sells or otherwise disposes of any of the Equipment,
it agrees to apply all cash proceeds received by it in respect of any sale of,
collection from, or other realization upon any Equipment to prepay on a pro rata
basis the Senior Notes and any amounts owing by Global to Siemens under any
purchase agreement for Equipment.
REPRESENTATIONS AND WARRANTIES
Global represents and warrants that: (i) it has the corporate power and
authority to execute, deliver and perform this letter agreement, and the
execution, delivery and performance of this letter agreement by Global have been
duly authorized and approved by all required corporate action of Global, (ii)
this letter agreement has been duly executed and delivered by Global and is a
legal, valid and binding obligation of Global, and (iii) it has received a copy
of the Offering Memorandum and the Indenture.
GENERAL
This letter agreement contains the entire understanding of the parties
hereto with respect to the subject matter contained herein and supersedes all
prior agreements and understandings between the parties with respect to such
subject matter.
This letter agreement may not be changed orally, but only by an agreement
in writing signed by the parties hereto. Any provision of this letter agreement
can be terminated, waived, amended, supplemented or modified by written
agreement of the parties hereto.
This letter agreement may be executed in two or more counterparts, all of
which taken together shall constitute one instrument.
This letter agreement shall be governed by the laws of the State of New
York, United States of America.
E-3
<PAGE>
Marine Midland Bank and Siemens A.G.
If the foregoing is in accordance with your understanding, please sign and
return this letter acknowledging your agreement with the terms of this letter
agreement.
Very truly yours,
GLOBAL TELECOMMUNICATIONS OPERATIONS, INC.
By________________________________________
Name:
Title:
Acknowledged and agreed
____ day of ____________, 1997.
MARINE MIDLAND BANK, in its sole capacity
as Indenture Trustee for the benefit of
the holders of the Notes
By_______________________________________
Name:
Title:
SIEMENS A.G.
By_______________________________________
Name:
Title:
TRANSTEL S.A.
By_______________________________________
Name:
Title:
E-4
<PAGE>
EXHIBIT A
---------
1. Purchase Agreement, dated May 2, 1996, between Global and Siemens, to
purchase landline telecommunications equipment to be used for the development of
each of TelePalmira, TeleJamundi and Unitel's (each as defined in the Offering
Memorandum) respective wireline networks for an aggregate amount of U.S.$20
million.
2. Purchase Agreement, dated May 30, 1997, between Global and Siemens, to
purchase landline telecommunications equipment to be used for the development of
each of TeleCartago's, Bugatel's and Unitel Wireless' (each as defined in the
Offering Memorandum) respective networks for an aggregate amount of U.S.$34
million.
3. Letter of Intent, dated April 25, 1997, for the purchase and financing
of various telecommunications equipment to be used by Transtel to substantially
complete the Expansion Plan.
4. Letter of Intent, dated September 25, 1997, for the purchase and
financing of various telecommunications equipment to be used by Transtel to
substantially complete the Expansion Plan.
<PAGE>
EXHIBIT F
---------
FORM OF CERTIFICATE TO BE
DELIVERED IN CONNECTION WITH
TRANSFERS TO INSTITUTIONAL ACCREDITED INVESTORS
_______________, ______
Marine Midland Bank
140 Broadway, 12th Floor
New York, New York 10005
Attention: Corporate Trust Department - Transtel
Re: Transtel S.A.
(the "Company") 12 1/2% Senior Notes due 2007
(the "Notes")
----------------------------------------------
Ladies and Gentlemen:
In connection with our proposed purchase of $_______________ aggregate
principal amount of the Notes, we confirm that:
1. We understand that any subsequent transfer of the Notes is
subject to certain restrictions and conditions set forth in the Indenture
dated as of October 28, 1997 relating to the Notes (the "Indenture") and
the undersigned agrees to be bound by, and not to resell, pledge or
otherwise transfer the Notes except in compliance with, such restrictions
and conditions and the Securities Act of 1933, as amended (the "Securities
Act").
2. We understand that the Notes have not been registered under the
Securities Act, and that the Notes may not be offered or sold except as
permitted in the following sentence. We agree, on our own behalf and on
behalf of any accounts for which we are acting as hereinafter stated, that
if we should sell any Notes within two years after the original issuance of
the Notes, we will do so only (A) to the Company or any subsidiary thereof,
(B) inside the United States in accordance with Rule 144A under the
Securities Act to a "qualified institutional buyer" (as defined therein),
(C) inside the United States to an "institutional accredited investor" (as
defined below) that, prior to such transfer, furnishes (or has furnished on
its behalf by a U.S. broker-dealer) to you a signed letter substantially in
the form of this letter, (D) outside the United States in accordance with
Rule 904
F-1
<PAGE>
EXHIBIT F
---------
of Regulation S under the Securities Act, (E) pursuant to the exemption
from registration provided by Rule 144 under the Securities Act (if
available), or (F) pursuant to an effective registration statement under
the Securities Act, and we further agree to provide to any person
purchasing any of the Notes from us a notice advising such purchaser that
resales of the Notes are restricted as stated herein.
3. We understand that, on any proposed resale of any Notes, we will
be required to furnish to you and the Company such certification, written
legal opinions and other information as you and the Company may reasonably
require to confirm that the proposed sale complies with the foregoing
restrictions. We further understand that the Notes purchased by us will
bear a legend to the foregoing effect.
4. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and
have such knowledge and experience in financial and business matters as to
be capable of evaluating the merits and risks of our investment in the
Notes, and we and any accounts for which we are acting are each able to
bear the economic risk of our or its investment, as the case may be.
5. We are acquiring the Notes purchased by us for our own account or
for one or more accounts (each of which is an institutional "accredited
investor") as to each of which we exercise sole investment discretion.
You, the Agents, the Company and counsel for the Company are entitled
to rely upon this letter and are irrevocably authorized to produce this letter
or a copy hereof to any interested party in any administrative or legal
proceedings or official inquiry with respect to the matters covered hereby.
Very truly yours,
[Name of Transferee]
By:__________________________________________
Authorized Signature
F-2
<PAGE>
EXHIBIT G
---------
FORM OF CERTIFICATE TO BE DELIVERED
IN CONNECTION WITH TRANSFERS
PURSUANT TO REGULATION S
__________________, _____
Marine Midland Bank
140 Broadway, 12th Floor
New York, New York 10005
Attention: Corporate Trust Department - Transtel
Re: Transtel S.A. (the "Company") 12 1/2% Senior Notes due 2007 (the
"Notes")
Ladies and Gentlemen:
In connection with our proposed sale of $_________________ aggregate
principal amount of the Notes, we confirm that such sale has been effected
pursuant to and in accordance with Regulation S under the U.S. Securities Act of
1933, as amended (the "Securities Act"), and, accordingly, we represent that:
(1) the offer of the Notes was not made to a person in the United
States;
(2) either (a) at the time the buy offer was originated, the
transferee was outside the United States or we and any person acting on our
behalf reasonably believed that the transferee was outside the United
States, or (b) the transaction was executed in, on or through the
facilities of a designated off-shore securities market and neither we nor
any person acting on our behalf knows that the transaction has been pre-
arranged with a buyer in the United States;
(3) no directed selling efforts have been made in the United States
in contravention of the requirements of Rule 903(b) or Rule 904(b) of
Regulation S, as applicable;
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act; and
(5) we have advised the transferee of the transfer restrictions
applicable to the Notes.
G-1
<PAGE>
EXHIBIT G
---------
You, the Company and counsel for the Company are entitled to rely upon
this letter and are irrevocably authorized to produce this letter or a copy
hereof to any interested party in any administrative or legal proceedings or
official inquiry with respect to the matters covered hereby. Terms used in this
certificate have the meanings set forth in Regulation S.
Very truly yours,
[Name of Transferor]
By:____________________________________
Authorized Signature
G-2
<PAGE>
EXHIBIT H
---------
FORM OF CERTIFICATE TO BE DELIVERED
IN CONNECTION WITH TRANSFERS
PURSUANT TO RULE 144A
__________________, _____
Marine Midland Bank
140 Broadway, 12th Floor
New York, New York 10005
Attention: Corporate Trust Department - Transtel
Re: Transtel S.A. (the "Company") 12 1/2% Senior Notes due 2007 (the
"Notes")
Ladies and Gentlemen:
In connection with our proposed sale of $_________________ aggregate
principal amount of the Notes, we confirm that such sale has been effected
pursuant to and in accordance with Rule 144A under the U.S. Securities Act of
1933, as amended (the "Securities Act"), and, accordingly, we represent that:
(1) the Notes are being transferred to a person that the undersigned
and any person acting on its behalf reasonably believe is a "qualified
institutional buyer" within the meaning of Rule 144A, acquiring for its own
account or for the account of a qualified institutional buyer; and
(2) the undersigned and any person acting on its behalf have taken
reasonable steps to ensure that the transferee is aware that the
undersigned may be relying on Rule 144A in connection with the transfer.
You, the Company and counsel for the Company are entitled to rely upon
this letter and are irrevocably authorized to produce this letter or a copy
hereof to any interested party in any administrative or legal proceedings or
official inquiry with respect to the matters covered hereby. Terms used in this
certificate have the meanings set forth in Regulation S.
Very truly yours,
[Name of Transferor]
By:__________________________________________
Authorized Signature
H-1
<PAGE>
======================================================================
TRANSTEL S.A.
12 1/2% Senior Notes due 2007
FIRST AMENDMENT AND WAIVER TO INDENTURE
Dated as of July 13, 1998
MARINE MIDLAND BANK
Indenture Trustee
======================================================================
<PAGE>
FIRST AMENDMENT AND WAIVER TO INDENTURE, dated as of July 13, 1998, between
TRANSTEL S.A., a sociedad anonima organized under the laws of the Republic of
Colombia (the "Company"), and MARINE MIDLAND BANK, as trustee (the "Indenture
Trustee") (the "Amendment and Waiver"). Capitalized terms used herein and not
otherwise defined shall have the meanings assigned to them in the Original
Indenture (as defined below).
WITNESSETH:
WHEREAS, the Company has heretofore entered into an Indenture, dated as of
October 28, 1997 (the "Original Indenture"), with the Indenture Trustee;
WHEREAS, the Original Indenture is incorporated herein by this reference
and the Original Indenture, as amended by this Amendment and Waiver, is herein
called the "Indenture";
WHEREAS, under the Original Indenture, the Company and the Trustee may
amend or supplement the Original Indenture without the consent of any Holder of
a Note to cure any ambiguity, defect or inconsistency, so long as such change
does not adversely affect the rights of any of the Holders;
WHEREAS, the Company proposes to cure an ambiguity, defect or inconsistency
in the Original Indenture; and
WHEREAS, all conditions necessary to authorize the execution and delivery
of the Amendment and Waiver and to make it a valid and binding obligations of
the Company have been done or performed.
NOW, THEREFORE, in consideration of the agreements and obligations set
forth herein and for other good and valuable consideration, the sufficiency of
which is hereby acknowledged, the parties hereto agree as follows:
SECTION 1. Amendments to Original Indenture. The Original Indenture is,
--------------------------------
effective as of the date hereof and subject to the conditions precedent set
forth in Section 3 hereof, hereby amended as follows:
(a) The definition of "Certificates" appearing in Section 1.01 of the
Original Indenture is hereby amended and restated in its entirety to read
as follows:
""Certificates" means (i) the 12 1/2% Pass Through Trust
Certificates due 2007 issued by the Trust, the gross proceeds of
which are used by the Trust to purchase the Notes from the
Company and (ii) the 12 1/2% Pass Through Exchange Certificates
due 2007 issued by the Trust in exchange for the 12 1/2% Pass
Through Trust Certificates, which have been registered under the
Securities Act."
<PAGE>
(b) Section 9.01 of the Original Indenture is hereby amended by
deleting the following text in the last paragraph thereof: "accompanied by
a resolution of the Board of Directors of the Company authorizing the
execution of any such amended or supplemented Indenture".
SECTION 2. Waiver. The Indenture Trustee hereby waives the requirement in
------
Section 9.01 of the Original Indenture that the Company provide a resolution of
the Board of Directors of the Company authorizing the execution of this
Amendment and Waiver.
SECTION 3. Conditions of Effectiveness to this Amendment and Waiver. This
--------------------------------------------------------
Amendment and Waiver shall become effective on the date first above written upon
receipt of executed counterparts from each party to this Agreement.
SECTION 4. Indenture Trustee Not Responsible. The recitals contained herein
---------------------------------
shall be taken as the statements of the Company, and the Indenture Trustee
assumes no responsibility for their correctness. The Indenture Trustee makes no
representation as to the validity or sufficiency of this Amendment and Waiver.
SECTION 5. Indemnity. The Company shall indemnify the Indenture Trustee
---------
against any and all claims by the Noteholders arising out of or in connection
with its execution and delivery of this Amendment and Waiver, except any such
loss, liability or expense as may be attributable to the negligence or bad faith
of the Indenture Trustee. The Indenture Trustee shall notify the Company
promptly of any claim for which it may seek indemnity. Failure by the Indenture
Trustee to so notify the Company shall not relieve the Company of its
obligations hereunder. The company shall defend the claim and the Indenture
Trustee shall cooperate in the defense. The Indenture Trustee may have separate
counsel and the Company shall pay the reasonable fees and expenses of such
counsel. The Company need not pay for any settlement made without its consent,
which consent shall not be unreasonably withheld or delayed.
SECTION 6. Ratification and Incorporation of Original Indenture. As amended
----------------------------------------------------
hereby, the Original Indenture is in all respects ratified and confirmed, and
the Original Indenture and this Amendment and Waiver shall be read, taken and
construed as one and the same instrument.
SECTION 7. Governing Law. The law of the State of New York shall govern and
-------------
be used to construe this Amendment and Waiver without regard to principles of
conflict of laws.
SECTION 8. Successors. All agreements of the Company in this Amendment and
----------
Waiver shall bind its successors. All agreements of the Indenture Trustee in
this Amendment and Waiver shall bind its successor.
SECTION 9. Severability. In case any provision in this Amendment and Waiver
------------
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
2
<PAGE>
SECTION 10. Counterpart Originals. The parties may sign any number of
---------------------
copies of this Amendment and Waiver. Each signed copy shall be an original, but
all of them together represent the same agreement and such counterparts shall
together constitute but one and the same instrument.
SECTION 11. Headings. The Headings of the Articles and Sections of this
--------
Amendment and Waiver have been inserted for convenience of reference only and
are not to be considered part of this Amendment and Waiver and shall in no way
modify or restrict any of the terms or provisions hereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
3
<PAGE>
IN WITNESS WHEREOF, each party hereto has caused this Amendment and Waiver
to be signed in its name and behalf by its duly authorized officers, all as of
the day and year first above written.
TRANSTEL S.A.
By: /s/ Guillermo Lopez
--------------------------------
Name: Guillermo O. Lopez
Title: President and C.E.O.
MARINE MIDLAND BANK,
as Indenture Trustee
By: /s/ Robert A. Conrad
--------------------------------
Name: Robert A. Conrad
Title: President
4
<PAGE>
EXHIBIT 4.6
ESCROW AND DISBURSEMENT AGREEMENT
This ESCROW AND DISBURSEMENT AGREEMENT (this "Agreement"), dated as of
---------
October 28, 1997, among Marine Midland Bank, as escrow agent (in such capacity,
the "Escrow Agent"), Marine Midland Bank, as Indenture Trustee (in such
------------
capacity, the "Indenture Trustee") under the Indenture (as defined herein), and
-----------------
Transtel S.A., a Colombian corporation (the "Company").
-------
RECITALS
A. Pursuant to the Indenture, dated as of October 28, 1997 (the
"Indenture"), between the Company and the Indenture Trustee, the Company is
---------
issuing $150,000,000 aggregate principal amount of its 12 1/2% Senior Secured
Notes due 2007 (the "Notes").
-----
B. As security for its obligations under the Notes and the
Indenture, including, in the case of the Refinancing Account (as defined herein)
its obligation to refinance the Other Existing Indebtedness, the Company hereby
grants to the Indenture Trustee, for the exclusive benefit of the holders of the
Notes, a valid and enforceable first priority lien and security interest,
subject to and pending disbursement pursuant to this Agreement, in the Escrow
Account (as defined herein) and the Refinancing Account (as defined herein).
C. Whereas the Escrow Account and Refinancing Account each
constitute a "securities account" as defined in Article 8 of the UCC (as defined
herein) and the parties hereto intend that the Indenture Trustee obtain
"control", as such term is defined in the UCC, over the Escrow Account and the
Refinancing Account and all of the assets within such accounts.
D. The parties have entered into this Agreement in order to set
forth the conditions upon which, and the manner in which, funds will be
disbursed from the Escrow Account and the Refinancing Account and released from
the security interest and lien described above.
<PAGE>
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Defined Terms. In addition to any other defined terms used
-------------
herein, the following terms shall constitute defined terms for purposes of this
Agreement and shall have the meanings set forth below. Any term not defined
herein shall have the meaning assigned to such term in the Indenture.
"Account Statement" shall have the meaning given in Section 2(f)
-----------------
hereof.
"Accounts" means the Escrow Account and the Refinancing Account.
--------
"Affiliate" of any specified person means (i) any other person which,
---------
directly or indirectly, is in control of, is controlled by or is under common
control with such specified person or (ii) any other person who is a director or
officer (A) of such specified person, (B) of any subsidiary of such specified
person or (C) of any person described in clause (i) above or (iii) any person in
which such person has, directly or indirectly, a 5% or greater voting or
economic interest or the power to control. For purposes of this definition,
control of a person means the power, direct or indirect, to direct or cause the
direction of the management or policies of such person whether through the
ownership of voting securities or by contract or otherwise and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Applied" means that disbursed funds have been applied (A) in the case
-------
of the Escrow Account, (i) to the payment of interest on the Notes, (ii) to the
payment of principal of and premium, if any, on the Notes, upon a repurchase or
redemption thereof in accordance with Sections 3.07, 4.12 or 4.18 of the
Indenture; or (iii) to any combination of the foregoing and (B) in the case of
the Refinancing Account, to the payment of Other Existing Indebtedness.
"Business Day" means any day excluding Saturday, Sunday and any day
------------
which shall be in the City of New York a legal holiday or a day on which banking
institutions are authorized by law or other governmental actions to close.
"Collateral" shall have the meaning given in Section 6(a) hereof.
----------
"Eligible Institution" means a commercial banking institution that has
--------------------
combined capital and surplus of not less than $500 million or its equivalent in
foreign currency, whose debt is rated "A" (or higher) according to Standard &
Poor's ("S&P")
-2-
<PAGE>
or Moody's Investors Service, Inc. ("Moody's") at the time as of which any
investment or rollover therein is made.
"Escrow Account" shall mean an escrow account established pursuant to
--------------
Section 2 hereof.
"Escrow Account Available Funds" means (A) the sum of (i) the Initial
------------------------------
Escrow Amount and (ii) interest earned or dividends paid on the funds in the
Escrow Account (including holdings of Marketable Securities), less (B) the
aggregate disbursements previously made pursuant to this Agreement.
"Escrow Account Payment Notice and Disbursement Request" means a
------------------------------------------------------
notice sent or delivered by the Indenture Trustee to the Escrow Agent notifying
the Escrow Agent of an upcoming Interest Payment Date or other payment date in
respect of the Notes and requesting a disbursement, in substantially the form of
Exhibit A hereto. Each Escrow Account Payment Notice and Disbursement Request
shall be signed by an officer of the Indenture Trustee designated in a
certificate of the Indenture Trustee setting forth specimen signatures of
authorized officers delivered to the Escrow Agent.
"Initial Escrow Amount" shall mean $35 million of the net proceeds
---------------------
from the offering of the Notes.
"Initial Refinancing Account Escrow Amount" shall mean $32,767,036 of
-----------------------------------------
the net proceeds from the offering of the Notes.
"Interest Payment Date" means May 1 and November 1 of each year,
---------------------
commencing on May 1, 1998.
"Issue Date" means October 28, 1997.
----------
"Marketable Securities" means
---------------------
(i) U.S. Government Securities maturing not more than two years
after the date of acquisition;
(ii) any certificate of deposit maturing not more than 270 days
after the date of acquisition issued by, or time deposit of, an Eligible
Institution;
(iii) commercial paper maturing not more than 270 days after the date
of acquisition issued by a corporation (other than an Affiliate of the
Company)
-3-
<PAGE>
with a rating, at the time as of which any investment therein is made, of
"A-1" (or higher) according to S&P or "P-1" (or higher) according to
Moody's;
(iv) any banker's acceptances or money market deposit accounts
issued or offered by an Eligible Institution; and
(v) any fund investing exclusively in investments of the types
described in clauses (i) through (iv) above.
"Other Existing Indebtedness" means indebtedness outstanding on the
---------------------------
Issue Date owed to various financial institutions by the Company, and listed in
Schedule 1 hereto.
"Refinancing Account" shall mean an escrow account established
-------------------
pursuant to Section 2 hereof.
"Refinancing Account Available Funds" means (A) the sum of (i) the
-----------------------------------
Initial Refinancing Account Escrow Amount and (ii) interest earned or dividends
paid on the funds in the Refinancing Account (including holdings of Marketable
Securities), less (B) the aggregate disbursements previously made pursuant to
this Agreement.
"Refinancing Account Payment Notice and Disbursement Request" means a
-----------------------------------------------------------
notice sent by the Company to the Escrow Agent notifying the Escrow Agent of an
upcoming refinancing of Other Existing Indebtedness and requesting a
disbursement, in substantially the form of Exhibit B hereto. Each Refinancing
Account Payment Notice and Disbursement Request shall be signed by an officer of
the Company designated in a certificate of the Company setting forth specimen
signatures of authorized officers delivered to the Escrow Agent.
"UCC" means the Uniform Commercial Code as enacted in the State of New
---
York on the date hereof.
2. Accounts; Escrow Agent.
----------------------
(a) Appointment of Escrow Agent. The Company and the Indenture
---------------------------
Trustee hereby appoint the Escrow Agent, and the Escrow Agent hereby accepts
appointment, as escrow agent, under the terms and conditions of this Agreement.
(b) (A) Establishment of Escrow Account. Concurrently with the
-------------------------------
execution and delivery of this Agreement, the Escrow Agent shall establish the
Escrow Account at its office located at 140 Broadway, New York, N.Y. 10005.
Subject to the
-4-
<PAGE>
terms and conditions of this Agreement, all funds accepted by the Escrow Agent
for deposit in the Escrow Account pursuant to this Agreement shall be held for
the exclusive benefit of the Indenture Trustee. All such funds shall be held in
the Escrow Account until disbursed in accordance with the terms hereof. The
Escrow Account shall be held by the Escrow Agent and all amounts held in the
Escrow Account shall be held for the exclusive benefit of the Indenture Trustee.
Concurrently with the execution and delivery of this Agreement, the Company
shall deliver the Initial Escrow Amount to the Escrow Agent for deposit into the
Escrow Account against the Escrow Agent's written acknowledgment and receipt of
the Initial Escrow Amount. The Company and the Escrow Agent hereby agree that
all cash held in the Escrow Account shall be deemed a "financial asset" as
defined in Article 8-102 of the UCC.
(B) Establishment of Refinancing Account. Concurrently with the
------------------------------------
execution and delivery of this Agreement, the Escrow Agent shall establish the
Refinancing Account at its office located at 140 Broadway, New York, N.Y. 10005.
Subject to the terms and conditions of this Agreement, all funds accepted by the
Escrow Agent for deposit in the Refinancing Account pursuant to this Agreement
shall be held for the exclusive benefit of the Indenture Trustee. All such funds
shall be held in the Refinancing Account until disbursed in accordance with the
terms hereof. The Refinancing Account shall be held by the Escrow Agent. All the
amounts held in the Refinancing Account shall be held for the exclusive benefit
of the Indenture Trustee. Concurrently with the execution and delivery of this
Agreement, the Company shall deliver the Initial Refinancing Amount to the
Escrow Agent for deposit into the Refinancing Account against the Escrow Agent's
written acknowledgment and receipt of the Initial Refinancing Account Escrow
Amount. The Company and the Escrow Agent hereby agree that all cash held in the
Refinancing Account shall be deemed a "financial asset" as defined in Article 8-
102 of the UCC.
(c) Escrow Agent Compensation. The Company shall pay to the Escrow
-------------------------
Agent such compensation for services to be performed by it under this Agreement
as the Company and the Escrow Agent may agree in writing from time to time. The
Escrow Agent shall be entitled to disburse from the Accounts all such amounts
due to the Escrow Agent as agreed upon by the Company and the Escrow Agent
(including the reasonable expenses described in the next succeeding paragraph).
The Escrow Agent shall disburse such amounts due to the Escrow Agent, if any,
from the Escrow Account and the Refinancing Account on a pro rata basis.
--- ----
The Company shall reimburse the Escrow Agent upon request for all
reasonable expenses, disbursements, and advances incurred or made by the Escrow
Agent in implementing any of the provisions of this Agreement, including
compensation and the reasonable expenses and disbursements of its counsel,
except any such expense,
-5-
<PAGE>
disbursement, or advance as may arise from the Company's gross negligence or
willful misconduct.
(d) Investment of Funds in Accounts. Funds deposited in the Accounts
-------------------------------
shall be invested and reinvested upon the following terms and conditions:
(i) Acceptable Investments. All funds deposited in the Accounts
----------------------
shall be initially invested by the Escrow Agent in cash items (including,
without limitation, interest bearing deposit accounts) and Marketable
Securities in accordance with the Company's written instructions to the
Escrow Agent. Upon the deposit of funds in the Escrow Account or the
Refinancing Account, as the case may be, a book entry shall indicate that a
"financial asset" as defined in Article 8-102 of the UCC has been credited
to the Escrow Account or the Refinancing Account, as the case may be, or
the Escrow Agent shall accept such financial asset for credit to the Escrow
Account or the Refinancing Account, as the case may be. Thereafter, the
Escrow Agent shall invest all funds (including proceeds of any such
investments at maturity and interest earned and dividends paid on any such
investments) in the Accounts in cash items or Marketable Securities
designated by the Company in writing from time to time and shall credit
such financial assets in accordance with the immediately preceding
sentence. All Marketable Securities shall be assigned to and held in the
possession of the Escrow Agent for the exclusive benefit of the Indenture
Trustee, or, in the case of Marketable Securities maintained in book entry
form with the Federal Reserve Bank, transferred to a book entry account in
the name of The Bank of New York for the benefit of the Escrow Agent, to be
held by the Escrow Agent for the exclusive benefit of the Indenture Trustee
(subject to Section 3 and Section 5), with such guarantees as are
customary, except that Marketable Securities maintained in book entry form
with the Federal Reserve Bank shall be transferred to a book entry account
in the name of The Bank of New York for the benefit of the Escrow Agent, to
be held by the Escrow Agent for the exclusive benefit of the Indenture
Trustee, at the Federal Reserve Bank that includes only Marketable
Securities held by the Escrow Agent for its customers and segregated by
separate recordation in the books and records of the Escrow Agent, subject
to the provisions of Section 5 hereof.
(ii) Upon (x) the deposit of the Initial Refinancing Account Escrow
Amount and the Initial Escrow Amount, (y) the purchase of any Marketable
Securities using amounts on deposit in the Accounts (including proceeds of
Marketable Securities), or (z) the disposition of any Marketable
Securities, the Escrow Agent shall be deemed to have made the following
representations and agreements:
-6-
<PAGE>
(a) the Escrow Agent is a "securities intermediary" as defined in
Article 8 of the UCC and is acting in that capacity, (b) the Escrow
Agent has maintained and will continue to maintain the accounts in
accordance with Section 2 hereof, (c) each of the Accounts is a
"securities account" as defined in Article 8 of the UCC and the
Escrow Agent will treat the other parties hereto as entitled to
exercise the rights that comprise the "financial assets" (as
defined in Article 8 of the UCC) credited to either of the Accounts
from time to time in accordance with this Agreement, (d) the Escrow
Agent will treat any and all cash, securities and other property
held in or credited to either of the Accounts from time to time as
"financial assets" under Article 8 of the UCC, (e) until the Escrow
Agent has received notice from the Indenture Trustee that the
security interest granted pursuant to Section 6 hereof has been
released, the Escrow Agent will maintain each of the Accounts in
the name of the Indenture Trustee so that the Indenture Trustee
will become an "entitlement holder" as defined in Article 8 of the
UCC, and (f) until the Escrow Agent has received notice from the
Indenture Trustee that the security interest granted pursuant to
Section 6 hereof has been released, the Escrow Agent will comply
with any and all "entitlement orders" (as defined in Article 8 of
the UCC) originated by the Indenture Trustee with respect to any
and all of the Collateral without the future consent by the Company
or any other person.
(iii) Interest and Dividends. All interest earned and dividends
----------------------
paid on funds invested in Marketable Securities shall be deposited in the
respective Accounts as additional Collateral for the exclusive benefit of
the Indenture Trustee (subject to Section 3 and Section 5) and shall be
reinvested in accordance with the terms hereof at the Company's written
instruction.
(iv) Limitation on Escrow Agent's Responsibilities. The Escrow
---------------------------------------------
Agent's sole responsibilities under this Section 2 shall be (A) to retain
possession of certificated Marketable Securities (except, however, that the
Escrow Agent may surrender possession to the issuer of any such Marketable
Security for the purposes of affecting assignment, crediting interest, or
reinvesting such security or reducing such security to cash) and to be the
registered or designated owner of Marketable Securities which are not
cer tificated, (B) to follow the Company's written instructions given in
accordance with Section 2(d)(i) hereof, (C) to invest and reinvest funds
pursuant to and in accordance with this Section 2(d) and (D) to use
reasonable efforts to reduce to
-7-
<PAGE>
cash such Marketable Securities as may be required to fund any disbursement
in accordance with Section 3 hereof. In connection with clause (A) above,
the Escrow Agent will maintain continuous possession in the State of New
York of certificated Marketable Securities and cash included in the
Collateral and will cause uncertificated Marketable Securities to be
registered in the book-entry system of, and transferred to an account in
the name of The Bank of New York for the benefit of the Escrow Agent, to be
held by the Escrow Agent for the exclusive benefit of the Indenture
Trustee, at the Federal Reserve Bank.
(e) Substitution of Escrow Agent. The Escrow Agent may resign by
----------------------------
giving not less than 30 days prior written notice to the Company and the
Indenture Trustee. Such resignation shall take effect upon the later to occur of
(i) delivery of all funds and Marketable Securities maintained by the Escrow
Agent hereunder and copies of all books, records, plans and other documents in
the Escrow Agent's possession relating to such funds or Marketable Securities or
this Agreement to a successor escrow agent mutually approved by the Company and
the Indenture Trustee (which approvals shall not be unreasonably withheld) and
(ii) the Company, the Indenture Trustee and such successor escrow agent entering
into this Agreement or any written successor agreement no less favorable to the
interests of the holders of the Notes and the Indenture Trustee than this
Agreement; and the Escrow Agent shall thereupon be discharged of all obligations
under this Agreement and shall have no further duties, obligations or
responsibilities in connection herewith. If a successor escrow agent has not
been appointed or has not accepted such appointment within 30 days after notice
of resignation is given to the Company, the Escrow Agent may apply to a court of
competent jurisdiction for the appointment of a successor escrow agent.
(f) Account Statement. Each month, the Escrow Agent shall deliver to
-----------------
the Company and the Indenture Trustee a statement signed by the Escrow Agent in
a form satisfactory to the Company and the Indenture Trustee setting forth with
reasonable particularity the balance of funds then in each Account and the
manner in which such funds are invested (each an "Account Statement"). The
-----------------
parties hereto irrevocably instruct the Escrow Agent that on the first date upon
which the balance in any Account (including the holdings of all Marketable
Securities) is reduced to zero, the Escrow Agent shall deliver to the Company
and to the Indenture Trustee a notice that the balance in such Account has been
reduced to zero.
(g) Covenants of the Escrow Agent. The Escrow Agent hereby covenants
-----------------------------
and agrees that the Escrow Agent shall (i) treat the Accounts as "securities
accounts" within the meaning of Article 8 of the UCC, and (ii) treat the other
parties hereto as entitled to exercise the rights that comprise the "financial
assets" within the meaning of Article 8 of the UCC) credited to either of the
Accounts from time to time.
-8-
<PAGE>
3. Disbursements.
-------------
(A) Escrow Account.
--------------
(a) Escrow Account Payment Notice and Disbursement Request;
-------------------------------------------------------
Disbursements. The Indenture Trustee shall, five (5) Business Days prior to an
- -------------
Interest Payment Date or to a date of redemption or repurchase pursuant to
Sections 3.07, 4.12 or 4.18 of the Indenture in respect of the Notes, submit to
the Escrow Agent a completed Escrow Account Payment Notice and Disbursement
Request substantially in the form of Exhibit A hereto. The Indenture Trustee
hereby agrees with the Company that prior to the Maturity Date (as defined in
the Indenture) it will deliver such Notice and that such subsequent release of
funds shall be credited as partial satisfaction of its payment obligations under
the Indenture.
The Escrow Agent's disbursement pursuant to any Escrow Account Payment
Notice and Disbursement Request shall be subject to the satisfaction of the
applicable conditions set forth in Section 3(A)(b) hereof. Provided such Escrow
Account Payment Notice and Disbursement Request is not rejected by it, the
Escrow Agent, within two (2) Business Days following receipt of such Escrow
Account Payment Notice and Disbursement Request, shall disburse the funds
requested in such Escrow Account Payment Notice and Disbursement Request by wire
or book-entry transfer of immediately available funds to the account of the
Indenture Trustee for the exclusive benefit of the holders of the Notes. The
Escrow Agent shall notify the Indenture Trustee as soon as reasonably possible
(but not later than two (2) Business Days from the date of receipt of the Escrow
Account Payment Notice and Disbursement Request) if any Escrow Account Payment
Notice and Disbursement Request is rejected and the reasons therefor. In the
event such rejection is based upon nonsatisfaction of the condition in Section
3(A)(b)(A) below, the Indenture Trustee shall thereupon resubmit the Escrow
Account Payment Notice and Disbursement Request with appropriate changes.
(b) Conditions Precedent to Disbursement. The Escrow Agent's payment
------------------------------------
of any disbursement shall be made only if: (A) the Indenture Trustee shall have
submitted, in accordance with the provisions of Section 3(A)(a) herein, a
completed Escrow Account Payment Notice and Disbursement Request to the Escrow
Agent substantially in the form of Exhibit A with blanks appropriately filled in
and (B) the Escrow Agent shall not have received any notice from the Indenture
Trustee that as a result of an Event of Default (as defined in the Indenture)
the indebtedness represented by the Notes has been accelerated and has become
due and payable (in which event the Escrow Agent shall apply all Escrow Account
Available Funds as required by Section 6(b)(vi) hereof).
-9-
<PAGE>
(c) Retired Notes. In the event a portion of the Notes has been
-------------
retired by the Company, funds representing four interest payments on the retired
Notes shall, upon the written request of the Company to the Escrow Agent and the
Indenture Trustee, be paid to the Company upon compliance with the release of
collateral provisions contained in Section 314(d) of the TIA and upon receipt of
a notice relating thereto from the Indenture Trustee.
(B) Refinancing Account.
-------------------
(a) Refinancing Account Payment Notice and Disbursement Request;
------------------------------------------------------------
Disbursements. The Company shall, five (5) Business Days prior to the payment
- -------------
of any portion of Other Existing Indebtedness, submit to the Escrow Agent a
completed Refinancing Account Payment Notice and Disbursement Request
substantially in the form of Exhibit B hereto.
The Escrow Agent's disbursement pursuant to any Refinancing Account Payment
Notice and Disbursement Request shall be subject to the satisfaction of the
applicable conditions set forth in Section 3(B)(b) hereof. Provided such
Refinancing Account Payment Notice and Disbursement Request is not rejected by
it, the Escrow Agent, within two (2) Business Days following receipt of such
Refinancing Account Payment Notice and Disbursement Request, shall disburse the
funds requested in such Refinancing Account Payment Notice and Disbursement
Request by wire or book-entry transfer of immediately available funds to the
account of the lender of the Other Existing Indebtedness as designated by the
Company. The Escrow Agent shall notify the Company as soon as reasonably
possible (but not later than two (2) Business Days from the date of receipt of
the Refinancing Account Payment Notice and Disbursement Request) if any
Refinancing Account Payment Notice and Disbursement Request is rejected and the
reasons therefor. In the event such rejection is based upon nonsatisfaction of
the condition in Section 3(B)(b)(A) below, the Company shall thereupon resubmit
the Refinancing Account Payment Notice and Disbursement Request with appropriate
changes.
(b) Conditions Precedent to Disbursement. The Escrow Agent's payment
------------------------------------
of any disbursement shall be made only if: (A) the Company shall have
submitted, in accordance with the provisions of Section 3(B)(a) herein, a
completed Refinancing Account Payment Notice and Disbursement Request to the
Escrow Agent substantially in the form of Exhibit B with blanks appropriately
filled in and (B) the Escrow Agent shall not have received any notice from the
Indenture Trustee that as a result of an Event of Default (as defined in the
Indenture) the indebtedness represented by the Notes has been accelerated and
has become due and payable (in which event the
-10-
<PAGE>
Escrow Agent shall apply all Refinancing Account Available Funds as required by
Section 6(b)(vi) hereof).
4. Escrow Agent. Limitation of the Escrow Agent's Liability;
------------ -------------------------------------------
Responsibilities of the Escrow Agent. The Escrow Agent's responsibility and
- ------------------------------------
liability under this Agreement shall be limited as follows: (i) the Escrow
Agent does not represent, warrant or guaranty to the holders of the Notes from
time to time the performance of the Company; (ii) the Escrow Agent shall have no
responsibility to the Company or the holders of the Notes or the Indenture
Trustee from time to time as a consequence of performance by the Escrow Agent
hereunder, except for any gross negligence or willful misconduct of the Escrow
Agent; (iii) the Company shall remain solely responsible for all aspects of the
Company's business and conduct; and (iv) the Escrow Agent is not obligated to
supervise, inspect, or inform the Company or any third party of any matter
referred to above.
No implied covenants or obligations shall be inferred from this Agreement
against the Escrow Agent, nor shall the Escrow Agent be bound by provisions of
any agreement beyond the specific term hereof. Specifically and without
limiting the foregoing, the Escrow Agent shall in no event have any liability in
connection with its investment, reinvestment or liquidation, in good faith and
in accordance with the terms hereof, of any funds or Marketable Securities held
by it hereunder, including without limitation, any liability for any delay not
resulting from gross negligence or willful misconduct in such investment,
reinvestment or liquidation, or for any loss of principal or income incident to
any such delay.
The Escrow Agent shall be entitled to rely upon any judicial order or
judgment, upon any written opinion of counsel or upon any certification,
instruction, notice, or other writing delivered to it by the Company or the
Indenture Trustee in compliance with the provisions of this Agreement without
being required to determine the authenticity or the correctness of any fact
stated therein or the propriety or validity of service thereof. The Escrow Agent
may act in reliance upon any instrument comporting with the provisions of this
Agreement or signature believed by it to be genuine and may assume that any
person purporting to give notice or receipt or advice or make any statement or
execute any document in connection with the provisions hereof has been duly
authorized to do so.
At any time the Escrow Agent may request in writing an instruction in
writing from the Company, and may at its own option include in such request the
course of action it proposes to take and the date on which it proposes to act,
regarding any matter arising in connection with its duties and obligations
hereunder; provided, however, that the Escrow Agent shall state in such request
-------- -------
that it believes in good faith that such
-11-
<PAGE>
proposed course of action is consistent with another identified provision of
this Agreement. The Escrow Agent shall not be liable to the Company for acting
without the Company's consent in accordance with such a proposal on or after the
date specified therein if (i) the specified date is at least two (2) Business
Days after the Company receives the Escrow Agent's request for instructions and
its proposed course of action, and (ii) prior to so acting, the Escrow Agent has
not received the written instructions requested from the Company.
The Escrow Agent may act pursuant to the written advice of counsel chosen
by it with respect to any matter relating to this Agreement and (subject to
Section 4(ii)) shall not be liable for any action taken or omitted in accordance
with such advice.
The Escrow Agent shall not be called upon to advise any party as to selling
or retaining, or taking or refraining from taking any action with respect to,
any securities or other property deposited hereunder.
In the event of any ambiguity in the provisions of this Agreement with
respect to any funds or property deposited hereunder, the Escrow Agent shall be
entitled to refuse to comply with any and all claims, demands or instructions
with respect to such property or funds, and the Escrow Agent shall not be or
become liable for its failure or refusal to comply with conflicting claims,
demands or instructions. The Escrow Agent shall be entitled to refuse to act
until either any conflicting or adverse claims or demands shall have been
finally determined by a court of competent jurisdiction or settled by agreement
between the conflicting claimants as evidenced in a writing, satisfactory to the
Escrow Agent, or the Escrow Agent shall have received security or an indemnity
satisfactory to the Escrow Agent sufficient to save the Escrow Agent harmless
from and against any and all loss, liability or expense which the Escrow Agent
may incur by reason of its acting. The Escrow Agent may in addition elect in
its sole option to commence an interpleader action or seek other judicial relief
or orders as the Escrow Agent may deem necessary.
No provision of this Agreement shall require the Escrow Agent to expend or
risk its own funds or otherwise incur any financial liability in the performance
of any of its duties hereunder.
5. Indemnity. The Company shall indemnify, hold harmless and defend the
---------
Escrow Agent and its directors, officers, agents, employees and controlling
persons, from and against any and all claims, actions, obligations, liabilities
and expenses, including defense costs, investigative fees and costs, legal fees,
and claims for damages, arising from the Escrow Agent's performance under this
Agreement, except to the extent that such liability, expense or claim is
attributable to the gross negligence or
-12-
<PAGE>
willful misconduct of any of the foregoing persons. In connection with any
claim, action, obligation, liability or expense for which indemnification is
sought by the Escrow Agent hereunder, the Escrow Agent shall be entitled to
recover its costs from funds available in the each Account as provided in
Section 2(c), provided, however, that the Company agrees to pay such costs if
-------- -------
funds in any Account are insufficient. The provisions of this Section shall
survive any termination, satisfaction or discharge of this Agreement as well as
the resignation or removal of the Escrow Agent.
6. Grant of Security Interest; Instructions to Escrow Agent.
--------------------------------------------------------
(a) The Company hereby irrevocably grants a valid and
enforceable first priority security interest in, pledges, assigns and sets over
to the Indenture Trustee all of the Company's right, title and interest in and
to each Account, all funds held therein and all Marketable Securities held by
(or otherwise maintained in the name of) the Escrow Agent pursuant to Section 2
hereof, any and all financial assets and security entitlements of the Company in
any and all of the foregoing, any and all rights of the Company under this
Agreement and any and all proceeds of any and all of the foregoing
(collectively, the "Collateral"), in order to secure all obligations and
----------
indebtedness of the Company under the Notes and any other obligation, now or
hereafter arising, of every kind and nature, owed by the Company under the
Indenture to the holders of the Notes or to the Indenture Trustee. The Company
shall take all reasonable actions necessary on its part to insure the
continuance of a valid and enforceable first priority perfected security
interest in the Collateral in favor of the Indenture Trustee in order to secure
all such obligations and indebtedness.
(b) The Company and the Indenture Trustee hereby irrevocably
instruct the Escrow Agent to, and the Escrow Agent will (i) hold all funds in
each Account for the exclusive benefit of the Indenture Trustee to the extent
specifically required herein, (ii) maintain, or cause its agent within the State
of New York to maintain, possession of all certificated Marketable Securities
purchased hereunder that are physically possessed by the Escrow Agent in order
for the Indenture Trustee to enjoy a continuous valid and enforceable first
priority perfected security interest therein under the law of the State of New
York (the Company hereby agreeing that in the event any certificated Marketable
Securities are in the possession of the Company or a third party, the Company
shall use its best efforts to deliver all such certificates to the Escrow
Agent), (iii) take all steps set forth in the opinion of counsel described in
paragraph (a) above to cause the Indenture Trustee to enjoy a continuous valid
and enforceable first priority perfected security interest under the New York
Uniform Commercial Code and any applicable law of the State of New York in all
Marketable Securities purchased hereunder that are not certificated and (iv)
maintain
-13-
<PAGE>
the Collateral free and clear of all liens, security interests, safekeeping or
other charges, demands and claims against the Escrow Agent of any nature now or
hereafter existing in favor of anyone other than the Indenture Trustee; (v)
promptly notify the Indenture Trustee if the Escrow Agent receives written
notice that any person other than the Indenture Trustee has a lien or security
interest upon any portion of the Collateral (other than any claim which Escrow
Agent may have against any Account for unpaid fees and expenses) and (vi) in
addition to disbursing amounts held in escrow pursuant to any Escrow Account
Payment Notice and Disbursement Request given to it by the Indenture Trustee or
any Refinancing Account Payment Notice and Disbursement Request given to it by
the Company, in each case pursuant to Section 3, upon receipt of written notice
from the Indenture Trustee of the acceleration of the maturity of the Notes or
the failure by the Company to pay principal on the Notes, and direction from the
Indenture Trustee to disburse all Available Funds to the Indenture Trustee, as
promptly as practicable, after following the procedures set forth in the fourth
paragraph of Section 4(a), disburse all funds held in each Account to the
Indenture Trustee and transfer title to all Marketable Securities held by the
Escrow Agent hereunder to the Indenture Trustee. The lien and security interest
provided for by this Section 6 shall automatically terminate and cease as to,
and shall not extend or apply to, and the Indenture Trustee shall have no
security interest in, any funds disbursed by the Escrow Agent to the Company
pursuant to this Agreement. The Escrow Agent shall act solely as the Indenture
Trustee's agent in connection with the duties under this Section 6,
notwithstanding any other provision contained in this Agreement, without any
right to receive compensation from the Indenture Trustee and without any
authority to obligate the Indenture Trustee or to compromise or pledge its
security interest hereunder.
(c) Any money and Marketable Securities collected by the
Indenture Trustee pursuant to Section 6(b) shall be applied as provided in the
Indenture.
(d) Upon demand, the Company will execute and deliver to the
Indenture Trustee such instruments and documents as the Indenture Trustee may
reasonably deem necessary or advisable to maintain or perfect the rights of the
Indenture Trustee under this Agreement and the Indenture Trustee's interest in
the Collateral. The Indenture Trustee will take all necessary action to preserve
and protect the security interest created hereby as a valid and enforceable
first priority perfected lien and encumbrance upon the Collateral.
(e) The Company hereby appoints the Indenture Trustee as its
attorney-in-fact effective upon and during the continuance of an Event of
Default under the Indenture with full power of substitution to do any act which
the Company is obligated hereto to do, and the Indenture Trustee may exercise
such rights as the
-14-
<PAGE>
Company might exercise with respect to the Collateral and to take any action in
the Company's name to protect the Indenture Trustee's security interest
hereunder.
(f) (i) Notwithstanding the provisions of Section 2(d), (x) until the
Escrow Agent has received notice from the Indenture Trustee that its security
interest in the rights and assets in the Escrow Account or the Refinancing
Account has been released, an authorized officer of Indenture Trustee may give
any written instructions of any kind or character in regard to the Escrow
Account or the Refinancing Account or any securities or other assets in the
Escrow Account or the Refinancing Account (including, without limitation,
instructions and orders with respect to the sale, or other disposition, transfer
or redemption of any securities or other assets in the Escrow Account or the
Refinancing Account), and the Escrow Agent agrees to comply with such
instructions without further action or consent by the Company or Indenture
Trustee; (y) with respect to any instructions given in accordance with this
Section 2(f) it is hereby understood and agreed that the Escrow Agent shall have
no duty nor authority whatsoever of any kind of character to determine whether
or not such instructions, or any certification or other statement contained
therein, are correct or given in conformity with the Indenture Trustee's rights
pursuant to any other agreement, nor to seek conformity with the Indenture
Trustee's rights pursuant to any other agreement, nor to seek confirmation
thereof from the Company or the Indenture Trustee; and (z) pursuant to this
Section 2(f), the Indenture Trustee hereby instructs the Escrow Agent to credit
any proceeds, income, distributions (in cash or in kind) and any other amounts
or property deriving from any securities or other property in the Escrow Account
or the Refinancing Account, as the case may be, to the Escrow Account or the
Refinancing Account, as the case may be, and to hold all money or cash credited
(or required to be credited) to the Escrow Account or the Refinancing Account,
as the case may be, as Collateral hereunder, and the Escrow Agent hereby agrees
that it will comply with such instruction absent any instructions from the
Indenture Trustee to the contrary.
(g) By this Agreement the Company and Indenture Trustee intend and
agree that the Indenture Trustee has obtained "control" (within the meaning of
Section 8-106(d) of the UCC of the Escrow Account and the Refinancing Account
and the respective assets in the Escrow Account and the Refinancing Account.
(h) Until the Escrow Agent has received notice from the Indenture
Trustee that its security interest in the Collateral has been released, the
Escrow Agent shall not exercise any right of combination, consolidation, merger
or set-off which the Escrow Agent may have in respect of any Collateral.
-15-
<PAGE>
7. Termination. This Agreement shall terminate automatically ten (10)
-----------
days following disbursement of all funds remaining in each Account (including
Marketable Securities), unless sooner terminated by agreement of the parties
hereto (in accordance with the terms hereof and not in violation of the
Indenture); provided, however, that the obligations of the Company under Section
-------- -------
5 (and any existing claims thereunder) shall survive termination of this
Agreement or the resignation of the Escrow Agent; and provided further, that
-------- -------
until such tenth day, the Company will cause this Agreement (or any permitted
successor agreement) to remain in effect and will cause there to be an escrow
agent (including any permitted successor thereto) acting hereunder (or under any
such permitted successor agreement).
8. Miscellaneous.
-------------
(a) Waiver. Any party hereto may specifically waive any breach
------
of this Agreement by any other party, but no such waiver shall be deemed to have
been given unless such waiver is in writing, signed by the waiving party and
specifically designating the breach waived, nor shall any such waiver constitute
a continuing waiver of similar or other breaches.
(b) Invalidity. If for any reason whatsoever any one or more of
----------
the provisions of this Agreement shall be held or deemed to be inoperative,
unenforceable or invalid in a particular case or in all cases, such
circumstances shall not have the effect of rendering any of the other provisions
of this Agreement inoperative, unenforceable or invalid, and the inoperative,
unenforceable or invalid provision shall be construed as if it were written so
as to effectuate, to the maximum extent possible, the parties' intent.
(c) Assignment. This Agreement is personal to the parties
----------
hereto, and the rights and duties of any party hereunder shall not be assignable
except with the prior written consent of the other parties. Notwithstanding the
foregoing, this Agreement shall inure to and be binding upon the parties and
their successors and permitted assigns.
(d) Benefit. The parties hereto and their successors and
-------
permitted assigns, but no others, shall be bound hereby and entitled to the
benefits hereof; provided, however, that the holders of the Notes and their
-------- -------
permitted assigns shall be entitled to the benefits hereof and to enforce this
Agreement.
(e) Time. Time is of the essence of each provision of this
----
Agreement.
-16-
<PAGE>
(f) Entire Agreement; Amendments. This Agreement and the
----------------------------
Indenture contain the entire agreement among the parties with respect to the
subject matter hereof and supersede any and all prior agreements, understandings
and commitments, whether oral or written. This Agreement may be amended only by
a writing signed by a duly authorized representative of each party.
(g) Notices. All notices and other communications required or
-------
permitted to be given or made under this Agreement shall be in writing and shall
be deemed to have been duly given and received, regardless of when and whether
received, either: (a) on the day of hand delivery; (b) three (3) Business Days
following the day sent, when sent by United States certified mail, postage and
certification fee prepaid, return receipt requested, addressed as follows; (c)
when transmitted by telecopy with verbal confirmation of receipt by the telecopy
operator; or (d) one Business Day following the day timely delivered to a next-
day air courier; provided, however, that (i) no notice or other communication
-------- -------
given to or by the Company may be sent by mail and (ii) notices and other
communications given to or by the Company for delivery by air courier shall be
deemed to have been duly given and received upon acknowledgment of receipt by
the recipient thereof.
To Escrow Agent:
Marine Midland Bank
140 Broadway
12th Floor
New York, New York 10005
Attention: Corporate Trust Department - Transtel
Telecopy: 212-658-6425
Telephone: 212-658-6029
To Indenture Trustee:
Marine Midland Bank
140 Broadway
12th Floor
New York, New York 10005
Attention: Corporate Trust Department - Transtel
Telecopy: 212-658-6425
Telephone: 212-658-6029
-17-
<PAGE>
To the Company:
Transtel S.A.
Calle 19N, No. 2-29
Oficina 501A
P.O. Box 3360
Cali, Colombia
Attention: Guillermo Lopez
Telecopy: (572) 667-5423
Telephone: (572) 660-4860
or at such other address as the specified entity most recently may have
designated in writing in accordance with this Section.
All notices and communications given hereunder shall be in English or
accompanied by an English translation.
(h) Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
(i) Captions. Captions in this Agreement are for convenience
--------
only and shall not be considered or referred to in resolving questions of
interpretation of this Agreement.
(j) Applicable Law; Consent to Jurisdiction; Waiver of Immunity.
-----------------------------------------------------------
THE VALIDITY AND INTERPRETATION OF THIS AGREEMENT, AND THE TERMS AND CONDITIONS
SET FORTH HEREIN, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED WHOLLY
THEREIN, WITHOUT GIVING EFFECT TO ANY PROVISIONS THEREOF RELATING TO CONFLICTS
OF LAW. THE PARTIES HERETO INTENDED AND, TO THE EXTENT PERMITTED BY APPLICABLE
LAW, AGREE THAT THIS IS AN AGREEMENT BETWEEN A SECURITIES INTERMEDIARY AND ITS
ENTITLEMENT HOLDER FOR PURPOSES OF 31 C.F.R. 357.11(b)(1) AND (S)8-110(e)(1) OF
THE UCC.
Each of the parties hereto irrevocably agrees that any legal dispute,
action or proceeding arising out of or based upon this Agreement may be
instituted in any New York State or U.S. Federal court sitting in the Borough of
Manhattan, New York City,
-18-
<PAGE>
New York, U.S.A. (each a "New York Court" and collectively, the "New York
Courts"), irrevocably waives, to the extent permitted by applicable law, any
objection which it may now or hereafter have to the laying of venue to any such
proceeding and irrevocably submits to the non-exclusive jurisdiction of such
courts in any such suit, action or proceeding. The Company has appointed CT
Corporation Systems, Inc., 1633 Broadway, New York, New York 10019, as its
authorized agent ("Authorized Agent") to receive on its behalf service of copies
of the summons and complaints and any other process which may be served in any
legal suit, action or proceeding arising out of or relating to this Agreement
which may be instituted in any federal or state court sitting in The City of New
York, expressly consents to the jurisdiction of any such court in respect of any
such action, and waives any other requirements of or objections to personal
jurisdiction with respect thereto. Such appointment shall be irrevocable for a
period of three years from the date of this Agreement. Such service may be made
by delivering a copy of such process to the Company in care of the Authorized
Agent at the address specified above for the Authorized Agent and obtaining a
receipt therefor, and the Company hereby irrevocably authorizes and directs such
Authorized Agent to accept such service on its behalf. The Company represents
and warrants that the Authorized Agent has agreed to act as said agent for
service of process, and agrees that service of process in such manner upon the
Authorized Agent shall be deemed in every respect effective service of process
upon the Company in any such suit, action or proceeding. The Company further
agrees to take any and all actions as may be necessary to maintain such
designation and appointment of such Authorized Agent in full force and effect.
If the Authorized Agent shall cease to act as the Company's agent in The City of
New York for service of process, the Company shall appoint without delay another
such agent and notify the Escrow Agent of such appointment.
(k) To the extent that the Company or any of its revenues,
assets or properties shall be entitled, with respect to any proceeding at any
time brought against the Company or any of its revenues, assets or properties or
with respect to any suit, action or proceeding at any time brought for the
purpose of enforcing or executing any judgment in any jurisdiction in which any
specified court or other court is located, to any immunity from suit, from the
jurisdiction of any such court, from attachment prior to judgment, from
attachment in aid of execution of judgment, from execution of a judgment or from
any other legal or judicial process or remedy, to the extent of such immunity,
the Company irrevocably agrees not to claim and irrevocably waives such immunity
to the fullest extent permitted by the laws of such jurisdiction (including
without limitation, the Foreign Sovereign Immunities Act of 1976 of the United
States).
(l) The Company hereby represents and warrants that this
Agreement has been duly authorized, executed and delivered on its behalf and
constitutes the legal, valid and binding obligation of the Company enforceable
in
-19-
<PAGE>
accordance with its terms. The execution, delivery and performance of this
Agreement by the Company does not violate any applicable law or regulation to
which the Company is subject or any organizational document of the Company and
does not require the consent of any governmental or other regulatory body to
which the Company is subject, except for such consents and approvals as have
been obtained and are in full force and effect.
(m) Each of the Escrow Agent and the Indenture Trustee hereby
represents and warrants that this Agreement has been duly authorized, executed
and delivered on its behalf and constitutes its legal, valid and binding
obligation.
-20-
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this
Escrow and Disbursement Agreement as of the day first above written.
MARINE MIDLAND BANK, in its
capacity as Escrow Agent
By /s/ ROBERT A CONRAD
--------------------------------
Name: ROBERT A CONRAD
Title: VICE PRESIDENT
MARINE MIDLAND BANK, in its
capacity as Indenture Trustee
By /s/ ROBERT A CONRAD
--------------------------------
Name: ROBERT A CONRAD
Title: VICE PRESIDENT
TRANSTEL S.A., in its capacity as
the Company
By /s/ Guillermo O. Lopez
--------------------------------
Name: Guillermo O. Lopez
Title: President
<PAGE>
SCHEDULE 1
----------
List of Other Existing Indebtedness
-----------------------------------
<PAGE>
SCHEDULE
--------
Indebtedness to be Repaid
-------------------------
<TABLE>
<CAPTION>
Principal Amount Outstanding as of
Name of Lender October 21, 1997, in U.S. Dollars*
- -------------- ----------------------------------
<S> <C>
Banco Popular 3,484,746
Banco Cafetero 788,426
Banco Santander 689,941
Banco Ganadero 847,557
BIC 1,004,270
Banco de Credito 375,613
Banco Colpatria 1,818,757
Banco del Estado 2,791,476
Banco de Occidente 1,316,659
Banco del Pacifico 2,194,446
Overdrafts 2,107,793
Standard C. Bank 4,000,000
Pacific National Bank 1,840,000
Corfes 2,599,999
Morgan 6,000,000
IFI 907,445
---------
Total 32,767,036**
</TABLE>
______________
* Loans denominated in Colombian pesos have been converted to U.S. dollars
using the exchange rate as of October 21, 1997, which was equivalent to
1,264.6 Colombian pesos per U.S. dollars.
** An additional Ps.480 million ($379,627) of indebtedness is expected to be
incurred prior to the Closing Date.
<PAGE>
EXHIBIT A
Form of Escrow Account Payment, Notice and Disbursement Request
---------------------------------------------------------------
(Letterhead of the Indenture Trustee)
[Date]
Marine Midland Bank
140 Broadway, 12th Floor
New York, New York 10005
Attn: Corporate Trust Department - Transtel
Re: Disbursement Request No. ___________
Ladies and Gentlemen:
We refer to the Escrow and Disbursement Agreement, dated as of October
28, 1997 (the "Escrow Agreement") among you (the "Escrow Agent"), the
---------------- ------------
undersigned as Indenture Trustee, and TRANSTEL S.A., a sociedad anonima
organized under the laws of the Republic of Colombia (the "Company").
-------
Capitalized terms used herein shall have the meaning given in the Escrow
Agreement.
This letter constitutes an Escrow Account Payment Notice and Disburse
ment Request under the Escrow Agreement.
[Choose one of the following, as applicable]
[The undersigned hereby notifies you that a scheduled interest payment
in the amount of $___________ is due and payable on _________ ___, 199_, and
requests a disbursement of funds contained in the Escrow Account in such
amount.]
[The undersigned hereby notifies you that a scheduled interest payment
in the amount of $____________ is due and payable on _____________ ___, 199_,
which amount exceeds the amount of remaining Escrow Account Available Funds.
<PAGE>
EXHIBIT A
Page 2
Accordingly, you are hereby requested to disburse all remaining funds contained
in the Escrow Account such that the balance in the Escrow Account is reduced to
zero.]
[The undersigned hereby notifies you that a payment of $_______ is due
and payable on ______________, 199_ in connection with a repurchase or
redemption of Notes, plus accrued interest, if any, pursuant to the provisions
of [Section 3.07][Section 4.12][Section 4.18] of the Indenture and requests a
disbursement of funds contained in the Escrow Account in such amount. [The
undersigned hereby notifies you that a payment of $________ is due and payable
on ___________, 199_ in connection with a repurchase or redemption of Notes,
plus accrued interest, if any, pursuant to the provisions of [Section
3.07][Section 4.12][Section 4.18] of the Indenture, which amount exceeds the
amount of remaining Escrow Account Available Funds. Accordingly, you are hereby
requested to disburse all remaining funds contained in the Escrow Account such
that the balance in the Escrow Account is reduced to zero.]
[The undersigned hereby notifies you that Notes equaling $____________
in aggregate principal amount have been retired and authorizes you to release
$_____________ of funds in the Escrow Account to the Company (to an account
designated by the Company in writing), which amount represents the interest
payments on such retired Notes.]
In connection with the requested disbursement, the undersigned hereby
notifies you that:
1. The Notes have not, as a result of an Event of Default (as
defined in the Indenture), been accelerated and become due and payable.
2. All prior disbursements from the Escrow Account have been
Applied.
3. [add wire instructions]
-2-
<PAGE>
EXHIBIT A
Page 3
The Escrow Agent is entitled to rely on the foregoing in disbursing
funds relating to this Escrow Account Payment Notice and Disbursement Request.
MARINE MIDLAND BANK, in its capacity
as Indenture Trustee
By__________________________________
Name:
Title:
-3-
<PAGE>
EXHIBIT B
Form of Refinancing Account Payment, Notice and Disbursement Request
--------------------------------------------------------------------
(Letterhead of the Company)
[Date]
Marine Midland Bank
140 Broadway
12th Floor
New York, New York 10005
Attn: Corporate Trust Department - Transtel
Re: Disbursement Request No. ___________
Ladies and Gentlemen:
We refer to the Escrow and Disbursement Agreement, dated as of October
28, 1997 (the "Escrow Agreement") among you (the "Escrow Agent"), Marine Midland
---------------- ------------
Bank, in its capacity as Indenture Trustee, and the undersigned, a sociedad
anonima organized under the laws of the Republic of Colombia (the "Company").
-------
Capitalized terms used herein shall have the meaning given in the Escrow
Agreement.
This letter constitutes a Refinancing Account Payment Notice and
Disbursement Request under the Escrow Agreement.
The undersigned hereby notifies you that on _________ __, 1997, it
expects to repay $__________ to [Name of Lender of Other Existing Indebtedness]
under the [Describe credit/loan document.]
Please wire $_________ on __________ __, 1997 to the account of [Name
of Lender of Other Existing Indebtedness at [Wire Instructions.]
<PAGE>
EXHIBIT B
Page 2
In connection with the requested disbursement, the undersigned hereby
confirms to you that the Notes have not, as a result of an Event of Default (as
defined in the Indenture), been accelerated and become due and payable.
The Escrow Agent is entitled to rely on the foregoing in disbursing
funds relating to this Refinancing Account Payment Notice and Disbursement
Request.
TRANSTEL S.A.
By_______________________________
Name:
Title:
-2-
<PAGE>
EXHIBIT C
[DESCRIPTION OF US GOVERNMENT INVESTMENTS]
<PAGE>
FUND FLOWS FOR TRANSTEL
<TABLE>
<CAPTION>
Strip Maturity Date CUSIP Face Value USD Purchase Cost of Strips
<S> <C> <C> <C>
23-Apr-98 9127946M1 9,375,000 9,147,757.81
15-Oct-98 9127945A8 9,375,000 8,921,250.00
15-Feb-99 912833BZ2 9,375,000 8,738,693.04
15-Aug-99 912833CA6 9,375,000 8,496,502.31
TOTAL COST 37,500,000 35,304,203.16
</TABLE>
<PAGE>
EXHIBIT D
Transtel, S.A.
Calle 19N, No: 2-29
Officina 501A
Post Office Box 3360
Cali, Colombia
Attention: Guillermo Lopez
Marine Midland Bank,
as Indenture Trustee
140 Broadway, 12th Floor
New York, Ny 10005
________________, 199_
Re:. Account No._______ (the "Account"),___
Ladies and Gentlemen:
We hereby acknowledge and confirm the following:
1. We have been informed that the Collateral (as defined in the Escrow
and Disbursement Agreement dated as of October 28, 1997, among the Company (as
defined below), the Indenture Trustee (as defined below) and us (the "Escrow and
----------
Disbursement Agreement")) including, without limitation, security entitlements
- ----------------------
in the securities set forth on Schedule A annexed hereto (the "Securities"),
----------
which are held and maintained in or credited to the [Escrow Account][Refinancing
Account], the proceeds thereof, the [Escrow Account][Refinancing Account] and
any other property held and maintained in or credited to the [Escrow
Account][Refinancing Account] have been pledged by Transtel S.A., a sociedad
anonima incorporated under the laws of the Republic of Colombia (the "Company")
-------
and are subject to a security interest to and in favor of Marine Midland Bank,
as indenture trustee (the "Indenture Trustee") under the Escrow and Disbursement
-----------------
Agreement. The security interest of the Indenture Trustee is reflected on our
books and records and will remain so reflected unless a change thereto is
consented to by the Indenture Trustee.
2. We have not received actual notice of any adverse claim (as defined in
Section 8-102(a)(1) of the Uniform Commercial Code, Revised Article 8,
Investment Securities (with Conforming and Miscellaneous Amendments to Articles
1, 4, 5, 9, and 10) 1994 Official Text, and incorporated by reference in 31
C.F.R. Part 357 and/or as enacted in the State of New York and in effect from
time to time (the "Revised Article 8") to, or any default, dishonour or defense
with respect to, the Securities. We have not created or received notice of any
liens, claims (including, but not limited to, claims of ownership) or
encumbrances with respect to the Securities other than as described in
<PAGE>
paragraph 1 above.
3. We are a "securities intermediary," as defined in Section 8-102(a)(14)
of the Revised Article 8.
4. We are not a "clearing corporation," as defined in Section 8-102(a)(5)
of the Revised Article 8.
5. We have credited Securities in our records by "book entry" to the
[Escrow Account][Refinancing Account] and have identified the securities as
subject to a first priority security interest in favor of the Indenture Trustee.
In the case of Securities issued by the U.S. government the Securities are
"Book-Entry Securities" as defined in 31 C.F.R. 357.2, such Securities have been
acquired for our account by a securities intermediary which is a "Participant"
as defined in 31 C.F.R. 357.2, and we further confirm that, with respect to such
Securities, (i) each of such Securities shall be carried in the Participant's
securities account with the Federal Reserve Bank of New York and (ii) we are
reflected in such Participant's records as the transferee and holder of such
Securities, and we agree that we will not instruct the Participant to change
any such records except in accordance with the Escrow and Disbursement
Agreement.
6. We hereby confirm the purchase (as defined in Section 1-201(32) of the
New York Uniform Commercial Code) of the Securities by the Company.
7. We have not confirmed any interest in the Securities to any person
other than the Company and the Indenture Trustee and our books and records do
not indicate any person other than the Company and the Indenture Trustee as
having any interest in the Securities.
THIS ACKNOWLEDGMENT IS BEING DELIVERED IN NEW YORK, AND SHALL IN ALL
RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE
OF NEW YORK.
Very truly yours,
MARINE MIDLAND BANK,
As Escrow Agent
By:______________________________
Name:
Title:
<PAGE>
FIRST AMENDMENT AND WAIVER TO ESCROW AND DISBURSEMENT AGREEMENT, dated as
of July 13, 1998, among Marine Midland Bank, as escrow agent (in such capacity,
the "Escrow Agent"), Marine Midland Bank, as indenture trustee (in such
capacity, the "Indenture Trustee") under the Indenture (as defined herein), and
Transtel S.A., a Colombian corporation (the "Company") (the "Amendment and
Waiver"). Capitalized terms used herein and not otherwise defined shall have the
meanings assigned to them in the Original Agreement (as defined herein).
W I T N E S S E T H:
WHEREAS, the Company has heretofore entered into an Escrow and
Disbursement Agreement, dated as of October 28, 1997 (the "Original Agreement")
with the Escrow Agent and the Indenture Trustee;
WHEREAS, the Company has heretofore entered into an Indenture, dated
as of October 28, 1997 with the Indenture Trustee (the "Indenture");
WHEREAS, the Original Agreement is incorporated herein by this
reference and the Original Agreement, as amended by this Amendment and Waiver is
herein called the "Agreement";
WHEREAS, pursuant to Section 9.01 of the Indenture, the Company and
the Indenture Trustee may amend or supplement the Original Agreement in certain
circumstances without the consent of any holder of a Note; and
WHEREAS, the Company proposes to so amend the Original Agreement.
NOW, THEREFORE, in consideration of the agreements and obligations set
forth herein and for other good and valuable consideration, the sufficiency of
which is hereby acknowledged, the parties hereto hereby agree as follows:
SECTION 1. Amendment to Section 3(8)(a) of the Original Agreement
------------------------------------------------------
Section 3(8)(a) of the Original Agreement is, effective as of the date hereof
and subject to the conditions precedent set forth in Section 2 hereof, hereby
amended by inserting a "(i)" after the underlined text and adding the following
new sections (ii) and (iii):
"(ii) Upon receipt by the Escrow Agent of satisfactory documentation from
the Company evidencing the Company's payment of Other Existing
Indebtedness out of Company funds (which documentation shall set forth the
amount of such payment), other than funds maintained in the Refinancing
Account, and subject to the satisfaction of the applicable conditions set
forth in Section 3(B)(b) hereof, the Escrow Agent, within two (2) Business
Days following receipt of such documentation, shall disburse from the
Refinancing Account to the Company, by wire transfer of immediately
available funds to an account of the Company as designated by the Company,
the amount of Other Existing Indebtedness set forth in such documentation
as having been paid by the Company.
<PAGE>
(iii) Upon receipt by the Escrow Agent of satisfactory documentation
from the Company evidencing the payment of all Other Existing Indebtedness,
and subject to the satisfaction of the applicable conditions set forth in
Section 3(B)(b) hereof, the Escrow Agent, within two (2) Business Days
following receipt of such documentation, shall disburse from the
Refinancing Account to the Company, by wire transfer of immediately
available funds to an account of the Company as designated by the Company,
all remaining amounts in the Refinancing Account, if any."
SECTION 2. Amendment to Section 3(B)(b) of the Original Agreement.
------------------------------------------------------
Section 3(B)(b) of the Original Agreement is hereby amended by inserting, after
the "(A)", the following:
"for the purpose of Section 3(B)(a)(i) hereof,"
(a) and shall be further amended by replacing the reference to
"3(B)(a)" contained in the third line thereof with a reference to
"3(B)(a)(i)".
SECTION 3. Waiver. The Indenture Trustee hereby waives the
------
requirement in Section 9.01 of the Indenture that the Company provide a
resolution of the Board of Directors of the Company authorizing the execution of
this Amendment and Waiver.
SECTION 4. Conditions of Effectiveness to this Amendment and Waiver.
--------------------------------------------------------
This Amendment and Waiver shall become effective as of the date first above
written upon receipt of executed counterparts from each party to this Amendment
and Waiver.
SECTION 5. Escrow Agent Not Responsible. The recitals contained
----------------------------
herein shall be taken as the statements of the Company, and the Escrow Agent
assumes no responsibility for their correctness. The Escrow Agent makes no
representation as to the validity or sufficiency of this Amendment and Waiver.
SECTION 6. Indemnity. The Company shall indemnify the Escrow Agent
---------
against any and all claims by the Noteholders arising out of or in connection
with its execution and delivery of this Amendment and Waiver, except any such
loss, liability or expense as may be attributable to the negligence or bad faith
of the Escrow Agent stee. The Escrow Agent shall notify the Company promptly of
any claim for which it may seek indemnity. Failure by the Escrow Agent to so
notify the Company shall not relieve the Company of its obligations hereunder.
The Company shall defend the claim and the Escrow Agent shall cooperate in the
defense. The Escrow Agent may have separate counsel and the Company shall pay
the reasonable fees and expenses of such counsel. The Company need not pay for
any settlement made without its consent, which consent shall not be unreasonably
withheld.
2
<PAGE>
SECTION 7. Ratification and Incorporation of Original Agreement. As
----------------------------------------------------
amended hereby, the Original Agreement is in all respects ratified and
confirmed, and the Original Agreement and this Amendment and Waiver shall be
read, taken and construed as one and the same instrument.
SECTION 8. Governing Law. The validity and interpretation of this
-------------
Amendment and Waiver, and the terms and conditions set forth herein, shall be
governed by and construed in accordance with the laws of the State of New York
applicable to contracts made and to be performed wholly therein, without giving
effect to any provisions thereof relating to conflicts of law.
SECTION 9. Invalidity. If for any reason whatsoever any one or more of
----------
the provisions of this Amendment and Waiver shall be held or deemed to be
inoperative, unenforceable or invalid in a particular case or in all cases, such
circumstances shall not have the effect of rendering any of the other provisions
of this Amendment and Waiver inoperative, unenforceable or invalid, and the
inoperative, unenforceable or invalid provision shall be construed as if it were
written so as to effectuate, to the maximum extent possible, the parties'
intent.
SECTION 10. Counterparts. This Amendment and Waiver may be executed
------------
in one or more counterparts, each of which shall be deemed an original but all
of which together shall constitute one and the same instrument.
SECTION 11. Captions. Captions in this Amendment and Waiver are for
--------
convenience only and shall not be considered or referred to in resolving
questions but all of which together shall constitute one and the same
instrument.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
3
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this
Amendment and Waiver as of the day and year first above written.
MARINE MIDLAND BANK,
in its capacity as Escrow Agent
By: /s/ Robert A. Conrad
--------------------------
Name: Robert A. Conrad
Title: Vice President
MARINE MIDLAND BANK,
in its capacity as Indenture Trustee
By: /s/ Robert A. Conrad
-----------------------
Name: Robert A. Conrad
Title: Vice President
TRANSTEL S.A.,
in its capacity as the Company
By: /s/ Guillermo O. Lopez
------------------------
Name: Guillermo O. Lopez
Title: President and C.E.O.
4
<PAGE>
EXHIBIT 10.3
GLOBAL TELECOMMUNICATIONS OPERATIONS, INC.
CONTRACT NUMBER 1 (1996)
By and between the undersigned, FABIANA MEJIA VESGA, of legal age and resident
of Santa Fe de Bogota, bearing the social security number 39'773.698, issued in
Usaquen, who acts as legal representative of GLOBAL TELECOMMUNICATIONS
OPERATIONS, INC., with the power thus invested in her and, who in this document
shall hereinafter be referred to as THE CORPORATION on the one hand; and on the
other hand SIEMENS AKTIENGESELLSCHAFT established and extant COMPANY in
accordance with the laws of the Federal Republic of Germany, established in
Berlin, and Munich, represented by SIEMENS CORPORATION, registered and licenced
at the Commercial Register of the Chamber of Commerce of Bogota, in accordance
with the Registration Number 003.206, represented in this transaction by OTLAND
HERNANDEZ CHAPARRO AND ALBERTO GOMEZ DEL CORRAL, of legal age, residents of the
city of Santa Fe de Bogota, bearing the social security number 17'023.898 and
social security number 19'182.384, respectively, both issued in Bogota, firm
established in Santa Fe de Bogota, all of which is demonstrated in the
Certificate of Commercial and Sole Agency, issued by the Chamber of Commerce of
Bogota, who shall hereinafter be referred to as THE CONTRACTOR, this contract
has been made, consisting of the following clauses:..................
FIRST CLAUSE. PURPOSE: THE CONTRACTOR agrees to transfer in the capacity of
<PAGE>
contract of sale to THE CORPORATION EWSD commutation equipment for a total of
40,716 telephone lines, distributed in two (2) new central moulds, in ten (10)
new remote concentradores and one pre-existent, supply equipment, tools, spare
parts, consumer materials, software for the above-mentioned lines, the SDH
synchronous transport systems for Palmira, Yumbo and Jamundi, and the necessary
materials for expansion, replacement, cabling or external plant transfer for a
total of 71,350 pairs for the three areas, as well as the necessary materials
for the construction of a linkage grid, between the central and remote
concentradores, all of the above in accordance with that which is determined in
the Technical Appendix.-----------------------------------------
PARAGRAPH: For the purposes of interpretation of technical aspects of this
document, the Technical Appendix shall take precedence over this
contract.--------------------------------
SECOND CLAUSE. CONTRACT DOCUMENTS: The Technical Appendix shall form a part of
this contract. The said Appendix includes, among others, and each in its own
right, the following aspects: A) General summary of prices. B) List of
Materials. C) Description of Services. D) Delivery Schedule. E) Diagrams. F)
Readjustment formulas for future purchases. G) Training and education. H)
Protocol of tests of approval for the partial reception and for the definitive
reception. I) Technical specifications and characteristics of the goods and
equipment.--------------------------------------------------------
TRANSITIONAL PARAGRAPH: The parties declare that the Technical Appendix attached
to this contract is that which was prepared by THE CONTRACTOR who is in the
process of reviewing said Appendix in connection with the observations presented
by THE CORPORATION or its leaseholders. Therefore THE CONTRACTOR shall be
<PAGE>
conceded a period of fifteen (15) days to present her observations, that when
received by THE CORPORATION or its leaseholders, shall be discussed within the
five (5) following days and if said observations are found reasonable, the
Technical Appendix shall be corrected accordingly. If THE CONTRACTOR fails to
respond with respect to said observations within the fifteen (15) days herein
conceded it shall be understood that the observations concerning the Technical
Appendix are agreed to.--------------------
THIRD CLAUSE. VALUE OF THE CONTRACT: 1) The value of the CIP importation
supplies described in the Technical Appendix of this contract is TWENTY MILLION
SEVENTEEN HUNDRED THOUSAND NINE HUNDRED FORTY SEVEN AND 30/100 UNITED STATES
DOLLARS (US$2O,017,947.30). The insurance and transportation costs in Colombia
of the imported goods shall be paid by THE CORPORATION or its leaseholders. THE
CORPORATION or its leaseholders shall assume and directly pay the tariff, the
IVA and all other nationalization costs in Colombia, including that of the
certification company selected. THE CONTRACTOR shall assume responsibility for
all direct and indirect taxes, duties and any rates prevailing at the date of
ratification of this contract that encumber THE CONTRACTOR.---------------------
FOURTH CLAUSE. FORM OF PAYMENT: THE CORPORATION shall pay THE CONTRACTOR the
costs stipulated in the Third Clause in the following manner 1.) The sum of
THREE MILLION TWO THOUSAND SIX HUNDRED NINETY TWO AND 09/100 UNITED STATES
DOLLARS (US$3,002,692.09) as advance payment, which is the equivalent of fifteen
percent (15%) of the CIP value of the imported goods, within the thirty days
following the signing of this contract, once respective importation
<PAGE>
inspections have been approved (if applicable), payable by way of direct deposit
to the order of SIEMENS AKTIENGESELLSCHAFT Depto OEN VK 73 in Munich Federal
Republic of Germany. 2.) Eighty five percent (85%) of the value of each partial
delivery of equipment in working order, by means of dealer financing in
accordance with the following conditions: A) FINANCING BACKER: SIEMENS
AKTIENGESELLSCHAFT. B) CREDIT TERM: 10 years beginning from each date of partial
receipt of the equipment in working order. C) GRACE PERIOD: Six (6) months
starting on each date of partial delivery of the equipment in working order. D)
REDEMPTION TERMS: Eighty five percent (85%) of the total value of each partial
delivery of the equipment in working order shall be paid in 20 biannual
installments, equal and consecutive. The first installment shall be due six (6)
months after each date of partial receipt of the equipment in working order. E)
FINANCING INTEREST: Upon adverse balances an interest rate shall be applied
equal to that of the Libor rate plus 1% a year, calculated starting from the
date of CIP dispatch, payable together with each installment of capital. F)
GUARANTEES: 1. Promissory notes or bills of exchange duly signed jointly and
mutually by TELEPALMIRA S.A. E.S.P., TELEYUMBO S.A. E.S.P. AND TELEJAMUNDI S.A.
E.S.P. to the order of THE CONTRACTOR. 2. Pledging to the order of THE
CONTRACTOR of the revenue of TRANSTEL S.A. in TELEPALMIRA S.A. E.S.P.,, in
accordance with the pledging contract, whose terms and conditions shall be
established separately, and which shall be subject to the following conditions:
A. Pledging in possession of the creditor. B. In the event of non-fulfillment on
the part of the Debtor, the Pledging Creditor shall be invested with the power
to exercise the
<PAGE>
rights of share holder that correspond to the Debter in TELEPALMIRA S.A. E.S.P.
C. The Creditor shall be able, after one hundred twenty (120) days of delay, to
collect the pledge. 3. Pledging to the order of THE CONTRACTOR of the revenue of
TELEPALMIRA S.A. E.S.P., as follows: A. Sixty thousand dollars ($US60,000) every
thirty days beginning the thirtieth (30) of October, 1996; and so on until the
thirtieth of December of the same year. Beginning January 1st, 1997 fifty
percent (50%) shall be pledged of the connection rights generated by the sale of
the ten thousand five hundred (10,500) lines supplied by THE CONTRACTOR, by
means of this CONTRACT and that shall be installed in Palmira. This pledging
shall ensure that by the 31st of October, 1997, there exist a reserve able to
cover two (2) installments of capital, plus interest, funds that shall be
utilized as source of payment and simultaneously as guarantee of the same, such
that the minimum total sum in this fund shall be the equivalent of one
installment. B) Beginning October 1st, 1997, THE CORPORATION shall pledge the
sum of one hundred seventy dollars (US$170,000) a month from the operational
revenue for the purpose of guaranteeing the reserve that allows coverage of at
least two (2) installments of capital plus interest. This procedure shall be
implemented until the total payment of the debt. In any event, the maximum value
to pledge shall be up to the sum of TWO MILLION UNITED STATES DOLLARS
(US$2,000,000.00).-FIRST PARAGRAPH: DELAYED INTEREST PAYMENTS: In the event of
delay in the payment of capital in the foreign exchange markets referred to in
numbers 1 and/or 2 of this clause, in connection with the total amount in
default THE CORPORATION shall acknowledge and pay SIEMENS AKTIENGESELLSCHAFT, in
dollars and upon the
<PAGE>
presentation of the respective liquidation, the interests in default at the rate
equal to that referred to in this clause, number 2e, with an increase of two
percent (2%), calculated from the payment date of the sum in default, until the
date in which said sum has been credited to the bank account of SIEMENS
AKTIENGESELLSCHAFT.-------------------------------------------------------------
SECOND PARAGRAPH: THE CONTRACTOR states that she has presented the petition for
coverage of the exported goods plus fifteen percent (15%) of the value of the
imported goods which partially covers the value of the supplies and
local/domestic repairs, through the national company of the Federal Republic of
Germany, referred to as "HERMES". In the event that above-mentioned institution
denies approval of said petition, the guarantees stipulated in Letter f) of the
Fourth Clause shall continue to prevail, on the contrary, that is if HERMES
grants said approval, the guarantees referred to in Letter f) under numbers 2
and 3 shall be declared null and void.-------------
FIFTH CLAUSE. DELIVERY TIME: THE CONTRACTOR agrees to deliver, all of the
equipment and materials that compose the internal plant including its
installation and being brought into operation, properly connected and in
operation in accordance with the timetable in the Technical Appendix, if and
when the advances have been received within the time period referred to in the
Fourth Clause and the importation license duly approved, if applicable. For
each delivery, the tests referred to in the Technical Appendix shall be carried
out and only when the results shown correspond to at least those indicated in
the said document a formal statement of definitive delivery of goods in
operation shall be drawn up that shall be signed by the representatives of the
<PAGE>
participating parties that have been authorized in due form in writing for said
event. If the agreed upon results are not shown THE CONTRACTOR agrees to adopt
at her own risk and expense all necessary measures to be able to proceed with a
new set of tests within the period of time agreed upon among the participants in
the failed tests and that shall not imply an extension of the term stipulated
and included in the Technical Appendix. The transactions of Definitive Receipt
shall serve as the foundation for the causation of payments of the total amount
stipulated under the clause pertaining to the form of payment.------------------
- ------------------------------------------- SIXTH CLAUSE.
EXTENSION OF DELIVERY DATE: The specified time periods and other obligations
referred to in this contract, shall be extended if the causes arise from force
majeure or by chance, and if said causes are duly proven. In these cases, new
time periods and obligations shall be indicated by mutual agreement, if and when
the party encumbered by the occurrences caused by force majeure or by chance
demonstrates this to the other party and notifies said party within three (3)
days following the date when notification and proof are possible. The extension
herein provided for in no event shall replace the term that the conditions of
force majeure and chance occurrence impeded to the party that claims to fulfill
their obligations or, in the event that a specified time period expires during
the course of the occurrences, during the time passed between the date the
occurrences began and that in which the obligation should have been complied
with.----------------------------------------------------------
SEVENTH CLAUSE. TRADEMARKS AND PATENTS: THE CONTRACTOR guarantees THE
CORPORATION the use of the trademarks and patents of the
<PAGE>
equipment, materials and elements she has agreed to supply. THE CONTRACTOR
agrees to defend, at her own expense, at any trial initiated against THE
CORPORATION, for the wrongful use of registered trademarks and patents and shall
pay the penalties and expenses arising from such trials. If in the course of one
of these lawsuits THE CORPORATION is judicially or administratively instructed
to suspend use of one or more of the goods referred to herein, THE CONTRACTOR
agrees to (A) guarantee to the third party its financial losses, as much as
possible given the respective procedure, such that THE CORPORATION may continue
using the goods without having resolved the issue of continuity or (B) in the
event that the aforementioned proves judicially impossible, to supply him,
within five (5) days after the order of cessation is issued, with replacement
goods of similar characteristics or to make corrections in the goods, within the
same period of five (5) days, that eliminate the infraction without harming its
technical or performance characteristics. In both cases THE CORPORATION should
be able to guarantee the continuity of public home telecommunication
service.----------------------------------------------------------------------
EIGHTH CLAUSE. SCOPE OF THE GUARANTEE OF TECHNICAL QUALITY: The equipment THE
CONTRACTOR shall supply to THE CORPORATION shall be new and of the best quality
and shall be manufactured in a manner which ensures their resistance to the
climate and the meteorological conditions of the places they are be installed.
In the event of errors, including those arising from installation, THE
CONTRACTOR shall be held responsible, to the exclusion of all other claims, in
the following manner: -All parts that within one (1) year, from the date of the
last partial
<PAGE>
definitive delivery of equipment in operation, that result unusable or which
have been damaged due to defective construction, deficient materials or faulty
manufacturing shall be supplied or repaired free of charge, if and when the
maintenance during the warranty period was carried out in a satisfactory manner.
THE CONTRACTOR must be officially notified of the existence of said defects
within a maximum period of fifteen (15) days from the day in which the defects
become known to the leaseholders of THE CORPORATION, that is, TELEPALMIRA S.A.
E.S.P., TELEYUMBO S.A. E.S.P. AND TELEJAMUNDI S.S. E.S.P. -The parts replaced in
accordance with the aforementioned literal, shall become the property of THE
CONTRACTOR. -The warranty shall not cover aging, natural wear due to mechanical
causes, nor shall it cover imperfections as a result of inappropriate or
negligent handling, or as a result of the use of inappropriate servicing
materials, such as defective repairs in the buildings, chemical and
electrochemical factors originating from natural causes and not by fault of THE
CONTRACTOR. -The warranty of the equipment implies the reparation or replacement
of said equipment whenever necessary for its normal operation, however said
obligation automatically expires after one (1) year, from the delivery date of
goods in operation. -This guarantee of quality shall not cover the existing
equipment at TELEPALMIRA S.A. E.S.P. and that are not referred to herein.
- --------------------------------
NINTH CLAUSE. GUARANTEES: THE CONTRACTOR shall establish guarantees for THE
CORPORATION and TELEPALMIRA S.A. E.S.P., TELEYUMBO S.A. E.S.P. AND TELEJAMUNDI
S.A. E.S.P., issued by a Bank or Insurance Company legally authorized to
function in Colombia, and which shall be founded upon the value of the
<PAGE>
contact that shall guarantee the compliance with the obligations referred to
herein, as: (A) Full compliance with this contract including penalties in the
amount of 10% of said contract and that shall prevail for the duration of its
term plus three (3) months. (B) The quality and proper working order of the
goods supplied in the amount of ten percent (10%) of the value of the imported
goods referred to herein and which shall be valid for one (1) year from the
definitive partial receipt of the goods in operation. The warranties referred to
in the Literals a) and b) shall be established and presented to THE CORPORATION
and their leaseholders by THE CONTRACTOR along with the proof of payment of the
premium within the five (5) days following the date of ratification of this
contract. The warranty referred to in literal b) shall be established in each of
the dates of definitive partial receipt of the goods in operation.--------------
TENTH CLAUSE. REPLENISHMENT OF WARRANTY: THE CONTRACTOR agrees to replenish
the total amount of the warranty whenever due to fines imposed on said warranty
it should diminish or be depleted.----------------------------------------------
ELEVENTH CLAUSE. FINES: THE CONTRACTOR agrees to pay THE CORPORATION penalties
or fines imposed due to delayed payment, a sum in the amount of one tenth of one
percent (.1%) of the value of the supplies or goods not delivered within the
stipulated time period, for each day of delay, without the value of the fines
imposed exceeding ten percent (10%) of the total value of the contract. The
fines shall be imposed through written notification, duly provided by THE
CORPORATION or its leaseholders. THE CONTRACTOR shall be able to present its
disclaimers within the five (5) calendar days following the date of receipt of
the above-
<PAGE>
mentioned notification. THE CORPORATION or its leaseholders shall answer for the
disclaimers within five (5) calendar days. In the event of confirmation of said
fine, and if THE CONTRACTOR insists on its disclaimers, it shall have recourse
to the Committing Clause referred to in the Fourteenth Clause within the five
(5) days following said confirmation.-------------------------------------------
PARAGRAPH: Once the fine is confirmed, THE CORPORATION shall be authorized to
deduct the value of said fine, from the sum owed to THE CONTRACTOR, as well as
the resulting interest at a three percent (3%) monthly rate, from the date of
imposition of the fine on the part of THE CORPORATION.--------------------------
TWELFTH CLAUSE. REGISTERED OFFICE AND APPLICABLE LAW: For all legal purposes,
New York shall be the contractual site. This contract shall be subject to the
laws of the United States and any controversy that arises shall be referred to
United States judges.-----------------------------------------------------------
THIRTEENTH CLAUSE. CONFIDENTIALITY: This contract as well as all information
furnished by THE CORPORATION and its leaseholders to THE CONTRACTOR concerning
the project for the duration of the negotiations as well as the information
provided in the fulfillment of the contract shall be maintained by THE
CONTRACTOR in the strictest confidence, and said party shall be obligated to
maintain the same secrecy as with its commercial secrets and privileged
information. At the termination of the contract THE CONTRACTOR agrees to return
the information received to THE CORPORATION or its leaseholders or to destroy
said information and present proof of destruction signed by the fiscal
investigator.--------------------------------------------------------
<PAGE>
FOURTEENTH CLAUSE. RESOLUTION OF DIFFERENCES: Any conflict that arises between
the parties with respect to the making, executing, interpretation or termination
of this contract shall be subject to the following procedure: A) When the
conflict is known and within ten (10) days following this either party may
solicit in writing from the other party that, within a time period of no more
than five (5) days from the notification, the legal representatives of each
party meet and endeavor to find a solution; and B) If the legal representatives
fail to reach an agreement within the twenty (20) following days or they fail to
meet within the five (5) days indicated in the previous literal, the dispute
shall be subject to the decision of an arbitration court in accordance with the
laws of the United States, which shall dictate its finding in law and shall be
subject, with respect to their implementation, to the laws of said Court where,
they shall also have their headquarters.----------------------------------------
FIFTEENTH CLAUSE. FUTURE PURCHASES AND SPARE PARTS: THE CONTRACTOR guarantees
to THE CORPORATION the due supply of spare parts and materials required for the
operation and maintenance of the goods supplied for the duration of ten (10)
years from the date of definitive receipt. Also, THE CONTRACTOR agrees to
comply with requests for future purchases of equipment and software that THE
CORPORATION or its leaseholders present and shall offer these at the lowest
price between A) the unitary prices referred to in the Technical Appendix of
this contract readjusted in accordance with the readjustment formula included in
the Technical Appendix, and B) the prevailing listed price on the date of the
purchase order.-----------------------------------------------------------------
<PAGE>
SIXTEENTH CLAUSE. SOLIDARITY: To the end of counter-guaranteeing the
obligations of GLOBAL TELECOMMUNICATIONS OPERATIONS INC., referred to herein,
the corporations TELEPALMIRA S.A. E.S.P., TELEYUMBO S.A. E.S.P., TELEJAMUNDI
S.A. E.S.P. AND TRANSTEL S.A., are mutually bound in said obligations under the
responsibility of GLOBAL TELECOMMUNICATIONS OPERATIONS INC.---------------------
As proof the signing takes place in the city of Panama, the second (2nd) of May
in the year nineteen ninety six (1996).
GLOBAL TELECOMMUNICATIONS OPERATIONS, INC.
______________________________
FABIANA MEJIA VESGA
SPECIAL ATTORNEY
TELEPALMIRA S.A. E.S.P.
_______________________
JOSE FERNANDO RAMIREZ M.
GENERAL MANAGER
C.C. 10.074.883 OF PEREIRA
TELEYUMBO S.A. E.S.P.
_________________________
JORGE ENRIQUE MARTINEZ O.
GENERAL MANAGER
<PAGE>
C.C. 7.506.436 OF ARMENIA
TELEJAMUNDI S.A. E.S.P.
_____________________
GUILLERMO O. LOPEZ E.
GENERAL MANAGER
C.C. 16.616.481 OF CALI
TRANSTEL S.A.
________________
GUILERMO O. LOPEZ E/
PRESIDENT
C.C. 16.614.481 OF CALI
SIEMENS AKTIENGESELLSCHAFT
REPRESENTED BY
SIEMENS COMPANY LIMITED
<PAGE>
ORLANDO HERNANDEZ ALBERTO GOMEZ DEL CORRAL
SPECIAL ATTORNEY DEPUTY VICE PRESIDENT
OF TELECOMMUNICATIONS
C.C. 17023898 OF BOGOTA C.C. 19182381
<PAGE>
EXHIBIT 10.4
MODIFICATION NO. 1
TO THE PURCHASE AND SALE CONTRACT
MADE BY AND BETWEEN
GLOBAL TELECOMMUNICATIONS OPERATIONS, INC.
AND
SIEMENS AKTIENGESELLSCHAFT
(HEREIN REPRESENTED BY SIEMENS S.A.)
ON MAY 2/ND/ 1996
-----------------
We, GLOBAL TELECOMMUNICATIONS OPERATIONS, INC., a corporation organized and
existing under the laws of the British Virgin Islands, according to Registry No.
170407 for International Business Companies of such jurisdiction (hereinafter
referred to as "COMPANY"), represented by Felipe Garcia Echeverri of age,
domiciled at Santafe de Bogota, D.E., identified as appears next to his
signature, acting as attorney-in-fact, according to special power of attorney,
on the one part, and Siemens S.A., a Colombian corporation, registered in the
Chamber of Commerce of Bogota under Merchantile Registry No. 003.206, acting
herein as representative of SIEMENS AKTIENGESELLSCHAFT, a corporation duly
organized and existing under the laws of the Republic of Germany, domiciled at
Berlin and Munich, whose representation is evidenced by the Commercial Agency
and Exclusive Representation Certificate, issued by the Chamber of Commerce of
Bogota (hereinafter referred to as "CONTRACTOR"), separately represented by
Rodolfo Prada Serrano, of age, domiciled at Santafe de Bogota, D.E., identified
as it appears next to his signature, acting as Commercial and Administrative
Vice-president of Siemens S.A., and Alberto Gomez del Corral, of age, domiciled
at Santafe de Bogota, D.E., identified as it appears next to his signature,
acting as Vice-president (Substitute) of Telecommunications, have entered into
this Modification No. 1 of the Purchase and Sale Contract subscribed by and
between the above parties as of May 2/nd/, 1996 (hereinafter referred to as
"CONTRACT"). This Modification No. 1 consists of the following clauses:
<PAGE>
FIRST CLAUSE. GUARANTEE. The COMPANY grants CONTRACTOR, as a guarantee for the
compliance of its obligations under this Contract, a Civil Pledge with
Possession of the leasing fees. This right was granted to the COMPANY under the
following Contracts: 1) International Leasing Contract, entered into GLOBAL
TELECOMMUNICATIONS OPERATIONS INC. and EMPRESA DE TELEFONOS DE PALMIRA
S.A.EMPRESA DE SERVICIOS PUBLICOS -TELEPALMIRA S.A. E.S.P as of August 1/st/,
1996. 2) International Leasing Contract, entered into GLOBAL TELECOMMUNICATIONS
OPERATIONS INC. and EMPRESA DE TELEFONOS DE YUMBO S.A. EMPRESA DE SERVICIOS
PUBLICOS -TELEYUMBO S.A. E.S.P as of August 1/st/, 1996. And 3) International
Leasing Contract entered into GLOBAL TELECOMMUNICATIONS OPERATIONS INC. and
EMPRESA DE TELEFONOS DE JAMUNDI S.A. EMPRESA DE TELEFONOS DE JAMUNDI S.A.
EMPRESA DE SERVICIOS PUBLICOS -TELEJAMUNDI S.A. E.S.P as of August 1/st/, 1996.
SECOND CLAUSE. DOCUMENTS OF THE CONTRACT. The following documents are integral
part of this Modification No. 1 to the CONTRACT:
1) Contract of Civil Pledge With Possession entered into the COMPANY and the
CONTRACTOR as of the same date and 2) Original leasing contracts referred to in
the FIRST CLAUSE of this Modification No. 1 of the CONTRACT.
THIRD CLAUSE. TERMINATION. In compliance with the provisions of this
Modification No. 1, the COMPANY and the CONTRACTOR acknowledge termination of
the following clauses of the CONTRACT: 1) FOURTH CLAUSE. Item f) and 2)
SIXTEENTH CLAUSE.
In witness whereof it is signed in Bogota, on July 28/th/, 1997.
<PAGE>
GLOBAL TELECOMMUNICATIONS OPERATIONS, INC.
_____________________________________
Felipe Garcia Echeverri
C.C. 80.409.281, issued in Usaquen
(Attorney-in-fact)
(signature)
SIEMENS AKTIENGESELLSCHAFT
Represented by
SIEMENS SOCIEDAD ANONIMA
_____________________________________
Rodolfo Prada Serrano
Commercial and Administrative Vice-president (Substitute)
_____________________________________
Alberto Gomez del Corral
Vice-president of Telecommunications (Substitute)
<PAGE>
EXHIBIT 10.5
INTERNATIONAL LEASING CONTRACT
BETWEEN GLOBAL TELECOMMUNICATIONS OPERATIONS INC. AND
PALMIRA TELEPHONE COMPANY S.A. PUBLIC
SERVICES CORPORATION - TELEPALMIRA S.A. E.S.P.
The undersigned, FABIANA MEJIA VESGA, of legal age, resident of Santafe de
Bogota, D.C., whose identity is established as it appears beneath her signature,
who acts as special attorney to the corporation GLOBAL TELECOMMUNICATIONS
OPERATIONS INC., corporation whose head office is located at the address: Pasea
Estate, Road Town, Tortola, established under the prevailing laws of the British
Virgin Islands, United Kingdom, by virtue of registration number 170407, as
defined by the decree concerning international business firms, and that shall
hereinafter be referred to as THE LESSOR on the one hand and JOSE FERNANDO
RAMIREZ MARIN, of legal age, resident of Palmira, whose identity is established
as it appears beneath his signiture, who acts in the capacity of General Manager
and legal representative of THE PALMIRA TELEPHONE COMPANY S.A. PUBLIC SERVICES
CORPORATION - TELEPALMIRA S.A. E.S.P., commercial firm established in accordance
with public document number 1,468, conferred on May 31 of 1995, in the first
notary public of Palmira, located in the city of Palmira, state of the Valle del
Cauca, Republic of Colombia, bearing the NIT number 815.000.070-2, conditions
credited by the Certificate
<PAGE>
of Existence and Representation, issued by the Chamber of Commerce of Palmira,
attached to this contract, and that shall hereinafter be referred to as THE
LESSEE on the other hand, have made this International Leasing Contract, upon
the following terms:------------------------------------------------------------
FIRST. ANTECEDENTS.- for the purposes of this Contract, THE LESSEE, in order to
attain the profitable use of the goods described henceforth, prior deliberation
and study, has selected the goods referred to herein, including each and all of
its characteristics, specifications, and SIEMENS AKTIENGESELLSCHAFT, of German
nationality, as supplier of said goods.-----------------------------------------
SECOND. In fact, as provided in the previous postulate the parties acknowledge
that THE LESSEE has solicited THE LESSOR to take possession of the goods
referred to herein, to surrender its just possession to THE LESSEE, whereupon
the goods described herein shall be exploited economically in Colombia.---------
THIRD. PROPERTY. THE LESSOR declares that it is owner of the following goods,
whose customs status is: "85. 17. 30. 20. 00 Electric telephone devices with
lines, Telephone exchange for twenty four thousand four hundred sixty eight
(24,468) lines whose basic components constitute a functional unit according to
the terms provided for in Note 4 - Section XVI of the customs duty" and whose
principal function is carried out by an automated device of telephone
commutation, whose detailed description is attached to this contract.-----------
FOURTH. PURPOSE. By virtue of this Contact THE LESSOR, who has attained outside
the Republic of Colombia the ownership of the goods in the course of the
<PAGE>
request conferred by THE LESSEE as pursuant to the previous clause, gives THE
LESSEE possession of the goods referred to herein, which he states having
received in a satisfactory manner for the purposes of leasing.------------------
PARAGRAPH For legal purposes the parties state that any machinery or part that
is used as accessory to the leased equipment or that in the future is added or
attached is understood in this contract.----------------------------------------
FOURTH. IMPORTATION. The goods referred to herein have been acquired by the
LESSOR in the Federal Republic of Germany, and shall be imported by THE LESSEE
to the Republic of Colombia, thereby obliging the aforementioned party to comply
irrevocably with the laws and regulations that apply to the importation of goods
to Colombia.--------------------------------------------------------------------
In particular, THE LESSEE is expressly directed to comply with the
constitutional safeguards required by law, with the prompt presentation of the
purchase invoice and the pertaining customs declaration, in accordance with the
prevailing legal statutes and the timely payment of customs duties (among others
the import duty, taxes and any other encumbrances applicable to the leased
goods) and in general to comply with any customs and fiscal obligations in
accordance with the terms of the contract and legal provisions.-----------------
If for legal reasons, the authorities should issue official requirements or
liquidation or should demand compliance with any customs or fiscal obligation
against THE LESSOR as owner, THE LESSEE shall be obliged to assume the costs and
charges incurred including attorney fees if applicable, steps taken to respond
to requests, resources to
<PAGE>
cover liquidation and in particular, to reimburse the LESSOR for the costs and
charges incurred including, if necessary, import duties, taxes, fines and other
encumbrances that the aforementioned party has had to pay in compliance with
customs and fiscal regulations.-------------------------------------------------
FIRST PARAGRAPH. THE LESSEE declares its full knowledge of the prevailing
Colombian fiscal and customs regulations on the date this contract was made and
ratified and is obliged to comply with them according to the terms and the
conditions established by the law.----------------------------------------------
SECOND PARAGRAPH. THE LESSOR or a third party that the aforementioned party
designates, shall be authorized to pay the customs and fiscal duties with
respect to the leasing fees if THE LESSEE does not comply with this provision
within fifteen (15) days prior to the payment of the corresponding fee.---------
In any event, THE LESSEE shall make known and demonstrate the payment of the
taxes to THE LESSOR, within twenty four (24) hours after the payment of said
taxes.---If this provision is not complied with, those sanctions stipulated in
the Twenty seventh Clause shall be applied.-------------------------------------
SIXTH. EXONERATION OF RESPONSIBILITY AND INDEMNITY. THE LESSEE declares having
selected the leased equipment and the supplier or manufacturer of above-
mentioned equipment and therefore THE LESSOR shall not be responsible for late
delivery of the goods due to causes attributable to the supplier or manufacturer
or due to any other cause or circumstance, nor for any damages, defects,
deviations from established specifications or due to any error on the part of
the manufacturer or supplier
<PAGE>
or seller in the assemblage or proper installation of the equipment.------------
In the event that the manufacturer fails to deliver the goods, THE LESSOR shall
be availed of any responsibility and THE LESSEE shall compensate for the
expenses directly or indirectly incurred in the acquisition of the equipment or
as a consequence of this contract, including the price of the leased goods and
any other losses, advance payments, taxes, duties, commissions, freight charges,
transportation expenses, or any other incumbencies.-----------------------------
SEVENTH. SUBROGATION THE LESSEE shall surrogate the rights of the LESSOR,
pertaining to the manufacturer or supplier of the contract of sale of the
equipment, if THE LESSEE should by direct request bid said manufacturer or
supplier to comply with the contract of sale referred to herein or require the
completion of said contract, with compensation for damages and losses.----------
In any case, at the time of completion of the contract of sale, THE LESSEE shall
indemnify THE LESSOR, for all expenses pursuant to the preceding clause.--------
EIGHTH. INSURANCE. The Parties agree that THE LESSEE expressly exonerates
THE LESSOR from insuring the leased goods, as the aforementioned party shall not
be held responsible for occult or manifest defects in operation, production
output or any other defects that affect said goods.-----------------------------
THE LESSEE shall indemnify THE LESSOR in accordance with the twenty-seventh
clause, if this contract is terminated due to defects in the leased goods.------
On the assumption that the manufacturer or supplier substitutes the goods for
others free of defects, said goods shall be included in this contract, such that
any reference to
<PAGE>
the leased goods made in this contract shall be applied to the new goods that
are substituted, to which end THE LESSEE shall sign an addendum and in this
manner incorporate the substituted goods into the legal regulations of the
relationship that this contract formalizes.-------------------------------------
NINTH. In the event of any conflict between THE LESSEE and the manufacturer or
supplier pursuant to the reasons established in the previous clauses, THE LESSEE
shall continue paying THE LESSOR the fees stipulated herein as long as the said
contract is applicable.---------------------------------------------------------
TENTH. RIGHT OF HABEAS CORPUS. PROPERTY. THE LESSEE agrees to make known to
third parties that the entire and exclusive ownership of the goods referred to
herein lies with THE LESSOR. It shall follow that in the event that legal or
administrative steps are necessary that affect the act of ownership of the
goods, such as embargoes, precautionary measures, seizure, withholding or
similar circumstances or in the event of a summons of creditors, declaration of
bankruptcy, or repossession of the goods pertaining to THE LESSEE, the above
mentioned party shall present this contract as proof of tenure of the goods
referred to herein and shall notify THE LESSOR within three (3) days after the
date of the occurrences so that the above-mentioned party may adopt measures in
accordance with the circumstances. In any case THE LESSEE from this time forward
shall at his own risk cover all costs that require the defense of possession and
tenure of the goods by THE LESSOR, without impairing the compliance with all
other duties stipulated in this contract.---------------------
ELEVENTH. SPECIFIED TIME PERIOD. THE LESSOR grants possession of the
<PAGE>
goods referred to herein to THE LESSEE for the duration of twelve (12) years,
counted down beginning on the date of the event that certifies the functioning
of the equipment referred to herein. The act will be drawn up by THE LESSEE.
- ----------
TWELFTH. RENT. THE LESSEE is hereby directed irrevocably and without the
benefit of summons to pay THE LESSOR as long as this contract remain valid a
pre-determined rent in the following manner: A) The sum of ONE MILLION NINE
HUNDRED FORTY FIVE THOUSAND UNITED STATES DOLLARS (US$1,945,000.00) upon
presentation of the last declaration of importation of the equipment; B) 20
biannual installments of a total of FIVE HUNDRED AND SEVENTY THOUSAND UNITED
STATES DOLLARS (US$570,000.00) for a period of 10 years; and C) Four biannual
installments for a total of TWO HUNDRED AND EIGHTY FIVE THOUSAND UNITED STATES
DOLLARS (US$285,000.00) each, for a period of two years once the payment of the
twenty installments cited in the above-mentioned provision has been completed,
payments that shall be demanded the first five (5) days of each payable
semester.-----------------------------------------------------------------------
FIRST PARAGRAPH: In the event that several declarations of importation exist,
for the payment of the aforementioned installments of this leasing contract, the
date of presentation of the last declaration shall be used.---------------------
SECOND PARAGRAPH: This sum shall be readjusted proportionately, if upon arrival
of the imported goods to national territory its CIF cost (including the cost of
merchandise, insurance and freight) increases or decreases in relation to the
CIF cost initially budgeted and which serves as the basis for determination of
the initial rate. In
<PAGE>
this case the variation shall be applied to the corresponding factor of the cost
originally budgeted as the initial CIF cost of the merchandise. Also, the rate
shall be adjusted biannually in accordance with the percentage variation
sustained by the London inter-bank offered rate (Libor) between the first and
last calendar days of each quarter immediately prior to that for which the
readjustment is made.-----------------------------------------------------------
THE LESSEE agrees to verify the prior acquisition of the corresponding foreign
exchange in the Colombian exchange market complying with all legal regulations
thereof, the bill of exchange of the sums owed in each period shall be confirmed
in writing, by telegram, telefax, letter or fax, at the latest the day payment
is due for each pre-determined leasing fee.-------------------------------------
THIRTEENTH. DELAY. In the event of delay on the part of THE LESSEE in the
payment of the sums of money stipulated in this contract, the above-mentioned
party agrees to pay the LESSOR, without benefit of summons, in accordance with
the interest moratorium, the same interest rate as the Libor dictates plus two
(2%) annual percentage rate, calculated beginning from the expiration date of
the value that is in default, until the date in which THE LESSEE has credited
the payment to the LESSOR'S bank account.---------------------------------------
In the event that there exist two or more periodic fees in default, THE LESSEE
will pay THE LESSOR the sum here indicated for each of the said periodic fees.
The payment of this penalty shall not waive the principal obligation of THE
LESSEE, as said penalty is stipulated in accordance with the sole delay or
default and does not alter the right of
<PAGE>
THE LESSOR to claim the breach of contract nor the application of sanctions
pursuant to the twenty-seventh clause.------------------------------------------
FIRST PARAGRAPH. The tolerance of THE LESSOR in receiving delayed payment on
fees shall not imply postponement of the stipulated time period for the
fulfillment of the obligations of THE LESSEE as provided herein.----------------
SECOND PARAGRAPH. The leasing fees shall not decrease due to claimed wear or
obsolescence of the equipment, circumstances these that THE LESSEE assumes
without waiving her obligations before THE LESSOR.------------------------------
THIRD PARAGRAPH. The obligation to pay the fees on the part of THE LESSEE shall
not terminate due to the temporal or definitive cessation of operation of the
leased equipment or due to reparation, move, transformation, strike, loss on the
part of the company or in general as the result of any cause not attributed to
THE LESSOR.--------
FOURTH PARAGRAPH. To back the payment of the fees THE LESSEE agrees to present
to THE LESSOR the warranties required by the said party.------------------------
FIFTH PARAGRAPH. THE LESSEE expressly waives benefit of formal notification that
establishes her default in the event of delay or non-compliance with the agreed
upon obligations referred to herein and accepts from this time forward as full
proof of any non-compliance, the report addressed to her by THE LESSOR or the
claim by said party presented to the corresponding authority to make effective
his rights.-----------------
FOURTEENTH. AMENDMENTS TO THE CONTRACT. THE LESSEE from this time forward
accepts the modifications THE LESSOR provides pertaining to the quarterly
installments or to the purchase option, fines, penalties and other fees referred
to herein
<PAGE>
in accordance with the prevailing legal regulations at the time of arrangement
of modification.----------------------------------------------------
FIFTEENTH. GUARANTEES. THE LESSEE agrees to insure against any risk and during
the period of this contract with an insurance company previously accepted by THE
LESSOR the leased equipment, up to a sum equivalent to the market value
therefore establishing as beneficiary THE LESSOR.-------------------------------
For the same reason, THE LESSEE agrees to insure the equipment against civil
liability for physical harm and damage to property that its operation may
occasion to third parties for a sum no less than the amount recommended for this
type of equipment. It shall be understood that THE LESSEE is and shall continue
to be the sole liable party for the said third parties for the harm and damages
the equipment may cause. THE LESSEE agrees to pay the premiums required within
ten (10) days after the date on which the insurance contracts are signed or upon
its renewal.------------------
FIRST PARAGRAPH. THE LESSEE authorizes THE LESSOR, who is hereby availed of any
responsibility or obligation in this matter, to at the expense of THE LESSEE
negotiate the insurance plans or renewals and/or pay the corresponding insurance
premiums for the purpose of maintaining the validity of the policies that
protect the equipment.----------------------------------------------------------
In the event that THE LESSOR pays on behalf of THE LESSEE the insurance
premiums, THE LESSEE agrees to pay THE LESSOR, within two days after receiving
the bill of payment, the amount of money paid at her sole expense. The non-
compliance with any stipulation included in this clause shall constitute just
cause for
<PAGE>
THE LESSOR to terminate this contract with the consequences provided for in the
Twenty-sixth Clause.----------------------------------------------------------
SECOND PARAGRAPH. Any loss, total or partial, shall not suspend nor interrupt
the leasing nor shall it alter the specified time period.-----------------------
SIXTEENTH. OBLIGATIONS OF THE LESSEE. THE LESSEE agrees to be responsible for
any wear sustained by the equipment or its loss, whatever the cause may be, even
if said cause arises from force majeure or by chance. In the event of wear or
loss THE LESSEE agrees to immediately notify THE LESSOR, and the said party
shall adopt one of the following three provisions:
1. Authorize THE LESSEE to by his sole means recuperate the equipment or
restore it to satisfactory working condition according to the criteria of THE
LESSOR, in accordance with the terms the above-mentioned party stipulates. It
shall be understood that the repairs may only be carried out by the
manufacturers of the equipment or by their representatives in the country with
the exception that THE LESSOR under special circumstances authorizes the repairs
in writing to be carried out under different conditions. The spare parts shall
be technically adequate and by no means may their acquisition signify an
original change in the leased equipment.---------------------------------
2. Accept that THE LESSEE at his own expense replaces the equipment under the
terms THE LESSOR indicates, for another presentation of similar conditions,
maintaining its original functions to the satisfaction of the above-mentioned
party. The new equipment in any case shall immediately be subject to this new
leasing contract.---
3. Demand that THE LESSEE pay the LESSOR, in the amount of the fee multiplied
<PAGE>
by the number of fees to be charged from the moment the damage or loss occurs
until the termination of the contract.------------------------------------------
SEVENTEENTH. UPKEEP AND MAINTENANCE. The equipment shall solely be used by THE
LESSEE and the personnel in his service, who agrees to solely and at his own
risk, assume all expenses pertaining to the upkeep and maintenance of the goods
referred to herein to maintain them in perfect condition, except with respect to
normal wear as a result of the appropriate use of the aforementioned goods.-----
The equipment shall be used in accordance with the purposes inherent therein,
with all the caution and diligence required for standard maintenance and proper
performance of the equipment. The standards for use of the equipment shall be
established by the supplier or manufacturer and THE LESSEE agrees to sign with
said manufacturer or supplier or with the person authorized by said person, the
contracts of maintenance that ensure the upkeep and proper working order of the
equipment.--------------------------
Additionally, THE LESSEE agrees to comply with all laws, conventions, decrees,
resolutions, regulations, or any other provision that governs or in any way is
related to the use and maintenance of the equipment, whether of international,
national, or municipal character or issued by the country in whose territory the
equipment is located.-----------------------------------------------------------
EIGHTEENTH. RIGHT OF INSPECTION. THE LESSOR reserves the right to inspect the
equipment at any time, to ensure the satisfactory operation and maintenance of
the said goods. To this end and without any implied obligation on the part of
THE LESSOR, said party may carry out the inspections he deem necessary at the
LESSEE's
<PAGE>
plants or at the place where the equipment is located and recommend in written
form the measures he sees fit and convenient to take in order to maintain the
equipment in proper working order, which shall be attended to by THE LESSEE
promptly.-----------------------------------------------------------------------
In the event that THE LESSEE fails to adopt the measures requested by THE
LESSOR, said party may declare this contract null and void and shall have the
right to demand, along with the immediate return of the equipment, the indemnity
pursuant to the twenty-seventh clause.------------------------------------------
THE LESSOR shall avail himself of responsibility for any cost, expense, or
losses attributable to the inspections or the fulfillment of her recommendations
excepting if the leased equipment sustains damage directly attributable to the
person who carries out the inspection at the expense of THE LESSOR.-------------
NINETEENTH. CESSION AND SUBLEASING OF EQUIPMENT. Excepting express prior and
written authorization by THE LESSOR, THE LESSEE agrees not to sublease the
equipment nor give it to third parties for its exploitation under any
contractual agreement, nor cede this contract in any way; even in the event of
said authorization THE LESSEE shall continue to be the sole responsible party in
connection with the concessionaire or substitute in dealing with THE LESSOR.----
TWENTIETH. CESSION OF CONTRACT. The rights of this contract herein may be
ceded in full or in part by THE LESSOR and/or granted in the form of credit
warranty. THE LESSEE expressly agrees to the cession and/or pledging of the
contract therefore thus agreeing to fulfill the obligations under the cession
and/or pledging terms upon
<PAGE>
receipt of extrajudicial notification of said cessation or pledging.------------
TWENTY FIRST. THE RIGHT TO LIEN. THE LESSEE hereby waives the right to lien that
due to any title or cause may have over the equipment.--------------------------
TWENTY SECOND. ADVANCE PAYMENT. Any advance, deposit option, or extraordinary
expenditure that THE LESSOR carries out before the date this contract takes
effect shall be the responsibility of THE LESSEE shall add to the interest at
the Libor rate of the week plus two (2%) points per month.----------------------
TWENTY THIRD. LICENSES AND PERMITS OF OPERATION. THE LESSEE agrees to obtain all
permits and licenses required by Colombian law for the operation of the goods
referred to herein.-------------------------------------------------------------
TWENTY FOURTH. TAXES AND PENALTIES. All taxes that encumber the goods referred
to herein, as well as any penalties imposed as a result of irregular or illegal
operation of the goods, shall be the sole responsibility of THE LESSEE.---------
In the event that new taxes are established that encumber or increase the
current tax burden that THE LESSOR bears in accordance with this contract, THE
LESSEE agrees to solely assume these additional taxes, paying them on the
LESSOR's behalf.-
TWENTY FIFTH. LOCATION OF THE GOODS. The goods referred to herein shall remain
within the territory of the Republic of Colombia. THE LESSEE agrees to notify
THE LESSOR in written form within three (3) days after change of location and
notify as to the new location of said goods.----------------------------------
TWENTY SIXTH. TERMINATION. This contract shall be declared null and void in
<PAGE>
the event of the following causes:----------------------------------------------
1ST By the mutual consent of the two parties.----------------------------------
2ND Due to expiration of the specified time period.----------------------------
3RD By unilateral decision on the part of THE LESSOR taken at any time before
the expiration of the specified time period, with no need for judicial
declaration and also, requiring THE LESSEE to return the equipment in any event
of non-compliance with this contract and in particular with the following:------
- - Due to delayed or untimely payment of leasing fees and customs taxes for one
or more periods.
- - Due to unauthorized use of the leased equipment that deregulizes the original
purpose or that may cause, in accordance with the criteria of THE LESSOR wear
not inherent in its normal use.
- - Due to failure to notify THE LESSOR pursuant to cases of damage or destruction
of the leased equipment.
- - Failure to be aware of the instructions given by THE LESSOR pertaining to the
form and timeliness of repairs needed by the leased equipment for the duration
of this contract for any reason.
- - Due to intent to encumber the leased equipment with any type of expenses or
warranties and in any case, when said equipment is affected by precautionary
legal measures as the result of abnormal occurrences according to the criteria
of THE LESSOR.
<PAGE>
- - Due to the subleasing or awarding of this contract to third parties for its
exploitation under any contractual agreement or cede this contract without the
express, prior and written authorization of THE LESSOR.
- - Due to failure to insure the goods referred to herein with insurance companies
in accordance with the terms established in said contract.
4TH Due to all other causes provided for by law.
5TH Due to declaration of bankruptcy, petition for precautionary concordant by
THE LESSEE or for having been judicially sued by third parties and that involve
the goods referred to herein. In these events THE LESSOR shall collect the
wanting fees excepting that the creditors of THE LESSEE propose their
substitution with warranties to the satisfaction of THE LESSOR.-----------------
6TH Due to loss or damage of the equipment that affects its proper
functioning.---------
7TH Due to the dissolution or liquidation of THE LESSEE.-----------------------
TWENTY SEVENTH. SANCTIONS FOR NON-COMPLIANCE. If and when THE LESSOR declares
null and void this contract pursuant to the above clause, THE LESSEE agrees to
pay THE LESSOR as penalty in addition to the amount due for non-compliance,
pursuant to the thirteenth clause, a sum equivalent to the agreed leasing fees
that have not been covered and still have not been charged. The payment of this
penalty shall not imply the release from the obligation to return the equipment,
nor shall THE LESSOR waive his right to demand indemnity for the losses caused
by the non-compliance of THE LESSEE.--------------------------------------------
TWENTY EIGHTH. RETURN OF THE EQUIPMENT. At the termination of this contract
<PAGE>
due to a cause other than expiration, the equipment shall be returned to THE
LESSOR in the same proper working condition as when received by THE LESSEE,
excepting natural wear arising from its proper use.-----------------------------
THE LESSEE shall return the equipment within five (5) days after the termination
date, under penalty of incurring a daily fine to be collected by THE LESSOR in
the amount stipulated herein. Payment of this fine shall not exclude the
obligation to return the leased equipment. The return of the equipment shall be
carried out at the location stipulated by THE LESSOR and the expenses incurred
as a result of said return including disassemblage, move and installation, shall
be at the expense of THE LESSEE.------------------------------------------------
TWENTY NINTH. ACQUISITION OPTION. Under the terms of this contract and on
condition that said contract has been dully fulfilled by THE LESSEE, THE LESSOR
grants THE LESSEE the irrevocable option at the time of ratification of this
contract the acquisition of the ownership of the goods referred to herein, under
the following stipulations: ----------------------------------------------------
1ST PRICE: TWO HUNDRED AND EIGHTY FIVE THOUSAND UNITED STATES DOLLARS
(US$285,000.OO).---------------------------------------------------------------
2ND FORM OF PAYMENT: PAYABLE AT THE CONCLUSION OF THE LEASING CONTRACT (12
YEARS)--------------------------------------------------------------------------
THIRTIETH. INTERPRETATION. The interpretation of this contract is governed by
the following:-------------------------------------------------------------- 1.
By the clauses herein.------------------------------------------------------ 2.
<PAGE>
By the laws of the United States of America regulated by the Financial Leasing
Contract. However, all things concerning the recuperation of leased goods shall
be governed by Colombian law.---------------------------------------------------
3. In the absence of a special norm that regulates the subject matter, the
provisions established by the UNIDROIT Convention concerning international
leasing adopted in Ottawa, Canada, May 26, 1988, by virtue of the principle
adopted in article 7 of the Commercial Code of the Republic of Colombia.-------
THIRTY FIRST. ARBITRATION. All disagreement that is derived from this contract
shall be definitively resolved by the Court of Arbitration comprised of three
(3) arbiters one named by each party and one by the International Chamber of
Commerce, National Committee of Colombia- New York. The findings shall be in law
and equity. The location of arbitration shall be in Santa Fe de Bogota. The
official language that shall be used during the arbitration process shall be
Spanish. The naming of the arbiters as well as the process of arbitration shall
be governed by the provisions adopted in the Regulations of Conciliation and
Arbitration of the International Chamber of Commerce.---------------------------
- ---------------------------------------------------------------------THIRTY
SECOND. ACTIONS AND PROCEEDINGS. The original of this contract is immediately
considered valid concerning the express and evident obligations confirmed
therein, when said obligations are called for, in accordance with said
obligations and Colombian law.--------------------------------------------------
- --------------------------------------------
The first copy will be used for the purposes of the record in the event that,
given the nature and legal system of the goods referred to herein, be
required.-------------------------
<PAGE>
The second copy of this contract shall be valid for the actions THE LESSOR
undertakes for the restitution of tenancy of the goods referred to herein.------
- --------------- THIRTY THIRD. NOTIFICATION. Any notification or notice
directed to THE LESSOR, in accordance with this contract, may be sent via
registered mail addressed to said party to Post Office Box Number ____________
of__________ or any other address said party indicates.
On the other hand, any notice or notification that in accordance with this
contract is directed to THE LESSEE may be sent via registered mail to the
address: Calle 31 No. 24 - 86 of the city of Palmira, Cauca Valley - Colombia.--
- ----------------------------------------
This contract is hereby made and
ratified, in the city of Palmira, the first (1) of August of nineteen ninety six
(1996).
GLOBAL TELECOMMUNICATIONS
OPERATIONS, INC.
______________________________
THE LESSOR
FABIANA MEJIA VESGA
C.C. NO. 39.773.689 OF USAQUEN
SPECIAL ATTORNEY
TELEPALMIRA S.A. E.S.P.
___________________________
THE LESSEE
JOSE FERNANDO RAMIREZ MARIN.
C.C. NO. 10.074.88 OF PEREIRA
<PAGE>
EXHIBIT 10.6
SUPPLEMENTARY INTERNATIONAL LEASING CONTRACT
UNDERSIGNED ON THE 1/ST/ OF AUGUST, 1998 BETWEEN
GLOBAL COMMUNICATIONS OPERATIONS INC. AND
TELEPALMIRA S.A. E.S.P.
DATE: Palmira, April 12/th/, 1998----------------------------------------------
LESSOR: Felipe Garcia Echeverry legal representative OF GLOBAL
TELECOMMUNICATIONS OPERATIONS INC.----------------------------------------------
LESSEE: Jorge Enrique Martinez Ocampo deputy legal representative of the firm
TELEPHONE COMPANY OF PALMIRA S.A. PUBLIC SERVICE COMPANY "TELEPALMIRA S.A.
E.S.P."._______________________________ PURPOSE: Modification of TWELFTH -
Rent -and THIRTEENTH - Delay - clauses of the International Leasing Contract
undersigned by the parties on the 1/st/ of August, 1998.------------------------
SUBSTITUTE CLAUSES: The TWELFTH -Rent - clause will be the following: "THE
LESSEE will be unconditionally obliged to and will need not be required to pay
to the LESSOR during the period of validity of this contract, a rent that shall
be determined as follows: a) A sum of ONE MILLION EIGHT HUNDRED FIFTY SEVEN
THOUSAND ONE HUNDRED SEVEN UNITED STATES DOLLARS WITH SEVENTY SIX CENTS
(US$1,857.107.76) on the 13/th/ day of April of 1998: b) 20 biannual
installments for the sums stipulated on the following chart for a period of 10
years:--------------------------------------------------------------------------
<PAGE>
INSTALLMENTS DATE INSTALLMENT
TOTAL US$
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------
1 May 28, 1998 1.268.652.39
- ------------------------------------------------------------------------
2 July 28, 1998 876.356.95
- ------------------------------------------------------------------------
3 January 28, 1999 856.944.38
- ------------------------------------------------------------------------
4 July 28, 1999 837.531.81
- ------------------------------------------------------------------------
5 January 28, 2000 818.119.24
- ------------------------------------------------------------------------
6 July 28, 2000 798.706.67
- ------------------------------------------------------------------------
7 January 28, 2001 779.294.10
- ------------------------------------------------------------------------
8 July 28, 2001 759.881.53
- ------------------------------------------------------------------------
9 January 28, 2002 740.468.96
- ------------------------------------------------------------------------
10 July 28, 2002 721.056.39
- ------------------------------------------------------------------------
11 January 28, 2003 701.643.83
- ------------------------------------------------------------------------
12 July 28, 2003 682.231.26
- ------------------------------------------------------------------------
13 January 28, 2004 662.818.69
- ------------------------------------------------------------------------
14 July 28, 2004 643.406.12
- ------------------------------------------------------------------------
15 January 28, 2005 623.993.55
- ------------------------------------------------------------------------
16 July 28, 2005 604.580.98
- ------------------------------------------------------------------------
17 January 28, 2006 585.168.41
- ------------------------------------------------------------------------
18 July 28, 2006 565.755.84
- ------------------------------------------------------------------------
19 January 28, 2007 546.343.27
- ------------------------------------------------------------------------
20 July 28, 2007 526.930.63
- ------------------------------------------------------------------------
</TABLE>
<PAGE>
, and c) Four biannual installments for the sums stipulated on the following
chart:------------------------------------------------------------------
INSTALLMENTS DATE INSTALLMENT
TOTAL US$
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------
21 January 28, 2009 92.887.62
- ------------------------------------------------------------------------
22 July 28, 2009 92.887.62
- ------------------------------------------------------------------------
23 January 28, 2009 92.887.62
- ------------------------------------------------------------------------
24 July 28, 2009 92.887.62
- ------------------------------------------------------------------------
</TABLE>
For a period of two years once the payment of the twenty installments cited in
the above-mentioned provision has been completed, payments that shall be
demanded the first five (5) days of each payable semester.--------------------
SECOND PARAGRAPH: It is cancelled.---------------------------------------------
THIRD PARAGRAPH: This contract will not generate fees payment during the fiscal
year of 1997"------------------------------------------
The THIRTEENTH clause of this contract will be as follows: " Delay - In the
event of delay on the part of THE LESSEE in the payment of the sums of money
stipulated in this contract, the above-mentioned party agrees to pay the LESSOR,
without benefit of summons, in accordance with the interest moratorium, the same
interest rate as the Libor dictates plus two (3%) annual percentage rate,
calculated beginning from the expiration date of the value that
<PAGE>
is in default, until the date in which THE LESSEE has credited the payment to
the LESSOR'S bank account.--------------------------------------- The remaining
clauses of the mentioned contract remain unaltered.-------------- It is the
responsibility of the LESSEE to register this supplementary contract before the
exchange authorities.-------------------------------------------------------
FOR THE LESSOR,
______________________________________________
GLOBAL TELECOMMUNICATIONS OPERATIONS INC.
FELIPE GARCIA ECHEVERRY
CC.80.409.281 OF USAQUEN
LEGAL REPRESENTATIVE
FOR THE LESSEE,
_________________________________
JORGE ENRIQUE MARTINEZ OCAMPO
CC. 7.506.437 ARMENIA
DEPUTY LEGAL REPRESENTATIVE
TELEPALMIRA S.A. E.S.P.
<PAGE>
EXHIBIT 10.7
INTERNATIONAL LEASING CONTRACT
BETWEEN GLOBAL TELECOMMUNICATIONS OPERATIONS INC. AND
JAMUNDI TELEPHONE COMPANY S.A. PUBLIC
SERVICES CORPORATION - TELEJAMUNDI S.A. E.S.P.
The undersigned, FABIANA MEJIA VESGA, of legal age, resident of Santafe de
Bogota, D.C., whose identity is established as it appears beneath her signature,
who acts as special attorney to the corporation GLOBAL TELECOMMUNICATIONS
OPERATIONS INC., corporation whose head office is located at the address: Pasea
Estate, Road Town, Tortola, established under the prevailing laws of the British
Virgin Islands, United Kingdom, by virtue of registration number 170407, as
defined by the decree concerning international business firms, and that shall
hereinafter be referred to as THE LESSOR on the one hand and GUILLERMO O. LOPEZ
ESQUIVEL, of legal age, resident of Cali, whose identity is established as it
appears beneath his signature, who acts in the capacity of General Manager and
legal representative of THE JAMUNDI TELEPHONE COMPANY S.A. PUBLIC SERVICES
CORPORATION - TELEJAMUNDI S.A. E.S.P., commercial firm established in accordance
with public document number 3.356, conferred on September 29, 1993, in the
Seventh Notary Public of Cali, located in the city of Cali, and said Corporation
located in city of Jamundi, State of Valle del Cauca, Republic of Colombia,
bearing the NIT number 800.208.518-1, conditions
<PAGE>
credited by the Certificate of Existence and Representation, issued by the
Chamber of Commerce of Cali, attached to this contract, and that shall
hereinafter be referred to as THE LESSEE on the other hand, have made this
International Leasing Contract, upon the following terms:-----------------------
FIRST. ANTECEDENTS.- for the purposes of this Contract, THE LESSEE, in order
to attain the profitable use of the goods described henceforth, prior
deliberation and study, has selected the goods referred to herein, including
each and all of its characteristics, specifications, and SIEMENS
AKTIENGESELLSCHAFT, of German nationality, as supplier of said goods.-----------
SECOND. In fact, as provided in the previous postulate the parties acknowledge
that THE LESSEE has solicited THE LESSOR to take possession of the goods
referred to herein, to surrender its just possession to THE LESSEE, whereupon
the goods described herein shall be exploited economically in Colombia.---------
THIRD. PROPERTY. THE LESSOR declares that it is owner of the following goods,
whose customs status is: "85. 17. 30. 20. 00 Electric telephone devices with
lines, Telephone exchange for eleven thousand (11,000) lines whose basic
components constitute a functional unit according to the terms provided for in
Note 4 - Section XVI of the customs duty" and whose principal function is
carried out by an automated device of telephone commutation, whose detailed
description is attached to this contract.---------------------------------------
FOURTH. PURPOSE. By virtue of this Contact THE LESSOR, who has attained outside
the Republic of Colombia the ownership of the goods in the course of the
<PAGE>
request conferred by THE LESSEE as pursuant to the previous clause, gives THE
LESSEE possession of the goods referred to herein, which he states having
received in a satisfactory manner for the purposes of leasing.----------------
PARAGRAPH For legal purposes the parties state that any machinery or part that
is used as accessory to the leased equipment or that in the future is added or
attached is understood in this contract.----------------------------------------
FIFTH. IMPORTATION. The goods referred to herein have been acquired by the
LESSOR in the Federal Republic of Germany, and shall be imported by THE LESSEE
to the Republic of Colombia, thereby obliging the aforementioned party to comply
irrevocably with the laws and regulations that apply to the importation of goods
to Colombia.------------------------------------------------------------------
In particular, THE LESSEE is expressly directed to comply with the
constitutional safeguards required by law, with the prompt presentation of the
purchase invoice and the pertaining customs declaration, in accordance with the
prevailing legal statutes and the timely payment of customs duties (among others
the import duty, taxes and any other encumbrances applicable to the leased
goods) and in general to comply with any customs and fiscal obligations in
accordance with the terms of the contract and legal provisions.---------------
If for legal reasons, the authorities should issue official requirements or
liquidations or should demand compliance with any customs or fiscal obligation
against THE LESSOR as owner, THE LESSEE shall be obliged to assume the costs and
charges incurred
<PAGE>
including attorney fees if applicable, steps taken to respond to requests,
resources to cover liquidations and in particular, to reimburse the LESSOR for
the costs and charges incurred including, if necessary, import duties, taxes,
fines and other encumbrances that the aforementioned party has had to pay in
compliance with customs and fiscal regulations.-------------------------------
FIRST PARAGRAPH. THE LESSEE declares its full knowledge of the prevailing
Colombian fiscal and customs regulations on the date this contract was made and
ratified and is obliged to comply with them according to the terms and the
conditions established by the law.----------------------------------------------
SECOND PARAGRAPH. THE LESSOR or a third party that the aforementioned party
designates, shall be authorized to pay the customs and fiscal duties with
respect to the leasing fees if THE LESSEE does not comply with this provision
within fifteen (15) days prior to the payment of the corresponding fee.---------
- ---------------------------------------------In any event THE LESSEE shall make
known and demonstrate the payment of the taxes to THE LESSOR, within twenty four
(24) hours after the payment of said taxes.--- If this provision is not complied
with, those sanctions stipulated in the Twenty seventh Clause shall be applied.-
SIXTH. EXONERATION OF RESPONSIBILITY AND INDEMNITY. THE LESSEE declares having
selected the leased equipment and the supplier or manufacturer of above-
mentioned equipment and therefore THE LESSOR shall not be responsible for late
delivery of the goods due to causes attributable to the supplier or manufacturer
or
<PAGE>
due to any other cause or circumstance, nor for any damages, defects, deviations
from established specifications or due to any error on the part of the
manufacturer or supplier or seller in the assemblage or proper installation of
the equipment.----------------------------- In the event that the manufacturer
fails to deliver the goods, THE LESSOR shall be availed of any responsibility
and THE LESSEE shall compensate for the expenses directly or indirectly incurred
in the acquisition of the equipment or as a consequence of this contract,
including the price of the leased goods and any other losses, advance payments,
taxes, duties, commissions, freight charges, transportation expenses, or any
other incumbencies.-------------------------------------------------------------
SEVENTH. SUBROGATION THE LESSEE shall subrogate the rights of the LESSOR,
pertaining to the manufacturer or supplier of the contract of sale of the
equipment, if THE LESSEE should by direct request bid said manufacturer or
supplier to comply with the contract of sale referred to herein or require the
completion of said contract, with compensation for damages and losses.--------In
any case, at the time of completion of the contract of sale, THE LESSEE shall
indemnify THE LESSOR, for all expenses pursuant to the preceding clause.--------
EIGHTH. INSURANCE. The Parties agree that THE LESSEE expressly exonerates THE
LESSOR from insuring the leased goods, as the aforementioned party shall not be
held responsible for occult or manifest defects in operation, production output
or any other defects that affect said goods.----------------------------------
THE LESSEE shall indemnify THE LESSOR in accordance with the twenty-seventh
<PAGE>
clause, if this contract is terminated due to defects in the leased goods.----On
the assumption that the manufacturer or supplier substitutes the goods for
others free of defects, said goods shall be included in this contract, such that
any reference to the leased goods made in this contract shall be applied to the
new goods that are substituted, to which end THE LESSEE shall sign an ADDENDUM
and in this manner incorporate the substituted goods into the legal regulations
of the relationship that this contract formalizes.------------------------------
NINTH. In the event of any conflict between THE LESSEE and the manufacturer or
supplier pursuant to the reasons established in the previous clauses, THE LESSEE
shall continue paying THE LESSOR the fees stipulated herein as long as the said
contract is applicable.---------------------------------------------------------
TENTH. RIGHT OF HABEAS CORPUS. PROPERTY. THE LESSEE agrees to make known to
third parties that the entire and exclusive ownership of the goods referred to
herein lies with THE LESSOR. It shall follow that in the event that legal or
administrative steps are necessary that affect the act of ownership of the
goods, such as embargoes, precautionary measures, seizure, withholding or
similar circumstances or in the event of a summons of creditors, declaration of
bankruptcy, or repossession of the goods pertaining to THE LESSEE, the above
mentioned party shall present this contract as proof of tenure of the goods
referred to herein and shall notify THE LESSOR within three (3) days after the
date of the occurrences so that the above-mentioned party may adopt measures in
accordance with the circumstances. In any
<PAGE>
case THE LESSEE from this time forward shall at his own risk cover all costs
that require the defense of possession and tenure of the goods by THE LESSOR,
without impairing the compliance with all other duties stipulated in this
contract.-----------------------------------------------------------------------
ELEVENTH. SPECIFIED TIME PERIOD. THE LESSOR grants possession of the goods
referred to herein to THE LESSEE for the duration of twelve (12) years, counted
down beginning on the date of the event that certifies the functioning of the
equipment referred to herein. The act will be drawn up by THE LESSEE.-----------
TWELFTH. RENT. THE LESSEE is hereby directed irrevocably and without the benefit
of summons to pay THE LESSOR as long as this contract remain valid a pre-
determined rent in the following manner: A) The sum of SEVEN HUNDRED AND TEN
THOUSAND UNITED STATES DOLLARS (US$710,000.OO) upon presentation of the last
declaration of importation of the equipment; B) 20 biannual installments of a
total of TWO HUNDRED EIGHT THOUSAND UNITED STATES DOLLARS (US$208,000.OO) for a
period of 10 years; and C) Four biannual installments for a total of ONE HUNDRED
AND FOUR THOUSAND UNITED STATES DOLLARS (US$104,000.OO) each, for a period of
two years once the payment of the twenty installments cited in the above-
mentioned provision has been completed, payments that shall be demanded the
first five (5) days of each payable semester.-----------------------------------
FIRST PARAGRAPH: In the event that several declarations of importation exist,
for the payment of the aforementioned installments of this leasing contract, the
date of presentation of the last declaration shall be used.---------------------
<PAGE>
SECOND PARAGRAPH: This sum shall be readjusted proportionately, if upon arrival
of the imported goods to national territory its CIF cost (including the cost of
merchandise, insurance and freight) increases or decreases in relation to the
CIF cost initially budgeted and which serves as the basis for determination of
the initial rate. In this case the variation shall be applied to the
corresponding factor of the cost originally budgeted as the initial CIF cost of
the merchandise. Also, the rate shall be adjusted biannually in accordance with
the percentage variation sustained by the London inter-bank offered rate (Libor)
between the first and last calendar days of each quarter immediately prior to
that for which the readjustment is made.----------------------------------------
THE LESSEE agrees to verify the prior acquisition of the corresponding foreign
exchange in the Colombian exchange market complying with all legal regulations
thereof, the bill of exchange of the sums owed in each period shall be confirmed
in writing, by telegram, telex, letter or fax, at the latest the day payment is
due for each pre-determined leasing fee.----------------------------------------
THIRTEENTH. DELAY. In the event of delay on the part of THE LESSEE in the
payment of the sums of money stipulated in this contract, the above-mentioned
party agrees to pay the LESSOR, without benefit of summons, in accordance with
the interest moratorium, the same interest rate as the Libor dictates plus two
(2%) annual percentage rate, calculated beginning from the expiration date of
the value that is in default, until the date in which THE LESSEE has credited
the payment to the LESSOR'S bank account.-------------------------------------
<PAGE>
In the event that there exist two or more periodic fees in default, THE LESSEE
will pay THE LESSOR the sum here indicated for each of the said periodic fees.
The payment of this penalty shall not waive the principal obligation of THE
LESSEE, as said penalty is stipulated in accordance with the sole delay or
default and does not alter the right of THE LESSOR to claim the breach of
contract nor the application of sanctions pursuant to the twenty-seventh clause
FIRST PARAGRAPH. The tolerance of THE LESSOR in receiving delayed payment on
fees shall not imply postponement of the stipulated time period for the
fulfillment of the obligations of THE LESSEE as provided herein.----------------
SECOND PARAGRAPH. The leasing fees shall not decrease due to claimed wear or
obsolescence of the equipment, circumstances these that THE LESSEE assumes
without waiving her obligations before THE LESSOR.------------------------------
THIRD PARAGRAPH. The obligation to pay the fees on the part of THE LESSEE shall
not terminate due to the temporal or definitive cessation of operation of the
leased equipment or due to reparation, move, transformation, strike, loss on the
part of the company or in general as the result of any cause not attributed to
THE LESSOR.-----------------------------------------------------
FOURTH PARAGRAPH. To back the payment of the fees THE LESSEE agrees to present
to THE LESSOR the warranties required by the said party.----------------------
FIFTH PARAGRAPH. THE LESSEE expressly waives benefit of formal notification that
establishes her default in the event of delay or non-compliance with the agreed
upon obligations referred to herein and accepts from this time forward as full
proof of any
<PAGE>
non-compliance, the report addressed to her by THE LESSOR or the claim by said
party presented to the corresponding authority to make effective his rights.--
FOURTEENTH. AMMENDMENTS TO THE CONTRACT. THE LESSEE from this time forward
accepts the modifications THE LESSOR provides pertaining to the quarterly
installments or to the purchase option, fines, penalties and other fees referred
to herein in accordance with the prevailing legal regulations at the time of
arrangement of modification.----------------------------------------------------
FIFTEENTH. GUARANTEES. THE LESSEE agrees to insure against any risk and during
the period of this contract with an insurance company previously accepted by THE
LESSOR the leased equipment, up to a sum equivalent to the market value
therefore establishing as beneficiary THE LESSOR.-----------------------------
FIRST PARAGRAPH. THE LESSEE authorizes THE LESSOR, who is hereby availed of any
responsibility or obligation in this matter, to at the expense of THE LESSEE
negotiate the insurance plans or renewals and/or pay the corresponding insurance
premiums for the purpose of maintaining the validity of the policies that
protect the equipment.----------------------------------------------------------
In the event that THE LESSOR pays on behalf of THE LESSEE the insurance
premiums, THE LESSEE agrees to pay THE LESSOR, within two days after receiving
the bill of payment, the amount of money paid at her sole expense. The non-
compliance with any stipulation included in this clause shall constitute just
cause for THE LESSOR to terminate this contract with the consequences provided
for in the
<PAGE>
Twenty-sixth Clause.------------------------------------------------------------
SECOND PARAGRAPH. Any loss, total or partial, shall not suspend nor interrupt
the leasing nor shall it alter the specified time period.-----------------------
SIXTEENTH. OBLIGATIONS OF THE LESSEE. THE LESSEE agrees to be responsible for
any wear sustained by the equipment or its loss, whatever the cause may be, even
if said cause arises from force majeure or by chance. In the event of wear or
loss THE LESSEE agrees to immediately notify THE LESSOR, and the said party
shall adopt one of the following provisions:
1. Authorize THE LESSEE to by his sole means recuperate the equipment or
restore it to satisfactory working condition according to the criteria of THE
LESSOR, in accordance with the terms the above-mentioned party stipulates. It
shall be understood that the repairs may only be carried out by the
manufacturers of the equipment or by their representatives in the country with
the exception that THE LESSOR under special circumstances authorizes the repairs
in writing to be carried out under different conditions. The spare parts shall
be technically adequate and by no means may their acquisition signify an
original change in the leased equipment.----------------------------------
2. Accept that THE LESSEE at his own expense replaces the equipment under the
terms THE LESSOR indicates, for another presentation of similar conditions,
maintaining its original functions to the satisfaction of the above-mentioned
party. The new equipment in any case shall immediately be subject to this new
leasing contract.---
3. Demand that THE LESSEE pay the
<PAGE>
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
*******************************ENSES PERTAINING TO THE UPKEEP AND MAINTENANCE OF
THE GOODS REFERRED TO HEREIN TO MAINTAIN THEM IN PERFECT CONDITION, EXCEPT WITH
RESPECT TO NORMAL WEAR AS A RESULT OF THE APPROPRIATE USE OF THE AFOREMENTIONED
GOODS.------------------------THE EQUIPMENT SHALL BE USED IN ACCORDANCE WITH THE
PURPOSES INHERENT THEREIN, WITH ALL THE CAUTION AND DILIGENCE REQUIRED FOR
STANDARD MAINTENANCE AND PROPER PERFORMANCE OF THE EQUIPMENT. THE STANDARDS FOR
USE OF THE EQUIPMENT SHALL BE ESTABLISHED BY THE SUPPLIER OR MANUFACTURER AND
THE LESSEE agrees to sign with said manufacturer or supplier or with the person
authorized by said person, the contracts of maintenance that ensure the upkeep
and proper working order of the equipment.---------------------------------
Additionally, THE LESSEE agrees to comply with all laws, conventions, decrees,
resolutions, regulations, or any other provision that governs or in any way is
related to the use and maintenance of the equipment, whether of international,
national, or municipal character or issued by the country in whose territory the
equipment is located.-EIGHTEENTH. RIGHT OF INSPECTION. THE LESSOR reserves the
right to inspect the equipment at any time, to ensure the satisfactory operation
and
<PAGE>
maintenance of the said goods. To this end and without any implied obligation on
the part of THE LESSOR, said party may carry out the inspections he deem
necessary at the LESSEE's plants or at the place where the equipment is located
and recommend in written form the measures he sees fit and convenient to take in
order to maintain the equipment in proper working order, which shall be attended
to by THE LESSEE promptly.------------------------------------------------------
In the event that THE LESSEE fails to adopt the measures requested by THE
LESSOR, said party may declare this contract null and void and shall have the
right to demand, along with the immediate return of the equipment, the indemnity
pursuant to the twenty-seventh clause.------------------------------------------
THE LESSOR shall avail himself of responsibility for any cost, expense, or
losses attributable to the inspections or the fulfillment of her recommendations
excepting if the leased equipment sustains damage directly attributable to the
person who carries out the inspection at the expense of THE LESSOR.-----------
NINETEENTH. CESSION AND SUBLEASING OF EQUIPMENT. Excepting express prior and
written authorization by THE LESSOR, THE LESSEE agrees not to sublease the
equipment nor give it to third parties for its exploitation under any
contractual agreement, nor cede this contract in any way; even in the event of
said authorization THE LESSEE shall continue to be the sole responsible party in
connection with the concessionaire or substitute in dealing with THE LESSOR.--
TWENTIETH. CESSION OF CONTRACT. The rights of this contract herein may be
<PAGE>
ceded in full or in part by THE LESSOR and/or granted in the form of credit
warranty. THE LESSEE expressly agrees to the cession and/or pledging of the
contract therefore thus agreeing to fulfill the obligations under the cession
and/or pledging terms upon receipt of extrajudicial notification of said
cessation or pledging.----------------------------------------------------------
TWENTY FIRST. THE RIGHT TO LIEN. THE LESSEE hereby waives the right to lien that
due to any title or cause may have over the equipment.--------------------------
TWENTY SECOND. ADVANCE PAYMENT. Any advance, deposit option, or extraordinary
expenditure that THE LESSOR carries out before the date this contract takes
effect shall be the responsibility of THE LESSEE shall add to the interest at
the Libor rate of the week plus two (2) points per month.-----------------------
TWENTY THIRD. LICENCES AND PERMITS OF OPERATION. THE LESSEE agrees to obtain all
permits and licenses required by Colombian law for the operation of the goods
referred to herein.-------------------------------------------------------------
TWENTY FOURTH. TAXES AND PENALTIES. All taxes that encumber the goods referred
to herein, as well as any penalties imposed as a result of irregular or illegal
operation of the goods, shall be the sole responsibility of THE LESSEE.---------
In the event that new taxes are established that encumber or increase the
current tax burden that THE LESSOR bears in accordance with this contract, THE
LESSEE agrees to solely assume these additional taxes, paying them on the
LESSOR's behalf.
TWENTY FIFTH. LOCATION OF THE GOODS. The goods referred to herein shall remain
within the territory of the Republic of Colombia. THE LESSEE agrees to notify
<PAGE>
THE LESSOR in written form within three (3) days after change of location and
notify as to the new location of said goods.----------------------------------
TWENTY SIXTH. TERMINATION. This contract shall be declared null and void in the
event of the following causes:-------------------------------------------------
1ST By the mutual consent of the two parties.--------------------------------
2ND Due to expiration of the specified time period.--------------------------
3RD By unilateral decision on the part of THE LESSOR taken at any time before
the expiration of the specified time period, with no need for judicial
declaration and also, requiring THE LESSEE to return the equipment in any event
of non-compliance with this contract and in particular with the following:----
- - Due to delayed or untimely payment of leasing fees and customs taxes for one
or more periods.----------------------------------------------------------------
- - Due to unauthorized use of the leased equipment that deregulates the original
purpose or that may cause, in accordance with the criteria of THE LESSOR wear
not inherent in its normal use.-------------------------------------------------
- - Due to failure to notify THE LESSOR pursuant to cases of damage or
destruction of the leased equipment.--------------------------------------------
- - Failure to be aware of the
instructions given by THE LESSOR pertaining to the form and timeliness of
repairs needed by the leased equipment for the duration of this contract for
any reason.---------------------------------------------------------------------
- - Due to intent to encumber the leased equipment with any type of expenses or
<PAGE>
warranties and in any case, when said equipment is affected by precautionary
legal measures as the result of abnormal occurrences according to the criteria
of THE LESSOR.----------------------------------------------------------------
- - Due to the subleasing or awarding of this contract to third parties for its
exploitation under any contractual agreement or cede this contract without the
express, prior and written authorization of THE LESSOR.-------------------------
- - Due to failure to insure the goods referred to herein with insurance
companies in accordance with the terms established in said contract.----------
4TH Due to all other causes provided for by law.-------------------------------
5TH Due to declaration of bankruptcy, petition for precautionary concordant
by THE LESSEE or for having been judicially sued by third parties and that
involve the goods referred to herein. In these events THE LESSOR shall collect
the wanting fees excepting that the creditors of THE LESSEE propose their
substitution with warranties to the satisfaction of THE LESSOR.-----------------
6TH Due to loss or damage of the equipment that affects its proper functioning.
7TH Due to the dissolution or liquidation of THE LESSEE.-----------------------
TWENTY SEVENTH. SANCTIONS FOR NON-COMPLIANCE. If and when THE LESSOR declares
null and void this contract pursuant to the above clause, THE LESSEE agrees to
pay THE LESSOR as penalty in addition to the amount due for non-compliance,
pursuant to the thirteenth clause, a sum equivalent to the agreed leasing fees
that have not been covered and still have not been charged. The payment of this
<PAGE>
penalty shall not imply the release from the obligation to return the equipment,
nor shall THE LESSOR waive his right to demand indemnity for the losses caused
by the non-compliance of THE LESSEE.--------------------------------------------
TWENTY EIGHTH. RETURN OF THE EQUIPMENT. At the termination of this contract due
to a cause other than expiration, the equipment shall be returned to THE LESSOR
in the same proper working condition as when received by THE LESSEE, excepting
natural wear arising from its proper use.---------------------------------------
THE LESSEE shall return the equipment within five (5) days after the termination
date, under penalty of incurring a daily fine to be collected by THE LESSOR in
the amount stipulated herein. Payment of this fine shall not exclude the
obligation to return the leased equipment. The return of the equipment shall be
carried out at the location stipulated by THE LESSOR and the expenses incurred
as a result of said return including disassemblage, move and installation, shall
be at the expense of THE LESSEE.------------------------------------------------
TWENTY NINTH. ACQUISITION OPTION. Under the terms of this contract and on
condition that said contract has been dully fulfilled by THE LESSEE, THE LESSOR
grants THE LESSEE the irrevocable option at the time of ratification of this
contract the acquisition of the ownership of the goods referred to herein, under
the following stipulations: ----------------------------------------------------
1ST PRICE: ONE HUNDRED FOUR THOUSAND UNITED STATES
DOLLARS (US$104,000.OO)--------------------------------
<PAGE>
2ND FORM OF PAYMENT: PAYABLE AT THE CONCLUSION OF THE LEASING
CONTRACT (12 YEARS)----------------------------------
THIRTIETH. INTERPRETATION. The interpretation of this contract is governed by
the following:----------------------------------------------------------------
1. By the clauses herein.---------------------------------------------------
2. By the laws of the United States of America regulated by the Financial
Leasing Contract. However, all things concerning the recuperation of leased
goods shall be governed by Colombian law.-------------------------------------
3. In the absence of a special norm that regulates the subject matter, the
provisions established by the UNIDROIT Convention concerning international
leasing adopted in Ottawa, Canada, May 26, 1988, by virtue of the principle
adopted in article 7 of the Commercial Code of the Republic of Colombia .-----
THIRTY FIRST. ARBITRATION. All disagreement that is derived from this contract
shall be definitively resolved by the Court of Arbitration comprised of three
(3) arbiters one named by each party and one by the International Chamber of
Commerce, National Committee of Colombia- New York. The findings shall be in law
and equity. The location of arbitration shall be in Santa fe de Bogota. The
official language that shall be used during the arbitration process shall be
Spanish. The naming of the arbiters as well as the process of arbitration shall
be governed by the provisions adopted in the Regulations of Conciliation and
Arbitration of the International Chamber of Commerce.--
THIRTY SECOND. ACTIONS AND PROCEEDINGS. The original of this contract is
<PAGE>
immediately considered valid concerning the express and evident obligations
confirmed therein, when said obligations are called for, in accordance with said
obligations and Colombian law.------------------------------------------------
The first copy will be used for the purposes of the record in the event that,
given the nature and legal system of the goods referred to herein, be required.
The second copy of this contract shall be valid for the actions THE LESSOR
undertakes for the restitution of tenancy of the goods referred to herein.------
THIRTY THIRD. NOTIFICATION. Any notification or notice directed to THE LESSOR,
in accordance with this contract, may be sent via registered mail addressed to
said party to Post Office Box Number ____________ of__________ or any other
address said party indicates.
On the other hand, any notice or notification that in accordance with this
contract is directed to THE LESSEE may be sent via registered mail to the
address: Carrera 11 - No. 10-43 - Jamundi-Valle del Cauca - Colombia.-----------
This contract is hereby made and ratified, in the city of Jamundi, the first (1)
of August of nineteen ninety six (1996)
GLOBAL TELECOMMUNICATIONS
OPERATIONS, INC.
______________________________
THE LEASER
FABIANA MEJIA VESGA
C.C. NO. 39.773.689 OF USAQUEN
SPECIAL ATTORNEY
<PAGE>
TELEJAMUNDI S.A. E.S.P.
___________________________
THE LESSEE
GUILLERMO O. LOPEZ ESQUIVEL
C.C. NO. 16.616.481 OF CALI
<PAGE>
EXHIBIT 10.8
SUPPLEMENTARY INTERNATIONAL LEASING CONTRACT
UNDERSIGNED ON THE 1/ST/ OF AUGUST, 1996 BETWEEN
GLOBAL COMMUNICATIONS OPERATIONS INC. AND
TELEJAMUNDI S.A. E.S.P.
DATE: Jamundi, April 19/th/, 1998---------------------------------------------
LESSOR: Felipe Garcia Echeverry legal representative of GLOBAL
TELECOMMUNICATIONS OPERATIONS INC.----------------------------------------------
LESSEE: Jorge Enrique Martinez Ocampo deputy legal representative of the firm
TELEPHONE COMPANY OF JAMUNDI S.A. PUBLIC SERVICE COMPANY "TELEPALMIRA S.A.
E.S.P.".-------------------------------------------------------------------
PURPOSE: Modification of TWELFTH - Rent - and THIRTEENTH - Delay - clauses of
the International Leasing Contract undersigned by the parties on the 1/st/ of
August, 1996.-------------------------------------------------------------------
SUBSTITUTE CLAUSES: The TWELFTH -Rent - clause will be the following: "THE
LESSEE will be unconditionally obliged to and will need not be required to pay
to the LESSOR during the period of validity of this contract, a rent that shall
be determined as follows: a) A sum OF SIX HUNDRED FIFTY FIVE THOUSAND NINE
HUNDRED FORTY EIGHT UNITED STATES DOLLARS WITH FORTY FOUR CENTS (US$655,948.44)
on the 20/th/ day of April of 1998: b) 20 biannual installments for the sums
stipulated on the following chart for a period of 10 years:---------------------
<PAGE>
INSTALLMENTS DATE INSTALLMENT
TOTAL US$
<TABLE>
- -----------------------------------------------------------------------------------------
<S> <C> <C>
1 May 28, 1998 447.981.47
- -----------------------------------------------------------------------------------------
2 July 28, 1998 309.332.57
- -----------------------------------------------------------------------------------------
3 January 28, 1999 302.480.41
- -----------------------------------------------------------------------------------------
4 July 28, 1999 295.638.24
- -----------------------------------------------------------------------------------------
5 January 28, 2000 288.776.08
- -----------------------------------------------------------------------------------------
6 July 28, 2000 281.923.92
- -----------------------------------------------------------------------------------------
7 January 28, 2001 275.071.76
- -----------------------------------------------------------------------------------------
8 July 28, 2001 268.219.60
- -----------------------------------------------------------------------------------------
9 January 28, 2002 261.367.43
- -----------------------------------------------------------------------------------------
10 July 28, 2002 254.515.27
- -----------------------------------------------------------------------------------------
11 January 28, 2003 247.515.27
- -----------------------------------------------------------------------------------------
12 July 28, 2003 240.810.95
- -----------------------------------------------------------------------------------------
13 January 28, 2004 233.958.79
- -----------------------------------------------------------------------------------------
14 July 28, 2004 227.106.62
- -----------------------------------------------------------------------------------------
15 January 28, 2005 220.254.46
- -----------------------------------------------------------------------------------------
16 July 28, 2005 213.402.30
- -----------------------------------------------------------------------------------------
17 January 28, 2006 206.550.14
- -----------------------------------------------------------------------------------------
18 July 28, 2006 199.697.98
- -----------------------------------------------------------------------------------------
19 January 28, 2007 192.845.81
- -----------------------------------------------------------------------------------------
20 July 28, 2007 185.993.66
- -----------------------------------------------------------------------------------------
</TABLE>
<PAGE>
, and c) Four biannual installments for the sums stipulated on the following
chart:--
INSTALLMENTS DATE INSTALLMENT
TOTAL US$
<TABLE>
- -----------------------------------------------------------------------------------------
<S> <C> <C>
21 January 28, 2008 32.790.42
- -----------------------------------------------------------------------------------------
22 July 28, 2008 32.790.42
- -----------------------------------------------------------------------------------------
23 January 28, 2009 32.790.42
- -----------------------------------------------------------------------------------------
24 July 28, 2009 32.790.42
- -----------------------------------------------------------------------------------------
</TABLE>
For a period of two years once the payment of the twenty installments cited in
the above-mentioned provision has been completed, payments that shall be
demanded the first five (5) days of each payable semester.----------------------
SECOND PARAGRAPH: It is cancelled.----------------------------------------------
THIRD PARAGRAPH: This contract will not generate fees payment during the fiscal
year of 1997"-------------------------------------------------------------------
The THIRTEENTH clause of this contract will be as follows: "Delay - In the
event of delay on the part of THE LESSEE in the payment of the sums of money
stipulated in this contract, the above-mentioned party agrees to pay the LESSOR,
without benefit of summons, in accordance with the interest moratorium, the same
interest rate as the Libor dictates plus three (3%) annual percentage rate,
calculated beginning from the expiration date of the value that is in default,
until the date in which THE LESSEE has credited the payment to the LESSOR'S bank
account.----
<PAGE>
The remaining clauses of the mentioned contract remain unaltered.---------------
It is the responsibility of the LESSEE to register this supplementary contract
before the exchange authorities.------------------------------------------------
FOR THE LESSOR,
______________________________________________
GLOBAL TELECOMMUNICATIONS OPERATIONS INC.
FELIPE GARCIA ECHEVERRY
CC.80.409.281 OF USAQUEN
LEGAL REPRESENTATIVE
FOR THE LESSEE,
_________________________________
JORGE ENRIQUE MARTINEZ OCAMPO
CC. 7.506.437 ARMENIA
DEPUTY LEGAL REPRESENTATIVE
TELEJAMUNDI S.A. E.S.P.
<PAGE>
EXHIBIT 10.9
INTERNATIONAL LEASING CONTRACT
BETWEEN GLOBAL TELECOMMUNICATIONS OPERATIONS INC. AND
YUMBO TELEPHONE COMPANY S.A. PUBLIC
SERVICES CORPORATION - TELEYUMBO S.A. E.S.P.
The undersigned, FABIANA MEJIA VESGA, of legal age, resident of Santafe de
Bogota, D.C., whose identity is established as it appears beneath her signature,
who acts as special attorney to the corporation GLOBAL TELECOMMUNICATIONS
OPERATIONS INC., corporation whose head office is located at the address: Pasea
Estate, Road Town, Tortola, established under the prevailing laws of the British
Virgin Islands, United Kingdom, by virtue of registration number 170407, as
defined by the decree concerning international business firms, and that shall
hereinafter be referred to as THE LESSOR on the one hand and JORGE ENRIQUE
MARTINEZ OCAMPO, of legal age, resident of Cali, whose identity is established
as it appears beneath his signiture, who acts in the capacity of General Manager
and legal representative of THE YUMBO TELEPHONE COMPANY S.A. PUBLIC SERVICES
CORPORATION - TELEYUMBO S.A. E.S.P., commercial firm established in accordance
with public document number 0284, conferred on March 11 of 1994, in the sole
notary public of Yumbo, located in the city of Yumbo, state of the Valle del
Cauca, Republic of Colombia, bearing the NIT number 800224288-8, conditions
credited by the Certificate
<PAGE>
of Existence and Representation, issued by the Chamber of Commerce of Cali,
attached to this contract, and that shall hereinafter be referred to as THE
LESSEE on the other hand, have made this International Leasing Contract, upon
the following terms:-----------------------
FIRST. ANTECEDENTS.- for the purposes of this Contract, THE LESSEE, in order to
attain the profitable use of the goods described henceforth, prior deliberation
and study, has selected the goods referred to herein, including each and all of
its characteristics, specifications, and SIEMENS AKTIENGESELLSCHAFT, of German
nationality, as supplier of said goods.---------------------------------------
SECOND. In fact, as provided in the previous postulate the parties acknowledge
that THE LESSEE has solicited THE LESSOR to take possession of the goods
referred to herein, to surrender its just possession to THE LESSEE, whereupon
the goods described herein shall be exploited economically in Colombia.---------
THIRD. PROPERTY. THE LESSOR declares that it is owner of the following goods,
whose customs status is: "85. 17. 30. 20. 00 Electric telephone devices with
lines, Telephone exchange for five thousand two hundred forty eight (5,248)
lines whose basic components constitute a functional unit according to the terms
provided for in Note 4 - Section XVI of the customs duty" and whose principal
function is carried out by an automated device of telephone commutation, whose
detailed description is attached to this contract.------------------------------
FOURTH. PURPOSE. By virtue of this Contact THE LESSOR, who has attained outside
the Republic of Colombia the ownership of the goods in the course of the
<PAGE>
request conferred by THE LESSEE as pursuant to the previous clause, gives THE
LESSEE possession of the goods referred to herein, which he states having
received in a satisfactory manner for the purposes of leasing.------------------
PARAGRAPH For legal purposes the parties state that any machinery or part that
is used as accessory to the leased equipment or that in the future is added or
attached is understood in this contract.----------------------------------------
FIFTH. IMPORTATION. The goods referred to herein have been acquired by the
LESSOR in the Federal Republic of Germany, and shall be imported by THE LESSEE
to the Republic of Colombia, thereby obliging the aforementioned party to comply
irrevocably with the laws and regulations that apply to the importation of goods
to Colombia. -------------------------------------
In particular, THE LESSEE is expressly directed to comply with the
constitutional safeguards required by law, with the prompt presentation of the
purchase invoice and the pertaining customs declaration, in accordance with the
prevailing legal statutes and the timely payment of customs duties (among others
the import duty, taxes and any other encumbrances applicable to the leased
goods) and in general to comply with any customs and fiscal obligations in
accordance with the terms of the contract and legal provisions.-----------------
If for legal reasons, the authorities should issue official requirements or
liquidation or should demand compliance with any customs or fiscal obligation
against THE LESSOR as owner, THE LESSEE shall be obliged to assume the costs and
charges incurred including attorney fees if applicable, steps taken to respond
to requests, resources to
<PAGE>
cover liquidation and in particular, to reimburse the LESSOR for the costs and
charges incurred including, if necessary, import duties, taxes, fines and other
encumbrances that the aforementioned party has had to pay in compliance with
customs and fiscal regulations.-------------------------------------------------
FIRST PARAGRAPH. THE LESSEE declares its full knowledge of the prevailing
Colombian fiscal and customs regulations on the date this contract was made and
ratified and is obliged to comply with them according to the terms and the
conditions established by the law.----------------------------------------------
SECOND PARAGRAPH. THE LESSOR or a third party that the aforementioned party
designates, shall be authorized to pay the customs and fiscal duties with
respect to the leasing fees if THE LESSEE does not comply with this provision
within fifteen (15) days prior to the payment of the corresponding fee.---------
In any event THE LESSEE shall make known and demonstrate the payment of the
taxes to THE LESSOR, within twenty four (24) hours after the payment of said
taxes.--- If this provision is not complied with, those sanctions stipulated in
the Twenty seventh Clause shall be applied.-------------------------------------
SIXTH. EXONERATION OF RESPONSIBILITY AND INDEMNITY. THE LESSEE declares having
selected the leased equipment and the supplier or manufacturer of above-
mentioned equipment and therefore THE LESSOR shall not be responsible for late
delivery of the goods due to causes attributable to the supplier or manufacturer
or due to any other cause or circumstance, nor for any damages, defects,
deviations from established specifications or due to any error on the part of
the manufacturer or supplier
<PAGE>
or seller in the assemblage or proper installation of the equipment.------------
In the event that the manufacturer fails to deliver the goods, THE LESSOR shall
be availed of any responsibility and THE LESSEE shall compensate for the
expenses directly or indirectly incurred in the acquisition of the equipment or
as a consequence of this contract, including the price of the leased goods and
any other losses, advance payments, taxes, duties, commissions, freight charges,
transportation expenses, or any other incumbencies.-----------------------------
SEVENTH. SUBROGATION THE LESSEE shall surrogate the rights of the LESSOR,
pertaining to the manufacturer or supplier of the contract of sale of the
equipment, if THE LESSEE should by direct request bid said manufacturer or
supplier to comply with the contract of sale referred to herein or require the
completion of said contract, with compensation for damages and losses.----------
In any case, at the time of completion of the contract of sale, THE LESSEE shall
indemnify THE LESSOR, for all expenses pursuant to the preceding clause.--------
EIGHTH. INSURANCE. The Parties agree that THE LESSEE expressly exonerates THE
LESSOR from insuring the leased goods, as the aforementioned party shall not be
held responsible for occult or manifest defects in operation, production output
or any other defects that affect said goods.------------------------------------
THE LESSEE shall indemnify THE LESSOR in accordance with the twenty-seventh
clause, if this contract is terminated due to defects in the leased goods.------
On the assumption that the manufacturer or supplier substitutes the goods for
others free of defects, said goods shall be included in this contract, such that
any reference to the
<PAGE>
leased goods made in this contract shall be applied to the new goods that are
substituted, to which end THE LESSEE shall sign an addendum and in this manner
incorporate the substituted goods into the legal regulations of the relationship
that this contract formalizes.--------------------------------------------------
NINTH. In the event of any conflict between THE LESSEE and the manufacturer or
supplier pursuant to the reasons established in the previous clauses, THE LESSEE
shall continue paying THE LESSOR the fees stipulated herein as long as the said
contract is applicable.---------------------------------------------------------
TENTH. RIGHT OF HABEAS CORPUS. PROPERTY. THE LESSEE agrees to make known to
third parties that the entire and exclusive ownership of the goods referred to
herein lies with THE LESSOR. It shall follow that in the event that legal or
administrative steps are necessary that affect the act of ownership of the
goods, such as embargoes, precautionary measures, seizure, withholding or
similar circumstances or in the event of a summons of creditors, declaration of
bankruptcy, or repossession of the goods pertaining to THE LESSEE, the above
mentioned party shall present this contract as proof of tenure of the goods
referred to herein and shall notify THE LESSOR within three (3) days after the
date of the occurrences so that the above-mentioned party may adopt measures in
accordance with the circumstances. In any case THE LESSEE from this time forward
shall at his own risk cover all costs that require the defense of possession and
tenure of the goods by THE LESSOR, without impairing the compliance with all
other duties stipulated in this contract.---------------
ELEVENTH. SPECIFIED TIME PERIOD. THE LESSOR grants possession of the
<PAGE>
goods referred to herein to THE LESSEE for the duration of twelve (12) years,
counted down beginning on the date of the event that certifies the functioning
of the equipment referred to herein. The act will be drawn up by THE LESSEE.
- ------------------------------
TWELFTH. RENT. THE LESSEE is hereby directed irrevocably and without the benefit
of summons to pay THE LESSOR as long as this contract remain valid a pre-
determined rent in the following manner: A) The sum of FIVE HUNDRED THOUSAND
UNITED STATES DOLLARS (US$500,000.OO) upon presentation of the last declaration
of importation of the equipment; B) 20 biannual installments of a total of ONE
HUNDRED AND FORTY SIX THOUSAND UNITED STATES DOLLARS (US$146,000.OO) for a
period of 10 years; and C) Four biannual installments for a total of SEVENTY
THREE THOUSAND UNITED STATES DOLLARS (US$73,000.OO) each, for a period of two
years once the payment of the twenty installments cited in the above-mentioned
provision has been completed, payments that shall be demanded the first five (5)
days of each payable semester.-------------------------------------------------
FIRST PARAGRAPH: In the event that several declarations of importation exist,
for the payment of the aforementioned installments of this leasing contract, the
date of presentation of the last declaration shall be used.---------------------
SECOND PARAGRAPH: This sum shall be readjusted proportionately, if upon arrival
of the imported goods to national territory its CIF cost (including the cost of
merchandise, insurance and freight) increases or decreases in relation to the
CIF cost initially budgeted and which serves as the basis for determination of
the initial rate. In this case the variation shall be applied to the
corresponding factor of the cost originally
<PAGE>
budgeted as the initial CIF cost of the merchandise. Also, the rate shall be
adjusted biannually in accordance with the percentage variation sustained by the
London inter-bank offered rate (Libor) between the first and last calendar days
of each quarter immediately prior to that for which the readjustment is made.
- -------------------
THE LESSEE agrees to verify the prior acquisition of the corresponding foreign
exchange in the Colombian exchange market complying with all legal regulations
thereof, the bill of exchange of the sums owed in each period shall be confirmed
in writing, by telegram, telex, letter or fax, at the latest the day payment is
due for each pre-determined leasing fee.----------------------------------------
THIRTEENTH. DELAY. In the event of delay on the part of THE LESSEE in the
payment of the sums of money stipulated in this contract, the above-mentioned
party agrees to pay the LESSOR, without benefit of summons, in accordance with
the interest moratorium, the same interest rate as the Libor dictates plus two
(2%) annual percentage rate, calculated beginning from the expiration date of
the value that is in default, until the date in which THE LESSEE has credited
the payment to the LESSOR'S bank account.--------------------------In the event
that there exist two or more periodic fees in default, THE LESSEE will pay THE
LESSOR the sum here indicated for each of the said periodic fees. The payment of
this penalty shall not waive the principal obligation of THE LESSEE, as said
penalty is stipulated in accordance with the sole delay or default and does not
alter the right of THE LESSOR to claim the breach of contract nor the
application of sanctions pursuant to the twenty-seventh clause.----------------
<PAGE>
FIRST PARAGRAPH. The tolerance of THE LESSOR in receiving delayed payment on
fees shall not imply postponement of the stipulated time period for the
fulfillment of the obligations of THE LESSEE as provided herein.----------------
- -----------------------------------
SECOND PARAGRAPH. The leasing fees shall not decrease due to claimed wear or
obsolescence of the equipment, circumstances these that THE LESSEE assumes
without waiving her obligations before THE LESSOR.------------------------------
- --------------
THIRD PARAGRAPH. The obligation to pay the fees on the part of THE LESSEE shall
not terminate due to the temporal or definitive cessation of operation of the
leased equipment or due to reparation, move, transformation, strike, loss on the
part of the company or in general as the result of any cause not attributed to
THE LESSOR.--------
FOURTH PARAGRAPH. To back the payment of the fees THE LESSEE agrees to present
to THE LESSOR the warranties required by the said party.-----------------------
FIFTH PARAGRAPH. THE LESSEE expressly waives benefit of formal notification that
establishes her default in the event of delay or non-compliance with the agreed
upon obligations referred to herein and accepts from this time forward as full
proof of any non-compliance, the report addressed to her by THE LESSOR or the
claim by said party presented to the corresponding authority to make effective
his rights.-----------------
FOURTEENTH. AMMENDMENTS TO THE CONTRACT. THE LESSEE from this time forward
accepts the modifications THE LESSOR provides pertaining to the quarterly
installments or to the purchase option, fines, penalties and other fees referred
to herein in accordance with the prevailing legal regulations at the time of
arrangement of modification.----------------------------------------------------
<PAGE>
FIFTEENTH. GUARANTEES. THE LESSEE agrees to insure against any risk and during
the period of this contract with an insurance company previously accepted by THE
LESSOR the leased equipment, up to a sum equivalent to the market value
therefore establishing as beneficiary THE LESSOR.-------------------------------
For the same reason, THE LESSEE agrees to insure the equipment against civil
liability for physical harm and damage to property that its operation may
occasion to third parties for a sum no less than the amount recommended for this
type of equipment. It shall be understood that THE LESSEE is and shall continue
to be the sole liable party for the said third parties for the harm and damages
the equipment may cause. THE LESSEE agrees to pay the premiums required within
ten (10) days after the date on which the insurance contracts are signed or upon
its renewal.------------------
FIRST PARAGRAPH. THE LESSEE authorizes THE LESSOR, who is hereby availed of any
responsibility or obligation in this matter, to at the expense of THE LESSEE
negotiate the insurance plans or renewals and/or pay the corresponding insurance
premiums for the purpose of maintaining the validity of the policies that
protect the equipment.----------------------------------------------------------
In the event that THE LESSOR pays on behalf of THE LESSEE the insurance
premiums, THE LESSEE agrees to pay THE LESSOR, within two days after receiving
the bill of payment, the amount of money paid at her sole expense. The non-
compliance with any stipulation included in this clause shall constitute just
cause for THE LESSOR to terminate this contract with the consequences provided
for in the Twenty-sixth Clause.-----------------------------------------------
<PAGE>
SECOND PARAGRAPH. Any loss, total or partial, shall not suspend nor interrupt
the leasing nor shall it alter the specified time period.-----------------------
SIXTEENTH. OBLIGATIONS OF THE LESSEE. THE LESSEE agrees to be responsible for
any wear sustained by the equipment or its loss, whatever the cause may be, even
if said cause arises from force majeure or by chance. In the event of wear or
loss THE LESSEE agrees to immediately notify THE LESSOR, and the said party
shall adopt one of the following provisions:
1. Authorize THE LESSEE to by his sole means recuperate the equipment or
restore it to satisfactory working condition according to the criteria of THE
LESSOR, in accordance with the terms the above-mentioned party stipulates. It
shall be understood that the repairs may only be carried out by the
manufacturers of the equipment or by their representatives in the country with
the exception that THE LESSOR under special circumstances authorizes the repairs
in writing to be carried out under different conditions. The spare parts shall
be technically adequate and by no means may their acquisition signify an
original change in the leased equipment.---------------------------------
2. Accept that THE LESSEE at his own expense replaces the equipment under the
terms THE LESSOR indicates, for another presentation of similar conditions,
maintaining its original functions to the satisfaction of the above-mentioned
party. The new equipment in any case shall immediately be subject to this new
leasing contract.---
3. Demand that THE LESSEE pay the LESSOR, in the amount of the fee multiplied
by the number of fees to be charged from the moment the damage or loss occurs
until the termination of the contract.-----------------------------------------
<PAGE>
SEVENTEENTH UPKEEP AND MAINTENANCE. The equipment shall solely be used by THE
LESSEE and the personnel in his service, who agrees to solely and at his own
risk, assume all expenses pertaining to the upkeep and maintenance of the goods
referred to herein to maintain them in perfect condition, except with respect to
normal wear as a result of the appropriate use of the aforementioned goods.-----
- ------------------- The equipment shall be used in accordance with the purposes
inherent therein, with all the caution and diligence required for standard
maintenance and proper performance of the equipment. The standards for use of
the equipment shall be established by the supplier or manufacturer and THE
LESSEE agrees to sign with said manufacturer or supplier or with the person
authorized by said person, the contracts of maintenance that ensure the upkeep
and proper working order of the equipment.--------------------------
Additionally, THE LESSEE agrees to comply with all laws, conventions, decrees,
resolutions, regulations, or any other provision that governs or in any way is
related to the use and maintenance of the equipment, whether of international,
national, or municipal character or issued by the country in whose territory the
equipment is located.-----------------------------------------------------------
EIGHTEENTH. RIGHT OF INSPECTION. THE LESSOR reserves the right to inspect the
equipment at any time, to ensure the satisfactory operation and maintenance of
the said goods. To this end and without any implied obligation on the part of
THE LESSOR, said party may carry out the inspections he deem necessary at the
LESSEE's plants or at the place where the equipment is located and recommend in
written form the measures he sees fit and convenient to take in order to
maintain the equipment in
<PAGE>
proper working order, which shall be attended to by THE LESSEE promptly.--------
In the event that THE LESSEE fails to adopt the measures requested by THE
LESSOR, said party may declare this contract null and void and shall have the
right to demand, along with the immediate return of the equipment, the indemnity
pursuant to the twenty-seventh clause.----------------------------------- THE
LESSOR shall avail himself of responsibility for any cost, expense, or losses
attributable to the inspections or the fulfillment of her recommendations
excepting if the leased equipment sustains damage directly attributable to the
person who carries out the inspection at the expense of THE LESSOR.-------------
NINETEENTH. CESSION AND SUBLEASING OF EQUIPMENT. Excepting express prior and
written authorization by THE LESSOR, THE LESSEE agrees not to sublease the
equipment nor give it to third parties for its exploitation under any
contractual agreement, nor cede this contract in any way; even in the event of
said authorization THE LESSEE shall continue to be the sole responsible party in
connection with the concessionaire or substitute in dealing with THE LESSOR.
TWENTIETH. CESSION OF CONTRACT. The rights of this contract herein may be
ceded in full or in part by THE LESSOR and/or granted in the form of
credit warranty. THE LESSEE expressly agrees to the cession and/or pledging of
the contract therefore thus agreeing to fulfill the obligations under the
cession and/or pledging terms upon receipt of extrajudicial notification of said
cessation or pledging.--- TWENTY
<PAGE>
FIRST. THE RIGHT TO LIEN. THE LESSEE hereby waives the right to lien that due to
any title or cause may have over the equipment.--------------------------------
TWENTY SECOND. ADVANCE PAYMENT. Any advance, deposit option, or extraordinary
expenditure that THE LESSOR carries out before the date this contract takes
effect shall be the responsibility of THE LESSEE shall add to the interest at
the Libor rate of the week plus two (2%) points per month.----------------------
TWENTY THIRD. LICENCES AND PERMITS OF OPERATION. THE LESSEE agrees to obtain all
permits and licenses required by Colombian law for the operation of the goods
referred to herein.-------------------------------------------------------------
TWENTY FOURTH. TAXES AND PENALTIES. All taxes that encumber the goods referred
to herein, as well as any penalties imposed as a result of irregular or illegal
operation of the goods, shall be the sole responsibility of THE LESSEE.---------
In the event that new taxes are established that encumber or increase the
current tax burden that THE LESSOR bears in accordance with this contract, THE
LESSEE agrees to solely assume these additional taxes, paying them on the
LESSOR's behalf.-
TWENTY FIFTH. LOCATION OF THE GOODS. The goods referred to herein shall remain
within the territory of the Republic of Colombia. THE LESSEE agrees to notify
THE LESSOR in written form within three (3) days after change of location and
notify as to the new location of said goods.----------------------------------
TWENTY SIXTH. TERMINATION. This contract shall be declared null and void in the
event of the following causes:-----------------------------------------------1ST
By the mutual consent of the two parties.---------------------------------------
<PAGE>
2ND Due to expiration of the specified time period.--------------------------
3RD By unilateral decision on the part of THE LESSOR taken at any time before
the expiration of the specified time period, with no need for judicial
declaration and also, requiring THE LESSEE to return the equipment in any event
of non-compliance with this contract and in particular with the following:------
- - Due to delayed or untimely payment of leasing fees and customs taxes for one
or more periods.----------------------------------------------------------------
. Due to unauthorized use of the leased equipment that deregulates the original
purpose or that may cause, in accordance with the criteria of THE LESSOR wear
not inherent in its normal use.-----------------------------------------------
. Due to failure to notify THE LESSOR pursuant to cases of damage or
destruction of the leased equipment.---------------------------------------
. Failure to be aware of the instructions given by THE LESSOR pertaining to the
form and timeliness of repairs needed by the leased equipment for the duration
of this contract for any reason.----------------------------------------------
. Due to intent to encumber the leased equipment with any type of expenses or
warranties and in any case, when said equipment is affected by precautionary
legal measures as the result of abnormal occurrences according to the criteria
of THE LESSOR.----------------------------------------------------------------
. Due to the subleasing or awarding of this contract to third parties for its
exploitation under any contractual agreement or cede this contract without the
express, prior and written authorization of THE LESSOR.-----------------------
<PAGE>
. Due to failure to insure the goods referred to herein with insurance
companies in accordance with the terms established in said contract.------------
4TH Due to all other causes provided for by law.-----------------------------
5TH Due to declaration of bankruptcy, petition for precautionary concordant by
THE LESSEE or for having been judicially sued by third parties and that involve
the goods referred to herein. In these events THE LESSOR shall collect the
wanting fees excepting that the creditors of THE LESSEE propose their
substitution with warranties to the satisfaction of THE LESSOR.----------------
6TH Due to loss or damage of the equipment that affects its proper functioning.
7TH Due to the dissolution or liquidation of THE LESSEE.-----------------------
TWENTY SEVENTH. SANCTIONS FOR NON-COMPLIANCE. If and when THE LESSOR declares
null and void this contract pursuant to the above clause, THE LESSEE agrees to
pay THE LESSOR as penalty in addition to the amount due for non-compliance,
pursuant to the thirteenth clause, a sum equivalent to the agreed leasing fees
that have not been covered and still have not been charged. The payment of this
penalty shall not imply the release from the obligation to return the equipment,
nor shall THE LESSOR waive his right to demand indemnity for the losses caused
by the non-compliance of THE LESSEE.--------------------------------------------
TWENTY EIGHTH. RETURN OF THE EQUIPMENT. At the termination of this contract due
to a cause other than expiration, the equipment shall be returned to THE LESSOR
in the same proper working condition as when received by THE LESSEE, excepting
natural wear arising from its proper use.-------------------------------------
<PAGE>
THE LESSEE shall return the equipment within five (5) days after the termination
date, under penalty of incurring a daily fine to be collected by THE LESSOR in
the amount stipulated herein. Payment of this fine shall not exclude the
obligation to return the leased equipment. The return of the equipment shall be
carried out at the location stipulated by THE LESSOR and the expenses incurred
as a result of said return including disassemblage, move and installation, shall
be at the expense of THE LESSEE.----------------------------------------------
TWENTY NINTH. ACQUISITION OPTION. Under the terms of this contract and on
condition that said contract has been duly fulfilled by THE LESSEE, THE LESSOR
grants THE LESSEE the irrevocable option at the time of ratification of this
contract the acquisition of the ownership of the goods referred to herein, under
the following stipulations: ----------------------------------------------------
1ST PRICE: SEVENTY THREE THOUSAND UNITED STATES DOLLARS (US$73,000.00).----
2ND FORM OF PAYMENT: PAYABLE AT THE CONCLUSION OF THE LEASING CONTRACT (12
YEARS)--------------------------------------------------------------------------
THIRTIETH. INTERPRETATION. The interpretation of this contract is
governed by the following:----------------------------------------------------1.
By the clauses herein.----------------------------------------------------2. By
the laws of the United States of America regulated by the Financial Leasing
Contract. However, all things concerning the recuperation of leased goods shall
be governed by Colombian law.------------------------------------------3. In
the
<PAGE>
absence of a special norm that regulates the subject matter, the provisions
established by the UNIDROIT Convention concerning international leasing adopted
in Ottawa, Canada, May 26, 1988, by virtue of the principle adopted in article 7
of the Commercial Code of the Republic of Colombia .--------------------------
THIRTY FIRST. ARBITRATION. All disagreement that is derived from this contract
shall be definitively resolved by the Court of Arbitration comprised of three
(3) arbiters one named by each party and one by the International Chamber of
Commerce, National Committee of Colombia- New York. The findings shall be in law
and equity. The location of arbitration shall be in Santa fe de Bogota. The
official language that shall be used during the arbitration process shall be
Spanish. The naming of the arbiters as well as the process of arbitration shall
be governed by the provisions adopted in the Regulations of Conciliation and
Arbitration of the International Chamber of Commerce.--------------------------
- ----------------------THIRTY SECOND. ACTIONS AND PROCEEDINGS. The original of
this contract is immediately considered valid concerning the express and evident
obligations confirmed therein, when said obligations are called for, in
accordance with said obligations and Colombian law.---------------------------
- --------------- The first copy will be used for the purposes of the record in
the event that, given the nature and legal system of the goods referred to
herein, be required.-----------------------The second copy of this contract
shall be valid for the actions THE LESSOR undertakes for the restitution of
tenancy of the goods referred to herein.--------------------- THIRTY THIRD.
NOTIFICATION. Any notification or notice directed to THE LESSOR, in
<PAGE>
accordance with this contract, may be sent via registered mail addressed to said
party to Post Office Box Number ____________ of__________ or any other address
said party indicates.
On the other hand, any notice or notification that in accordance with this
contract is directed to THE LESSEE may be sent via registered mail to the
address: Calle 5a No. 5 - 18 of the city of Yumbo, Cauca Valley - Colombia.-----
This contract is hereby made and ratified, in the city of Yumbo, the first (1)
of August of nineteen ninety six (1996).
GLOBAL TELECOMMUNICATIONS
OPERATIONS, INC.
______________________________
THE LESS0R
FABIANA MEJIA VESGA
C.C. NO. 39.773.689 OF USAQUEN
SPECIAL ATTORNEY
TELEYUMBO S.A. E.S.P.
___________________________
THE LESSEE
JORGE ENRIQUE MARTINEZ O.
C.C. NO. 7.506.436 OF ARMENIA
<PAGE>
EXHIBIT 10.10
SUPPLEMENT TO THE INTERNATIONAL LEASING CONTRACT
MADE AS OF AUGUST 1/ST/, 1996
BY AND BETWEEN
GLOBAL TELECOMMUNICATIONS OPERATIONS INC. AND
UNITEL S.A. E.S.P. FORMER TELEYUMBO S.A. E.S.P.
DATE: Yumbo, April 19/th/, 1998
LEASOR: Felipe Garcia Echeverry. Attorney-in-fact of GLOBAL TELECOMMUNICATIONS
OPERATIONS INC.
LEASEE: Jorge Enrique Martinez Ocampo. Legal Representative (Substitute) for
Sociedad UNITEL S.A. E.S.P., formerly referred to as EMPRESA DE TELEFONOS DE
YUMBO S.A. EMPRESA DE SERVICIOS PUBLICOS - TELEYUMBO S.A. E.S.P.
SUBJECT: Modify clause no. TWELVE - LEASE- and clause no. THREE - ARREARS, of
the International Leasing Contract entered into the parties hereto as of August
1/st/, 1996.
SUBSTITUTE CLAUSES. Clause TWELVE - LEASE- "LEASEE agrees to pay to LEASOR, in
an unconditional way and without any requirements for LEASOR during the term of
this Contract, a specific lease in the following manner: a) FOUR HUNDRED EIGHTY-
SIX THOUSAND NINE HUNDRED FORTY-THREE UNITED STATES AMERICAN DOLLARS AND EIGHTY-
ONE CENTS (US$486,943.81) on April 20/th/, 1998; b) 20 installments in the
amount expressed in the following table for 10 years:
<PAGE>
<TABLE>
<CAPTION>
INSTALLMENT DATE TOTAL US$
- ------------------------------------------------------------------------------------------
<S> <C> <C>
1 May 28/th/, 1998 332,429.89
2 July 28/th/, 1998 229,409.67
3 January 28/th/, 1999 224,327.92
4 July 28/th/, 1999 219,246.16
5 January 28/th/, 2000 214,164.41
6 July 28/th/, 2000 209,082.65
7 January 28/th/, 2001 204,000.90
8 July 28/th/, 2001 198,919.14
9 January 28/th/, 2002 193,837.39
10 July 28/th/, 2002 188,755.63
11 January 28/th/, 2003 183,673.88
12 July 28/th/, 2003 178,592.12
13 January 28/th/, 2004 173,510.37
14 July 28/th/, 2004 168,428.62
15 January 28/th/, 2005 163,346.86
16 July 28/th/, 2005 158,265.11
17 January 28/th/, 2006 153,183.35
18 July 28/th/, 2006 148,101.60
19 January 28/th/, 2007 143,019.84
20 July 28/th/, 2007 137,938.17
</TABLE>
and c) Four installments every six months on the following amounts:
<PAGE>
<TABLE>
<CAPTION>
INSTALLMENT DATE TOTAL US$
- ------------------------------------------------------------------------------------------
<S> <C> <C>
21 January 28/th/, 2008 24,321.96
22 July 28/th/, 2008 24,321.96
23 January 28/th/, 2009 24,321.96
24 July 28/th/, 2009 24,321.96
</TABLE>
for two years following expiration of the 20 installments above mentioned. These
amounts shall be enforceable within a period of five (5) working days following
expiration of each installment.
PARAGRAPH TWO. Invalid.
PARAGRAPH THREE. This Contract shall not require installment payments for its
duration on the fiscal year 1997.
CLAUSE THIRTEEN. ARREARS. In case of arrears by LEASEE in paying the amounts
owed by virtue of this Contract, LEASEE shall pay to LEASOR, without any
requirement whatsoever, and as a delay interest, an interest rate equal to Libor
plus (3%) yearly, calculated from the expiration date of the amount in arrears
to the date in which LEASEE has credited such payment into LEASOR'S banking
account.
This clarifying document is an integral part of the International Leasing
Contract subscribed as of August 1/st/, 1996.
All other clauses of that Contract shall remain as they are.
This supplement shall be filed before the exchange authorities by LEASEE.
<PAGE>
BY LEASOR
________________________________________
GLOBAL TELECOMMUNICATIONS OPERATIONS INC.
FELIPE GARCIA ECHEVERRI
I.D. No. 80.409.281, issued in Usaquen
Attorney-in-fact
(signature)
BY LEASEE
________________________________________
JORGE ENRIQUE MARTINEZ OCAMPO
I.D. No. 7.506.436, issued in Armenia
Legal Representative (Substitute)
UNITEL S.A. E.S.P.
<PAGE>
EXHIBIT 10.11
GLOBAL TELECOMMUNICATIONS OPERATIONS, INC.
CONTRACT NUMBER 2
By and between the undersigned, FELIPE GARCIA ECHEVERRI, of legal age and
resident of Santa Fe de Bogota, bearing the passport number 80409281, issued in
Santa Fe de Bogota D.C., who acts as Special Attorney to GLOBAL
TELECOMMUNICATIONS OPERATIONS, INC., with the authority invested in him and, who
in this document shall hereinafter be referred to as THE CORPORATION on the one
hand; and on the other hand SIEMENS AKTIENGESELLSCHAFT established and extant
company in accordance with the laws of the Federal Republic of Germany,
established in Berlin, and Munich, represented by SIEMENS COMPANY LIMITED,
registered and licensed at the Commercial Register of the Chamber of Commerce of
Bogota, in accordance with the Registration Number 003.206, represented in this
transaction by JULIO CESAR VILLEGAS AND ALBERTO GOMEZ DEL CORRAL, of legal ages,
residents of the city of Santa Fe de Bogota, bearing the social security number
19.067.988 and social security number 19.182.384, respectively, both issued in
Bogota, company established in Santa Fe de Bogota, all of which is demonstrated
in the Certificate of Commercial and Sole Agency, issued by the Chamber of
Commerce of Bogota, who shall hereinafter be referred to as THE CONTRACTOR, this
contract has been made, consisting of the following clauses:..................
FIRST CLAUSE. PURPOSE: THE CONTRACTOR agrees to transfer in the capacity of
<PAGE>
contract of sale to THE CORPORATION equipment with the following destinations:
A) CARTAGO: EWSD commutation equipment for a total of 17,008 telephone lines,
distributed in a central matrix and two remote concentrators, SDH transmission
equipment, the necessary materials for the expansion and replacement of the
external grid for a total of 15,000 pairs, as well as the necessary materials
for the fiber optic grid between the central and the two concentrators; B) BUGA:
EWSD commutation equipment for a total of 17,880 telephone Lines, distributed in
a central matrix, two remote concentrators and a ONU shelter, SDH transmission
equipment, DECTLINK cordless access equipment for 120 subscribers, radio
equipment for the interconnection of the ONU shelter, as well as the necessary
materials for the fiber optic interconnection of the central matrix with the two
concentrators, E.R.T. and Telecom; C) YUMBO: EWSD commutation equipment for a
total of 30,000 cordless telephone lines, SDH transmission equipment, DECTLINK
cordless access equipment for 30,000 subscribers, radio equipment for the
interconnection of the central matrix with the DECTLINK base stations. All of
the aforementioned in accordance with the Technical Appendix.-------------------
- ---------------------------------------------------------------------PARAGRAPH:
In accordance with the stipulations of the Technical Appendix, of the 30,000
cordless subscribers, 20,000 are technically defined. The technical definition
of the remaining 10,000 shall be carried out upon mutual agreement.-------------
SECOND CLAUSE. CONTRACT DOCUMENTS: The Technical Appendix shall be included in
this contract. The said Appendix includes, among others, the following aspects:
A) General summary of prices. B) List of Materials. C) Delivery timetable D)
<PAGE>
Diagrams; E) Readjustment formula for future purchases; F) Specifications and
technical characteristics of the goods and equipment, and the proposal THE
CONTRACTOR.---------------------------------------------------------------------
- -----------------------THIRD CLAUSE. VALUE OF THE CONTRACT: 1) The value of
the CIP importation supplies described in the Technical Appendix of this
contract is THIRTY FOUR MILLION FORTY TWO THOUSAND TWO HUNDRED NINETY ONE AND
43/100 UNITED STATES DOLLARS (US$34,042,291.43) which is distributed in the
following manner: A) CARTAGO: FOUR MILLION TWO HUNDRED NINETEEN SEVEN HUNDRED
THIRTY TWO AND 26/100 UNITED STATES DOLLARS (US$4,219,732.26). BUGA: TWO MILLION
EIGHT HUNDRED SEVENTY FIVE THOUSAND FOUR HUNDRED SIXTY TWO AND 17/100 UNITED
STATES DOLLARS (US$2,875,462.OO). YUMBO: TWENTY SIX MILLION NINE HUNDRED FORTY
SEVEN THOUSAND NINETY SEVEN UNITED STATES DOLLARS (US$26,947,097.OO). The value
corresponding to 20,000 subscribers is SEVENTEEN MILLION FOUR HUNDRED TWENTY SIX
THOUSAND FOUR HUNDRED SEVENTY ONE UNITED STATES DOLLARS (US$ 17,426,471.OO) and
the value of the 10,000 remaining subscribers yet to be technically defined has
been estimated in the amount of NINE MILLION FIVE HUNDRED TWENTY THOUSAND SIX
HUNDRED TWENTY SIX UNITED STATES DOLLARS (US$9,520,626.OO). The definitive
value shall be the resultant of multiplying the unitary prices by the same
discount factor applied to the first 20,000 subscribers for the supplied
quantities.------------------------------------------------------
FIRST PARAGRAPH: The insurance costs, local transportation costs, storage and
<PAGE>
customs agency in Colombia of the imported goods shall be paid by THE
CORPORATION or its leaseholders. THE CORPORATION or its leaseholders shall
assume and directly pay the duty, IVA and other nationalization costs in
Colombia. THE CONTRACTOR shall be responsible for all direct and indirect
taxes, prices and prevailing rates at the date of ratification of this contract
and which are brought about by virtue of the same.-SECOND PARAGRAPH: If any tax,
tariff or rate, national or territorial, is imposed due to delayed CIP delivery
of the purchased goods, THE CONTRACTOR shall assume said resulting value for
this reason.----------------------------
FOURTH CLAUSE. FORM OF PAYMENT: THE CORPORATION shall pay THE CONTRACTOR the
costs stipulated in the Third Clause in the following manner 1.) The sum of
THREE MILLION SIX HUNDRED SEVENTY EIGHT THOUSAND TWO HUNDRED FORTY NINE AND
82/100 UNITED STATES DOLLLARS (US$3,678,249.82) as advance payment, which is the
equivalent of fifteen percent (15%) of the CIP value of the imported goods,
(keeping in mind the value of the 20,000 subscribers for Yumbo), within the
thirty days following the signing of this contract, once respective importation
inspections have been approved (if applicable), payable by way of direct deposit
to the order of SIEMENS AKTIENGESELLSCHAFT Depto OEN VK 73 in Munich Federal
Republic of Germany. This same advanced payment percentage shall be kept in mind
for the 10,000 remaining subscribers, which shall be paid within the thirty (30)
days following the notification of order carried out by THE CORPORATION. 2.)
Eighty five percent (85%) of the value of each CIP supply of the imported
equipment, by means of dealer financing in accordance with the following
<PAGE>
conditions: A) FINANCING BACKER: SIEMENS AKTIENGESELLSCHAFT. B) CREDIT TERM:
10 years beginning from the date of each signing of the transactions of receipt
of the goods and their placing in working order, that THE CONTRACTOR and each
Lessee shall witness, by virtue of the supplies and services contracts that
shall be signed for above-mentioned purpose; C) GRACE PERIOD: Six (6) months
beginning from each transaction of receipt of the goods and their placing in
working order as referred to in the previous literal; D) REDEMPTION TERMS:
Eighty five percent (85%) of the total value of each partial delivery of the
equipment in operation shall be paid in 20 biannual installments, equal and
consecutive. The first installment shall be due six (6) months after each date
of the transaction of receipt of the goods and their placing in operation. E)
FINANCING INTEREST: Upon adverse balances an interest rate shall be applied
equal to that of the Libor rate plus 1% a year, calculated starting from the
date of CIP provision, payable together with each installment of capital. F)
GUARANTEES: 1. Promissory notes or bills of exchange duly signed by TELEYUMBO
S.A. E.S.P., CARTAGO TELEPHONES S.A. E.S.P. and the basic telephone operating
Company established in the city of Buga, to the order of THE CONTRACTOR. 2. A)
Pledging to the order of THE CONTRACTOR of the revenue of the corporation
CARTAGO TELEPHONES S.A. E.S.P. as follows: sixty thousand dollars (US$60,000)
every thirty days starting from the first of January, 1998, and so on until the
termination of the obligations pertaining to financing. This pledging shall
ensure that a reserve exists that covers two (2) installments of capital, plus
interest, a fund that shall be utilized as source of payment and also as
guarantee of said payment, such that the
<PAGE>
minimum total amount this fund contains shall be the equivalent of one
installment; B) Pledging to the order of THE CONTRACTOR of the revenue of
TELEYUMBO S.A. E.S.P., as follows: two hundred fifty eight thousand dollars
(US$258,000.oo) for the first 20,000 subscribers, every thirty days starting
from the first of January, 1998; and one hundred forty two thousand dollars
(US$142,000) every thirty days starting the sixth month of the estimated date of
approval of the goods in operation of the remaining 10,000 subscribers and so on
until the termination of the obligations pertaining to financing. Said pledging
shall ensure that a reserve exists that covers two (2) installments of capital,
plus interest, a fund that shall be utilized as source of payment and also as
guarantee of said payment, such that the minimum total amount this fund contains
shall be the equivalent of one installment; C) Pledging to the order of THE
CONTRACTOR of the revenue of the operating Company of basic telephony
established in the city of Buga, as follows: forty thousand dollars
(US$40,000.oo) every thirty days starting from the first of January, 1998 and so
on until the termination of the obligations pertaining to financing. This
pledging shall ensure that a reserve exists that covers two (2) installments of
capital, plus interest, a fund that shall be utilized as source of payment and
also as a guarantee of said payment, such that the minimum total amount the fund
contains shall be the equivalent of one installment.-------------------
FIRST PARAGRAPH: DELAYED INTEREST PAYMENTS: In the event of delay in the payment
of capital in the foreign exchange markets referred to in numbers 1 and/or 2 of
this clause, in connection with the total amount in default THE CORPORATION
shall acknowledge and pay SIEMENS AKTIENGESELLSCHAFT, in dollars and upon the
<PAGE>
presentation of the respective liquidation, the interests in default at the rate
equal to that referred to in this clause, number 2e, with an increase of two
percent (2%), calculated from the payment date of the sum in default, until the
date in which said sum has been credited to the bank account of SIEMENS
AKTIENGESELLSCHAFT.-----------SECOND PARAGRAPH: THE CONTRACTOR states that they
have presented the petition for coverage of the exported goods, through the
national company of the Federal Republic of Germany, referred to as "HERMES". In
the event that above-mentioned institution denies approval of said petition, the
guarantees stipulated in Literal f) of the Fourth Clause shall continue to
prevail, on the contrary, that is if HERMES grants said approval, the guarantees
referred to in Literal f) under number 2 shall be declared null and void and the
financing interest referred to in literal e) of number 2) of this clause shall
decrease 0.25% that is, interest at 6 months in accordance with the Libor shall
be applied plus 0.75%.-------------------------------------------
THIRD PARAGRAPH: The form of payment of the value of CIP supplies for Yumbo,
that correspond to the 10,000 subscribers yet to be technically defined, shall
comply with the same conditions mentioned in the numbers 1 and 2 of this
clause.-----------------
FIFTH CLAUSE. DELIVERY DATE: THE CONTRACTOR agrees to deliver, all of the
imported equipment and materials, in accordance with the timetable of the
Technical Appendix for each city, if and when the advance has been received
within the time period stipulated in the Fourth Clause and if and when the
importation license has been duly approved, if applicable.----------------------
PARAGRAPH. THE CORPORATION agrees to determine within six (6) months the
<PAGE>
destination of and technical assessment of the 10,000 subscribers that
correspond to TELEYUMBO S.A. E.S.P., to which end the parties shall agree upon
the corresponding timetable, which shall be included in this contract.----------
SIXTH CLAUSE. EXTENSION OF DELIVERY DATE: The specified time periods and other
obligations referred to in this contract, shall be extended if causes arise from
force majeure or by chance in accordance with the definition of the Civil Code.
In these cases, new time periods and obligations shall be indicated by mutual
agreement if and when the party encumbered by the occurrences caused by force
majeure or by chance, demonstrates this to the other party and notifies in
writing said party within three (3) days following the date when notification
and proof are possible. The extension considered herein in no event shall
exceed the delay incurred by the party as a result of force majeure or chance
occurrence as claimed by the affected party, or in the event that a specified
time period expires during the time passed between the day the occurrences began
and that in which the obligation should have been complied with. ---
SEVENTH CLAUSE. TRADEMARKS AND PATENTS: THE CONTRACTOR guarantees THE
CORPORATION the use of the trademarks and patents of the equipment, materials
and elements he has agreed to supply. THE CONTRACTOR agrees to defend, at their
own expense, at any trial initiated against THE CORPORATION, for the wrongful
use of registered trademarks and patents and shall pay the penalties and
expenses arising from such trials. If in the course of one of these lawsuits
THE CORPORATION is judicially or administratively instructed to suspend use of
one or more of the goods referred to herein, THE CONTRACTOR agrees to (A)
<PAGE>
guarantee to the third party its financial losses, as much as possible given the
respective procedure, such that THE CORPORATION may continue using the goods
without having resolved the issue of continuity or (B) in the event that the
aforementioned proves judicially impossible, to supply him, within five (5) days
after the order of cessation is issued, with replacement goods of similar
characteristics or to make corrections in the goods, within the same period of
five (5) days, that eliminate the infraction without harming its technical or
performance characteristics. In both cases THE CORPORATION should be able to
guarantee the continuity of public home telecommunication service.--------------
EIGHTH CLAUSE. SCOPE OF THE GUARANTEE OF TECHNICAL QUALITY: The equipment THE
CONTRACTOR shall supply to THE CORPORATION shall be new and of the best quality
and shall be manufactured in a manner which ensures their resistance to the
climate and the meteorological conditions of the places they are to be
installed. In the event of failures, including those arising from installation,
THE CONTRACTOR shall be held responsible, to the exclusion of all other claims,
in the following manner:-All parts that within 18 months, starting from the date
of signing of each transaction of receipt and placing in operation for each
location, become unusable or which have been damaged due to defective
construction, deficient materials or faulty manufacturing shall be supplied or
repaired free of charge, if and when the maintenance during the warranty period
was carried out in a satisfactory manner. THE CONTRACTOR must be officially
notified of the existence of said defects within a maximum period of fifteen
(15) days from the day in which the defects become known to
<PAGE>
the leaseholders of THE CORPORATION. The parts replaced in accordance with the
above established stipulations, shall become the property of THE CONTRACTOR. The
warranty shall not cover aging, natural wear due to mechanical causes, nor shall
it cover imperfections as a result of inappropriate or negligent handling, or as
a result of the use of inappropriate servicing materials, as well as defective
repairs in the buildings, chemical and electrochemical factors originating from
natural causes and not by fault of THE CONTRACTOR. The warranty of the equipment
implies the reparation or replacement of said equipment whenever necessary for
its normal operation, however said obligation automatically expires after 18
months, starting from the date of signing of each transaction of receipt and
placing in operation for each location. This guarantee of quality shall not
cover existing equipment nor that which is not referred to herein.------------
NINTH CLAUSE. GUARANTEES: THE CONTRACTOR shall establish guarantees for THE
CORPORATION and its leaseholders issued by a Bank or Insurance Company legally
authorized to function in Colombia, and which shall be founded upon the value of
the contract that shall guarantee the compliance with the obligations referred
to herein, as follows: (A) Full compliance with this contract including
penalties in the amount of 10% of said contract and that shall prevail for the
duration of its term plus three (3) months. (B) The quality and proper working
order of the goods supplied in the amount of ten percent (10%) of the value of
the imported goods referred to herein and which shall be valid for 18 months
starting from the date of signing of each of the transactions of receipt and
placing in working order. The warranty referred to in the Literals a) shall
<PAGE>
be established and presented to THE CORPORATION and their leaseholders by THE
CONTRACTOR along with the proof of payment of the premium within the five (5)
days following the date of signing of this contract. The guarantee referred to
in Literal b) shall be established and presented to THE CORPORATION and their
leaseholders by THE CONTRACTOR along with proof of payment of the premium within
the five (5) days following the date of signing of each one of the transactions
of receipt and placing in operation. PARAGRAPH: THE CONTRACTOR agrees to
maintain the validity of the aforementioned insurance policies for the duration
of the term of the obligations guaranteed by said policies and to extend the
policies in the event of their expiration until the fulfillment of the
stipulated time period. THE CORPORATION shall be authorized to request
certification of validity of said policies at any time.------------------------
TENTH CLAUSE. REPLENISHMENT OF WARRANTY: THE CONTRACTOR agrees to replenish the
total amount of the warranty whenever due to fines imposed on said warranty it
should diminish or be depleted.----------------------------------------
ELEVENTH CLAUSE. FINES: THE CONTRACTOR agrees to pay THE CORPORATION penalties
or fines imposed due to delayed payment, a sum in the amount of one tenth of one
percent (.1%) the value of the supplies or goods not delivered within the
stipulated time period, for each day of delay, without the value of the fines
imposed exceeding ten percent (10%) of the total value of the contract. The
fines shall be imposed through written notification, duly provided by THE
CORPORATION or its leaseholders. THE CONTRACTOR shall be authorized to
<PAGE>
present its disclaimers within five (5) calendar days after receipt of the
above-mentioned notification. THE CORPORATION or its leaseholders shall comply
with the disclaimers within five (5) calendar days. In the event of confirmation
of said fine, and if THE CONTRACTOR insists on his disclaimer, he shall refer to
the Clause of Commitment pertaining to the Fourteenth Clause within five (5)
days after said confirmation.-------------------------------------------------
PARAGRAPH: Once a fine is confirmed, THE CORPORATION shall be authorized to
deduct the value of said fine, from the sum owed to THE CONTRACTOR, as well as
the resulting interest, at a rate equivalent to that indicated in the Fourth
Clause, first paragraph, from the date of imposition of the fine on the part of
THE CORPORATION.--
TWELFTH CLAUSE. REGISTERED OFFICE AND APPLICABLE LAW: For all legal purposes,
New York shall be the contractual site. This contract shall be subject to the
laws of the state of New York and any controversy that arises shall be referred
to said jurisdiction.-----------------------------------------------------------
THIRTEENTH CLAUSE. CONFIDENTIALITY: This contract as well as all information
furnished by THE CORPORATION and its leaseholders to THE CONTRACTOR concerning
the project for the duration of the negotiations as well as the information
provided in the fulfillment of the contract shall be maintained by THE
CONTRACTOR in the strictest confidence, and said party shall be obligated to
maintain the same discretion as with its commercial secrets and privileged
information. At the termination of the contract THE CONTRACTOR agrees to return
the information received to THE CORPORATION or its leaseholders or to destroy
said information and present proof of
<PAGE>
destruction signed by the fiscal investigator.----------------------------------
FOURTEENTH CLAUSE. RESOLUTION OF DIFFERENCES: Any conflict that arises between
the parties with respect to the making, executing, interpretation or termination
of this contract shall be subject to the following procedure: A) When the
conflict is known and within ten (10) days following this either party may
solicit in writing from the other party that, within a time period of no more
than five (5) days from the notification, the legal representatives of each
party meet and endeavor to find a solution; and B) If the legal representatives
fail to reach an agreement within the twenty (20) following days or they fail to
meet within the five (5) days indicated in the previous literal, the dispute
shall be subject to the decision of an arbitration court in accordance with the
laws of the state of New York, which shall dictate its finding in law and shall
be subject, with respect to their implementation, to the laws of said Court
where, they shall also have their headquarters.---------------------------------
FIFTEENTH CLAUSE. FUTURE PURCHASES AND SPARE PARTS: THE CONTRACTOR guarantees
to THE CORPORATION the due supply of spare parts and materials required for the
operation and maintenance of the goods supplied for the duration of ten (10)
years from the date of CIP supplying. Also, THE CONTRACTOR agrees to comply
with requests for future purchases of equipment and software that THE
CORPORATION or its leaseholders present and shall offer these at the lowest
price between A) the unitary prices referred to in the Technical Appendix of
this contract readjusted in accordance with the readjustment formula and
applying the discounts established by the Technical Appendix, and B) the
prevailing listed price on the date of
<PAGE>
the purchase order.--------------------------------------------------
SIXTEENTH CLAUSE. COMMON LIABILITY: With the purpose of counter-guaranteeing
the obligations of GLOBAL TELECOMMUNICATIONS OPERATIONS INC., referred to
herein, the leasing companies and TRANSTEL S.A., are mutually liable pro rata
for the value of the acquired goods to be installed in each of the locations
that correspond to each, without either of them holding responsibility for the
percentage of any of the others.
As proof, this contract is signed in this city of Panama, the thirtieth (30) of
May in the year nineteen ninety seven (1997).
GLOBAL TELECOMMUNICATIONS OPERATIONS, INC.
______________________________
FELIPE GARCIA ECHEVERRI
SPECIAL ATTORNEY
TELEYUMBO S.A. E.S.P.
______________________
ANIBAL EDUARDO PEREZ PINEDO
SPECIAL ATTORNEY
C.C. 16.611.702 OF CALI
<PAGE>
CARTAGO TELEPHONES S.A. E.S.P.
_________________
GUILLERMO O. LOPEZ ESQUIVEL
SPECIAL ATTORNEY
C.C. 16.614.481 OF CALI
From page 15 of the contract made between GLOBAL TELECOMMUNICATIONS OPERATIONS,
INC. AND SIEMENS AKTIENGESELLSCHAFT
TRANSTEL S.A.
___________________
GUILLERMO O. LOPEZ E.
PRESIDENT
C.C. 16.614.481 OF CALI
SIEMENS AKTIENGESELLSCHAFT
REPRESENTED BY
SIEMENS COMPANY LIMITED
__________________________ __________________
VICE PRESIDENT SPECIAL ATTORNEY
<PAGE>
OF TELECOMMUNICATIONS
C.C. 19.067.988 OF BOGOTA C.C. 19.182.384 OF BOGOTA
_
<PAGE>
EXHIBIT 10.12
MODIFICATION No. 1
TO THE PURCHASE AND SALE CONTRACT
MADE BY AND BETWEEN
GLOBAL TELECOMMUNICATIONS OPERATIONS, INC.
AND
SIEMENS AKTIENGESELLSCHAFT
(HEREIN REPRESENTED BY SIEMENS S.A.)
on May 30TH, 1997
-----------------
We, GLOBAL TELECOMMUNICATIONS OPERATIONS, INC., a corporation organized and
existing under the laws of the British Virgin Islands, according to Registry No.
170407 for International Business Companies of such jurisdiction, (hereinafter
referred to as "COMPANY"), represented by Felipe Garcia Echeverri, of age,
domiciled at Santafe de Bogota, D.E., identified as appears next to his
signature, acting as attorney-in-fact, according to special power of attorney,
on the one part, and Siemens S.A., a Colombian corporation, registered in the
Chamber of Commerce of Bogota under Merchantile Registry No. 003.206, acting
herein as representative of SIEMENS AKTIENGESELLSCHAFT, a corporation duly
organized and existing under the laws of the Republic of Germany, domiciled at
Berlin and Munich, whose representation is evidenced by the Commercial Agency
and Exclusive Representation Certificate, issued by the Chamber of Commerce of
Bogota (hereinafter referred to as "CONTRACTOR"), separately represented by
Rodolfo Prada Serrano, of age, domiciled at Santafe de Bogota, D.E., identified
as it appears next to his signature, acting as Commercial and Administrative
Vice-president of Siemens S.A., and Alberto Gomez del Corral, of age, domiciled
at Santafe de Bogota, D.E., identified as it appears next to his signature,
acting as Vice-president (Substitute) of Telecommunications, have entered into
this Modification No. 1 of the Purchase and Sale Contract subscribed by and
between the above parties as of May 30th, 1997 (hereinafter referred to as
"CONTRACT"). This Modification No. 1 consists of the following clauses:
<PAGE>
FIRST CLAUSE. GUARANTEE. The COMPANY grants CONTRACTOR, as a guarantee for the
compliance of its obligations under this Contract, a Civil Pledge with
Possession of the leasing fees. This right was granted to the COMPANY under the
following Contracts: 1) International Leasing Contract, entered into GLOBAL
TELECOMMUNICATIONS OPERATIONS INC. and EMPRESA DE TELEFONOS DE CARTAGO
S.A. EMPRESA DE SERVICIOS PUBLICOS -TELEFONOS DE CARTAGO S.A. E.S.P as of July
28th, 1997. 2) International Leasing Contract, entered into GLOBAL
TELECOMMUNICATIONS OPERATIONS INC. and BUGATEL S.A. EMPRESA DE SERVICIOS
PUBLICOS BUGATEL S.A. E.S.P as of July 28th, 1997.
SECOND CLAUSE. DOCUMENTS OF THE CONTRACT. The following documents are an
integral part of this Modification No. 1 to the CONTRACT:
1) Contract of Civil Pledge With Possession entered into the COMPANY and the
CONTRACTOR as of the same date and 2) Original leasing contracts referred to in
the FIRST CLAUSE of this Modification No. 1 of the CONTRACT.
THIRD CLAUSE. TERMINATION. In compliance with the provisions of this
Modification No. 1, the COMPANY and the CONTRACTOR acknowledge termination of
the following clauses of the CONTRACT: 1) FOURTH CLAUSE. Item f) and 2)
SIXTEENTH CLAUSE.
In witness whereof it is signed in Bogota, on July 28th, 1997.
GLOBAL TELECOMMUNICATIONS OPERATIONS, INC.
____________________________________
Felipe Garcia Echeverri
C.C. 80.409.281, issued in Usaquen
(Attorney-in-fact)
(signature)
<PAGE>
SIEMENS AKTIENGESELLSCHAFT
Represented by
SIEMENS SOCIEDAD ANONIMA
____________________________________
Rodolfo Prada Serrano
Commercial and Administrative Vice-president (Substitute)
____________________________________
Alberto Gomez del Corral
Vice-president of Telecommunications (Substitute)
<PAGE>
EXHIBIT 10.13
MODIFICATION NO. 2-A
TO THE PURCHASE AND SALE CONTRACT
MADE BY AND BETWEEN
GLOBAL TELECOMMUNICATIONS OPERATIONS, INC.
AND
SIEMENS AKTIENGESELLSCHAFT
(HEREIN REPRESENTED BY SIEMENS S.A.)
on May 30TH, 1997
-----------------
We, GLOBAL TELECOMMUNICATIONS OPERATIONS, INC., a corporation organized and
existing under the laws of the British Virgin Islands, according to Registry No.
170407 for International Business Companies of such jurisdiction, (hereinafter
referred to as "COMPANY"), represented by Felipe Garcia Echeverri, of age,
domiciled at Santafe de Bogota, D.E., identified as appears next to his
signature, acting as attorney-in-fact, according to special power of attorney,
on the one part, and Siemens S.A., a Colombian corporation, registered in the
Chamber of Commerce of Bogota under Merchantile Registry No. 003.206, acting
herein as representative of SIEMENS AKTIENGESELLSCHAFT, a corporation duly
organized and existing under the laws of the Republic of Germany, domiciled at
Berlin and Munich, whose representation is evidenced by the Commercial Agency
and Exclusive Representation Certificate, issued by the Chamber of Commerce of
Bogota (hereinafter referred to as "CONTRACTOR"), separately represented by
Rodolfo Prada Serrano, of age, domiciled at Santafe de Bogota, D.E., identified
as it appears next to his signature, acting as Commercial and Administrative
Vice-president of Siemens S.A., and Alberto Gomez del Corral, of age, domiciled
at Santafe de Bogota, D.E., identified as it appears next to his signature,
acting as Vice-president (Substitute) of Telecommunications, have entered into
this Modification No. 2 of the Purchase and Sale Contract subscribed by and
between the above parties as of May 30th, 1997 (hereinafter referred to as
"CONTRACT"). This Modification No. 2 consists of the following clauses:
<PAGE>
FIRST CLAUSE. GUARANTEE. The COMPANY grants CONTRACTOR, as a guarantee for the
compliance of its obligations under this Contract, a Civil Pledge with
Possession of the leasing fees. This right was granted to the COMPANY under the
International Leasing Contract, entered into GLOBAL TELECOMMUNICATIONS
OPERATIONS INC. and UNITEL S.A.EMPRESA DE SERVICIOS PUBLICOS as of July 28th,
1997. This Civil Pledge with Possession is additional to the Civil Pledge With
Possession granted to CONTRACTOR by means of Modification No.1 of the CONTRACT
entered as of July 28th, 1997, which is still in effect.
SECOND CLAUSE. DOCUMENTS OF THE CONTRACT. The following documents are integral
part of this Modification No. 2 to the CONTRACT:
1) Contract of Civil Pledge with Possession entered into the COMPANY and the
CONTRACTOR on July 28th, 1997. 2) Modification No. 1 to the Contract of Civil
Pledge With Possession referred to in 1), entered into the COMPANY and the
CONTRACTOR as of October 15th, 1997. And 3) Original International Leasing
Contract referred to in the FIRST CLAUSE of this Modification No. 2 of the
CONTRACT.
In witness whereof it is signed in Bogota, on October 17th, 1997.
GLOBAL TELECOMMUNICATIONS OPERATIONS, INC.
___________________________________
Felipe Garcia Echeverri
C.C. 80.409.281, issued in Usaquen
(Attorney-in-fact)
(signature)
<PAGE>
SIEMENS AKTIENGESELLSCHAFT
Represented by
SIEMENS SOCIEDAD ANONIMA
______________________________
Rodolfo Prada Serrano
Commercial and Administrative Vice-president
______________________________
Alberto Gomez del Corral
Vice-president of Telecommunications (Substitute)
NOEMI MORENO ALBA, Notary Public No. 10 of Panama, bearer of Identification
Document No. 7-37-78 CERTIFIES: That the signature of Felipe Garcia Echeverri
-------------------------
has been acknowledged as his and therefore it is a true signature.
Panama, October 29th, 1997
------------------
Witness Witness
(signature) (signature)
NOHEMI MORENO ALBA
Notary Public No. 10
(signature and seal)
<PAGE>
EXHIBIT 10.14
MODIFICATION No. 2-B
TO THE PURCHASE AND SALE CONTRACT
MADE BY AND BETWEEN
GLOBAL TELECOMMUNICATIONS OPERATIONS, INC.
AND
SIEMENS AKTIENGESELLSCHAFT
(HEREIN REPRESENTED BY SIEMENS SOCIEDAD ANONIMA)
ON MAY 30TH, 1997
-----------------
The undersigned FELIPE GARCIA ECHEVERRI, of age, domiciled at Santafe de Bogota,
D.E., bearer of Passport No. 80409281, issued in Santafe de Bogota D.C., who
acts as attorney-in-fact according to special power of attorney granted by
GLOBAL TELECOMMUNICATIONS OPERATIONS, INC., (hereinafter referred to as
"COMPANY") -on the one part-, and SIEMENS AKTIENGESELLSCHAFT, a corporation
duly organized and existing under the laws of the Federal Republic of Germany,
domiciled at Berlin and Munich, represented by SIEMENS SOCIEDAD ANONIMA, a
corporation, registered in the Chamber of Commerce of Bogota under Merchantile
Registry No. 003.206, herein represented by Mr. ORLANDO HERNANDEZ, of age,
bearer of Identification Document No. 17.023.898, issued in Bogota, who resides
in Santafe de Bogota, and Mr. ALBERTO GOMEZ DEL CORRAL, of age, domiciled at
Santafe de Bogota, bearer of Identification Document No. 19.182.384, a
corporation domiciled at Santafe de Bogota, which may be verified with the
Commercial Agency and Exclusive Representation Certificate, issued by the
Chamber of Commerce of Bogota (hereinafter referred to as "CONTRACTOR"), have
entered into Modification No. 2 of the main contract No.2, subscribed by these
same parties on May 30th, 1997. This Modification No. 2 consists of the
following clauses:
FIRST CLAUSE. SUBJECT: The CONTRACTOR agrees to transfer, as a Purchase and Sale
transaction, the equipment to the COMPANY at the following destination: A)
CARTAGO. EWSD commutation equipment for 17,008 telephone lines distributed into
<PAGE>
one main office and two remote concentrators, SDH transmission equipment,
material required for construction of 20,800 primary cells, a corresponding
secondary network with flexibility not less than 30%, material and elements
required for maximizing 7,000 BCH technology cells, existing according to the
network technology, as well as elements required for the optical fiber link
between the main office and the two concentrators. B) BUGA. EWSD commutation
equipment for 17,944 telephone lines distributed into one main office, two
remote concentrators, and one ONU shelter, SDH transmission equipment, radio
equipment for ONU shelter interconnection, as well as elements required for
interconnection via optical fiber from the main office to the two concentrators-
ERT and Telecom, material required for enlargement and reposition of external
network for 23,328 cells.
SECOND CLAUSE. DOCUMENTS OF THIS MODIFICATION. The Technical Annex is an
integral part of this Modification No. 2 to the main CONTRACT. The following
aspects are included in the Technical Annex: A) General Summary of Prices, B)
List of materials and Unit Price List, C) Delivery Schedule, D) Graphics, E)
Readjustment formula for future purchases, F) Technical specifications and
characteristics of property and equipment, and the CONTRACTOR'S offer.
THIRD CLAUSE. VALUE OF THE CONTRACT. A) CARTAGO. The value of importation
supplies (CIP), included in the Technical Annex hereof is increased to SIX
MILLION FIVE HUNDRED SEVENTY-SIX THOUSAND FOUR HUNDRED TWENTY-NINE UNITED STATES
AMERICAN DOLLARS AND 91 CENTS (US$6,576,429.91), equivalent to an increment of
TWO MILLION THREE HUNDRED FIFTY-SIX THOUSAND SIX HUNDRED NINETY-SEVEN UNITED
STATES AMERICAN DOLLARS AND 65 CENTS (US$2,356,697.65). B) BUGA. The value of
importation supplies (CIP), included in the Technical Annex hereof is increased
to SIX MILLION THREE HUNDRED TWENTY-FOUR THOUSAND SIX HUNDRED FORTY-SIX UNITED
STATES AMERICAN DOLLARS AND 23 CENTS (US$6,324,646.23), equivalent to an
increment of THREE MILLION FOUR
<PAGE>
HUNDRED FORTY-NINE THOUSAND ONE HUNDRED EIGHTY-FOUR UNITED STATES AMERICAN
DOLLARS AND 6 CENTS (US$3,449,184.06).
FOURTH CLAUSE. TERMS OF PAYMENT. The COMPANY shall pay to the CONTRACTOR the
amounts provided in the Third Clause hereof in the same terms, conditions,
percentages and guarantees agreed under the Fourth Clause - Terms of Payment -
of the main contract No.02, subscribed as of May 30th, 1997.
FIFTH CLAUSE. GUARANTEES. The CONTRACTOR must modify, proportionally in favor of
the COMPANY, the guarantees requested in the Ninth Clause - Guarantees of the
main contract No.02, subscribed as of May 30th, 1997.
SIXTH CLAUSE. DELIVERY TERM. THE CONTRACTOR agrees to deliver all importation
equipment and elements for extending and replacing the external network of
CARTAGO AND BUGA according to schedules indicated in the Technical Annex.
However, an advanced payment must be made and the importation license (if the
case may be) must be approved prior to delivery and within the period stated in
the Fourth Clause - Terms of Payment - of main contract No. 2.
SEVENTH CLAUSE. All other clauses, paragraphs, items and annexes of main
contract No. 2, subscribed on May 30th, 1997 remain as they are.
In witness whereof it is signed in Panama, on ______________________ 1998.
GLOBAL TELECOMMUNICATIONS OPERATIONS, INC.
Felipe Garcia Echeverri
ATTORNEY-IN-FACT
(signature)
<PAGE>
SIEMENS AKTIENGESELLSCHAFT
REPRESENTED BY
SIEMENS SOCIEDAD ANONIMA
___________________________________ ___________________________________
ORLANDO HERNANDEZ ALBERTO GOMEZ DEL CORRAL
Telecommunications Manager Attorney-in-fact
I.D. 17.023.898, issued in Bogota I.D. 19.182.384, issued in Bogota
NOHEMI MORENO ALBA, Notary Public No. 10 of Panama, bearer of Identification
Document No. 7-37-78
C E R T I F I E S: That the signatures of ORLANDO HERNANDEZ and ALBERTO GOMEZ
-----------------------------------
DEL CORRAL have been acknowledged as theirs and therefore they are true
- ----------
signatures.
Panama, March 17th, 1998
----------------
Witness Witness
(signature) (signature)
NOHEMI MORENO ALBA
Notary Public No. 10
(signature and seal)
NOHEMI MORENO ALBA, Notary Public No. 10 of Panama, bearer of Identification
Document No. 7-37-78
C E R T I F I E S: That the signature of FELIPE GARCIA ECHEVERRI has been
-----------------------
acknowledged as his and therefore it is a true signature.
Panama, April 1st, 1998
---------------
Witness Witness
(signature) (signature)
NOHEMI MORENO ALBA
Notary Public No. 10
(signature and seal)
<PAGE>
EXHIBIT 10.15
INTERNATIONAL LEASING CONTRACT
MADE BY AND BETWEEN
GLOBAL TELECOMMUNICATIONS OPERATIONS INC. AND
SOCIEDAD BUGATEL S.A. E.S.P.
The undersigned FELIPE GARCIA ECHEVERRI, of age, domiciled at Santafe de Bogota,
D.C., bearer of Passport No. 80409281, issued in Santafe de Bogota D.C., who
acts as Attorney-in-fact according to special power of attorney granted by
GLOBAL TELECOMMUNICATIONS OPERATIONS, INC., a corporation domiciled at Pasea
Estate, Road Town, Tortola and organized and existing under the laws of the
British Virgin Islands, United Kingdom, according to registry number 170407,
based on the international business companies decree (hereinafter referred to as
"LEASOR") -on the one part-, and JORGE ENRIQUE MARTINEZ OCAMPO, of age,
domiciled in Cali, identified as it appears next to his signature, acting as
Substitute for the General Manager and legal representative of BUGATEL S.A.
E.S.P., a corporation duly organized and existing according to public deed
number 697, granted at the Notary's Office No. 1 of Buga, on June 18th, 1997,
domiciled in Buga, department of Valle del Cauca, Republic of Colombia, NIT
No.815000973-8, verifiable with the existence and representation certificate,
issued by the Chamber of Commerce of Guadalajara-Buga attached hereto
(hereinafter referred to as "LEASEE") -on the other part-, have entered into an
International Leasing Contract, governed by the following clauses:
<PAGE>
ONE. BACKGROUND. LEASEE, for this Contract's purposes and with the purpose of
acquiring the productive usage of the property herein described, previously
analyzed, chose the property/equipment which is the subject of this Contract
with all their specifications and characteristics and SIEMENS
AKTIENGESELLSCHAFT, of German nationality, as the supplier.
TWO. In fact, due to the above circumstances, the parties hereto state that
LEASEE has requested LEASOR the possession of the property herein provided in
order to grant such possession to the LEASEE, with the purpose to exploit it in
Colombia.
THIRD. PROPERTY. LEASOR hereby declares that it is the owner of the following
property, bearing customs duties position "8517302000" Electrical Devices For
Wire Telephony, Telephone Exchange for seventeen thousand nine hundred forty-
four (17,944) lines which basic components are a functional unit according to
the terms provided in Note 4-Section XVI of customs duties and which main
function is performed by an automatic telephone commutation device described in
detail on the only annex of this Contract.
FOUR. SUBJECT. By virtue of this Contract, LEASOR, who has acquired the
possession of the property outside of the Republic of Colombia, with the purpose
of granting possession to LEASEE (as stated hereinabove), agrees to grant such
possession to LEASEE, which acknowledges it as received to its satisfaction and
as a leasing.
<PAGE>
PARAGRAPH. For legal purposes, the parties hereto express their understanding of
any device or part used as an accessory of the leased equipment or that, in the
future, it is added to it.
FIVE. IMPORTATION. All property hereto has been acquired by LEASOR in the
Federal Republic of Germany and shall be imported by LEASEE to the Republic of
Colombia. LEASEE agrees to comply with all legal and regulatory dispositions
ruling the importation of property to the Republic of Colombia.
LEASEE is expressly obliged to constitute warranties required by law, to file
purchase invoice and the appropriate customs declaration in compliance with all
legal dispositions in effect and upon payment of customs duties (including
importation duties, taxes and all other applicable liens for the leased
property). And, in general, LEASEE is obliged to comply with any customs and
taxing obligation within the terms and conditions agreed on.
If, as a result of legal procedures, authorities make requirements or perform
official dissolution, or make any customs or taxing obligation directly
enforceable to LEASOR for its condition as owner, LEASEE agrees to directly
assume all costs and expenses, including lawyer fees -if that is the case-,
involved in answering to requirements, actions against official dissolution and,
particularly, to reimburse the value of costs and expenses to LEASOR, including
- -if the case may be-, importation duties, taxes, fines and all other liens paid
by LEASOR in performing a customs and taxing obligation.
<PAGE>
PARAGRAPH ONE. LEASEE acknowledges the entire customs and Colombian tax regime
in force as of the date of subscription and legalization of this Contract and
agrees to comply with it under the terms and conditions provided by the law.
PARAGRAPH TWO. LEASOR, or a third party designated by LEASOR, is authorized to
pay the value of the customs duties and fiscal contributions corresponding to
payments of the leasing installments whenever LEASEE does not comply with this
obligation within a period of fifteen (15) days previous to the date the
corresponding installment is paid.
In any event, LEASEE must notify and prove payment of taxes to LEASOR, within a
period of twenty-four (24) hours following payment.
Failure to comply with this obligation shall result in application of fines
described in Clause Twenty-seven.
SIX. EXEMPTION OF RESPONSIBILITY AND COMPENSATION. LEASOR declares that it has
chosen the leased equipment and the supplier or manufacturer of such equipment.
Consequently, LEASOR shall not be responsible for delayed delivery of the
property which may arise from causes attributable to the supplier or
manufacturer or from any other cause or circumstance, nor shall it be held
responsible for damages, defects, differences with the specificiations, or
failure by the supplier/manufacturer/businessman to correctly assemble or
install the equipment.
In the event the manufacturer does not deliver the property, LEASEE shall
indemnify and hold LEASOR harmless from any responsibility, and direct or
indirect expenses that
<PAGE>
may arise out of the acquisition of the equipment under this Contract including
the value of the leased property, losses of any kind, advanced payments, taxes,
duties, commissions, freights, transportation or any other type of expenses
incurred under this Contract.
SEVEN. SURROGATION. LEASEE hereby surrogates LEASOR'S rights before the
manufacturer or supplier of the purchase and sale contract for the equipment,
and LEASEE may directly make the above purchase and sale contract enforceable to
that manufacturer or supplier or ask for the contract's resolution, with
compensation for damages and injuries.
In the event there is a resolution of the purchase and sale contract, LEASEE
must indemnify LEASOR for all expenses according to the above clause.
EIGHT. REPARATION FOR EVICTION. The parties hereto agree that LEASEE expressly
exempts LEASOR from reparation of the leased property. Therefore LEASOR shall
not be responsible for any evident or latent defect in the performance,
efficiency or others which may affect such good.
LEASEE shall indemnify LEASOR according to clause twenty-seven, in case this
contract is terminated due to defects to the leased property.
In the event the manufacturer or supplier substitutes the property by other that
is not imperfect, such property shall be a part of this contract, and any
reference to the leased property herein included shall apply to the new property
given as a substitute, for which
<PAGE>
LEASEE is obliged to sign an ADDENDUM and add the property given as a substitute
to the legal regime under this Contract.
NINE. In the event of any conflict between LEASEE and manufacturer/supplier by
reason of the above provisions, LEASEE shall continue paying LEASOR the agreed
fees under this Contract while in force and effect.
TEN. PROTECTION TO THE PROPERTY. LEASEE agrees to disclose to any third party
that the property hereto is the LEASOR'S exclusive possession. Consequently, in
any event of legal or administrative actions affecting the exercise of the
property's possession, such as attachments, actions, confiscation, retention or
similar circumstances or in case of a call for preventive covenant, bankruptcy
declaration or anyone taking possession of LEASEE'S property, LEASEE agrees to
present this Contract as a proof of ownership of the properties hereto and to
notify LEASOR of such event within a period of three days following the date in
which such circumstances occurred, so that LEASOR may take all appropriate
measures. In any case, LEASEE accepts hereafter to pay, on its sole account, all
expenses arising from the defense and exercise of the possession of the property
by LEASOR, without detriment to all other obligations under this Contract.
ELEVEN. TERM. LEASOR grants possession of the property hereto to LEASEE during a
period of twelve (12) years from the date of the act that certifies the
performance of the equipment herein stated. LEASEE shall issue the act.
<PAGE>
TWELVE. LEASE. LEASEE agrees to pay a specific lease to LEASOR unconditionally
and without any requirement during the term of this Contract, as follows:
a) NINE HUNDRED NINETY-SEVEN THOUSAND UNITED STATES AMERICAN DOLLARS
(US$997,000.00) upon file of the last notice of importation of the equipment. b)
20 installments every six months in the amount of THREE HUNDRED EIGHTY THOUSAND
UNITED STATES AMERICAN DOLLARS (US$380,000.00) for 10 years. c) Four
installments every six months in the amount of ONE HUNDRED NINETY THOUSAND
UNITED STATES AMERICAN DOLLARS (US$190,000.00) each, for two years following the
due date of payment of the twenty installments as defined hereinabove, which
shall be enforceable the first five (5) days of each expiring semester.
PARAGRAPH ONE. In the event of several notices of importation, the date of
payment for the installments hereby mentioned shall be the date the last
document is filed.
PARAGRAPH TWO. This amount shall be proportionally adjusted, if, upon receipt of
the imported property into the national territory, its CIF cost (including cost
of merchandise plus insurance and freight charges) increases or decreases in
relation to CIF cost originally budgeted and that is the base for determining
the initial fee. In this case variation shall be determined by applying the
applicable factor of the cost originally budgeted by the actual CIF cost of
merchandise. Additionally, the fee shall be adjusted every six months according
to the percentage variation of the preferred interest rate of
<PAGE>
London market (Libor) between the first and last working day of each quarter
previous to the quarter for which adjustment is performed.
LEASEE agrees to verify that, once the money corresponding to the Colombian
exchange market is acquired in compliance with all legal requirements, the draft
on the amounts required for each period shall be confirmed by written
notification, telegram, letter or fax, the day in which each leasing fee is due,
at the latest.
THIRTEEN. ARREARS. In case of delays by LEASEE in paying the amounts of money
hereunder agreed on, it must pay to LEASOR, without any requirement as a fee for
arrears, an interest rate equal to Libor plus two percent (2%) a year,
calculated from the due date of the amount in arrears to the date in which
LEASEE has credited such payment into the banking account of LEASOR.
In case there are two or more installments in arrears, LEASEE shall pay to
LEASOR the amount herein indicated for each installment. By paying this fine,
LEASEE shall not construe its main obligation as unenforceable because such fine
is provided only for delay or arrears and does not alter LEASOR'S right to claim
failure to comply with obligations hereof or application of sanctions provided
in clause twenty-seven.
PARAGRAPH ONE. Acceptance by LEASOR of delayed payment of fees shall not imply
an extension on the terms provided for performance of LEASEE'S obligations which
may arise from this Contract.
<PAGE>
PARAGRAPH TWO. The leasing fee shall not be decreased by reason of wear or
obsolescence of the equipment, which are assumed by LEASEE without detriment of
its obligations with respect to the LEASOR.
PARAGRAPH THREE. LEASEE'S obligation to pay the fees shall not end because the
leased equipment temporarily or definitely stops its operation, or due to
repairs, transfer, transformation, strike, act of god and in general due to any
cause non attributable to LEASOR.
PARAGRAPH FOUR. With the purpose of guaranteeing the obligation to pay the fee,
LEASEE shall grant all guarantees required by LEASOR in favor of LEASOR.
PARAGRAPH FIVE. LEASEE expressly waives the formal requirements for determining
arrears in case of delays or failure to comply with the obligations under this
Contract and accepts from hereon, as a proof of any failure to comply, a
notification addressed to LEASEE by LEASOR, or the LEASOR'S request before a
competent authority to exercise its rights.
FOURTEEN. MODIFICATIONS TO THE CONTRACT. LEASEE accepts, hereon, any variations
provided by LEASOR with respect to the quarterly installments or the purchase
option, fines, sanctions and others related to the contract in compliance with
all legal dispositions in effect at the moment of stating such variation.
<PAGE>
FIFTEEN. WARRANTIES. LEASEE agrees to keep the leased equipment insured at all
times and against any and all risks during the term of this Contract in an
insurance company previously accepted by LEASOR, for an amount equivalent to its
commercial value appointing LEASOR as the beneficiary of such insurance.
Likewise, LEASEE must insure the equipment against civil responsibility for
physical damages to third parties and their properties resulting from the
equipment's operation for an amount not lower than the value recommended for
that type of equipment. It is understood that LEASEE is and shall keep on being
the sole responsible for damages to any third party resulting from the
equipment's operation. LEASEE agrees to pay premiums within a period of ten (10)
days following the date of the insurance contracts or its renewal.
PARAGRAPH ONE. LEASEE authorizes LEASOR, without any obligation or
responsibility by LEASOR, to contract -on LEASEE'S account- all insurance or
renewal and/or pay the respective insurance premiums with the purpose of keeping
all policies which protect the equipment in full force and effect.
In case LEASOR pays the insurance premiums on account of LEASEE, LEASEE agrees
to pay LEASOR, within a period of two days following receipt of invoice, the
amount of money paid on its behalf. Failure to comply with any of the
obligations hereby assumed shall be a reason for LEASOR to terminate this
Contract with all consequences provided in clause twenty-six.
PARAGRAPH TWO. Any damage/loss, which is total or partial, shall not suspend or
interrupt the leasing, nor shall it change terms' expiration.
<PAGE>
SIXTEEN. LEASEE'S LIABILITY. LEASEE shall be responsible for deterioration
and/or loss of the equipment, for whatever reasons even if it is a force majeure
event. In any event of deterioration or loss LEASEE shall immediately notify
LEASOR, and, upon LESSOR'S choice, it shall do any of the following:
1- Authorize LEASEE to recover the equipment -on its own account- and keep it
in good condition of operation according to LEASOR'S criteria, within a
period indicated by LEASOR. It is understood that repairs can only be made
by the manufacturers of the equipment or by its representatives in the
country, unless LEASOR, for special reasons, authorizes by written
notification its repair in other conditions. The parts shall be
technically adapted and, in any way, its adaptation shall mean an original
change to the leased equipment.
2- Accept that LEASEE, on its own account, replaces the equipment within a
term specified by LEASOR for another equipment with similar presentation
conditions, keeping its initial operation to its satisfaction. In any
case, the new equipment shall immediately be subject to this new leasing
contract.
3- Enforce payment by LEASEE to LEASOR of an amount resulting from
multiplying the amount of the installment fee by the number of
installments to be counted from the moment the damage/loss occurred until
the duration date of the Contract.
SEVENTEEN. PRESERVATION AND MAINTENANCE. The leased equipment shall only be used
by LEASEE and its personnel, which agrees, on its own account and
<PAGE>
risk, to assume all expenses required to preserve the leased property and keep
it in perfect conditions, except for the normal wear due to appropriate usage.
The leased equipment shall be used according to its original purpose and kept in
good condition. Supplier/manufacturer shall establish the normal use of the
equipment, and LEASEE accepts to enter into maintenance contracts with such
supplier or manufacturer or person authorized by them, to contribute to the
preservation and proper performance of the equipment.
Additionally, LEASEE agrees to comply with all laws, pacts, decrees,
resolutions, regulations, or any other regulatory disposition, or a disposition
related to the equipment's usage and maintenance, even if these standards are
international, national or municipal, or if they are issued by the country in
which the equipment is located.
EIGHTEEN. INSPECTION RIGHT. LEASOR reserves the right to inspect the equipment
at any time, to confirm whether performance and maintenance conditions are
satisfactory.
To that end, and with no implied obligation for LEASOR, LEASOR may visit
LEASEE'S facilities, or the place where the equipment is located as many times
as it deems necessary, and recommend in writing any steps required or convenient
for its proper operation which LEASEE must put into action immediately.
In case LEASEE does not follow the steps ordered by LEASOR, LEASOR may terminate
this Contract, and it shall have the right to demand, besides immediate return
of the equipment, indemnification as defined under clause twenty-seven.
<PAGE>
LEASOR shall not be liable for any cost, expense or ceasing profit arising from
inspection visits or recommendations, unless the leased equipment is directly
damaged by the person authorized by LEASOR to visit the facilities.
NINETEEN. EQUIPMENT ASSIGNABILITY AND SUBLEASE. LEASEE shall not sublease the
equipment or give it to any third party for its exploitation under any
contractual agreement, or transfer this contract in any way except by means of a
previous, expressed, written authorization by LEASOR. But even if such
authorization exists, LEASEE shall keep being responsible with the subsidiary or
its substitute with respect to LEASOR.
TWENTY. CONTRACT ASSIGNABILITY. All rights under this Contract may be assigned
in whole or in part by LEASOR and/or given as credit guarantee. LEASEE expressly
accepts from hereon assignment and/or pledge of this Contract and binds itself
to comply with the assignment and/or pledge terms once the extrajudicial
notification of such assignment and/or pledge is received.
TWENTY-ONE. WAIVER TO WITHHOLD. LEASEE hereby waives withholding of any kind
that it may have on the leased equipment for any reason whatsoever.
TWENTY-TWO. ADVANCE PAYMENT. Any advance payment, option deposit or
extraordinary disbursement made by LEASOR before the date of initiation of the
<PAGE>
Contract shall be on LEASEE'S account and shall cause interests at Libor of the
week, plus two percent (2%) month expired.
TWENTY-THREE. OPERATION LICENSES AND PERMITS. LEASEE agrees that it shall obtain
all permits and licenses required by the Colombian law for the operation of the
property under this Contract.
TWENTY-FOUR. TAXES AND FINES. All taxes encumbered by the equipment under this
Contract, as well as all fines imposed as a result of its irregular or illegal
operation, shall be exclusively at LEASEE'S expense.
If new taxes are established and they encumber or increase present tributary
costs that LEASOR hereby bears, LEASEE agrees hereafter to exclusively assume
these major taxes and pay them on behalf of LEASOR.
TWENTY-FIVE. LOCATION OF PROPERTY. The property being the subject matter of this
Contract shall remain within the territory of the Republic of Colombia. LEASEE
accepts to notify LEASOR the new location of such property in writing, within a
period of three (3) days following such change of location.
TWENTY-SIX. TERMINATION. This Contract is deemed terminated for the following
reasons:
1- Mutual consent between the parties hereto.
2- Expiration of the agreed term.
<PAGE>
3- Unilateral decision by LEASOR made at any time before expiration, with no
legal declaration and demanding return of the equipment by LEASEE in any of
the defaults in the performance of obligations under this Contract, but
specially in the following:
- Arrears or delays in paying installment fees and custom duties for one
or more periods.
- Misuse of the leased equipment which misleads its original function or
may cause, to LEASOR'S opinion, deterioration different than that of its
usage technique.
- Failure to notify LEASOR in case of damages or destruction of the leased
equipment.
- Failure to recognize LEASOR'S instructions with respect to repairs
needed by the leased equipment during the term of this Contract for any
reason whatsoever.
- Intention to encumber the leased equipment by means of any type of
guarantees or impositions, and whenever it is affected by procedural
actions due to strange facts to LEASOR.
- Sublease or give to any third party for its exploitation under any
contractual agreement or transfer this Contract without the expressed,
previous and written authorization by LEASOR.
- Not protecting the property being the subject matter of this Contract
with insurance companies in the terms provided hereunder.
4- All other causes provided by the law.
<PAGE>
5- Declaration of bankruptcy by LEASEE or because of a suit started against
LEASEE by judicial means involving the property that is the subject matter
of this Contract. In these events LEASOR may charge the missing installment
fees, except if creditors of LEASEE propose its substitution granting
guarantees to LEASOR'S satisfaction.
6. Loss of the equipment or damages affecting its normal operation.
7. LEASEE'S dissolution.
TWENTY-SEVEN. SANCTION FOR FAILURE TO COMPLY. Whenever LEASOR is obliged to
terminate the Contract under the above clause, LEASEE shall pay to LEASOR as a
fine, besides the amounts owed due to its failure to comply -according to Clause
Thirteen-, an amount equivalent to the leasing installments agreed on that are
not yet covered or caused. By paying this fine, the obligation to return the
leased equipment shall not be construed as unenforceable, nor shall LEASOR lose
its right to demand compensation for damages which may arise from failure by
LEASEE to comply with its obligations.
TWENTY-EIGHT. RETURN OF THE EQUIPMENT. Upon termination of this Contract due to
reasons different than expiration, the leased equipment shall be returned to
LEASOR in the same condition of proper operation in which LEASEE received it,
except for natural wear derived from its proper usage.
LEASEE shall return the leased equipment within a period of five (5) days
following termination. If LEASEE fails to return the equipment within this
period of time, it shall
<PAGE>
incur in a daily fine in favor of LEASOR on the amount provided in this
Contract. By paying this fine, the obligation to return the leased equipment
shall not be construed as unenforceable. Return of the equipment shall be made
at the location designated by LEASOR and at LEASEE'S expense including
disassembling, transfer and installation charges.
TWENTY-NINE. ACQUISITION OPTION. Subject to the terms of this Contract and if it
has been duly performed by LEASEE, LEASOR grants LEASEE the irrevocable option
to acquire -once the Contract expires-, possession of the property which is the
subject of this Contract, under the following dispositions:
1- PRICE: ONE HUNDRED NINETY THOUSAND UNITED STATES AMERICAN DOLLARS
(US$190,000.00).
2- TERMS OF PAYMENT: PAYABLE UPON EXPIRATION OF THE LEASE (12 YEARS).
THIRTY. INTERPRETATION. This Contract shall be ruled, for interpretation
purposes, as follows:
1- In accordance with the clauses herein provided.
2- In accordance with the laws of the United States of America ruling the
Financing Leasing Contract. However, with respect to recovering the leased
property, the Laws of Colombia shall apply.
3- In case there is no special standard ruling a subject, the dispositions of
the UNIDROIT Convention regarding international leasing (Ottawa, Canada,
May
<PAGE>
26/th/, 1988) shall apply, by virtue of article 7 of the Commerce Code of
the Republic of Colombia.
THIRTY-ONE. ARBITRATION. Any disputes arising out of this Contract shall be
finally settled by an Arbitration Court consisting of three (3) arbitrators; one
appointed by each one of the parties hereto and the other appointed by the
International Chamber of Commerce, National Committee of Colombia-New York. This
judgement shall be in law. The place for the Arbitration shall be Santafe de
Bogota. The official language used during the arbitration process shall be
Spanish. The process of appointing arbitrators as well as the arbitration
process itself shall be governed by the provisions of the Settlement and
Arbitration Regulation of the International Chamber of Commerce.
THIRTY-TWO. ACTIONS AND PROCEDURES. This Contract's original document is
executable with respect to its expressed obligations, whenever they are
enforceable under the Contract and in accordance with the Colombian law.
The first copy shall be the base for filing effects, in case it is required,
given the nature and legality of the property that is the subject matter of this
Contract.
The second copy of this Contract shall be used for exercising the actions
started by LEASOR for the return of the possession of the leased property.
THIRTY-THREE. NOTICE. All notices or notifications required to be given to
LEASOR hereunder, shall be sent by registered airmail to the address indicated
by LEASOR.
<PAGE>
On the other hand, any notice or notification required to be given to LEASEE
hereunder, shall be sent by registered airmail to: Calle 5a. No. 12-13 -
Guadalajara de Buga - Valle del Cauca - Colombia.
Consequently, this Contract is subscribed and legalized in the municipality of
Guadalajara de Buga, on July 28th, 1997.
GLOBAL TELECOMMUNICATIONS OPERATIONS, INC.
___________________________
LEASOR
Felipe Garcia Echeverri
I.D. No. 80.409.281, issued in Usaquen
Attorney-in-fact
(signature)
BUGATEL S.A. E.S.P.
___________________________
LEASEE
Jorge Enrique Martinez O.
I.D. No. 7.506.436, issued in Armenia
General Manager and Legal Representative (Substitute)
(signature)
<PAGE>
EXHIBIT 10.16
INTERNATIONAL LEASING CONTRACT
BETWEEN GLOBAL TELECOMMUNICATIONS OPERATIONS INC. AND
UNITEL CORPORATION S.A. E.S.P.
The undersigned, FELIPE GARCIA ECHEVERRI, of legal age, resident of Santafe de
Bogota, D.C., bearer of the passport number 80409281, issued in Santa Fe de
Bogota, D.C. who acts as special attorney to the corporation GLOBAL
TELECOMMUNICATIONS OPERATIONS INC., corporation whose head office is located at
the address: Pasea Estate, Road Town, Tortola, established under the prevailing
laws of the British Virgin Islands, United Kingdom, by virtue of registration
number 170407, as defined by the decree concerning international business firms,
and that shall hereinafter be referred to as THE LESSOR on the one hand and
JORGE ENRIQUE MARTINEZ OCAMPO, of legal age, resident of Cali, whose identity is
established as it appears beneath his signature, who acts in the capacity of
General Manager and legal representative of UNITEL S.A. E.S.P., commercial firm
established in accordance with public document number 0284, conferred on March
11 of 1994, in the sole notary public of Yumbo, located in the city of Yumbo,
state of the Valle del Cauca, Republic of Colombia, bearing the NIT number
800224288-8, conditions credited by the Certificate of Existence and
Representation, issued by the Chamber of Commerce of Cali, attached to this
contract, and that shall hereinafter be referred to as THE LESSEE on the other
hand,
<PAGE>
have made this International Leasing Contract, upon the following terms:--------
FIRST. ANTECEDENTS. For the purposes of this contract, THE LESSEE, in order to
attain the profitable use of the goods described henceforth, prior deliberation
and study, has selected the goods referred to herein, including each and all of
its characteristics, specifications, and SIEMENS AKTIENGESELLSCHAFT, of German
nationality, as supplier of said goods.-----------------------------------------
SECOND. In fact, as provided in the previous postulate the parties acknowledge
that THE LESSEE has solicited THE LESSOR to take possession of the goods
referred to herein, to surrender its just possession to THE LESSEE, whereupon
the goods described herein shall be exploited economically in Colombia.---------
THIRD. PROPERTY. THE LESSOR declares that it is owner of the following goods,
whose customs status is: "85.25.20.10.00" Radio-telephone transmitter including
receiving or recording or sound reproduction devices, operating unit for twenty
thousand (20,000) lines whose basic components constitute a functional unit
according to the terms provided for in Note 4 - Section XVI of the customs duty"
and whose principal function is carried out by a radio-telephone receiving
transmitter, whose detailed description is attached to this Contract.-----------
FOURTH. PURPOSE. By virtue of this contact THE LESSOR, who has attained
outside the Republic of Colombia the ownership of the goods in the course of the
request conferred by THE LESSEE as pursuant to the previous clause, gives THE
LESSEE possession of the goods referred to herein, which he states having
received in
<PAGE>
a satisfactory manner for the purposes of leasing.
PARAGRAPH. For legal purposes the parties state that any machinery or part that
is used as accessory to the leased equipment or that in the future is added or
attached is understood in this contract.----------------------------------------
FIFTH. IMPORTATION. The goods referred to herein have been acquired by the
LESSOR in the Federal Republic of Germany, and shall be imported by THE LESSEE
to the Republic of Colombia, thereby obliging the aforementioned party to comply
irrevocably with the laws and regulations that apply to the importation of goods
to Colombia.----------------------------------------------------------------
In particular, THE LESSEE is expressly directed to comply with the
constitutional safeguards required by law, with the prompt presentation of the
purchase invoice and the pertaining customs declaration, in accordance with the
prevailing legal statutes and the timely payment of customs duties (among others
the import duty, taxes and any other encumbrances applicable to the leased
goods) and in general to comply with any customs and fiscal obligations in
accordance with the terms of the Contract and legal provisions.-----------------
If for legal reasons, the authorities should issue official requirements or
liquidation or should demand compliance with any customs or fiscal obligation
against THE LESSOR as owner, THE LESSEE shall be obliged to assume the costs and
charges incurred including attorney fees if applicable, steps taken to respond
to requests, resources to cover liquidation and in particular, to reimburse the
LESSOR for the costs and charges
<PAGE>
incurred including, if necessary, import duties, taxes, fines and other
encumbrances that the aforementioned party has had to pay in compliance with
customs and fiscal regulations.------------------------------------------------
FIRST PARAGRAPH. THE LESSEE declares its full knowledge of the prevailing
Colombian fiscal and customs regulations on the date this contract was made and
ratified and is obliged to comply with them according to the terms and the
conditions established by the law.----------------------------------------------
SECOND PARAGRAPH. THE LESSOR or a third party that the aforementioned party
designates, shall be authorized to pay the customs and fiscal duties with
respect to the leasing fees if THE LESSEE does not comply with this provision
within fifteen (15) days prior to the payment of the corresponding fee.---------
In any event THE LESSEE shall make known and demonstrate the payment of the
taxes to THE LESSOR, within twenty four (24) hours after the payment of said
taxes.--- If this provision is not complied with, those sanctions stipulated in
the twenty seventh clause shall be applied.-------------------------------------
SIXTH. EXONERATION OF RESPONSIBILITY AND INDEMNITY. THE LESSEE declares having
selected the leased equipment and the supplier or manufacturer of above-
mentioned equipment and therefore THE LESSOR shall not be responsible for late
delivery of the goods due to causes attributable to the supplier or manufacturer
or due to any other cause or circumstance, nor for any damages, defects,
deviations from established specifications or due to any error on the part of
the manufacturer or supplier
<PAGE>
or seller in the assemblage or proper installation of the equipment.------------
In the event that the manufacturer fails to deliver the goods, THE LESSOR shall
be availed of any responsibility and THE LESSEE shall compensate for the
expenses directly or indirectly incurred in the acquisition of the equipment or
as a consequence of this contract, including the price of the leased goods and
any other losses, advance payments, taxes, duties, commissions, freight charges,
transportation expenses, or any other incumbencies.-----------------------------
SEVENTH. SUBROGATION. THE LESSEE shall subrogate the rights of THE LESSOR,
pertaining to the manufacturer or supplier of the contract of sale of the
equipment, if THE LESSEE should by direct request bid said manufacturer or
supplier to comply with the contract of sale referred to herein or require the
completion of said contract, with compensation for damages and losses.----------
In any case, at the time of completion of the contract of sale, THE LESSEE shall
indemnify THE LESSOR, for all expenses pursuant to the preceding clause.--------
EIGHTH. INSURANCE. The parties agree that THE LESSEE expressly exonerates THE
LESSOR from insuring the leased goods, as the aforementioned party shall not be
held responsible for occult or manifest defects in operation, production output
or any other defects that affect said goods.------------------------------------
THE LESSEE shall indemnify THE LESSOR in accordance with the twenty-seventh
clause, if this contract is terminated due to defects in the leased goods.------
In the assumption that the manufacturer or supplier substitutes the goods for
others free of
<PAGE>
defects, said goods shall be included in this contract, such that
any reference to the leased goods made in this contract shall be applied to the
new goods that are substituted, to which end THE LESSEE shall sign an addendum
and in this manner incorporate the substituted goods into the legal regulations
of the relationship that this contract formalizes.------------------------------
NINTH. In the event of any conflict between THE LESSEE and the manufacturer or
supplier pursuant to the reasons established in the previous clauses, THE LESSEE
shall continue paying THE LESSOR the fees stipulated herein as long as the said
contract is applicable.---------------------------------------------------------
TENTH. RIGHT OF HABEAS CORPUS. PROPERTY. THE LESSEE agrees to make known to
third parties that the entire and exclusive ownership of the goods referred to
herein lies with THE LESSOR. It shall follow that in the event that legal or
administrative steps are necessary that affect the act of ownership of the
goods, such as embargoes, precautionary measures, seizure, withholding or
similar circumstances or in the event of a summons of creditors, declaration of
bankruptcy, or repossession of the goods pertaining to THE LESSEE, the above
mentioned party shall present this contract as proof of tenure of the goods
mentioned herein and shall notify THE LESSOR within three (3) days after the
date of the occurrences so that the aforementioned party may adopt measures in
accordance with the circumstances. In any case THE LESSEE from this time forward
shall at his own risk cover all costs that require the defense of possession and
tenure of the goods by THE LESSOR, without
<PAGE>
impairing the compliance with all other duties stipulated in this contract.-----
ELEVENTH. SPECIFIED TIME PERIOD. THE LESSOR grants possession of the goods
referred to herein to THE LESSEE for the duration of twelve (12) years, counted
down beginning on the date of the event that certifies the functioning of the
equipment referred to herein. The act will be drawn up by THE LESSEE.----------
TWELFTH. RENT. THE LESSEE is hereby directed irrevocably and without the benefit
of summons to pay THE LESSOR as long as this contract remain valid a pre-
determined rent in the following manner: A) The sum of TWO MILLION SEVEN HUNDRED
FORTY FIVE THOUSAND UNITED STATES DOLLARS (US$2,745,000.OO) upon presentation of
the last declaration of importation of the equipment; B) 20 biannual
installments of a total of ONE MILLION FIFTY THOUSAND UNITED STATES DOLLARS
(US$1,050,OOO.OO)for a period of 10 years; and C) Four biannual installments for
a total of FIVE HUNDRED TWENTY FIVE THOUSAND UNITED STATES DOLLARS
(US$525,000.OO)each, for a period of two years once the payment of the twenty
installments cited in the above-mentioned provision has been completed, payments
that shall be demanded the first five (5) days of each payable semester.--------
FIRST PARAGRAPH: In the event that several declarations of importation exist,
for the payment of the aforementioned installments of this leasing contract, the
date of presentation of the last declaration shall be used.---------------------
SECOND PARAGRAPH: This sum shall be readjusted proportionately, if upon arrival
<PAGE>
of the imported goods to national territory its CIF cost (including the cost of
merchandise, insurance and freight) increases or decreases in relation to the
CIF cost initially budgeted and which serves as the basis for determination of
the initial rate. In this case the variation shall be applied to the
corresponding factor of the cost originally budgeted as the initial CIF cost of
the merchandise. Also, the rate shall be adjusted biannually in accordance with
the percentage variation sustained by the London inter-bank offered rate (Libor)
between the first and last calendar days of each quarter immediately prior to
that for which the readjustment is made.----------------------------------- THE
LESSEE agrees to verify the prior acquisition of the corresponding foreign
exchange in the Colombian exchange market complying with all legal regulations
thereof, the bill of exchange of the sums owed in each period shall be confirmed
in writing, by telegram, telex, letter or fax, at the latest the day payment is
due for each predetermined leasing fee.-----------------------------------------
THIRTEENTH. DELAY In the event of delay on the part of THE LESSEE in the payment
of the sums of money stipulated in this contract, the above-mentioned party
agrees to pay the LESSOR, without benefit of summons, in accordance with the
interest moratorium, the same interest rate as the Libor establishes plus two
(2%) annual percentage rate, calculated beginning from the expiration date of
the value that is in default, until the date in which THE LESSEE has credited
the payment to the LESSOR's bank account.---------------------------------------
In the event that there exist two or more periodic fees in default, THE LESSEE
will pay
<PAGE>
THE LESSOR the sum here indicated for each of the said periodic fees. The
payment of this penalty shall not waive the principal obligation of THE LESSEE,
as said penalty is stipulated in accordance with the sole delay or default and
does not alter the right of LESSOR to claim the breach of contract nor the
application of sanctions pursuant to the twenty-seventh clause.-----------------
FIRST PARAGRAPH. The tolerance of THE LESSOR in receiving delayed payment on
fees shall not imply postponement of the stipulated time period for the
fulfillment of the obligations of THE LESSEE as provided herein. SECOND
PARAGRAPH. The leasing fees shall not decrease due to claimed wear or
obsolescence of the equipment, circumstances these that THE LESSEE assumes
without waiving his obligations before THE LESSOR.------------------------------
THIRD PARAGRAPH. The obligation to pay the fees on the part of THE LESSEE shall
not terminate due to the temporal or definitive cessation of operation of the
leased equipment or due to reparation, move, transformation, strike, loss on the
part of the company or in general as the result of any cause not attributed to
THE LESSOR.--------
FOURTH PARAGRAPH. To back the payment of the fees THE LESSEE agrees to present
to THE LESSOR the warranties required by the said party.------
FIFTH PARAGRAPH. THE LESSEE expressly waives benefit of formal notification that
establishes his default in the event of delay or non-compliance with the agreed
upon obligations referred to herein and accepts from this time forward as full
proof of any non-compliance, the report addressed to him by THE LESSOR or the
claim by the said
<PAGE>
party presented to the corresponding authority to make effective his rights.----
FOURTEENTH. AMMENDMENTS TO THE CONTRACT. THE LESSEE from this time forward
accepts the modifications THE LESSOR provides pertaining to the quarterly
installments or to the purchase option, fines, penalties and other fees referred
to herein in accordance with the prevailing legal regulations at the time of
arrangement of modification.----------------------------------------------------
FIFTEENTH. GUARANTEES. THE LESSEE agrees to insure against any risk and during
the period of this contract with an insurance company previously accepted by THE
LESSOR the leased equipment, up to a sum equivalent to the market value
therefore establishing as beneficiary THE LESSOR.
For the same reason, THE LESSEE agrees to insure the equipment against civil
liability for physical harm and damage to property that its operation may
occasion to third parties for a sum no less than the amount recommended for this
type of equipment. It shall be understood that THE LESSEE is and shall continue
to be the sole responsible party for the said third parties for the harm and
damages the equipment may cause. THE LESSEE agrees to pay the premiums required
within ten (10) days after the date on which the insurance contracts are signed
or upon its renewal.------------------------------------------------------------
FIRST PARAGRAPH. THE LESSEE authorizes THE LESSOR, who is hereby availed of any
responsibility or obligation in this matter, to at the expense of THE LESSEE
negotiate the insurance plans or renewals and/or pay the corresponding insurance
premiums for the purpose of
<PAGE>
maintaining the validity of the policies that protect the equipment.------------
In the event that THE LESSOR pays on the behalf of THE LESSEE the insurance
premiums, THE LESSEE agrees to pay THE LESSOR, within two days after receiving
the bill of payment, the amount of the money paid at his sole expense. The non-
compliance with any stipulation included in this clause shall constitute just
cause for THE LESSOR to terminate this contract with the consequences provided
for in the twenty-sixth clause--------------------------------------------------
SECOND PARAGRAPH. Any loss, total or partial, shall not suspend nor interrupt
the leasing nor shall it alter the specified time period.-----------------------
SIXTEENTH. OBLIGATIONS OF THE LESSEE. THE LESSEE agrees to be responsible for
any wear sustained by the equipment or its loss, whatever the cause may be, even
if said cause arises from force majeure or by chance. In the event of wear or
loss THE LESSEE agrees to immediately notify THE LESSOR, and the said party
shall adopt one of the following provisions:
1. Authorize THE LESSEE to, by his sole means, recuperate the equipment or
restore it to satisfactory working condition according to the criteria of THE
LESSOR, in accordance with the terms the above-mentioned party stipulates. It
shall be understood that the repairs may only be carried out by the
manufacturers of the equipment or by their representatives in the country with
the exception that THE LESSOR under special circumstances authorizes the repairs
in writing to be carried out under different
<PAGE>
conditions. The spare parts shall be technically adequate and by no means may
their acquisition signify an original change in the leased equipment.-----------
- --------2.
Accept that THE LESSEE at his own expense replaces the equipment under the
terms THE LESSOR indicates, for another presentation of similar conditions,
maintaining its original functions to the satisfaction of the above-mentioned
party. The new equipment in any case shall immediately be subject to this new
leasing contract.---
3. Demand that THE LESSEE pay the LESSOR, in the amount of the fee multiplied by
the number of fees to be charged from the moment the damage or loss occurs until
the termination of the contract.------------------------------------------------
SEVENTEENTH UPKEEP AND MAINTENANCE. The equipment shall solely be used by THE
LESSEE and the personnel in his service, who agrees to solely and at his own
risk, assume all expenses pertaining to the upkeep and maintenance of the goods
referred to herein, to maintain them in perfect condition, except with respect
to normal wear as a result of the appropriate use of aforementioned goods.------
The equipment shall be used in accordance with the purposes inherent therein,
with all the caution and diligence required for standard maintenance and proper
performance of the equipment. The standards for use of the equipment shall be
established by the supplier or manufacturer and THE LESSEE agrees to sign with
said manufacturer or supplier or with the person authorized by the said person,
the contracts of maintenance that ensure the upkeep and proper working order of
the equipment.------------------------------------------------------------------
Additionally, THE LESSEE agrees to comply with all laws, conventions, decrees,
<PAGE>
resolutions, regulations, or any other provision that governs or in any way is
related to the use and maintenance of the equipment, whether of international,
national, or municipal character or issued by the country in whose territory the
equipment is located.-----------------------------------------------------------
EIGHTEENTH. RIGHT OF INSPECTION. THE LESSOR reserves the right to inspect the
equipment at any time, to ensure the satisfactory operation and maintenance of
the said goods. To this end and without any implied obligation on the part of
THE LESSOR, said party may carry out the inspections he deem necessary at the
LESSEE's plants or at the place where the equipment is located and recommend in
written form the measures he sees fit and convenient to take in order to
maintain the equipment in proper working order, which shall be attended to by
THE LESSEE promptly.------------------------------------------------------------
In the event that THE LESSEE fails to adopt the measures requested by THE
LESSOR, said party may declare this contract null and void and shall have the
right to demand, along with the immediate return of the equipment, the indemnity
pursuant to the twenty-seventh clause.---------------------------------------
THE LESSOR shall avail himself of responsibility for any cost, expense, or
losses attributable to the inspections or the fulfillment of his recommendations
excepting if the leased equipment sustains damage directly attributable to the
person who carries out the inspection at the expense of THE LESSOR.-------------
NINETEENTH. CESSION AND SUBLEASING OF EQUIPMENT. Excepting express,
<PAGE>
prior and written authorization by THE LESSOR, THE LESSEE agrees to not sublease
the equipment nor give it to third parties for its exploitation under any
contractual agreement, nor cede this contract in any way; even in the event of
said authorization THE LESSEE shall continue to be the sole responsible party in
connection with the concessionaire or substitute in dealing with THE LESSOR.----
TWENTIETH. CESSION OF CONTRACT. The rights of this contract herein may be ceded
in full or in part by THE LESSOR and/or granted in the form of credit warranty.
THE LESSEE expressly agrees to the cession and/or
pledging of the contract therefore thus agreeing to fulfill the obligations
under the cession and/or pledging terms upon receipt of extrajudicial
notification of said cessation or pledging.-------------------------------
TWENTY FIRST. THE RIGHT TO LIEN. THE LESSEE hereby waives the right to lien that
due to any title or cause may have over the equipment.--------------------------
TWENTY SECOND. ADVANCE PAYMENT. Any advance, deposit option, or extraordinary
expenditure that THE LESSOR carries out before the date this contract takes
effect shall be the responsibility of THE LESSEE and shall induce interest at
the Libor rate of the week plus two (2%) per month.-----------------------------
TWENTY THIRD. LICENCES AND PERMITS OF OPERATION. THE LESSEE agrees to obtain all
permits and licenses required by Colombian law for the operation of the goods
referred to herein.-------------------------------------------------------------
TWENTY FOURTH. TAXES AND PENALTIES. All taxes that encumber the goods referred
to herein, as well as any penalties imposed as a result of irregular or illegal
<PAGE>
operation of the goods, shall be the sole responsibility of THE LESSEE.---------
In the event that new taxes are established that encumber or increase the
current tax burden that THE LESSOR bears in accordance with this contract, THE
LESSEE agrees to solely assume these additional taxes, paying them on the
LESSOR's behalf.-
TWENTY FIFTH. LOCATION OF THE GOODS. The goods referred to herein shall remain
within the territory of the Republic of Colombia. THE LESSEE agrees to notify
THE LESSOR in written form within three (3) days after change of location and
notify as to the new location of said goods.------------------
TWENTY SIXTH. TERMINATION. This contract shall be declared null and void in the
event of the following causes:--------------------------------------------------
1ST By the mutual consent of the two parties.--------------------------------
2ND Due to expiration of the specified time period.--------------------------
3RD By unilateral decision on the part of THE LESSOR taken at any time before
the expiration of the specified time period, with no need for judicial
declaration and also, requiring THE LESSEE to return the equipment in any event
of non-compliance with this contract and in particular with the following:------
[_] Due to delayed or untimely payment of leasing fees and customs taxes for
one or more periods.-------------------------------------------------------
[_] Due to unauthorized use of the leased equipment that deregulates the
original purpose or that may cause, in accordance with the criteria of THE
LESSOR wear not inherent in its normal use.-------------------------------
<PAGE>
[_] Due to failure to notify THE LESSOR pursuant to cases of damage or
destruction of the leased equipment.--------------------------------------
[_] Failure to be aware of the instructions given by THE LESSOR pertaining to
the form and timeliness of repairs needed by the leased equipment for the
duration of this contract for any reason.----------------------------------
[_] Due to intent to encumber the leased equipment with any type of expenses or
warranties and in any case, when said equipment is affected by
precautionary legal measures as the result of abnormal occurrences
according to the criteria of THE LESSOR.----------------------------------
[_] Due to the subleasing or awarding of this contract to third parties for
its exploitation under any contractual agreement or cede this contract
without the express, prior and written authorization of THE LESSOR.--------
[_] Due to failure to insure the goods referred to herein with insurance
companies in accordance with the terms established in this contract.-------
4TH Due to all other causes provided for by law.-----------------------------
5TH Due to declaration of bankruptcy, petition for precautionary concordant
by THE LESSEE or for having been judicially sued by third parties and that
involve the goods referred to herein. In these events THE LESSOR shall collect
the wanting fees excepting that the creditors of THE LESSEE propose their
substitution with warranties to the satisfaction of THE LESSOR.-----------------
6TH Due to loss or damage of the equipment that affects its proper
functioning.---------
<PAGE>
7TH Due to the dissolution or liquidation of THE LESSEE.---------------------
TWENTY SEVENTH. SANCTIONS FOR NON-COMPLIANCE. If and when THE LESSOR declares
null and void this contract pursuant to the above clause, THE LESSEE agrees to
pay THE LESSOR as penalty in addition to the amount due for non-compliance,
pursuant to the thirteenth clause, a sum equivalent to the accorded leasing fees
that have not been covered and still have not been charged. The payment of this
penalty shall not imply the release from the obligation to return the equipment,
nor shall THE LESSOR waive his right to demand indemnity for the losses caused
by the non-compliance of THE LESSEE.--------------------------------------------
TWENTY EIGHTH. RETURN OF THE EQUIPMENT. At the termination of this contract due
to a cause other than expiration, the equipment shall be returned to THE LESSOR
in the same proper working condition as when received by THE LESSEE, excepting
natural wear arising from its proper use.-------------------------------THE
LESSEE shall return the equipment within five (5) days after the termination
date, under penalty of incurring a daily fine to be collected by THE LESSOR in
the amount stipulated herein. Payment of this fine shall not exclude the
obligation to return the leased equipment. The return of the equipment shall be
carried out at the location stipulated by THE LESSOR and the expenses incurred
as a result of said return including disassemblage, move and installation, shall
be at the expenseof THE LESSEE.-----------------------------------------------
TWENTY NINTH. ACQUISITION OPTION. Under the terms of this contract and on
<PAGE>
condition that said contract has been dully fulfilled by THE LESSEE, THE LESSOR
grants THE LESSEE the irrevocable option at the time of ratification of this
contract the acquisition of the ownership of the goods referred to herein, under
the following stipulations: ----------------------------------------------------
1ST PRICE: FIVE HUNDRED TWENTY FIVE THOUSAND UNITED STATES
DOLLARS (US$525,000.00)
2ND FORM OF PAYMENT: PAYABLE AT THE CONCLUSION OF THE LEASING CONTRACT
(12 YEARS)-----------------------------------------
THIRTIETH. INTERPRETATION. The interpretation of this contract is governed by
the following:------------------------------------
1. By the clauses herein.------------------------
2. By the laws of the United States of America regulated by the Financial
Leasing Contract. However, all things concerning the recuperation of leased
goods shall be governed by Colombian law.------------------------------------
3. In the absence of a special norm that regulates the subject matter, the
provisions established by the UNIDROIT Convention concerning international
leasing adopted in Ottawa, Canada, May 26, 1988, by virtue of the principle
adopted in article 7 of the Commercial Code of the Republic of Colombia .---
THIRTY FIRST. ARBITRATION. All disagreement that is derived from this
contract shall be definitively resolved by the Court of Arbitration comprised
of three (3) arbiters one named by each party and one by the International
Chamber of Commerce,
<PAGE>
National Committee of Colombia- New York. The findings shall be in law and
equity. The location of arbitration shall be in Santa fe de Bogota. The
official language that shall be used during the arbitration process shall be
Spanish. The naming of the arbiters as well as the process of arbitration
shall be governed by the provisions adopted in the Regulations of
Conciliation and Arbitration of the
International Chamber of Commerce.----------------------------------------------
THIRTY SECOND. ACTIONS AND PROCEEDINGS. The original of this contract is
immediately considered valid concerning the express and evident obligations
confirmed therein, when said obligations are called for, in accordance with said
obligations and Colombian law.--------------------------------------------------
The first copy will be used for the purposes of the record in the event that
given the nature and legal system of the goods referred to herein, be required.-
- ------------------------ The second copy of this contract shall be valid for the
actions THE LESSOR undertakes for the restitution of tenancy of the goods
referred to herein.---------------------
THIRTY THIRD. NOTIFICATION. Any notification or notice directed to THE LESSOR,
in accordance with this contract, may be sent via registered mail to the address
the above-mentioned party indicates.--------------------------------------------
On the other hand, any notice or notification that in accordance with this
contract
<PAGE>
directed to THE LESSEE may be sent via registered mail to the address:
Autopista kilometro 2, calle 15 No. 32-591 Yumbo, Cauca Valley - Colombia.------
This contract is hereby made and ratified, in the city of Yumbo, the twenty
eighth of July of nineteen ninety seven (1997)
GLOBAL TELECOMMUNICATIONS
OPERATIONS, INC.
______________________________
THE LESSOR
FELIPE GARCIA ECHEVERRI
C.C. NO. 80.409.281 OF USAQUEN
SPECIAL REPRESENTATIVE
UNITEL S.A. E.S.P.
___________________________
THE LESSEE
JORGE ENRIQUE MARTINEZ O.
C.C. NO. 7.506.436 OF ARMENIA
<PAGE>
EXHIBIT 10.17
INTERNATIONAL LEASING CONTRACT
made by and between
GLOBAL TELECOMMUNICATIONS OPERATIONS INC. And
SOCIEDAD TELEFONOS DE CARTAGO S.A. E.S.P.
The undersigned FELIPE GARCIA ECHEVERRI, of age, domiciled at Santafe de Bogota,
D.C., bearer of Passport No. 80409281, issued in Santafe de Bogota D.C., who
acts as Attorney-in-fact according to special power of attorney granted by
GLOBAL TELECOMMUNICATIONS OPERATIONS, INC., a corporation domiciled at Pasea
Estate, Road Town, Tortola and organized and existing under the laws of the
British Virgin Islands, United Kingdom, according to registry number 170407,
based on the international business companies decree (hereinafter referred to as
"LEASOR") -on the one part-, and JOSE FERNANDO RAMIREZ MARIN, of age, domiciled
in Palmira, identified as it appears next to his signature, acting as Substitute
for the General Manager and legal representative of TELEFONOS DE CARTAGO S.A.
E.S.P., a corporation duly organized and existing according to public deed
number 004, granted at the Notary's Office No. 2 of Cartago, on January 3rd,
1997, domiciled in Cartago, department of Valle del Cauca, Republic of Colombia,
NIT No.836000099-1, verifiable with the existence and representation
certificate, issued by the Chamber of Commerce of Cartago attached hereto
(hereinafter referred to as "LEASEE") on the other part-, have entered into an
International Leasing Contract, governed by the following clauses:
ONE. BACKGROUND. LEASEE, for this Contract's purposes and with the purpose of
acquiring the productive usage of the property herein described, previously
analyzed,
<PAGE>
chose the property/equipment which is the subject of this Contract with all
their specifications and characteristics and SIEMENS AKTIENGESELLSCHAFT, of
German nationality, as the supplier.
TWO. In fact, due to the above circumstances, the parties hereto state that
LEASEE has requested LEASOR the possession of the property herein provided in
order to grant such possession to the LEASEE, with the purpose to exploit it in
Colombia.
THIRD. PROPERTY. LEASOR hereby declares that it is the owner of the following
property, bearing customs duties position "8517302000" Electrical Devices For
Wire Telephony, Telephone Exchange for seventeen thousand eight (17,008) lines
which basic components are a functional unit according to the terms provided in
Note 4-Section XVI of customs duties and which main function is performed by an
automatic telephone commutation device described in detail on the only annex of
this Contract.
FOUR. SUBJECT. By virtue of this Contract, LEASOR, who has acquired the
possession of the property outside of the Republic of Colombia, with the purpose
of granting possession to LEASEE (as stated hereinabove), agrees to grant such
possession to LEASEE, which acknowledges it as received to its satisfaction and
as a leasing.
PARAGRAPH. For legal purposes, the parties hereto express their understanding of
any device or part used as an accessory of the leased equipment or that, in the
future, it is added to it.
<PAGE>
FIVE. IMPORTATION. All property hereto has been acquired by LEASOR in the
Federal Republic of Germany and shall be imported by LEASEE to the Republic of
Colombia. LEASEE agrees to comply with all legal and regulatory dispositions
ruling the importation of property to the Republic of Colombia.
LEASEE is expressly obliged to constitute warranties required by law, to file
purchase invoice and the appropriate customs declaration in compliance with all
legal dispositions in effect and upon payment of customs duties (including
importation duties, taxes and all other applicable liens for the leased
property). And, in general, LEASEE is obliged to comply with any customs and
taxing obligation within the terms and conditions agreed on.
If, as a result of legal procedures, authorities make requirements or perform
official dissolution, or make any customs or taxing obligation directly
enforceable to LEASOR for its condition as owner, LEASEE agrees to directly
assume all costs and expenses, including lawyer fees -if that is the case-,
involved in answering to requirements, actions against official dissolution and,
particularly, to reimburse the value of costs and expenses to LEASOR, including
- -if the case may be-, importation duties, taxes, fines and all other liens paid
by LEASOR in performing a customs and taxing obligation.
PARAGRAPH ONE. LEASEE acknowledges the entire customs and Colombian tax regime
in force as of the date of subscription and legalization of this Contract and
agrees to comply with it under the terms and conditions provided by the law.
PARAGRAPH TWO. LEASOR, or a third party designated by LEASOR, is authorized to
pay the value of the customs duties and fiscal contributions corresponding to
payments of the leasing installments whenever LEASEE does not comply with this
obligation
<PAGE>
within a period of fifteen (15) days previous to the date the corresponding
installment is paid.
In any event, LEASEE must notify and prove payment of taxes to LEASOR, within a
period of twenty-four (24) hours following payment.
Failure to comply with this obligation shall result in application of fines
described in Clause Twenty-seven.
SIX. EXEMPTION OF RESPONSIBILITY AND COMPENSATION. LEASOR declares that it has
chosen the leased equipment and the supplier or manufacturer of such equipment.
Consequently, LEASOR shall not be responsible for delayed delivery of the
property which may arise from causes attributable to the supplier or
manufacturer or from any other cause or circumstance, nor shall it be held
responsible for damages, defects, differences with the specificiations, or
failure by the supplier/manufacturer/businessman to correctly assemble or
install the equipment.
In the event the manufacturer does not deliver the property, LEASEE shall
indemnify and hold LEASOR harmless from any responsibility, and direct or
indirect expenses that may arise out of the acquisition of the equipment under
this Contract including the value of the leased property, losses of any kind,
advanced payments, taxes, duties, commissions, freights, transportation or any
other type of expenses incurred under this Contract.
SEVEN. SURROGATION. LEASEE hereby surrogates LEASOR'S rights before the
manufacturer or supplier of the purchase and sale contract for the equipment,
and
<PAGE>
LEASEE may directly make the above purchase and sale contract enforceable to
that manufacturer or supplier or ask for the contract's resolution, with
compensation for damages and injuries.
In the event there is a resolution of the purchase and sale contract, LEASEE
must indemnify LEASOR for all expenses according to the above clause.
EIGHT. REPARATION FOR EVICTION. The parties hereto agree that LEASEE expressly
exempts LEASOR from reparation of the leased property. Therefore LEASOR shall
not be responsible for any evident or latent defect in the performance,
efficiency or others which may affect such good.
LEASEE shall indemnify LEASOR according to clause twenty-seven, in case this
contract is terminated due to defects to the leased property.
In the event the manufacturer or supplier substitutes the property by other that
is not imperfect, such property shall be a part of this contract, and any
reference to the leased property herein included shall apply to the new property
given as a substitute, for which LEASEE is obliged to sign an ADDENDUM and add
the property given as a substitute to the legal regime under this Contract.
NINE. In the event of any conflict between LEASEE and manufacturer/supplier by
reason of the above provisions, LEASEE shall continue paying LEASOR the agreed
fees under this Contract while in force and effect.
<PAGE>
TEN. PROTECTION TO THE PROPERTY. LEASEE agrees to disclose to any third party
that the property hereto is the LEASOR'S exclusive possession. Consequently, in
any event of legal or administrative actions affecting the exercise of the
property's possession, such as attachments, actions, confiscation, retention or
similar circumstances or in case of a call for preventive covenant, bankruptcy
declaration or anyone taking possession of LEASEE'S property, LEASEE agrees to
present this Contract as a proof of ownership of the properties hereto and to
notify LEASOR of such event within a period of three days following the date in
which such circumstances occurred, so that LEASOR may take all appropriate
measures. In any case, LEASEE accepts hereafter to pay, on its sole account, all
expenses arising from the defense and exercise of the possession of the property
by LEASOR, without detriment to all other obligations under this Contract.
ELEVEN. TERM. LEASOR grants possession of the property hereto to LEASEE during a
period of twelve (12) years from the date of the act that certifies the
performance of the equipment herein stated. LEASEE shall issue the act.
TWELVE. LEASE. LEASEE agrees to pay a specific lease to LEASOR unconditionally
and without any requirement during the term of this Contract, as follows:
a) ONE MILLION THIRTY-THREE THOUSAND UNITED STATES AMERICAN DOLLARS
(US$1,036,000.00) upon file of the last notice of importation of the equipment.
b) 20 installments every six months in the amount of THREE HUNDRED NINETY-FOUR
THOUSAND UNITED STATES AMERICAN DOLLARS (US$394,000.00) for 10 years. c) Four
installments every six months in the
<PAGE>
amount of ONE HUNDRED NINETY-SEVEN THOUSAND UNITED STATES AMERICAN DOLLARS
(US$197,000.00) each, for two years following the due date of payment of the
twenty installments as defined hereinabove, which shall be enforceable the first
five (5) days of each expiring semester.
PARAGRAPH ONE. In the event of several notices of importation, the date of
payment for the installments hereby mentioned should be the date the last
document is filed.
PARAGRAPH TWO. This amount shall be proportionally adjusted, if, upon receipt of
the imported property into the national territory, its CIF cost (including cost
of merchandise plus insurance and freight charges) increases or decreases in
relation to CIF cost originally budgeted and that is the base for determining
the initial fee. In this case variation shall be determined by applying the
applicable factor of the cost originally budgeted by the actual CIF cost of
merchandise. Additionally, the fee shall be adjusted every six months according
to the percentage variation of the preferred interest rate of London market
(Libor) between the first and last working day of each quarter previous to the
quarter for which adjustment is performed.
LEASEE agrees to verify that, once the money corresponding to the Colombian
exchange market is acquired in compliance with all legal requirements, the draft
on the amounts required for each period is confirmed by written notification,
telegram, letter or fax, the day in which each leasing fee is due, at the
latest.
THIRTEEN. ARREARS. In case of delays by LEASEE in paying the amounts of money
hereunder agreed on, it must pay to LEASOR, without any requirement as a fee
<PAGE>
for arrears, an interest rate equal to Libor plus two percent (2%) a year,
calculated from the due date of the amount in arrears to the date in which
LEASEE has credited such payment into the banking account of LEASOR.
In case there are two or more installments in arrears, LEASEE shall pay to
LEASOR the amount herein indicated for each installment. By paying this fine,
LEASEE shall not construe its main obligation as unenforceable because such fine
is provided only for delay or arrears and does not alter LEASOR'S right to claim
failure to comply with obligations hereof or application of sanctions provided
in clause twenty-seven.
PARAGRAPH ONE. Acceptance by LEASOR of delayed payment of fees shall not imply
an extension on the terms provided for performance of LEASEE'S obligations which
may arise from this Contract.
PARAGRAPH TWO. The leasing fee shall not be decreased by reason of wear or
obsolescence of the equipment, which is assumed by LEASEE without detriment of
its obligations with respect to the LEASOR.
PARAGRAPH THREE. LEASEE'S obligation to pay the fees shall not end because the
leased equipment temporarily or definitely stops its operation, or due to
repairs, transfer, transformation, strike, act of god and in general due to any
cause non attributable to LEASOR.
PARAGRAPH FOUR. With the purpose of guaranteeing the obligation to pay the fee,
LEASEE shall grant all guarantees required by LEASOR in favor of LEASOR.
PARAGRAPH FIVE. LEASEE expressly waives the formal requirements for determining
arrears in case of delays or failure to comply with the obligations under this
Contract and accepts from hereon, as a proof of any failure to comply, a
notification
<PAGE>
addressed to LEASEE by LEASOR, or the LEASOR'S request before a competent
authority to exercise its rights.
FOURTEEN. MODIFICATIONS TO THE CONTRACT. LEASEE accepts, hereon, any variations
provided by LEASOR with respect to the installments due every six months or the
purchase option, fines, sanctions and others related to the contract in
compliance with all legal dispositions in effect at the moment of stating such
variation.
FIFTEEN. WARRANTIES. LEASEE agrees to keep the leased equipment insured at all
times and against any and all risks during the term of this Contract in an
insurance company previously accepted by LEASOR, for an amount equivalent to its
commercial value appointing LEASOR as the beneficiary of such insurance.
Likewise, LEASEE must insure the equipment against civil responsibility for
physical damages to third parties and their properties resulting from the
equipment's operation for an amount not lower than the value recommended for
that type of equipment. It is understood that LEASEE is and shall keep on being
the sole responsible for damages to any third party resulting from the
equipment's operation. LEASEE agrees to pay premiums within a period of ten (10)
days following the date of the insurance contracts or its renewal.
PARAGRAPH ONE. LEASEE authorizes LEASOR, without any obligation or
responsibility by LEASOR, to contract -on LEASEE'S account- all insurance or
renewal and/or pay the respective insurance premiums with the purpose of keeping
all policies which protect the equipment in full force and effect.
<PAGE>
In case LEASOR pays the insurance premiums on account of LEASEE, LEASEE agrees
to pay LEASOR, within a period of two days following receipt of invoice, the
amount of money paid on its behalf. Failure to comply with any of the
obligations hereby assumed shall be a reason for LEASOR to terminate this
Contract with all consequences provided in clause twenty-six.
PARAGRAPH TWO. Any damage/loss of god, which is total or partial, shall not
suspend or interrupt the leasing, nor shall it change terms' expiration.
SIXTEEN. LEASEE'S LIABILITY. LEASEE shall be responsible for deterioration
and/or loss of the equipment, for whatever reasons even if it is a force majeure
event. In any event of deterioration or loss LEASEE shall immediately notify
LEASOR, and, upon LESOR'S choice, it shall do any of the following:
1- Authorize LEASEE to recover the equipment -on its own account- and keep it
in good condition of operation according to LEASOR'S criteria, within a
period indicated by LEASOR. It is understood that repairs can only be made
by the manufacturers of the equipment or by its representatives in the
country, unless LEASOR, for special reasons, authorizes by written
notification its repair in other conditions. The parts shall be technically
adapted and, in any way, its adaptation shall mean an original change to
the leased equipment.
2- Accept that LEASEE, on its own account, replaces the equipment within a
term specified by LEASOR for another equipment with similar presentation
<PAGE>
conditions, keeping its initial operation to its satisfaction. In any case,
the new equipment shall immediately be subject to this new leasing
contract.
3- Enforce payment by LEASEE to LEASOR of an amount resulting from multiplying
the amount of the installment fee by the number of installments to be paid
from the moment the damage/loss occurred until the expiration date of the
Contract.
SEVENTEEN. PRESERVATION AND MAINTENANCE. The leased equipment shall only be used
by LEASEE and its personnel, which agrees, on its own account and risk, to
assume all expenses required to preserve the leased property and keep it in
perfect conditions, except for the normal wear due to appropriate usage.
The leased equipment shall be used according to its original purpose and kept in
good condition. Supplier/manufacturer shall establish the normal use of the
equipment, and LEASEE accepts to enter into maintenance contracts with such
supplier or manufacturer or person authorized by them, to contribute to the
preservation and proper performance of the equipment.
Additionally, LEASEE agrees to comply with all laws, pacts, decrees,
resolutions, regulations, or any other regulatory disposition, or a disposition
related to the equipment's usage and maintenance, even if these standards are
international, national or municipal, or if they are issued by the country in
which the equipment is located.
<PAGE>
EIGHTEEN. INSPECTION RIGHT. LEASOR reserves the right to inspect the equipment
at any time, to confirm whether performance and maintenance conditions are
satisfactory.
To that end, and with no implied obligation for LEASOR, LEASOR may visit
LEASEE'S facilities, or the place where the equipment is located as many times
as it deems necessary, and recommend in writing any steps required or convenient
for its proper operation which LEASEE must put into action immediately.
In case LEASEE does not follow the steps ordered by LEASOR, LEASOR may terminate
this Contract, and it shall have the right to demand, besides immediate return
of the equipment, indemnification as defined under clause twenty-seven.
LEASOR shall not be liable for any cost, expense or ceasing profit arising from
inspection visits or recommendations, unless the leased equipment is directly
damaged by the person authorized by LEASOR to visit the facilities.
NINETEEN. EQUIPMENT ASSIGNABILITY AND SUBLEASE. LEASEE shall not sublease the
equipment or give it to any third party for its exploitation under any
contractual agreement, or transfer this contract in any way except by means of a
previous, expressed, written authorization by LEASOR. But even if such
authorization exists, LEASEE shall keep being responsible with the subsidiary or
its substitute with respect to LEASOR.
TWENTY. CONTRACT ASSIGNABILITY. All rights under this Contract may be assigned
in whole or in part by LEASOR and/or given as credit guarantee. LEASEE
<PAGE>
expressly accepts from now on assignment and/or pledge of this Contract and
binds itself to comply with the assignment and/or pledge terms once the
extrajudicial notification of such assignment and/or pledge is received.
TWENTY-ONE. WAIVER TO WITHHOLD. LEASEE hereby waives withholding of the leased
equipment for any reason whatsoever.
TWENTY-TWO. ADVANCED PAYMENT. Any advance payment, option deposit or
extraordinary disbursement made by LEASOR before the date of initiation of the
Contract shall be on LEASEE'S account and shall cause interests at Libor of the
week, plus two percent (2%) month expired.
TWENTY-THREE. OPERATION LICENSES AND PERMITS. LEASEE agrees that it shall obtain
all permits and licenses required by the Colombian law for the operation of the
property under this Contract.
TWENTY-FOUR. TAXES AND FINES. All taxes encumbered by the equipment under this
Contract, as well as all fines imposed as a result of its irregular or illegal
operation, shall be exclusively at LEASEE'S expense.
If new taxes are established and they encumber or increase present tributary
costs that LEASOR hereby bears, LEASEE agrees hereafter to exclusively assume
these major taxes and pay them on behalf of LEASOR.
<PAGE>
TWENTY-FIVE. LOCATION OF PROPERTY. The property being the subject matter of this
Contract shall remain within the territory of the Republic of Colombia. LEASEE
accepts to notify LEASOR the new location of such property in writing, within a
period of three (3) days following such change of location.
TWENTY-SIX. TERMINATION. This Contract is deemed terminated for the following
reasons:
1- Mutual consent between the parties hereto.
2- Expiration of the agreed term.
3- Unilateral decision by LEASOR made at any time before expiration, with no
legal declaration and demanding return of the equipment by LEASEE in any of
the defaults in the performance of obligations under this Contract, but
specially in the following:
- Arrears or delays in paying installment fees and custom duties for one
or more periods.
- Misuse of the leased equipment which misleads its original function or
may cause, to LEASOR'S opinion, deterioration different than that of its
usage technique.
- Failure to notify LEASOR in case of damages or destruction of the leased
equipment.
- Failure to recognize LEASOR'S instructions with respect to repairs
needed by the leased equipment during the term of this Contract for any
reason whatsoever.
<PAGE>
- Intention to encumber the leased equipment by means of any type of
guarantees or impositions, and whenever it is affected by procedural
actions due to strange facts to LEASOR.
- Sublease or give to any third party for its exploitation under any
contractual agreement or transfer this Contract without the expressed,
previous and written authorization by LEASOR.
- Not protecting the property being the subject matter of this Contract
with insurance companies in the terms provided hereunder.
4- All other causes provided by law.
5- Declaration of bankruptcy by LEASEE or because of a suit started against
LEASEE by judicial means involving the property that is the subject matter
of this Contract. In these events LEASOR may charge the missing installment
fees, except if creditors of LEASEE propose its substitution granting
guarantees to LEASOR'S satisfaction.
6. Loss of the equipment or damages affecting its normal operation.
7. LEASEE'S dissolution.
TWENTY-SEVEN. SANCTION FOR FAILURE TO COMPLY. Whenever LEASOR is obliged to
terminate the Contract under the above clause, LEASEE shall pay to LEASOR as a
fine, besides the amounts owed due to its failure to comply -according to Clause
Thirteen-, an amount equivalent to the leasing installments agreed on that are
not yet covered or caused. By paying this fine, the obligation to return the
leased equipment shall not be construed as unenforceable, nor shall LEASOR loose
its right to
<PAGE>
demand compensation for damages which may arise from failure by LEASEE to comply
with its obligations.
TWENTY-EIGHT. RETURN OF THE EQUIPMENT. Upon termination of this Contract due to
reasons different than expiration, the leased equipment shall be returned to
LEASOR in the same condition of proper operation in which LEASEE received it,
except for natural wear derived from its proper usage.
LEASEE shall return the leased equipment within a period of five (5) days
following termination. If LEASEE fails to return the equipment within this
period of time, it shall incur in a daily fine in favor of LEASOR on the amount
provided in this Contract. By paying this fine, the obligation to return the
leased equipment shall not be construed as unenforceable. Return of the
equipment shall be made at the location designated by LEASOR and at LEASEE'S
expense including disassembling, transfer and installation charges.
TWENTY-NINE. ACQUISITION OPTION. Subject to the terms of this Contract and if it
has been duly performed by LEASEE, LEASOR grants LEASEE the irrevocable option
to acquire -once the Contract expires-, possession of the property which is the
subject of this Contract, under the following dispositions:
1- PRICE: ONE HUNDRED NINETY-SEVEN THOUSAND UNITED STATES AMERICAN DOLLARS
(US$197,000.00).
2- TERMS OF PAYMENT: PAYABLE UPON EXPIRATION OF LEASE (12 YEARS).
<PAGE>
THIRTY. INTERPRETATION. This Contract shall be ruled, for interpretation
purposes, as follows:
1- In accordance with the clauses herein provided.
2- In accordance with the laws of the United States of America ruling the
Financing Leasing Contract. However, with respect to recovering the leased
property, the Laws of Colombia shall apply.
3- In case there is no special standard ruling a subject, the dispositions of
the UNIDROIT Convention regarding international leasing (Ottawa, Canada,
May 26th, 1988) shall apply, by virtue of article 7 of the Commerce Code of
the Republic of Colombia.
THIRTY-ONE. ARBITRATION. Any disputes arising out of this Contract shall be
finally settled by an Arbitration Court consisting of three (3) arbitrators; one
appointed by each one of the parties hereto and the other appointed by the
International Chamber of Commerce, National Committee of Colombia-New York. This
judgement shall be in law. The place for the Arbitration shall be Santafe de
Bogota. The official language used during the arbitration process shall be
Spanish. The process of appointing arbitrators as well as the arbitration
process itself shall be governed by the provisions of the Settlement and
Arbitration Regulation of the International Chamber of Commerce.
<PAGE>
THIRTY-TWO. ACTIONS AND PROCEDURES. This Contract's original document is
executable with respect to its expressed obligations, whenever they are
enforceable under the Contract and in accordance with the Colombian law.
The first copy shall be the base for filing effects, in case it is required,
given the nature and legality of the property that is the subject matter of this
Contract.
The second copy of this Contract shall be used for exercising the actions
started by LEASOR for the return of the possession of the leased property.
THIRTY-THREE. NOTICE. All notices or notifications required to be given to
LEASOR hereunder, shall be sent by registered airmail to the address indicated
by LEASOR.
On the other hand, any notice or notification required to be given to LEASEE
hereunder, shall be sent by registered airmail to: Calle 14. No. 4-60 - Cartago
- - Valle del Cauca - Colombia.
Consequently, this Contract is subscribed and legalized in the municipality of
Cartago, on July 28/th/, 1997.
<PAGE>
GLOBAL TELECOMMUNICATIONS OPERATIONS, INC.
LEASOR
Felipe Garcia Echeverri
I.D. No. 80.409.281, issued in Usaquen
Attorney-in-fact
(signature)
BUGATEL S.A. E.S.P.
LEASEE
Jorge Enrique Martinez O.
I.D. No. 7.506.436, issued in Armenia
General Manager and Legal Representative (Substitute)
(signature)
<PAGE>
EXHIBIT 10.18
GLOBAL TELECOMMUNICATIONS OPERATIONS, INC.
CONTRACT No. 3 - 1998
made by and between FELIPE GARCIA ECHEVERRI, of age, domiciled at Santafe de
Bogota, D.E., bearer of Passport No. 80409281, issued in Santafe de Bogota D.C.,
who acts as Attorney-in-fact according to special power of attorney granted by
GLOBAL TELECOMMUNICATIONS OPERATIONS, INC., (hereinafter referred to as the
"COMPANY") -on the one part-, and SIEMENS AKTIENGESELLSCHAFT, a corporation duly
organized and existing under the laws of the Federal Republic of Germany,
domiciled at Berlin and Munich, represented by SIEMENS SOCIEDAD ANONIMA, a
corporation registered in the Chamber of Commerce of Bogota under Registry No.
003.206, herein represented by Mr. HEINZ HABENICHT, of age, bearer of Foreigner
I.D. No. 92.236, who resides in Santafe de Bogota, and Mr. ORLANDO HERNANDEZ
CHAPARRO, of age, domiciled at Santafe de Bogota, bearer of Identification
Document No. 17.023.898, a corporation domiciled at Santafe de Bogota, which may
be verified with the Commercial Agency and Exclusive Representation Certificate,
issued by the Chamber of Commerce of Bogota (hereinafter referred to as
"CONTRACTOR"),
CLAUSE ONE. SUBJECT: The CONTRACTOR agrees to transfer, as a Purchase and Sale
transaction, the equipment to the COMPANY at the following destination: A)
PALMIRA. EWSD commutation equipment for 10,328 telephone lines and main office
software update to version V.12. B) CALI. EWSD commutation equipment for 15,000
telephone wireless lines, transmission equipment, DECTLINK wireless access
equipment for 15,000 members, radio equipment for interconnection from the main
office to DECTLINK base stations and main office software update to version
V.12. C) JAMUNDI. Main office software update to version V.12. All contents of
this clause are according to the technical annex.
<PAGE>
CLAUSE TWO. DOCUMENTS OF THIS CONTRACT. The Technical Annex is an integral part
of this Contract. The following aspects are included in the Technical Annex: A)
General Summary of Prices, B) List of Materials, C) Delivery Schedule, D)
Graphics, E) Readjustment formula for future purchases and parts, F) Technical
specifications and characteristics of property and equipment, and the
CONTRACTOR'S offer.
CLAUSE THREE. VALUE OF THE CONTRACT. The value of importation supplies (CIP),
included in the Technical Annex hereof is TWELVE MILLIONS EIGHT HUNDRED EIGHTY
THOUSAND SEVEN HUNDRED NINETY-EIGHT UNITED STATES AMERICAN DOLLARS AND 47 CENTS
(US$12,880,798.47), distributed as follows: A) TELEPALMIRA: NINE HUNDRED THIRTY-
THREE THOUSAND TWO HUNDRED ELEVEN UNITED STATES AMERICAN DOLLARS AND 22 CENTS
(US$933,211.22). B) UNITEL: ELEVEN MILLIONS EIGHT HUNDRED SIXTY-THREE THOUSAND
SEVENTY-FOUR UNITED STATES AMERICAN DOLLARS AND 25 CENTS (US$11,863,074.25). C)
TELEJAMUNDI: EIGHTY-FOUR THOUSAND FIVE HUNDRED THIRTEEN UNITED STATES AMERICAN
DOLLARS (US$84,513.00).
PARAGRAPH 1: Insurance costs, local transportation, warehousing, customs agency
costs in Colombia for imported property (CIP) shall be on the COMPANY'S account
or on its leasees. The COMPANY or its leasees shall assume and directly pay
customs duties, IVA and all other nationalization costs in Colombia. All direct
and indirect taxes, contributions and interests of any kind in effect as of the
subscribing date of this Contract and imposed thereof shall be on the
CONTRACTOR'S account. Constitution of new taxes or increment of existing rates
shall be on the COMPANY'S account.
PARAGRAPH 2: If, due to delays in the terms agreed for delivering the contracted
equipment (CIP), for reasons attributable to the CONTRACTOR other than force
majeure or unexpected circumstances, any national tax, interest or contribution
is imposed, the CONTRACTOR shall assume such value resulting from this reason.
<PAGE>
CLAUSE FOUR. TERMS OF PAYMENT. The COMPANY shall pay to the CONTRACTOR the
amounts provided in the Third Clause hereof according to the provisions of the
financing contract subscribed to that effect within the following thirty (30)
days.
CLAUSE FIVE. DELIVERY TERM. The CONTRACTOR agrees to deliver all importation
equipment and elements according to schedules indicated in the Technical Annex
for each locality, provided payments according to the financing contract (above
clause) have been received.
CLAUSE SIX. EXTENSION OF THE DELIVERY TERM. Terms and other obligations
mentioned in this Contract shall be extended if a Force Majeure event occurs
(according to the definition included in the Civil Code of the Republic of
Colombia). The party claiming that a state of force majeure exists shall prove
to the other party such impossibility to perform its obligations. In these cases
the new terms and obligations shall be mutually agreed on. However, the party so
affected by the force majeure shall send to the other party notification of its
commencement in writing within three (3) days following the date in which it may
be possible. The extension of time herein anticipated shall be for as long as
the affected party is prevented from performing its obligations but no longer.
In the event a term is due during the occurrence of this force majeure, such
extension of time shall not be longer than the time from the date of its
commencement to the date its obligations should be performed.
CLAUSE SEVEN. MARKS AND PATENTS. The CONTRACTOR guarantees to the COMPANY the
usage of the marks or tradenames and patents for the equipment, materials and
elements it is obliged to supply. The CONTRACTOR shall defend at its own expense
any suit against the COMPANY by reason of the misuse of the marks or tradenames
and patents, and shall pay all fines and expenses derived thereto. If, as a
result of these actions, the COMPANY is legally or administratively compelled to
stop using one or more of the property herein mentioned, the CONTRACTOR must:
<PAGE>
(a) guarantee, as possible, payment for the damages to the third party claiming
infringement, in such way that the COMPANY may keep using the property on a
continuous basis. (b) if the above is not legally possible, the CONTRACTOR
should provide, within five (5) days following the order to stop using the
property/property, substitute property of similar characteristics or make
corrections to the property within the same period of five (5) days excluding
the infringement but with the same technical and performing characteristics. In
both cases the COMPANY shall be allowed to guarantee continuity in rendering the
Telecommunications public domiciliary service.
CLAUSE EIGHT. EXTENT OF THE TECHNICAL QUALITY WARRANTY. The equipment supplied
by the CONTRACTOR to the COMPANY shall be new and of the best quality and shall
be manufactured in a way that it may be resistant to the climate and
meteorological conditions of the places where it will be installed. In case of
failure, including branches, the CONTRACTOR shall exclusively respond as
follows: -all parts, discovered to be useless due to defective construction, or
materials deficiency, or defective manufacture within a period of eighteen (18)
months from the subscription date of each Act of Initial Receipt and initiation
of operations in each locality, will be supplied again or repaired, as the case
may be, free of charge, provided the maintenance done during the warranty period
is properly performed-. Presence of such defects shall be officially notified to
the CONTRACTOR within fifteen (15) days from the date that the leasees have
acknowledged these defects. Parts that are replaced under this provision shall
remain as the CONTRACTOR'S property. The warranty is not applicable to aging,
natural wear due to mechanic causes, or imperfection due to improper or
negligent use of the service elements, as well as defective works in buildings,
chemical and electrochemical influences resulting from natural causes for which
the CONTRACTOR is not responsible. Warranty of the equipment implies that it may
be repaired or replaced as many times as needed for its normal performance.
However, this obligation expires automatically after the period of eighteen
months from the subscription date of each Act of Initial Receipt and initiation
of operations in each locality. This quality warranty does not apply to existing
equipment that is not the subject of this Contract.
<PAGE>
CLAUSE NINE. WARRANTIES. CONTRACTOR shall constitute warranties in favor of the
COMPANY and its leasees. These warranties shall be issued by a Bank or an
Insurance Company legally authorized to operate in Colombia and will be based on
the value of the contract estimating the performance of obligations thereof, as
follows: (a) Compliance of this Contract including fines for 10% the value of
the Contract which shall be in effect during its term and three (3) months
thereafter. (b) 10% the value of the imported property hereby included for
quality and correct performance of the supplied property which will be in effect
for eighteen (18) months from the subscribing date of each act of initial
receipt and initiation of operations in each locality. The warranty referred to
in item a) shall be constituted and presented to the COMPANY and its leasees by
the CONTRACTOR together with a certificate of payment of the premium within five
(5) days following the subscribing date of this Contract. The warranty referred
to in item b) shall be constituted and presented to the COMPANY and the
corresponding leasee by the CONTRACTOR together with a certificate of payment of
the premium within five (5) days following the subscribing date of each act of
initial receipt and initiation of operations.
PARAGRAPH. The CONTRACTOR agrees to keep the policies in force during the term
of the obligations warranted by such policies and to extend the policies in the
event they are due until the agreed term. The COMPANY may demand, at any time,
in force certification of the policies.
CLAUSE TEN. WARRANTY REPLACEMENT. The CONTRACTOR accepts to replace the amount
of the warranty every time that, due to fines imposed to it, it may be decreased
or exhausted.
CLAUSE ELEVEN. FINES. The CONTRACTOR shall be bound to pay to the COMPANY, as a
fine or sanction for arrears, an amount equivalent to two per one thousand
(2 degrees/oo) the value of the supplies or property not delivered within the
agreed terms for each day in arrears. However, the amount of the imposed fines
shall not exceed ten percent (10%) of the total value of the Contract. In any
case, the CONTRACTOR
<PAGE>
shall not assume any ceasing profit, indirect and consequential damages, or
invoicing losses. Fines shall be imposed by written notification, duly supported
by the COMPANY or its leasees. The CONTRACTOR may answer within a period of five
(5) working days following the date this notification is received. The COMPANY
or its leasees shall answer to this within a period of five (5) working days. In
the event such fine is confirmed, and, if CONTRACTOR insists on its claims, the
Compromising Clause included in Clause Sixteen shall apply within a period of
five (5) days following such confirmation.
PARAGRAPH. Once the fine is confirmed, the COMPANY is authorized to withhold
its amount from the amount owed by the COMPANY to the CONTRACTOR, as well as
interests, for which the same rate included in the financing contract shall be
used, from the date the fine is imposed by the COMPANY.
CLAUSE TWELVE. TECHNOLOGICAL MODIFICATIONS. The parties hereto agree on a period
not greater than thirty (30) days following subscription of this Contract to
perform the annexes and adjustments that, due to technical reasons, are deemed
necessary in order to assure that the obligations hereby provided are
successfully performed.
CLAUSE THIRTEEN. DOMICILE AND APPLICABLE LAW. New York City is set to be the
contractual domicile for all legal effects. This contract shall be in all
respects governed by the laws of New York State and any claim shall be subject
to judges in such jurisdiction.
CLAUSE FOURTEEN. CONFIDENTIALITY. This agreement and all information supplied by
the COMPANY or its leasees to the CONTRACTOR with respect to the project, during
the term of negotiations, as well as information supplied during its execution
shall be held in trust and confidence, in the same way that it keeps its
commercial secrets and privileged information secret and confidential. Upon
termination of this Contract, the CONTRACTOR accepts to return to the COMPANY or
its leasees
<PAGE>
or destroy all information received and present a certificate signed by a
financial inspector stating that it indeed was destroyed.
CLAUSE FIFTEEN. SETTLEMENT OF DIFFERENCES. All differences which may arise
between the parties hereto out of or in relation to the subscription, execution,
interpretation or termination of this Contract shall be subject to the following
procedure: a) Once the difference is made known and within a period of ten (10)
days following this acknowledgement any of the parties hereto may request in
writing to the other party, within a period not greater than five (5) days from
the date of notification, a meeting with the legal representatives of the
parties hereto with the purpose to settle the differences. b) If the legal
representatives do not settle the difference within a period of twenty days (20)
thereafter, or their meeting is not set within the period of five (5) days
hereby mentioned, the difference shall be finally settled by arbitration in New
York State, pursuant to the Arbitration Rules of New York State, by which each
party shall be bound.
CLAUSE SIXTEEN. FUTURE PURCHASES AND PARTS. The CONTRACTOR guarantees to the
COMPANY the proper supply of accessory parts and materials required for
operation and maintenance of the property supplied for a period of ten (10)
years from the CIP date. The CONTRACTOR agrees to process future purchase orders
for equipment and software placed by the COMPANY or its leasees at the lowest
price between a) unit prices referred to in the Technical Annex hereof adjusted
according to the adjustment formula included in the Technical Annex, and b) the
list price in force as of the date of the purchase order. In witness whereof it
is signed in Panama, on June 11th, 1998.
GLOBAL TELECOMMUNICATIONS OPERATIONS, INC.
_______________________________
Felipe Garcia Echeverri
ATTORNEY-IN-FACT
SIEMENS AKTIENGESELLSCHAFT
REPRESENTED BY
SIEMENS SOCIEDAD ANONIMA
<PAGE>
___________________________________ ______________________________
HEINZ HABENICHT ORLANDO HERNANDEZ
Telecommunications Vice-president Attorney-in-fact
<PAGE>
EXHIBIT 10.19
GLOBAL TELECOMMUNICATIONS OPERATIONS, INC.
CONTRACT No. 4 - 1998
made by and between FELIPE GARCIA ECHEVERRI, of age, domiciled at Santafe de
Bogota, D.E., bearer of Passport No. 80409281, issued in Santafe de Bogota D.C.,
who acts as Attorney-in-fact according to special power of attorney granted by
GLOBAL TELECOMMUNICATIONS OPERATIONS, INC., (hereinafter referred to as the
"COMPANY") -on the one part-, and SIEMENS AKTIENGESELLSCHAFT, a corporation duly
organized and existing under the laws of the Federal Republic of Germany,
domiciled at Berlin and Munich, represented by SIEMENS SOCIEDAD ANONIMA, a
corporation registered in the Chamber of Commerce of Bogota under Registry No.
003.206, herein represented by Mr. HEINZ HABENICHT, of age, bearer of Foreigner
I.D. No. 92.236, who resides in Santafe de Bogota, and Mr. ORLANDO HERNANDEZ
CHAPARRO, of age, domiciled at Santafe de Bogota, bearer of Identification
Document No. 17.023.898, a corporation domiciled at Santafe de Bogota, which may
be verified with the Commercial Agency and Exclusive Representation Certificate,
issued by the Chamber of Commerce of Bogota (hereinafter referred to as
"CONTRACTOR"),
CLAUSE ONE. SUBJECT: The CONTRACTOR agrees to transfer, as a Purchase and Sale
transaction, the equipment to the COMPANY at the following destination: A)
PALMIRA. EWSD commutation equipment for 3,155 rural wireless telephone lines,
WLL wireless access equipment for 3,155 members, radio equipment for
interconnecting the main office to WLL base stations. B) BUGA. EWSD commutation
equipment for 3,155 rural wireless telephone lines, WLL wireless access
equipment for 3,155 members, radio equipment for interconnecting the main office
to WLL base stations. C) GIRARDOT. EWSD commutation equipment for 3,155 rural
wireless telephone lines, WLL wireless access equipment for 3,155 members, radio
equipment for interconnecting the main office to WLL base stations. D) CARTAGO.
EWSD commutation equipment for 3,155 rural
<PAGE>
wireless telephone lines, WLL wireless access equipment for 3,155 members, radio
equipment for interconnecting the main office to WLL base stations. All of the
above according to the Technical Annex.
CLAUSE TWO. DOCUMENTS OF THIS CONTRACT. The Technical Annex is an integral part
of this Contract. The following aspects are included in the Technical Annex: a)
General Summary of Prices, b) List of Materials, c) Delivery Schedule, d)
Graphics, e) Readjustment formula for future purchases and parts, f) Technical
specifications and characteristics of property and equipment, and the
CONTRACTOR's offer.
CLAUSE THREE. VALUE OF THE CONTRACT. The value of importation supplies (CIP),
included in the Technical Annex hereof is ELEVEN MILLIONS SEVENTEEN THOUSAND SIX
HUNDRED SEVENTY-EIGHT UNITED STATES AMERICAN DOLLARS AND 23 CENTS
(US$11,017,678.23), distributed as follows: A) TELEPALMIRA: TWO MILLIONS SIX
HUNDRED FIFTY-EIGHT THOUSAND NINE HUNDRED SEVENTEEN UNITED STATES AMERICAN
DOLLARS (US$2,658,917.00). B) BUGATEL: TWO MILLIONS SEVEN HUNDRED EIGHTY-NINE
THOUSAND FIFTY-SEVEN UNITED STATES AMERICAN DOLLARS AND 23 CENTS
(US$2,789,057.23). C) TELEFONOS DE CARTAGO: TWO MILLIONS SEVEN HUNDRED EIGHTY-
FIVE THOUSAND FIFTY-FOUR UNITED STATES AMERICAN DOLLARS (US$2,785,054.00). D)
EMPRESA DE TELECOMUNICACIONES DE GIRARDOT: TWO MILLIONS SEVEN HUNDRED EIGHTY-
FOUR THOUSAND SIX HUNDRED FIFTY UNITED STATES AMERICAN DOLLARS
(US$2,784,650.00).
PARAGRAPH 1: Insurance costs, local transportation, warehousing, customs agency
costs in Colombia for imported property (CIP) shall be on the COMPANY's account
or on its leasees. The COMPANY or its leasees shall assume and directly pay
customs duties, IVA and all other nationalization costs in Colombia. All direct
and indirect taxes, contributions and interests of any kind in effect as of the
subscribing date of this Contract
<PAGE>
and imposed thereof shall be on the CONTRACTOR'S account. Constitution of new
taxes or increment of existing rates shall be on the COMPANY'S account.
PARAGRAPH 2: If, due to delays in the terms agreed for delivering the contracted
equipment (CIP), for reasons attributable to the CONTRACTOR other than force
majeure or unexpected circumstances, any national tax, interest or contribution
is imposed, the CONTRACTOR shall assume such value resulting from this reason.
CLAUSE FOUR. TERMS OF PAYMENT. The COMPANY shall pay to the CONTRACTOR the
amounts provided in the Third Clause hereof according to the provisions of the
financing contract subscribed to that effect within the following thirty (30)
days.
CLAUSE FIVE. DELIVERY TERM. The CONTRACTOR agrees to deliver all importation
equipment and elements according to schedules indicated in the Technical Annex
for each locality, provided payments according to the financing contract (above
clause) have been received.
CLAUSE SIX. EXTENSION OF THE DELIVERY TERM. Terms and other obligations
mentioned in this Contract shall be extended if a Force Majeure event occurs
(according to the definition included in the Civil Code of the Republic of
Colombia). The party claiming that a state of force majeure exists shall prove
to the other party such impossibility to perform its obligations. In these cases
the new terms and obligations shall be mutually agreed on. However, the party so
affected by the force majeure shall send to the other party of its commencement
in writing within three (3) days following the date in which it may be possible.
The extension of time herein anticipated shall be for as long as the affected
party is prevented from performing its obligations but no longer. In the event a
term is due during the occurrence of this force majeure, such extension of time
shall not be longer than the time from the date of its commencement to the date
its obligations should be performed.
<PAGE>
CLAUSE SEVEN. MARKS AND PATENTS. The CONTRACTOR guarantees to the COMPANY the
usage of the marks or tradenames and patents for the equipment, materials and
elements it is obliged to supply. The CONTRACTOR shall defend at its own expense
any suit against the COMPANY by reason of the misuse of the marks or tradenames
and patents, and shall pay all fines and expenses derived thereto. If, as a
result of these actions, the COMPANY is legally or administratively compelled to
stop using one or more of the property herein mentioned, the CONTRACTOR must:
(a) guarantee, as possible, payment for the damages to the third party claiming
infringement, in such way that the COMPANY may keep using the property on a
continuous basis. (b) if the above is not legally possible, the CONTRACTOR
should provide, within five (5) days following the order to stop using the
property/property, substitute property of similar characteristics or make
corrections to the property within the same period of five (5) days excluding
the infringement but with the same technical and performing characteristics. In
both cases the COMPANY shall be allowed to guarantee continuity in rendering the
Telecommunications public domiciliary service.
CLAUSE EIGHT. EXTENT OF THE TECHNICAL QUALITY WARRANTY. The equipment supplied
by the CONTRACTOR to the COMPANY shall be new and of the best quality and shall
be manufactured in a way that it may be resistant to the climate and
meteorological conditions of the places where it will be installed. In case of
failure, including branches, the CONTRACTOR shall exclusively respond as
follows: -all parts, discovered to be useless due to defective construction,
or materials deficiency, or defective manufacture within a period of eighteen
(18) months from the subscription date of each Act of Initial Receipt and
initiation of operations in each locality, will be supplied again or repaired,
as the case may be, free of charge, provided the maintenance done during the
warranty period is properly performed-. Presence of such defects shall be
officially notified to the CONTRACTOR within fifteen (15) days from the date
that the leasees of the COMPANY have acknowledged these defects. Parts that are
replaced under this provision shall remain as the CONTRACTOR'S property. The
warranty is not applicable to aging, natural wear due to mechanic causes, or
imperfection due to improper or negligent use of the service elements, as well
as defective works in buildings,
<PAGE>
chemical and electrochemical influences resulting from natural causes for which
the CONTRACTOR is not responsible. Warranty of the equipment implies that it may
be repaired or replaced as many times as needed for its normal performance.
However, this obligation expires automatically after the period of eighteen (18)
months from the subscription date of each Act of Initial Receipt and initiation
of operations in each locality. This quality warranty does not apply to existing
equipment that is not the subject of this Contract.
CLAUSE NINE. WARRANTIES. CONTRACTOR shall constitute warranties in favor of the
COMPANY and its leasees. These warranties shall be issued by a Bank or an
Insurance Company legally authorized to operate in Colombia and will be based on
the value of the contract estimating the performance of obligations thereof, as
follows: (a) Compliance of this Contract including fines for 10% the value of
the Contract which shall be in effect during its term and three (3) months
thereafter. (b) 10% the value of the imported property hereby included for
quality and correct performance of the supplied property which will be in effect
for eighteen (18) months from the subscribing date of each act of initial
receipt and initiation of operations in each locality. The warranty referred to
in item a) shall be constituted and presented to the COMPANY and its leasees by
the CONTRACTOR together with a certificate of payment of the premium within five
(5) days following the subscribing date of this Contract. The warranty referred
to in item b) shall be constituted and presented to the COMPANY and the
corresponding leasee by the CONTRACTOR together with a certificate of payment of
the premium within five (5) days following the subscribing date of each act of
initial receipt and initiation of operations.
PARAGRAPH. The CONTRACTOR agrees to keep the policies in force during the term
of the obligations warranted by such policies and to extend the policies, in the
event they are due, until the agreed term. The COMPANY may demand, at any time,
in force certification of the policies.
<PAGE>
CLAUSE TEN. WARRANTY REPLACEMENT. The CONTRACTOR accepts to replace the amount
of the warranty every time that, due to fines imposed to it, it may be decreased
or exhausted.
CLAUSE ELEVEN. FINES. The CONTRACTOR shall be bound to pay to the COMPANY, as a
fine or sanction for arrears, an amount equivalent to two per one thousand
(2/oo) the value of the supplies or property not delivered within the agreed
terms for each day in arrears. However, the amount of the imposed fines shall
not exceed ten percent (10%) of the total value of the Contract. In any case,
the CONTRACTOR shall not assume any ceasing profit, indirect and consequential
damages, or invoicing losses. Fines shall be imposed by written notification,
duly supported by the COMPANY or its leasees. The CONTRACTOR may answer within a
period of five (5) working days following the date this notification is
received. The COMPANY or its leasees shall answer to this within a period of
five (5) working days. In the event such fine is confirmed, and, if CONTRACTOR
insists on its claims, the Compromising Clause included in Clause Sixteen shall
apply within a period of five (5) days following such confirmation.
PARAGRAPH. Once the fine is confirmed, the COMPANY is authorized to withhold
its amount from the amount owed by the COMPANY to the CONTRACTOR, as well as
interests, for which the same rate included in the financing contract shall be
used, from the date the fine is imposed by the COMPANY.
CLAUSE TWELVE. TECHNOLOGICAL MODIFICATIONS. The parties hereto agree on a period
not greater than thirty (30) days following subscription of this Contract to
perform the annexes and adjustments that, due to technical reasons, are deemed
necessary in order to assure that the obligations hereby provided are
successfully performed.
CLAUSE THIRTEEN. DOMICILE AND APPLICABLE LAW. New York City is set to be the
contractual domicile for all legal effects. This contract shall be in all
respects
<PAGE>
governed by the laws of New York State and any claim shall be subject to judges
in such jurisdiction.
CLAUSE FOURTEEN. CONFIDENTIALITY. This agreement and all information supplied by
the COMPANY or its leasees to the CONTRACTOR with respect to the project, during
the term of negotiations, as well as information supplied during its execution
shall be held in trust and confidence, in the same way that it keeps its
commercial secrets and privileged information secret and confidential. Upon
termination of this Contract, the CONTRACTOR accepts to return to the COMPANY or
its leasees or destroy all information received and present a certificate signed
by a financial inspector stating that it indeed was destroyed.
CLAUSE FIFTEEN. SETTLEMENT OF DIFFERENCES. All differences which may arise
between the parties hereto out of or in relation to the subscription, execution,
interpretation or termination of this Contract shall be subject to the following
procedure: a) Once the difference is made known and within a period of ten (10)
days following this acknowledgement any of the parties hereto may request in
writing to the other party, within a period not greater than five (5) days from
the date of notification, a meeting with the legal representatives of the
parties hereto with the purpose to settle the difference. b) If the legal
representatives do not settle the difference within a period of twenty days (20)
thereafter, or their meeting is not set within the period of five (5) days
hereby mentioned, the difference shall be finally settled by arbitration in New
York State, pursuant to the Arbitration Rules of New York State, by which each
party shall be bound.
CLAUSE SIXTEEN. FUTURE PURCHASES AND PARTS. The CONTRACTOR guarantees to the
COMPANY the proper supply of accessory parts and materials required for
operation and maintenance of the property supplied for a period of ten (10)
years from the CIP date. The CONTRACTOR agrees to process future purchase orders
for equipment and software placed by the COMPANY or its leasees at the lowest
price between a) unit prices referred to in the Technical Annex hereof adjusted
according to the adjustment formula included in the Technical Annex, and b) the
list price in force as of
<PAGE>
the date of the purchase order. In witness whereof it is signed in Panama, on
June 11th, 1998.
GLOBAL TELECOMMUNICATIONS OPERATIONS, INC.
________________________________
Felipe Garcia Echeverri
Attorney-in-fact
SIEMENS AKTIENGESELLSCHAFT
REPRESENTED BY
SIEMENS SOCIEDAD ANONIMA
___________________________________ ______________________________
HEINZ HABENICHT ORLANDO HERNANDEZ
Telecommunications Vice-president Attorney-in-fact
<PAGE>
EXHIBIT 10.20
SPECIAL ADMINISTRATIVE UNIT
NATIONAL TAX AND CUSTOMS DIRECTION
LOCAL TAX ADMINISTRATION OF CALI
RESOLUTION N/O/: 0001 DATE: Sept.10th, 1997
Which grants it a special time period for a long-term temporary importation.
The Local Tax Administration of Cali, using its faculties awarded by Decrees
2666 of 1984, 1909, 1693 of 1997, 1725 of 1997, and Resolution 408 of 1992, and
CONSIDERING:
1- That by document dated on September 9/th/, 1997 and received in this
Division on that same date, undersigned by JORGE ENRIQUE MARTINEZ OCAMPO,
legal representative for UNITEL S.A. E.S.P., requests the authorization for
a Long-term Temporary Importation of some goods in a time term longer than
five (5) years.
2- The request for a term longer than five (5) years is supported in the
eleventh (11) article of the financial leasing contract signed between
GLOBAL TELECOMMUNICATIONS OPERATIONS INC. (Lessor), and UNITEL S.A. E.S.P.
(Lessee), where there is an agreement for a twelve (12) year term.
3- UNITEL S.A. E.S.P., in developing its objective, that is, rendering the
public service of telecommunications, requires to import TRANSMITTING
DEVICES WITH INCORPORATED RECEIVING DEVICES FOR RADIO
<PAGE>
TELEPHONING into the country. Their purpose is to broaden this public
service in the city of Yumbo-Valle.
CONTINUATION OF RESOLUTION N/O/ 0001 DATE: 18 SEPT. 1997
RESOLUTION BY WHICH IT IS GRANTED A SPECIAL TIME TERM TO A LONG-TERM TEMPORARY
IMPORTATION
It is a Siemens equipment integrated by transmitting devices of radio
telephoning including a receiving device or a recording or reproducing sound
device. The commutation central for 20.000 lines for which the basic components
constitute a functional unit in compliance with section XVI of the customs
tariff with customs location 85.25.20.10.00.
LEGAL GROUNDS
1- Decree 1909/92, article 40 "The temporary imports shall be:
b) Long-term imports, when capital goods are involved, such as machines,
equipment, transportation material and its accessories, spares and parts
that are shipped in the same shipment. The maximum term for this import
shall be five (5) years.
The National Customs Direction will determine according to the standards
established within this article, the merchandise that may be imported
temporarily both for short and long-term.
PARAGRAPH: In special cases the National Customs Direction shall grant a longer
term than the maximum set by the above article, when the objective of the import
requires so... In these events, prior to submitting the import declaration, the
corresponding authorization shall be obtained."
1- Resolution 408 of 1992 article 9: "Authorization for longer time terms in
long-term imports. When long-term temporary imports are intended, with a
term longer than the five (5) year period stipulated in subsection b) of
article 40 of decree 1909/92, prior to submitting the declaration of
<PAGE>
temporary import, an authorization by the Customs Administration at the
import jurisdiction must be requested, along with the documents that support
the need for a longer term. Once the longer term has been authorized, and
the import declaration has been submitted prior to the picking of the
merchandise, there shall be a constituted guarantee that will cover the
termination of the transaction and the payment of the customs taxes."
1- Resolution 408 of 1992, article 6: It establishes a series of tariff
subparts of goods that may be the object of long-term temporary import,
within which are the capital goods that will be imported by the applicant.
2- Resolution 473 of 1992 3.4.3. Appendix 2: "In cases where a longer than a
five (5) year term has been granted, for the installment corresponding to
the tenth semester, Customs will require the payment of rights, taxes and
liens that have not yet been paid.
By virtue of the above and considering that UNITEL S.A. E.S.P. is a public
services firm that pursues a social goal in favor of the regional development,
and that has complied with the requirements of the law; the Southwestern Tax and
Customs Administration
DECIDES:
FIRST: to grant in favor of UNITEL S.A. Public Service Firm, with Nit
800.224.288-8, a twelve (12) year term to Temporarily Import the above mentioned
goods, counting from the date of the picking of such first import, and after the
prior compliance with all legal requirements, given that the payment of all of
the customs charges will have been made by the end of a five (5) year period.
SECOND: to acknowledge the legal representation of JORGE ENRIQUE MARTINEZ
OCAMPO, identified with document # 7.506.436 of Armenia as the legal
representative for UNITEL S.A. E.S.P.
<PAGE>
THIRD: to personally notify JORGE ENRIQUE MARTINEZ OCAMPO as legal
representative for UNITEL S.A. E.S.P. at his address Calle 5 # 5-18 Yumbo-Valle
according to article 44 and subsequent articles of the Contentious
Administrative Code.
FOURTH: against this ruling proceed the reposition motion before the Cali
Customs Administration, and the appeal before the Southwestern Regional Tax and
Customs Administration.
TO BE NOTIFIED
Issued in Santiago de Cali on the 18/th/ day of September, 1997
CRISTINA MARIA GUZMAN SINISTERRA
Customs Administrator for Cali (A)
Reviewed by: BETTY SAAVEDRA GARCIA
Foreign Trade Service Division
Manager
Planned by: ADOLFO JOSE CABRERA OVALLE
Policies Group Coordinator
<PAGE>
EXHIBIT 10.21
D.I.A.N.
NATIONAL TAX AND CUSTOMS DIRECTION
LOCAL CUSTOMS ADMINISTRATION OF CALI
RESOLUTION N/O/ 0003
DATE: 03 OCT 1997
BY WHICH RESOLUTION N/O/ 0007 OF AUGUST 30, 1996 IS MODIFIED
The Local Tax Administration of Cali, using its faculties awarded by Decrees
2666 of 1984, 1909, 1693 of 1997, 1725 of 1997, and Resolution 408 of 1992, and
CONSIDERING:
. That by Resolution # 007 of August 30 1996, the Southwestern Tax and
Customs Administration grants in favor of Teleyumbo E.S.P. a twelve (12)
year term for the temporary import of equipment contemplated in the Leasing
Contract celebrated with Global Telecommunications Operations Inc.
. By public document # 2323 of June 19 1997 issued by the Notary Public
Fourteen (14) of Cali, a change in the firm name was formalized from the
aforementioned Teleyumbo S.A. E.S.P. to UNITEL S.A. E.S.P., the latter
assuming all of the obligations of the first, including all obligations
derived from the International Leasing Contract.
. By document dated on September 19 1997 and registered under N/O/ 2844 on
the same date, JORGE ENRIQUE MARTINEZ OCAMPO acting as legal representative
for UNITEL S.A. E.S.P., requests the modification of Resolution # 007 of
August 30 1996, so that it is granted to UNITEL S.A. E.S.P., the
entitlement of extending the term for the Temporary Import of
<PAGE>
Telecommunications equipment, initially granted to the Telephone Company of
Yumbo "Teleyumbo S.A. E.S.P."
Continuation of Resolution # 0003 of Date: 03 OCT 1997
Which modifies Resolution # 0007 of August 30 1996
. Article 44 of Decree 1909 of 1992, states the possibility of substituting
the importer which would require the modification of the Declaration of
Import and the corresponding guarantee.
. In view of the above considerations, the Local Customs Administration of
Cali
DECIDES
FIRST: to modify Resolution # 0007 of August 30 1996, only in what relates to
the name of the importer, remaining the entitlement of rights and obligations
initially granted to Teleyumbo S.A. E.S.P., on UNITEL S.A. E.S.P. with Nit #
800.224.288-8.
SECOND: to inform whoever may be interested that for these purposes, he must
modify in this respect the declarations of import, as well as the guarantee
without in any way causing an extension of the term or modifying the installment
payment.
THIRD: to acknowledge the representation of JORGE ENRIQUE MARTINEZ OCAMPO
identified with document # 7.506.436 of Armenia (Q) as legal representative for
UNITEL S.A. E.S.P.
FOURTH: to personally notify JORGE ENRIQUE MARTINEZ OCAMPO as legal
representative for UNITEL S.A. E.S.P. at his address Calle 5 # 5-18 Yumbo-Valle
according to article 44 and subsequent articles of the Contentious
Administrative Code.
<PAGE>
FIFTH: against this ruling proceed the reposition motion before the Cali Customs
Administration, and the appeal before the Southwestern Regional Tax and Customs
Administration.
TO BE NOTIFIED
CRISTINA MARIA GUZMAN SINISTERRA
Customs Administrator for Cali (A)
Reviewed by: BETTY SAAVEDRA GARCIA
Foreign Trade Service Division
Manager
Planned by: ADOLFO JOSE CABRERA OVALLE
Policies Group Coordinator
<PAGE>
EXHIBIT 10.22
SPECIAL ADMINISTRATIVE UNIT
NATIONAL TAX AND CUSTOMS DIRECTION
SOUTHWESTERN TAX AND CUSTOMS ADMINISTRATION
RESOLUTION N/O/: 00007 DATE: Nov.20th, 1997
Which grants it a special time period for a long-term temporary importation.
The Local Tax Administration of Cali, using its faculties awarded by Decrees
2666 of 1984, 1909, 1693 of 1997, 1725 of 1997, and Resolution 408 of 1992, and
CONSIDERING:
1- That by document dated on November 13th, 1997 undersigned by JORGE ENRIQUE
MARTINEZ OCAMPO, identified with document # 7.506.436 of Armenia, acting as
assistant manager and legal representative for BUGATEL S.A. E.S.P.,
according to existence certificate and legal representation requests the
authorization for a Long-term Temporary Importation of some goods in a time
term longer than five (5) years.
2- The request for a term longer than five (5) years is supported in the
eleventh (11) article of the financial leasing contract signed between
GLOBAL TELECOMMUNICATIONS OPERATIONS INC. (Lessor), and BUGATEL S.A. E.S.P.
(Lessee), where there is an agreement for a twelve (12) year term.
3- The purpose of the firm BUGATEL S.A. E.S.P. is to act as a public services
firm dedicated to rendering services of public commuted telephoning.
<PAGE>
CONTINUATION OF RESOLUTION N/O/: 00007 DATE: Nov.20th, 1997
Which grants it a special time period for a long-term temporary importation.
4- The merchandise to be imported temporarily and for a long term consists of
electrical devices for wire telephoning, telephone central for seventeen
thousand nine hundred forty four (17.944) lines whose components constitute
a functional unit according to the provisions of Note 4- Section XVI of the
customs tariff. An automatic apparatus for telephone commutation carries
out its main function.
It must be noted that the tariff status of the equipment to be imported
temporarily is included in the listings of External Resolution 11 of 1996, by
the Superior Council of Foreign Trade, and Resolution 6517 of 1997 by the
National Tax and Customs Direction. Thus this equipment can be object of this
modality of import.
LEGAL GROUNDS
1- Decree 1909/92, article 40 "The temporary imports shall be:
b) Long-term imports, when capital goods are involved, such as machines,
equipment, transportation material and its accessories, spares and parts
that are shipped in the same shipment. The maximum term for this import
shall be five (5) years.
The National Customs Direction will determine according to the standards
established within this article, the merchandise that may be imported
temporarily both for short and long-term.
PARAGRAPH: In special cases the National Customs Direction shall grant a longer
term than the maximum set by the above article, when the objective of the import
requires so; additionally, a long-term temporary import of accessories, spares
and parts for these temporarily imported goods may be
<PAGE>
allowed. In these events, prior to submitting the import declaration, the
corresponding authorization shall be obtained."
1- Resolution 408 of 1992 article 9: "Authorization for longer time terms in
long-term imports. When long-term temporary imports are intended, with a
term longer than the five (5) year period stipulated in subsection b) of
article 40 of decree 1909/92, prior to submitting the declaration of
temporary import, an authorization by the Customs Administration at the
import jurisdiction must be requested, along with the documents that
support the need for a longer term. Once the longer term has been
authorized, and the import declaration has been submitted prior to the
picking of the merchandise, there shall be a constituted guarantee that
will cover the termination of the transaction and the payment of the
customs taxes."
2- Resolution 473 of 1992 3.4.3. Appendix 2: "In cases where a longer than a
five (5) year term has been granted, for the installment corresponding to
the tenth semester, Customs will require the payment of rights, taxes and
liens that have not yet been paid.
By virtue of the above and considering that BUGATEL S.A. E.S.P. is a public
services firm that pursues a social goal in favor of the regional development,
and that has complied with the requirements of the law; the Local Customs
Administration of Cali
DECIDES:
FIRST: to grant in favor of BUGATEL S.A. Public Service Firm, with Nit
815.000.973-8, a twelve (12) year term to Temporarily Import the above mentioned
goods, counting from the date of the picking of such first import, and after the
prior compliance with all legal requirements, given that the payment of all of
the customs charges will have been made by the end of a five (5) year period.
<PAGE>
SECOND: to acknowledge the legal representation of JORGE ENRIQUE MARTINEZ
OCAMPO, identified with document # 7.506.436 of Armenia as the legal
representative for BUGATEL S.A. E.S.P., according to certification issued by
the Chamber of Commerce of Buga on the 12/th/ November 1997.
THIRD: to personally notify JORGE ENRIQUE MARTINEZ OCAMPO as legal
representative for BUGATEL S.A. E.S.P. at his address Calle 5 # 5-18 Yumbo-
Valle according to article 44 and subsequent articles of the Contentious
Administrative Code.
FOURTH: against this ruling proceed the reposition motion before the officer
that issued it within five days after notice, and the appeal before the General
Director of DIAN.
TO BE NOTIFIED
Issued in Santiago de Cali on the 18/th/ day of September, 1997
CIELO MEJIA DE MAZZO
Local Customs Administrator for Cali
Reviewed by: BETTY SAAVEDRA GARCIA
Foreign Trade Service Division
Manager
Planned by: ORLANDO ARTEAGA G.
P.I.P. II 31-21
<PAGE>
EXHIBIT 10.23
SPECIAL ADMINISTRATIVE UNIT
NATIONAL TAX AND CUSTOMS DIRECTION
LOCAL TAX ADMINISTRATION OF CALI
RESOLUTION N/O/: 0007 DATE: Aug.30th, 1996
Which grants it a special time period for a long-term temporary importation.
The Southwestern Tax and Customs Administration, using its faculties granted by
Decrees 2666 of 1984, 1909, and 2117 of 1992, and resolution 408 of 1992, and
CONSIDERING:
1- That by document registered under N/O/ 014104 of August 16, undersigned by
JORGE ENRIQUE MARTINEZ OCAMPO, legal representative for the firm TELEPHONE
COMPANY OF YUMBO S.A. E.S.P. TELEYUMBO S.A. E.S.P. according to certificate
of existence and whose legal representation was issued by the Chamber of
Commerce of Cali, dated on July 5th 1996, requests the authorization for a
Long-term Temporary Import of a merchandise, for a time term longer than
five (5) years.
2- The justification for requesting the longer than five year term is based on
the eleventh clause of the INTERNATIONAL LEASING CONTRACT celebrated
between GLOBAL TELECOMMUNICATIONS OPERATIONS INC. and TELEYUMBO S.A.,
contract whose term is twelve (12) years, counting from the date of the
operation certifying act of such equipment contemplated in this contract.
<PAGE>
3- The purpose of the firm TELEYUMBO S.A. E.S.P. is to act as a public
services firm dedicated to rendering home service of commuted public
telephoning.
Continuation of Resolution 0007 Date: 30 AUG.1996
4- The merchandise to be imported temporarily and for a long term consists of
electrical devices for wireless telephoning, telephone central for five
thousand two hundred forty eight lines (5.248) whose components constitute a
functional unit according to the provisions of Note 4- Section XVI of the
customs tariff. An automatic apparatus for telephone commutation carries out
its main function, and it belongs to the tariff subpart 85.17.30.20.00.
It must be noted that the tariff status of the equipment to be imported
temporarily is included in the listings of Resolution N/O/ 3968 of 1995 by the
National Tax and Customs Direction, and External Resolution 7 of the Board of
Directors of the Bank of the Republic. Thus this equipment can be object of
this modality of import.
The above considerations are based on the following legal grounds:
1.- The articles 222 and 223 of Decree 2666 of 1984 modified by article 1 of
Decree 1740 of 1991, describe the type of merchandise that may be imported
temporarily for a term longer than six (6) months as well as the term for them
to remain. These articles match article 40 of Decree 1909 of 1992 where the
types of temporary import are mentioned, as follows:
a) For short-term imports....
b) For long-term imports, when capital goods are involved, such as machines,
equipment, transportation material and its accessories, spares and parts
that are shipped in the same shipment (the one underlined is mine), the
-------------------------------------
maximum term shall be five (5) years.
<PAGE>
The National Customs Direction will determine according to the standards
established within this article, the merchandise that may be imported
temporarily both for short and long-term.
PARAGRAPH: In special cases the National Customs Direction shall grant a longer
--------------------------------------------------------------------
term than the maximum set by the above article (the one underlined is mine),
- ----------------------------------------------
when the objective of the import requires so; additionally, a long-term
temporary import of accessories, spares and parts for these temporarily imported
goods may be allowed. In these events, prior to submitting the import
declaration, the corresponding authorization shall be obtained."
Resolution 408 of 1992, in its article 9 rules Decree 1909 of 1992 in what
concerns longer terms for long-term imports, which states:
Article 9: "Authorization for longer terms in long-term imports."
When long-term temporary imports are intended, with a term longer than the five
(5) year period stipulated in subsection b) of article 40 of decree 1909 of
1992, prior to submitting the declaration of temporary import, an authorization
by the Customs Administration at the import jurisdiction must be requested,
along with the documents that support the need for a longer term. Once the
longer term has been authorized, and the import declaration has been submitted
prior to the picking of the merchandise, there shall be a constituted guarantee
that will cover the termination of the transaction and the payment of the
customs taxes."
By virtue of the aforementioned and considering that TELEYUMBO S.A. E.S.P.
complies with all of the requirements of the law, the Southwestern Tax and
Customs Administration
DECIDES:
ARTICLE FIRST: to grant in favor of TELEYUMBO S.A. E.S.P., a twelve (12) year
term to temporarily import the goods described in this Administrative Act,
<PAGE>
counting from the date of the picking of such first import, and after the prior
compliance with all legal requirements applicable for long-term temporary
imports.
ARTICLE SECOND: to acknowledge the legal representation of JORGE ENRIQUE
MARTINEZ OCAMPO, identified with document # 7.506.436 of Armenia as the legal
representative for TELEYUMBO S.A. E.S.P., according to certification issued by
the Chamber of Commerce of Cali on July 5, 1996.
ARTICLE THIRD: to personally notify JORGE ENRIQUE MARTINEZ OCAMPO as legal
representative for TELEYUMBO S.A. E.S.P, according to article 44 and subsequent
articles of the Contentious Administrative Code.
ARTICLE FOURTH: against this ruling proceed the reposition motion before the
officer that issued it within five days after notice, and the appeal before the
General Director of Customs in the terms dictated by articles 316 to 319 of
Decree 1090 of 1984.
AUG.30.1996
CRISTINA MARIA GUZMAN SINISTERRA
Southwestern Tax and Customs, Administrator
Planned by: Orlando Arteaga G.
<PAGE>
EXHIBIT 10.24
SPECIAL ADMINISTRATIVE UNIT
NATIONAL TAX AND CUSTOMS DIRECTION
LOCAL TAX ADMINISTRATION OF CALI
RESOLUTION No: 0008 DATE: Aug.30th, 1996
Which grants it a special time period for a long-term temporary importation.
The Southwestern Tax and Customs Administration, using its faculties granted by
Decrees 2666 of 1984, 1909, and 2117 of 1992, and resolution 408 of 1992, and
CONSIDERING:
1- That by document registered under No 014103 of August 16, undersigned by
JOSE FERNANDO RAMIREZ MARIN, legal representative for the firm TELEPHONE
COMPANY OF PALMIRA S.A. E.S.P.- TELEPALMIRA S.A. E.S.P.- according to
certificate of existence and whose legal representation was issued by the
Chamber of Commerce of Cali, dated on July 5/th/ 1996, requests the
authorization for a Long-term Temporary Import of a merchandise, for a time
term longer than five (5) years.
2- The justification for requesting the longer than five year term is based on
the eleventh clause of the INTERNATIONAL LEASING CONTRACT celebrated
between GLOBAL TELECOMMUNICATIONS OPERATIONS INC. and TELEPALMIRA S.A.,
contract whose term is twelve (12) years, counting from the date of the
operation certifying act of such equipment contemplated in this contract.
<PAGE>
3- The purpose of the firm TELEPALMIRA S.A. E.S.P. is to act as a public
services firm dedicated to rendering home service of commuted public
telephoning.
4- The merchandise to be imported temporarily and for a long term consists of
electrical devices for wireless telephoning, telephone central for twenty
four thousand four hundred sixty eight lines (24.468) whose components
constitute a functional unit according to the provisions of Note 4- Section
XVI of the customs tariff. An automatic apparatus for telephone commutation
carries out its main function, and it belongs to the tariff subpart
85.17.30.20.00.
It must be noted that the tariff status of the equipment to be imported
temporarily is included in the listings of Resolution No 3968 of 1995 by the
National Tax and Customs Direction, and External Resolution 7 of the Board of
Directors of the Bank of the Republic. Thus this equipment can be subject to
this modality of import.
The above considerations are based on the following legal grounds:
1.- The articles 222 and 223 of Decree 2666 of 1984 modified by article 1 of
Decree 1740 of 1991, describe the type of merchandise that may be imported
temporarily for a term longer than six (6) months as well as the term for them
to remain. These articles match article 40 of Decree 1909 of 1992 where the
types of temporary import are mentioned, as follows:
a) For short-term imports....
b) For long-term imports, when capital goods are involved, such as machines,
equipment, transportation material and its accessories, spares and parts
that are shipped in the same shipment (the one underlined is mine), the
-------------------------------------
maximum term shall be five (5) years.
<PAGE>
The National Customs Direction will determine according to the standards
established within this article, the merchandise that may be imported
temporarily both for short and long-term.
PARAGRAPH: In special cases the National Customs Direction shall grant a longer
--------------------------------------------------------------------
term than the maximum set by the above article (the one underlined is mine),
- ----------------------------------------------
when the objective of the import requires so; additionally, a long-term
temporary import of accessories, spares and parts for these temporarily imported
goods may be allowed. In these events, prior to submitting the import
declaration, the corresponding authorization shall be obtained.
2- Resolution 408 of 1992, in its article 9 rules Decree 1909 of 1992 in what
concerns longer terms for long-term imports, which states:
Article 9: "Authorization for longer terms in long-term imports."
When long-term temporary imports are intended, with a term longer than the five
(5) year period stipulated in subsection b) of article 40 of decree 1909 of
1992, prior to submitting the declaration of temporary import, an authorization
by the Customs Administration at the import jurisdiction must be requested,
along with the documents that support the need for a longer term. Once the
longer term has been authorized, and the import declaration has been submitted
prior to the picking of the merchandise, there shall be a constituted guarantee
that will cover the termination of the transaction and the payment of the
customs taxes.
By virtue of the aforementioned and considering that TELEPALMIRA S.A. E.S.P.
complies with all of the requirements of the law, the Southwestern Tax and
Customs Administration
DECIDES:
ARTICLE FIRST: to grant in favor of TELEPALMIRA S.A. E.S.P., a twelve (12) year
term to temporarily import the goods described in this Administrative Act,
<PAGE>
counting from the date of the picking of such first import, and after the prior
compliance with all legal requirements applicable for long-term temporary
imports.
ARTICLE SECOND: to acknowledge the legal representation of JOSE FERNANDO
RAMIREZ MARIN, identified with document # 10.074.883 of Pereira as the legal
representative for TELEPALMIRA S.A. E.S.P., according to certification issued
by the Chamber of Commerce of Palmira on August 14, ....
ARTICLE THIRD: to personally notify JOSE FERNANDO RAMIREZ MARIN as legal
representative for TELEPALMIRA S.A. E.S.P, according to article 44 and
subsequent articles of the Contentious Administrative Code.
ARTICLE FOURTH: against this ruling proceed the reposition motion before the
officer that issued it within five days after notice, and the appeal before the
General Director of Customs in the terms dictated by articles 316 to 319 of
Decree 1090 of 1984.
AUG.30.1996
CRISTINA MARIA GUZMAN SINISTERRA
Southwestern Tax and Customs, Administrator
Planned by: Orlando Arteaga G.
<PAGE>
EXHIBIT 10.25
SPECIAL ADMINISTRATIVE UNIT
NATIONAL TAX AND CUSTOMS DIRECTION
LOCAL TAX ADMINISTRATION OF CALI
RESOLUTION No: 0009 DATE: Aug.30th, 1996
Which grants it a special time period for a long-term temporary importation.
The Southwestern Tax and Customs Administration, using its faculties granted by
Decrees 2666 of 1984, 1909, and 2117 of 1992, and resolution 408 of 1992, and
CONSIDERING:
1- That by document registered under No 014102 of August 16, undersigned by
GUILLERMO OSVALDO LOPEZ ESQUIVEL, legal representative for the firm
TELEPHONE COMPANY OF JAMUNDI S.A. E.S.P.- TELEJAMUNDI S.A. E.S.P.-
according to certificate of existence and whose legal representation was
issued by the Chamber of Commerce of Cali, dated on July 5th 1996, requests
the authorization for a Long-term Temporary Import of a merchandise, for a
time term longer than five (5) years.
2- The justification for requesting the longer than five year term is based on
the eleventh clause of the INTERNATIONAL LEASING CONTRACT celebrated
between GLOBAL TELECOMMUNICATIONS OPERATIONS INC. and TELEJAMUNDI S.A.,
contract whose term is twelve (12) years, counting from the date of the
operation certifying act of such equipment contemplated in this contract.
<PAGE>
3- The purpose of the firm TELEJAMUNDI S.A. E.S.P. is to act as a public
services firm dedicated to rendering home service of commuted public
telephoning.
4- The merchandise to be imported temporarily and for a long term consists of
electrical devices for wireless telephoning, telephone central for eleven
thousand lines (11.000) whose components constitute a functional unit
according to the provisions of Note 4- Section XVI of the customs tariff.
An automatic apparatus for telephone commutation carries out its main
function, and it belongs to the tariff subpart 85.17.30.20.00.
It must be noted that the tariff status of the equipment to be imported
temporarily is included in the listings of Resolution No 3968 of 1995 by the
National Tax and Customs Direction, and External Resolution 7 of the Board of
Directors of the Bank of the Republic. Thus this equipment can be subject to
this modality of import.
The above considerations are based on the following legal grounds:
1.- The articles 222 and 223 of Decree 2666 of 1984 modified by article 1 of
Decree 1740 of 1991, describe the type of merchandise that may be imported
temporarily for a term longer than six (6) months as well as the term for them
to remain. These articles match article 40 of Decree 1909 of 1992 where the
types of temporary import are mentioned, as follows:
a) For short-term imports....
b) For long-term imports, when capital goods are involved, such as machines,
equipment, transportation material and its accessories, spares and parts
that are shipped in the same shipment (the one underlined is mine), the
-------------------------------------
maximum term shall be five (5) years.
The National Customs Direction will determine according to the standards
established within this article, the merchandise that may be imported
temporarily both for short and long-term.
<PAGE>
PARAGRAPH: In special cases the National Customs Direction shall grant a longer
--------------------------------------------------------------------
term than the maximum set by the above article (the one underlined is mine),
- ----------------------------------------------
when the objective of the import requires so; additionally, a long-term
temporary import of accessories, spares and parts for these temporarily imported
goods may be allowed. In these events, prior to submitting the import
declaration, the corresponding authorization shall be obtained.
2- Resolution 408 of 1992, in its article 9 rules Decree 1909 of 1992 in what
concerns longer terms for long-term imports, which states:
Article 9: "Authorization for longer terms in long-term imports."
When long-term temporary imports are intended, with a term longer than the five
(5) year period stipulated in subsection b) of article 40 of decree 1909 of
1992, prior to submitting the declaration of temporary import, an authorization
by the Customs Administration at the import jurisdiction must be requested,
along with the documents that support the need for a longer term. Once the
longer term has been authorized, and the import declaration has been submitted
prior to the picking of the merchandise, there shall be a constituted guarantee
that will cover the termination of the transaction and the payment of the
customs taxes.
By virtue of the aforementioned and considering that TELEJAMUNDI S.A. E.S.P.
complies with all of the requirements of the law, the Southwestern Tax and
Customs Administration
DECIDES:
ARTICLE FIRST: to grant in favor of TELEJAMUNDI S.A. E.S.P., a twelve (12) year
term to temporarily import the goods described in this Administrative Act,
counting from the date of the picking of such first import, and after the prior
compliance with all legal requirements applicable for long-term temporary
imports.
<PAGE>
ARTICLE SECOND: to acknowledge the legal representation of GUILLERMO OSVALDO
LOPEZ ESQUIVEL, identified with document # 16.614.481 of Cali as the legal
representative for TELEJAMUNDI S.A. E.S.P., according to certification issued
by the Chamber of Commerce of Cali on July 6, 1996.
ARTICLE THIRD: to personally notify of GUILLERMO OSVALDO LOPEZ ESQUIVEL as
legal representative for TELEJAMUNDI S.A. E.S.P, according to article 44 and
subsequent articles of the Contentious Administrative Code.
ARTICLE FOURTH: against this ruling proceed the reposition motion before the
officer that issued it within five days after notice, and the appeal before the
General Director of Customs in the terms dictated by articles 316 to 319 of
Decree 1090 of 1984.
AUG.30.1996
CRISTINA MARIA GUZMAN SINISTERRA
Southwestern Tax and Customs, Administrator
Planned by: Orlando Arteaga G.
<PAGE>
EXHIBIT 10.26
SPECIAL ADMINISTRATIVE UNIT
NATIONAL TAX AND CUSTOMS DIRECTION
SOUTHWESTERN TAX AND CUSTOMS ADMINISTRATION
RESOLUTION No: 000005 DATE: Oct.23rd, 1997
Which grants it a special time period for a long-term temporary importation.
The Local Tax Administration of Cali, using its faculties awarded by Decrees
2666 of 1984, 1909, 1693 of 1997, 1725 of 1997, and Resolution 408 of 1992, and
CONSIDERING:
1- That by document dated on October 17/th/, 1997 undersigned by JORGE ENRIQUE
MARTINEZ OCAMPO, identified with document # 7.506.436 of Armenia, acting as
assistant manager and legal representative for TELECARTAGO S.A. E.S.P.,
according to existence certificate and legal representation requests the
authorization for a Long-term Temporary Importation of some goods in a time
term longer than five (5) years.
2- The request for a term longer than five (5) years is supported in the
eleventh (11) article of the financial leasing contract signed between
GLOBAL TELECOMMUNICATIONS OPERATIONS INC. (Lessor), and TELECARTAGO S.A.
E.S.P. (Lessee), where there is an agreement for a twelve (12) year term.
3- The purpose of the firm TELECARTAGO S.A. E.S.P. is to act as a public
services firm dedicated to rendering services of public commuted
telephoning.
<PAGE>
4- The merchandise to be imported temporarily and for a long term consists of
electrical devices for wire telephoning, telephone central for seventeen
thousand eight (17.008) lines whose components constitute a functional unit
according to the provisions of Note 4- Section XVI of the customs tariff.
An automatic apparatus for telephone commutation carries out its main
function, and it belongs to the tariff subpart 85.17.30.20.00.
CONTINUATION OF RESOLUTION No: 000005 DATE: Oct.23rd, 1997
Which grants it a special time period for a long-term temporary importation.
It must be noted that the tariff status of the equipment to be imported
temporarily is included in the listings of External Resolution 11 of 1996, by
the Superior Council of Foreign Trade, and Resolution 6517 of 1997 by the
National Tax and Customs Direction. Thus this equipment can be object of this
modality of import.
LEGAL GROUNDS
1- Decree 1909/92, article 40 "The temporary imports shall be:
b) Long-term imports, when capital goods are involved, such as machines,
equipment, transportation material and its accessories, spares and parts
that are shipped in the same shipment. The maximum term for this import
shall be five (5) years.
The National Customs Direction will determine according to the standards
established within this article, the merchandise that may be imported
temporarily both for short and long-term.
<PAGE>
PARAGRAPH: In special cases the National Customs Direction shall grant a longer
term than the maximum set by the above article, when the objective of the import
requires so; additionally, a long-term temporary import of accessories, spares
and parts for these temporarily imported goods may be allowed. In these events,
prior to submitting the import declaration, the corresponding authorization
shall be obtained."
1- Resolution 408 of 1992 article 9: "Authorization for longer time terms in
long-term imports. - When long-term temporary imports are intended, with a
term longer than the five (5) year period stipulated in subsection b) of
article 40 of decree 1909/92, prior to submitting the declaration of
temporary import, an authorization by the Customs Administration at the
import jurisdiction must be requested, along with the documents that
support the need for a longer term. Once the longer term has been
authorized, and the import declaration has been submitted prior to the
picking of the merchandise, there shall be a constituted guarantee that
will cover the termination of the transaction and the payment of the
customs taxes."
2- Resolution 473 of 1992 - 3.4.3. Appendix 2: "In cases where a longer than a
five (5) year term has been granted, for the installment corresponding to
the tenth semester, Customs will require the payment of rights, taxes and
liens that have not yet been paid.
By virtue of the above and considering that TELECARTAGO S.A. E.S.P. is a public
services firm that pursues a social goal in favor of the regional development,
and that has complied with the requirements of the law; the Southwestern Tax and
Customs Administration
DECIDES:
FIRST: to grant in favor of TELECARTAGO S.A. Public Service Firm, with Nit
836.000.009-1, a twelve (12) year term to Temporarily Import the above mentioned
goods, counting from the date of the picking of such first import, and after the
prior compliance with all legal requirements, given that the payment of
<PAGE>
all of the customs charges will have been made by the end of a five (5) year
period.
SECOND: to acknowledge the legal representation of JORGE ENRIQUE MARTINEZ
OCAMPO, identified with document # 7.506.436 of Armenia as the legal
representative for TELECARTAGO S.A. E.S.P., according to certification issued
by the Chamber of Commerce of Cartago on the 16th October 1996.
THIRD: to personally notify JORGE ENRIQUE MARTINEZ OCAMPO as legal
representative for TELECARTAGO S.A. E.S.P. according to article 44 and
subsequent articles of the Contentious Administrative Code.
FOURTH: against this ruling proceed the reposition motion before the officer
that issued it within five days after notice, and the appeal before the General
Director of DIAN.
TO BE NOTIFIED
Issued in Santiago de Cali on the 23rd day of October 1997
CIELO MEJIA DE MAZZO
Local Customs Administrator for Cali
Reviewed by: BETTY SAAVEDRA GARCIA
Foreign Trade Service Division
Manager
Planned by: ORLANDO ARTEAGA G.
P.I.P. II 31-21
<PAGE>
Exhibit 10.27
SUPPLEMENT FOR PAYMENT IN INSTALLMENTS
ORDERS AS PER ON SHORE OPERATION
These terms complete and amend those contained in the Contract "As per on Shore
Operation"
CONDITIONS
The following financial conditions shall be applied to the Products included in
the referred orders and they shall comply with this Supplement.
Total Price of the Products US$ 427.491.00
a.) Down payment US$-0-
b.) Balance to be financed US$ 427.491.00
Term for Installments Monthly payments
Value of Periodical Installments 6-US$7.340; 12-US$8.300:
12-US$9.600: 12-US$10.900:
and 12-US$11.819.
Number of Periodical Installments 60 Installments including
6 month grace term.
<PAGE>
TRANSTEL S. A. herein agrees to pay the net mentioned amounts as follows:
Down Payment, IVA (Added Value Tax) and related taxes, shall be paid against
submission of the corresponding invoice. The Balance to be Financed shall be
paid in the indicated amount of installments, as above stated, which shall
start on the corresponding date on which the physical delivery of products
regulated by this supplement is made to TRANSTEL, S. A. The subsequent pending
installments shall be paid when due date is effective, after the first
installment. The values corresponding to the down payment, IVA, and pending
installments shall be readjusted at the Market Representative Exchange Rate
published by the Superintendencia Bancaria (or an institution which may play its
role), corresponding to the last business day before payment is due. In the
event of a late payment in any installment, TRANSTEL, S. A. shall pay IBM the
late payment interest rates corresponding to the maximum legal rate valid at the
time of such late payment.
IBM herein authorizes cession on behalf of TRANSTEL, S. A. to his affiliate
CAUCATEL S. A. E.S.P. of machines, licenses, replacements and additions which
are a part of this Contract except what corresponds to financial duties on
behalf of TRANSTEL, S. A. with respect to IBM Colombia which shall continue
being the
<PAGE>
responsibility of TRANSTEL S. A. and herein agrees to pay in its total amount
according to agreements made herein.
CHARGES ON ANTICIPATED TERMINATION
In the event that TRANSTEL, S. A. may decide to terminate this Supplement in
advance, or in the event that IBM may decide to terminate it due to non
compliance on their duties herein by TRANSTEL, S. A.. Then the breaching party
shall pay IBM the amount of all installments pending payment in order to
terminate this Supplement.
PAYMENT WARRANTY
TRANSTEL, S. A. herein agrees to sign additionally to this Supplement a
Promisory Note in Blank, which shall be made effective in the case of non
compliance of any of TRANSTEL, S. A. conditions agreed upon herein.
By signing this Supplement, TRANSTEL, S. A. herein agrees upon having received
and read the Sales Contrate No. AS PER ON SHORE OPERATION, and acknowledges its
agreement to the clauses contained therein, and all its applicables
<PAGE>
Attachments, and in this Supplement, which are a part of this Contract and voids
any other previous communication between the parties with respect to this
Supplement.
Accepted by Accepted by
TRANSTEL, S. A. IBM DE COLOMBIA, S. A.
Authorized Signature Authorized Signature
Jorge E. Martinez Alfredo Cruz
Financial Vice President Telecommunications Manager
Fecha: October 28, 1997 October 31, 1997
<PAGE>
PROPOSAL FOR AN INTEGRAL SOLUTION
FOR VOICE MAIL AND SAT. SERVER
TRANSTEL (POPAYAN) DELIVERABLES.
Elements Hired by TRANSTEL
Negotiation On Shore
Description Amount
Hardware and Software
Server in Voice Recognition
PC Server 325, Premium Pro 200Mhz, 1 $ 8.011
32 MB RAM, 2.25gbytes, Ultra SCSI,
Ethernet R.145, 6 grooves exp. VGA
Screen, Mouse, keyboard.
Network Station
Power Pc Processor 8MB memory expandible to 2 $ 2.222
64 MB Token ring, keyboard, mouse and support
for industry monitors. All applications and data
reside on servers. R/6000 requires updating PTF
for color monitor SVGA 14 (inches) 0.28 mm 2 $ 741
SST Engine 1 $ 19.354
Engine Back up 1 $ 19.354
Software RISC/6000
AIX MSP/6000 1 $ 76.617
SS7 ITU-ISUP Software 2 $ 38.308
<PAGE>
Voice Recognition Ultimate RECO/8000 (Puertos) 16 $ 75.616
Windows NT 1 $ 1.277
SUMMA FOUR
Extended Services for one year 1 $ 11.210
IBM Training
MSP Training Internet (Training on the job)
Audioresponse training (Training on the job)
Training TRANSTEL 1 $ 8.065
Training Bond 1 $ 8.065
Physical Fitness
Electrical Installations (UPS not included)
nor 48 feeding. 1 $ 5.068
Networking Services $ 1.548
Integration systems services $111.108
Services included in Summa Four (uplift) $ 8.414
Difference found (Services) $ 32.503
Total ON SHORE $427.491
<PAGE>
EXHIBIT 12.1
TRANSTEL S.A.
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
(Amounts in thousands of pesos of December 31, 1997, except ratios)
<TABLE>
<CAPTION>
COLOMBIAN GAAP U.S. GAAP
----------------------------------- ----------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
----------------------------------- ----------------------------------
1995 1996 1997 1995 1996 1997
--------- --------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Income (loss) before income taxes and
after minority interest.................. 773,561 2,762,994 (1) 2,252,510 (3,393,018) (3,644,340) (4,271,094)
Minority interest in the income (loss)
of subsidiaries with fixed charges....... 514,901 2,671,183 (1) 4,114,548 (27,246) (1,521,175) 5,080,692
--------- --------- ---------- ---------- ---------- ----------
1,288,462 5,398,177 6,367,058 (3,420,444) (5,165,515) 809,598
--------- --------- ---------- ---------- ---------- ----------
Interest expense.......................... 284,987 1,945,302 8,133,026 1,623,377 8,473,913 16,495,100
Appropriate portion of rentals
representative of interest............... 13,898 369,049 511,676 10,925 91,478 158,372
Amortization of debt issuance costs....... -- -- 286,440 -- -- 286,440
Amortization of capitalized or deferred
interest................................. -- 212,180 1,315,395 -- 8,946 46,214
--------- --------- ---------- ---------- ---------- ----------
298,885 2,526,530 10,246,537 1,634,302 8,574,337 16,986,126
--------- --------- ---------- ---------- ---------- ----------
Earnings (loss) before income taxes,
minority interest and fixed charges...... 1,587,347 7,924,707 16,613,595 (1,786,142) 3,408,822 17,795,724
========= ========= ========== ========== ========== ==========
Fixed charges:
Interest expense........................ 284,987 1,945,302 8,133,026 1,623,377 8,473,913 16,495,100
Increase in capitalization of interest.. 1,300,423 6,292,317 9,065,827 4,076 264,383 1,053,477
Amortization of debt issuance costs..... -- -- 286,440 -- -- 286,440
Appropriate portion of rentals
representative of interest............. 13,898 369,049 511,676 10,925 91,478 158,372
--------- --------- ---------- ---------- ---------- ----------
Total fixed charges..................... 1,599,308 8,606,668 17,996,969 1,638,378 8,829,774 17,993,389
========= ========= ========== ========== ========== ==========
Excess (deficiency) of earnings to fixed
charges.................................. (11,960) (681,960) (1,383,374) (3,424,520) (5,420,952) (197,665)
========= ========= ========== ========== ========== ==========
Ratio of earnings to fixed charges........ 0.99 0.92 0.92 (1.09) 0.39 0.99
========= ========= ========== ========== ========== ==========
</TABLE>
FOOTNOTE:
(1) Amounts are before effects of change in accounting for depreciation of
Ps940,841 and minority interest effect of Ps376,336.
<PAGE>
Exhibit 21.1
LIST OF SUBSIDIARIES OF TRANSTEL S.A.
-------------------------------------
Empresa de Telefonos de Palmira S.A. E.S.P.
Telefonos de Cartago S.A. E.S.P.
Caucatel S.A. E.S.P.
Empresa de Telefonos de Jamundi S.A. E.S.P.
Bugatel S.A. E.S.P.
Unitel S.A. E.S.P.
Empresa de Telecomunicaciones de Girardot S.A. E.S.P.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form F-4 of our report dated January 30, 1998 relating
to the consolidated financial statements of Transtel S.A., which appears in such
Prospectus. We also consent to the references to us under the headings "Experts"
and "Selected Financial and Other Data" in such Prospectus. However, it should
be noted that Price Waterhouse has not prepared or certified such "Selected
Financial and Other Data".
/s/ PRICE WATERHOUSE
Cali, Colombia
September 3, 1998
